Authored By: Akul Mishra
Date of Judgement: 22nd October 2021
Bench: Hon’ble Justice D.Y. Chandrachud, Justice Vikram Nath, and Justice B.V. Nagarathna
Court: Hon’ble Supreme Court Of India
Citation: Civil Appeal No 6107/6108 of 2021 (Arising from SLP(C) No. 22577 of 2015)
Introduction
The Supreme Court in the matter of Jalkal Vibhag Nagar Nigham v/s Pradeshya Industrial and Investment Corporation has held that the nomenclature attribute to the tax is not of any relation to its nature or character. The label of the tax chosen will not clarify the nature of the levy. The Bench has held the validity of Sections 52 (1)(a), Section 55(b)(1), and Section 56 of the UP-Water Supply and Sewerage Act and has held that the levy imposed under the Section 52 is not a fee but a tax which falls under the provision of Entry 49 of List II (Taxes on Land and Buildings…). The Supreme Court has further defined and differentiated between levies and taxes and has held that “ The levy of the tax does not depend upon the actual consumption of water by the owner or occupier upon whom the tax is levied” in the jurisdiction of the Jal Sansthan[1] and certain conditions should be followed.
Facts Of The Case:
The facts of the case commenced with a judgement dated March 7th, 2014 where the division bench at the High Court of Allahabad allowed a petition by the first respondent under Article 226 of the Constitution (Power Of High Courts To Issue Writs..) and induced that the levy charged by the appellant was opposite to law and allowed refund of all the water and sewerage levies and taxes collected under the UP Water Supply and Sewerage Act, 1975 and deduced from the case of Union of India (U.O.I.) v/s State of U.P. and others[2]. The first respondent had constructed a building in Gomti Nagar, Lucknow under the company U.P. Rajkiya Nirman Nigam Ltd and the same finished in 1991 with a change in ownership on 31 May 1991 with the building being renamed as PICUP Bhawan. The appellants had raised a bill no. 12/26 on 5th January 1995 seeking an amount of 46,63,12.50/- as water tax for the duration of October 1986 to March 1995. The respondent had replied with a letter dated 25th January 1995 seeking important details about the tax including whether the water-stations or standpoints were present in the area of the building, the distance between both, and a file for the copy of the notification defining the radius of water tax through facilities under Section 55(b)(i) of the UP Water Supply and Sewerage Act and as a reply the bill was drafted again to raise a demand of 16,45,875/- in terms of Section 52(1).
After a further application for clarifications which were cleared, the amount was reiterated. The Respondent had made deposits of 3,46,500/- and 9,41,942.77/- and consequently, a writ petition was filed in the High Court Of Allahabad (Lucknow bench) challenging the levies as there was no facilities or water provided and challenged the validity of Section 52(a), 55(b)(i) and 56(b) of the UP Water Supply and Sewerage Act as they were clashing against Article 265(Taxes not to be imposed save the authority of law) of the Constitution. The High Court Judgement on 7th August 2015 allowed the writ petition and granted the refund.
Issues Raised:
1) Whether the taxes levied were fair and under the jurisdiction of the UP Water and Sewages Act, 1975.
2) Whether The State has legislation to levy these taxes.
3) The constitutional validity of Sections 52(a),55(b)(i), and 56(b) of the UP Water and Sewage Act 1975 concerning Article 265.
Arguments Raised :
Contentions By The Respondent:
1) Ms. Madhavi Divan, Additional Solicitor General of Inia on behalf of the first respondent has stated that the first respondent is ready to pay the sewerage charges but is against the water tax being charged. She has also questioned the constitutional validity of Section 52(1)(a), Section 55(d)(a), and Section 56(b) of the UP Water Supply and Sewerage Act.
2) The challenge to the water tax has been backed up by the fact that the levy charged under Section 52(1)(a) is a fee and not a tax and is not under entry list 49 of List II of the Seventh Schedule of the Constitution.
3) The nature of the levy has to be understood from the primary object and character of the legislation , Section 52(a) only considers the distance limit from the Jal Sansthan, however, regarding the whole provision, the levy will not come under the entry list.
4) Section 56 defines the distinction if the premises is connected with the water supply or not and a distinction between the owner and occupier as made by the stature will clash against Entry List 49.
5) In conclusion, the name as used by the legislation is ‘water tax’ under Section 52(1)(a) but the same is a fee and not a tax, and the nomenclature used is different from the actual levy which is based on water supply or payment of water used itself.
Contentions By The Appellant:
1) Senior Counsel Pradeep Kant on behalf of the appellant has constructed the stature of the UP Water and Sewerage Act which contains provisions for establishment, functions, and powers of the Jal Sansthan under Chapter II and III, assets, liabilities, and employees transfer under chapter VI, water supplies under chapter VII and VII and penalties under chapter IX to XI and thus the legislation under Section 52(a) covers levy, imposition for water and sewerage tax which is true for the present factual context.
2) The decision of this court in the case of Union Of India V. State Of U.P. and others do not give the right induced interpretation as in the case, the Railways had raised the levied charge on the basis that the Jal Sansthan was levying a tax violative of Article 285 of the Constitution and the same was rejected by stating the levy was a service charge termed as a fee and was not a tax which is different from the present factual context where the water tax does come under Section 52(a) of the Act.
3) Opposing the submissions of the constitutional validity of Section 52(a), the senior counsel stated that there was a wrong interpretation of the Bench in the case of Union Of India v. State Of U.P. and others where the conclusion was made like a service fee and not a tax, and such was concluded to not be attributed to the exemptions provided in Article 285.
4) The levy of the tax under Section 52(1)(a) is defined with the area or distance of the Jal Sansthan. Thus, the word premises means land or buildings which comes under Entry 49 of List II, and thus, even though the tax is named as ‘Water Tax’, it could be levied on buildings or land within the same mentioned entry list.
5) The tax in itself is not a tax on water but a tax on land and buildings, which is a measurable quantity. The tax is a percentage of the assessable value and must be noticed and paid by both the owner and the occupier. The rate and incidence of the tax are different from the nature of the levy and such has been relied on judgements in the cases Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur[3] and Nizam Sugar Factory Ltd. v. City Municipality, Bodhan[4].
Analysis By The Court:
The court analyzed the statutory provisions under all chapters of the UP Water and Sewage Act, 1975 where they carefully analyzed every chapter of the Act. The characterizations of a tax have been decided repeatedly by the court especially in the case of Govind Saran Ganga Saran v. CST[5] and Commissioner of Income Tax (Central)- I, New Delhi v. Vatika Township Private Limited[6] where it was held that the components of a tax should be clear and defined as well as the rate of tax should be an important part of the tax regime. In Section 52, the tax imposed by the Jal Sansthan is defined to be within its ‘premises’ which is defined under Section 2(18) as Land or Buildings which interprets that the levy charged is solely on Land or Buildings within a considered distance of the Jal Sansthan. The levy charged under 52(a) is not a fee but a tax for the Jal Sansthan to continue its activities and operations to continue providing water. In clause (vi) under sub-section (2), the collection of taxes for operational services is provided and the same raising of the revenue is like tax under Section 52(1)(a). Section 56 of the Act has clearly stated the premises are land and buildings under the area of the Jal Sansthan unless the exception under Section 55 is matched in the context. Sections 52 and 56 have also mentioned that the legislation will collect the levied tax from the occupier of the building if there is a connection with the Jal Sansthan sewerage or from the owner of the building if there is no such connection. Thus, it is induced and concluded that that the payment of the water or sewerage tax is valid if there is a connection or not, covered under Section 56. It is concluded that as long as there is a provision for water or sewerage facilities in the area, the owner or occupier is liable to pay the taxes.
The court has also noted how broad the provisions under Section 63 are on recovery of a fee related to a service, the fee can be recovered by several bye-laws as provided which include disconnection, or any other purpose. The court has also deduced that the nomenclature of the levy does not explain or define the nature of the levy charged. The label chosen by the legislation does not define the charge and thus, it must be deduced from the nature and provision given which would be the unit by which the levy is imposed, by Section 52. The court further confirmed that the tax is labeled as a water tax solely due to the reason that it was imposed by the Jal Sansthan but this does not change the fact that the same tax is levied on buildings and land under Entry 49 of List II of the Seventh Schedule. The court also quoted many cases concerning the definitions of Entry 49 of List II including judgements in the cases of V Pattabhiraman v. The Assistant Commissioner of Urban Land Tax, North Madras (North West) Ayanavaram[7]where the Madras High Court held that the Madras Urban Land Tax, 1966 to be within the same entry list and in the case of Ajoy Kumar Mukherjee v. Local Board of Barpeta[8] where the constitutional bench held the validity of a tax imposed upon lands for holding markets created under the Assam Local Self Government Act, 1953. The court also considered the cases Union of India v. HS Dhillon[9] where it was held that the parliament did not have the legislative powers to amend the Wealth Tax Act 1957 and such was different from the Entry 49 List II as taxes under the Entry were on the property and not a personal tax.
The court also considered the cases relied on by the appellant where the High Courts have held that the tax even though named as a water tax, is imposed on land and buildings under Entry 49. The court has therefore deduced that there is no doubt that the tax is imposed on land and buildings within the area of the Jal Sansthan. The water and sewerage tax is levied to finance the operations of the Jal Sansthan and the collection depends on the providence of water to the area covered and not onto the premises itself. The court also does not find any merit in the submission of the respondent, where the fee is levied on the supply of water and such cannot be charged when there is no supply. The Court also finds that the difference between tax and fee can be voluntary or involuntary in both and the element of service may not be absent in imposition of a tax. The levy of the tax is held as long as the Jal Sansthan is providing facilities in the area within a considerable radius of the premises and within such, water is made available to the public. The proceeds of the tax thus help the maintenance of the facilities and Thus, the levy is not charged on the amount of water consumed or cost of water supplied defined under Section 59 but as a fixed sum defined under Section 52 and thus is a compulsory exaction under the same section. Thus, the levy is a tax and not a fee and a tax on land and buildings under Entry 49 of List II.
The Court also addressed the High Court’s decision and the induce judgement from the case of Union of India v. State of U.P. and others. The levy in the case was challenged because Railways are the property of the Central Government for which service charges are not payable under Article 285. The Jal Sansthan had provided water for the railways in use for a variety of functions and the writ petition was dismissed. The Jal Sansthan contended that the water and sewerage taxes were rather a fee for services while the Union Of India contended the levy of the charge was in nature of a tax hence contending Article 285. The observations by the Bench had made it definitive that it was a charge rendered by the Jal Sansthan on service provided and only taxes on the property of Union Of India is prohibited by Article 285 and services charged are not considered the same factually. The court however found an error in the observations stating that the present facts termed the charge as a fee and not a tax under Section 52. Section 52 provides for taxes and not for fees or charges which are solely mentioned in chapter VI. The provisions of the stature were incorrectly read as the ley was broadly classified as a tax yet was a fee in individuality. There is a defined difference between levied taxes and fees and Section 52 is solely based on taxes charged. Thus, the decision, in this case, has been overruled.
Judgement:
The Court has concluded that there is no evidence in the constitutional challenge to the validity of Sections 52 (1)(a), Section 55(b)(1), and Section 56 of the UP Water Supply and Sewerage Act. The appeal shall be allowed and the judgement by the Lucknow bench of The Allahabad High Court dated on 7th March 2014 will be set aside. The writ petition by the first respondent will be dismissed and the appellants are entitled to recover the remaining balance of the amount with the notice of the charges levied and such will be charged at an interest of 9 percent per annum. There will be no order to costs and pending applications shall be disposed of.
REFERENCES:
1)Reportable, Supreme Court Of India, Civil Appeal 6107 of 2021 (https://main.sci.gov.in/supremecourt/2014/37597/37597_2014_34_1501_30806_Judgement_22-Oct-2021.pdf) pg 3-48
2)Prachi Bhardwaj, “Nomenclature of a Tax does not determine the nature of the levy or its true character: Supreme Court” SCC Online, 25th October 2021.
3)Pankaj Bajpai, “Levy u/s 52 of U.P. Water Supply And Sewerage Act,1975, is in nature of ‘tax’ and not ‘fee’, clarifies Apex Court” LegitEye, 25th October 2021.
Comments