Jalkal Vibhag Nagar Nigam & Ors. vs Pradeshiya Industrial and Investment Corporation & Anr.

55 – Restrictions on the levy of tax u/s.52 – Held: Restrictions imposed by s.55 do not render the tax a fee, nor are they indicative of the tax being charged for the actual use of water. Uttar Pradesh Water Supply and Sewerage Act 1975 – ss.52,

56 – Held: Payment of water tax and sewerage tax is regardless of whether the premises are connected with water supply or with a sewer of the Jal Sansthan – There is no exemption from the payment of water tax or sewerage tax as both the contingencies- the premises being connected with water supply (or, as the case may be, with a sewer of the Jal Sansthan) or there being no such connection have been covered u/s.56 – So long as a provision for water supply or a sewerage is made by the Jal Sansthan in the area covered, the occupier or the owner of the premises is liable to pay the taxes.

Constitution of India – Constitutional jurisprudence – Distinction between tax and fee – Held: It has substantially been effaced in the development of the constitutional jurisprudence. Words & Phrases – “premises” in s.2(18) – Held: In the context of s.52, the levy by the Jal Sansthan is “on premises situated within its area” meaning the area within which the Jal Sansthan exercises its jurisdiction and powers – Levy is on premises – “Premises” is defined in s.2(18) to mean “any land or building” – Hence, read together with the definition of the expression “premises”, the levy is squarely on lands and buildings situated within the area of the Jal Sansthan – Uttar Pradesh Water Supply and Sewerage Act 1975 – ss.2(18), 52.

Allowing the appeals, the Court

HELD : 1.1 An overview of the provisions of the UP Water Supply and Sewerage Act indicate that separate and distinct provisions are contained in Chapter VI for (i) taxes; (ii) fees; and

(iii) charges. The levy of taxes is provided for in Section 52, the determination of the cost of water to be charged for water connections in Section 59 and the charge of fees in Section 63. Section 64 indicates that the dues of the Jal Sansthan could be in the form of a tax, fee, cost of water, cost of disposal of waste water, meter rent, penalty, damage or surcharge. The legislature has distinguished between the expressions “tax”, “fee”, “cost of water”, “meter rent”, “penalty”, “damage or surcharge” by providing separate provisions under the Act. In the present case, the controversy is over the liability for the payment of tax. A legislative enactment which provides for the imposition of a tax may make provisions for (i) The levy of the tax on the basis of a taxable event; (ii) The measure of the tax; (iii) The rate at which the tax will be imposed; (iv) The incidence of the tax; and (v) Assessment, collection, recovery and other incidental provisions. [Paras 17, 19][233-B-D, F; 234-C-D]

Govind Saran Ganga Saran v. CST 1985 Supp SCC

205 : [1985] SCR 985; Commissioner of Income Tax (Central)- I, New Delhi v. Vatika Township Private Limited (2015) 1 SCC 1 : [2014] (12) SCR 1037; Federation of Hotel and Restaurant Association of India v. Union of India (1989) 3 SCC 634 : [1989] (2) SCR 918; State of West Bengal v. Kesoram Industries Ltd (2004) 10 SCC 201 : [2004] (1) SCR 564 – followed. Ralla Ram v. Province of East Punjab AIR 1949 FC 81; Sainik Motors v. State of Rajasthan AIR 1961 SC 1480; D.G Gose & Co. (Agents) P. Ltd. v. State of Kerala (1980) 2 SCC 410 : [1980] (1) SCR 804; Hingir Rampur Coal Co. Ltd. v. State of Orissa AIR 1961 SC 459 – referred to.

1.2 A basic principle of tax jurisprudence is that the levy of a tax cannot be conflated with its measure. In the context of Section 52, the levy by the Jal Sansthan is “on premises situated INVESTMENT CORP.

within its area” meaning the area within which the Jal Sansthan exercises its jurisdiction and powers. The levy is on premises. The expression ‘premises” is defined in Section 2(18) to mean “any land or building”. Hence, read together with the definition of the expression “premises”, the levy is squarely on lands and buildings situated within the area of the Jal Sansthan. While imposing the levy under clause (a) of Section 52(1) the legislature has provided that the levy will be on premises situated within the area of the Jal Sansthan, where the area is covered by the water supply services of the Jal Sansthan. This stipulation in clause (a) does not render the levy a fee instead of a tax. The purpose of the legislation in imposing a tax, which is prescribed as a water tax, is to enable the Jal Sansthan to finance the activities which it undertakes to plan, promote and execute schemes for and operate an efficient system of water supply. Besides the above function in Section 24(1), the Jal Sansthan has to manage its affairs to provide the people of the area within its jurisdiction with wholesale water. It is in this context that Section 25, which defines the powers of the Jal Sansthan, stipulates in sub-Section (1) that the Jal Sansthan shall have the power to do anything which may be expedient and necessary to carry out its functions under the UP Water Supply and Sewerage Act. These powers are to inter alia include under clause (vi) of sub-Section (2) the collection of taxes and charges for these services as may be prescribed. These provisions indicate that the levy of tax is intended to secure adequate means of finance for the Jal Sansthan to undertake its activities. But the raising of revenue in terms of Section 52(1)(a) is in the nature of a tax. The levy is on premises situated within the area of the Jal Sansthan. The measure of the tax is the assessed annual value of the premises, annual value being assessed in the manner indicated in Section 53. The rate of tax in the case of a local area, other than a city, has to be not less than 6 per cent and not more than 14 per cent. In the case of the water tax in a city the rate is to be not less than 7.5 per cent and not more than 12.5 per cent. A similar provision has been incorporated in regard to the levy of a sewerage tax in Section 52(1)(b) and sub-Sections

(2) and (3) provide for the measure and the rate of tax. [Para 24] [238-A-G]

1.3 Section 55 contains restrictions on the levy of the tax set out in Section 52. Clause (a) specifies that a tax shall not be levied on land which is used exclusively for agricultural purposes unless water is supplied by the Jal Sansthan for such purpose to that land. Clause (b) of Section 55 contains two further restrictions on the levy of water tax by providing that it shall not be levied on premises: (i) not situated within the radius prescribed of the nearest stand post or other water works on which water is made available to the public by the Jal Sansthan; or (ii) whose annual value does not exceed Rs. 360 and to which no water is supplied by the Jal Sansthan. The restrictions which are imposed by Section

55 do not render the tax a fee, nor are they indicative of the tax being charged for the actual use of water. While imposing the levy in Section 52(1)(a), the legislature has considered it appropriate to restrict the levy within the parameters which are specified in Section 55. That does not alter the fundamental nature of the levy, which is constituted as one on premises (defined to mean land and building) situated within the area of Jal Sansthan. [Para 25][238-H; 239-A-C]

1.4 Section 56 is a provision in relation to the incidence of the tax. Section 56 is a clear indicator of the tax being in the nature of a compulsory exaction arising out of the fact that the premises comprise of land and building situated within the area of the Jal Sansthan, so long as the restrictions which are contained in Section 55 are not attracted. Section 52 and Section 56 also indicate that the intention of the legislature is to collect water tax and sewerage tax from the occupier of the premises, where the premises are connected with water supply or, as the case may be, with a sewer of the Jal Sansthan and, in case where the premises are not so connected, from the owner of the premises. Therefore, the payment of water tax and sewerage tax is regardless of whether the premises are connected with water supply or with a sewer of the Jal Sansthan. There is no exemption from the payment of water tax or sewerage tax as both the contingencies- the premises being connected with water supply (or, as the case may be, with a sewer of the Jal Sansthan) or there being no such connection- have been covered under the provisions INVESTMENT CORP.

of Section 56. So long as a provision for water supply or a sewerage is made by the Jal Sansthan in the area covered, the occupier or the owner of the premises is liable to pay the taxes. Both the water tax as well as the sewerage tax could be consolidated for the purpose of levying, assessing and collecting them under Section 57 of the Act. [Para 26][239-D, F-H; 240-A-B]

1.5 The nomenclature that the legislature has ascribed to the tax does not determine either the nature of the levy or its true and essential character. The legislature may choose a label for a tax. The label however will not determine or for that matter clarify the nature of the levy. The nature of the levy has to be deduced from the nature of the tax, the provision which specifies the taxing event and, as in the case of Section 52, the unit upon which the levy is to be imposed. The legislature may choose a label for the tax based on the nature of the levy. On the other hand, the legislature may choose a label having a relationship with the function of the authority which imposes the tax as in the present case. The tax has been labelled as the water tax or a sewerage tax simply because it is imposed by the Jal Sansthan constituted under the UP Water Supply and Sewerage Act. That does not alter the nature of the levy which in substance is a tax on lands and buildings within the meaning of Entry 49 of List II of the Seventh Schedule. [Para 28][240-E-H]

1.6 The levy which is imposed under Section 52 is a tax on lands and buildings situated within the area of the Jal Sansthan for the purpose of imposing the tax. The tax is imposed on premises which fall within the territorial area of the Jal Sansthan. The expression ‘premises’ is defined to mean land and building. The tax is on lands and buildings. The nomenclature of the tax does not indicate its true character and substance. Nor does the fact that the law enables the Jal Sansthan to levy the tax render it a tax on water. The charging section indicates in unambiguous terms that it is a tax on lands and buildings. The restrictions in Section 55 do not detract from the nature of the levy nor would the liability which is imposed on the owner and occupier be anything other than a tax on lands and building within the meaning of Entry 49 of List II. The tax is imposed on an occupier or owner of the building or land falling within the area of the Jal Sansthan irrespective of whether a connection of water supply or sewerage has been obtained to the land or building. In another words, the basis for the levy of the taxes is on the location of premises within the area of the Jal Sansthan as notified by the State Government. Since the respondent’s premises are located within the area of the appellant’s authority, the respondent is liable to pay the water tax as well as the sewerage tax as the owner and occupier of the premises. The levy under Section 52 falls squarely under the ambit of Entry 49 of List II as it is in the nature of a tax and not a fee. Thus, the applicability of Entry 17, which is a non-taxing entry, does not arise in this case. [Paras 36, 40][246-G; 247-A, D-F; 249-E]

2.1 The distinction between a tax and fee has substantially been effaced in the development of our constitutional jurisprudence. The distinction that while a tax is a compulsory exaction, a fee constitutes a voluntary payment for services rendered does not hold good. As in the case of a tax, so also in the case of a fee, the exaction may not be truly of a voluntary nature. Similarly, the element of a service may not be totally absent in a given case in the context of a provision which imposes a tax. As in the case of a tax, a fee may also involve a compulsory exaction. A fee may involve an element of compulsion and its proceeds may form a part of the Consolidated Fund. Similarly, the element of a quid pro quo is not necessarily absent in the case of every tax. In the present case, the tax has been imposed by the legislature in Section 52 on premises situated within the area of the Jal Sansthan. The proceeds of the tax are intended to constitute revenue available to the Jal Sansthan to carry out its mandatory obligations and functions under the statute of making water and sewerage facilities available in the area under its jurisdiction. The levy is imposed by virtue of the presence of the premises within the area of the jurisdiction of the Jal Sansthan. The water tax is levied so long as the Jal Sansthan has provided a stand post or waterworks within a stipulated radius of the premises through which water has been made available to the public by the Jal Sansthan. The levy of the tax does not depend upon the actual consumption of water by the owner or occupier INVESTMENT CORP.

upon whom the tax is levied. Unlike the charge under Section 59 which is towards the cost of water to be supplied by the Jal Sansthan according to its volume or, in lieu thereof on a fixed sum, the tax under Section 52 is a compulsory exaction. Where the premises are connected with water supply, the tax is levied on the occupier of the premises. On the other hand, where the premises are not so connected, it is the owner of the premises who bears the tax. The levy under Section 52 (1) is hence a tax and not a fee. [Paras 42, 47][250-A, D-E; 254-B-F]

Southern Pharmaceuticals and Chemicals, Trichur v. State of Kerala (1981) 4 SCC 391 : [1982] (1) SCR 519; Municipal Corporation of Delhi v. Mohd. Yasin (1983) 3 SCC 229 : [1983] (2) SCR 999; Sreenivasa General Traders and Others v. State of Andhra Pradesh (1983) 4 SCC 353 : [1983] (3) SCR 843 – relied on. Sirsilk Ltd. v. Textile Committee 1989 Supp. (1) SCC 168:[1988] (2) Suppl. SCR 880 – referred to.

2.2 The two judge Bench in Union of India v. State of U.P. and others held that Section 52 “states that the Jal Sansthan can levy tax, fee and charge for water supply and for sewerage services” and though the charge was termed as a tax, in substance it is a fee for the supply of water. There is an evident error in the observations. Section 52 is contained in Chapter VI which is titled “taxes, fees and charges”. The observations in paragraph 23 of the judgment indicate that the title of Chapter VI was conflated with the nature of the provision which is contained in Section 52. Section 52 provides for the levy of taxes and not for fees or charges for which there are distinct provisions in Chapter VI. The observations of the Court that though the charges are loosely termed as tax, it is in substance a fee, is per incuriam and in any event not reflective of a correct reading of the provisions of the statute. The statute contains distinct provisions for the levy of taxes and for the imposition of charges and the recovery of fees. The levy under Section 52 is a tax simplicitor and cannot be regarded either as a charge or a fee for a service rendered. To that extent, the observations in paragraph 23 of the decision in Union of India v. State of U.P. are overruled. [Para 48][257-C-F] Union of India v. State of U.P. and others (2007) 11 SCC 324 : [2007] (11) SCR 792 – overruled.

3. 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 is rejected. The judgment of the High Court is set aside. The writ petition filed by the first respondent is dismissed. The appellants are entitled to recover the balance of the dues remaining to be recovered in pursuance of the notice of demand, together with interest at the rate of 9 per cent per annum. [Para 49][257-G-H; 258-A]

Ajoy Kumar Mukherjee v. Local Board of Barpeta AIR 1965 SC 1561; Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. Etc. (1969) 2 SCC 55 : [1970] (1) SCR 268; Union of India v. HS Dhillon AIR 1972 SC 1061 – followed.

Goodricke Group Limited v. State of WB 1995 Suppl.

(1) SCC 707 : [1994] (6) Suppl. SCR 120; M.P.V. Sundararamier & Co. v. State of AP 1958 SCR 1422 – relied on.

Corporation of Calcutta v. Liberty Cinema AIR 1965 SC 1107; Jindal Stainless Ltd. v. State of Haryana AIR 2016 SC 5617:[2016] (10) SCR 1 – referred to.

V Pattabhiraman v. The Assistant Commissioner of Urban Land Tax, North Madras (North West)

Ayanavaram AIR 1971 Mad 61 (FB); Raza Buland

Sugar Co. Ltd. v. Municipal Board, Rampur AIR 1962 All 83; Nizam Sugar Factory Ltd. v. City Municipality, Bodhan AIR 1965 AP 91 – referred to.