JALKAL VIBHAG NAGAR NIGAM & ORS. versus PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION & ANR. on 22 October 2021

210

SUPREME COURT REPORTS

[2021] 12 S.C.R.

AJALKAL VIBHAG NAGAR NIGAM & ORS.

v.

PRADESHIYA INDUSTRIAL AND INVESTMENTCORPORATION & ANR.

B

(Civil Appeal No. 6107 of 2021)

OCTOBER 22, 2021

[DR. DHANANJAYA Y CHANDRACHUD, VIKRAM NATHAND B. V. NAGARATHNA, JJ.]

C

Uttar Pradesh Water Supply and Sewerage Act 1975 –ss.52(1)(a), 55(b)(1), 56 – Constitutional validity of – Challenge to– Held: Rejected – Levy u/s.52 falls squarely under the ambit ofEntry 49, List II as it is in the nature of a tax and not a fee –Nomenclature of the tax does not indicate its true character andDsubstance – Nor does the fact that the law enables the Jal Sansthanto levy the tax render it a tax on water – Tax has been labelled asthe water tax or a sewerage tax because it is imposed by the JalSansthan constituted under the UP Water Supply and SewerageAct – That does not alter the nature of the levy which in substanceEis a tax on lands and buildings within the meaning of Entry 49 ofList II of the Seventh Schedule – Tax is imposed on an occupier orowner of the building or land falling within the area of the JalSansthan irrespective of whether a connection of water supply orsewerage has been obtained to the land or building – Basis for thelevy of the taxes is on the location of premises within the area of theFJal Sansthan – Since the respondent’s premises are located withinthe area of the appellant’s authority, the respondent is liable to paythe water tax as well as the sewerage tax as the owner and occupierof the premises – Judgment of High Court set aside – Writ petitionfiled by the first respondent dismissed – Appellants entitled to recoverGthe balance of the dues remaining to be recovered in pursuance ofthe notice of demand with interest @ 9% p.a. – Constitution of India– Seventh Schedule, List II, Entry 49 – Jal Sansthan (Assessment ofAnnual Value of Premises) Rules 1981 – Jal Sansthan (Radiusregarding Levy of Water Tax) Rules 1993.

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Uttar Pradesh Water Supply and Sewerage Act 1975 – s.52 –Held: Levy u/s.52 is a tax simplicitor and cannot be regarded eitheras a charge or a fee for a service rendered – Observations in Unionof India v. State of U.P. and Others reported as [2007] 11 SCR 792that though the charges are loosely termed as tax, it is in substancea fee, is per incuriam and are overruled.

Uttar Pradesh Water Supply and Sewerage Act 1975 – ss.52,24, 25, 53 – Levy of taxu/s.52 – Purpose of legislation – Discussed.

Uttar Pradesh Water Supply and Sewerage Act 1975 – ss.52,55 – Restrictions on the levy of tax u/s.52 – Held: Restrictionsimposed by s.55 do not render the tax a fee, nor are they indicativeof 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 ofwhether the premises are connected with water supply or with asewer of the Jal Sansthan – There is no exemption from the paymentof water tax or sewerage tax as both the contingencies- the premisesbeing connected with water supply (or, as the case may be, with asewer of the Jal Sansthan) or there being no such connection havebeen covered u/s.56 – So long as a provision for water supply or asewerage is made by the Jal Sansthan in the area covered, theoccupier 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 beeneffaced in the development of the constitutional jurisprudence.

Words & Phrases – “premises” in s.2(18) – Held: In thecontext of s.52, the levy by the Jal Sansthan is “on premises situatedwithin its area” meaning the area within which the Jal Sansthanexercises 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 areaof the Jal Sansthan – Uttar Pradesh Water Supply and SewerageAct 1975 – ss.2(18), 52.

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212SUPREME COURT REPORTS

AAllowing the appeals, the Court

HELD : 1.1 An overview of the provisions of the UP WaterSupply and Sewerage Act indicate that separate and distinctprovisions are contained in Chapter VI for (i) taxes; (ii) fees; and(iii) charges. The levy of taxes is provided for in Section 52, theBdetermination of the cost of water to be charged for waterconnections in Section 59 and the charge of fees in Section 63.Section 64 indicates that the dues of the Jal Sansthan could be inthe form of a tax, fee, cost of water, cost of disposal of wastewater, meter rent, penalty, damage or surcharge. The legislaturehas distinguished between the expressions “tax”, “fee”, “costCof water”, “meter rent”, “penalty”, “damage or surcharge” byproviding separate provisions under the Act. In the present case,the controversy is over the liability for the payment of tax. Alegislative enactment which provides for the imposition of a taxmay make provisions for (i) The levy of the tax on the basis of aDtaxable event; (ii) The measure of the tax; (iii) The rate at whichthe 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 SCCE205 : [1985] SCR 985; Commissioner of Income Tax(Central)- I, New Delhi v. Vatika Township PrivateLimited (2015) 1 SCC 1 : [2014] (12) SCR 1037;Federation of Hotel and Restaurant Association of Indiav. Union of India (1989) 3 SCC 634 : [1989] (2) SCR918; State of West Bengal v. Kesoram Industries LtdF(2004) 10 SCC 201 : [2004] (1) SCR 564 – followed.

Ralla Ram v. Province of East Punjab AIR 1949 FC81; Sainik Motors v. State of Rajasthan AIR 1961 SC1480; D.G Gose & Co. (Agents) P. Ltd. v. State of Kerala(1980) 2 SCC 410 : [1980] (1) SCR 804; Hingir RampurGCoal Co. Ltd. v. State of Orissa AIR 1961 SC 459 –referred to.

1.2 A basic principle of tax jurisprudence is that the levy ofa tax cannot be conflated with its measure. In the context ofSection 52, the levy by the Jal Sansthan is “on premises situatedH

within its area” meaning the area within which the Jal Sansthanexercises 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 definitionof the expression “premises”, the levy is squarely on lands andbuildings situated within the area of the Jal Sansthan. Whileimposing the levy under clause (a) of Section 52(1) the legislaturehas provided that the levy will be on premises situated within thearea of the Jal Sansthan, where the area is covered by the watersupply services of the Jal Sansthan. This stipulation in clause (a)does not render the levy a fee instead of a tax. The purpose ofthe legislation in imposing a tax, which is prescribed as a watertax, is to enable the Jal Sansthan to finance the activities which itundertakes to plan, promote and execute schemes for and operatean efficient system of water supply. Besides the above functionin Section 24(1), the Jal Sansthan has to manage its affairs toprovide the people of the area within its jurisdiction with wholesalewater. It is in this context that Section 25, which defines the powersof the Jal Sansthan, stipulates in sub-Section (1) that the JalSansthan shall have the power to do anything which may beexpedient and necessary to carry out its functions under the UPWater Supply and Sewerage Act. These powers are to inter aliainclude under clause (vi) of sub-Section (2) the collection of taxesand charges for these services as may be prescribed. Theseprovisions indicate that the levy of tax is intended to secureadequate means of finance for the Jal Sansthan to undertake itsactivities. 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 withinthe area of the Jal Sansthan. The measure of the tax is the assessedannual value of the premises, annual value being assessed in themanner indicated in Section 53. The rate of tax in the case of alocal area, other than a city, has to be not less than 6 per cent andnot more than 14 per cent. In the case of the water tax in a citythe rate is to be not less than 7.5 per cent and not more than 12.5per cent. A similar provision has been incorporated in regard tothe 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]

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A1.3 Section 55 contains restrictions on the levy of the taxset out in Section 52. Clause (a) specifies that a tax shall not belevied on land which is used exclusively for agricultural purposesunless water is supplied by the Jal Sansthan for such purpose tothat land. Clause (b) of Section 55 contains two further restrictionson the levy of water tax by providing that it shall not be levied onBpremises: (i) not situated within the radius prescribed of thenearest stand post or other water works on which water is madeavailable to the public by the Jal Sansthan; or (ii) whose annualvalue does not exceed Rs. 360 and to which no water is suppliedby the Jal Sansthan. The restrictions which are imposed by SectionC55 do not render the tax a fee, nor are they indicative of the taxbeing charged for the actual use of water. While imposing thelevy in Section 52(1)(a), the legislature has considered itappropriate to restrict the levy within the parameters which arespecified in Section 55. That does not alter the fundamental natureof the levy, which is constituted as one on premises (defined toDmean 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 ofthe tax. Section 56 is a clear indicator of the tax being in thenature of a compulsory exaction arising out of the fact that theEpremises comprise of land and building situated within the areaof the Jal Sansthan, so long as the restrictions which are containedin Section 55 are not attracted. Section 52 and Section 56 alsoindicate that the intention of the legislature is to collect watertax and sewerage tax from the occupier of the premises, whereFthe premises are connected with water supply or, as the casemay be, with a sewer of the Jal Sansthan and, in case where thepremises are not so connected, from the owner of the premises.Therefore, the payment of water tax and sewerage tax isregardless of whether the premises are connected with watersupply or with a sewer of the Jal Sansthan. There is no exemptionGfrom the payment of water tax or sewerage tax as both thecontingencies- the premises being connected with water supply(or, as the case may be, with a sewer of the Jal Sansthan) or therebeing no such connection- have been covered under the provisions H

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

1.5 The nomenclature that the legislature has ascribed tothe tax does not determine either the nature of the levy or itstrue and essential character. The legislature may choose a labelfor a tax. The label however will not determine or for that matterclarify the nature of the levy. The nature of the levy has to bededuced from the nature of the tax, the provision which specifiesthe taxing event and, as in the case of Section 52, the unit uponwhich the levy is to be imposed. The legislature may choose alabel for the tax based on the nature of the levy. On the otherhand, the legislature may choose a label having a relationshipwith the function of the authority which imposes the tax as in thepresent case. The tax has been labelled as the water tax or asewerage tax simply because it is imposed by the Jal Sansthanconstituted under the UP Water Supply and Sewerage Act. Thatdoes not alter the nature of the levy which in substance is a taxon lands and buildings within the meaning of Entry 49 of List II ofthe Seventh Schedule. [Para 28][240-E-H]

1.6 The levy which is imposed under Section 52 is a tax onlands and buildings situated within the area of the Jal Sansthanfor the purpose of imposing the tax. The tax is imposed onpremises 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 taxdoes not indicate its true character and substance. Nor does thefact that the law enables the Jal Sansthan to levy the tax render ita tax on water. The charging section indicates in unambiguousterms that it is a tax on lands and buildings. The restrictions inSection 55 do not detract from the nature of the levy nor wouldthe liability which is imposed on the owner and occupier beanything other than a tax on lands and building within the meaningof Entry 49 of List II. The tax is imposed on an occupier or owner AB

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Aof the building or land falling within the area of the Jal Sansthanirrespective of whether a connection of water supply or seweragehas been obtained to the land or building. In another words, thebasis for the levy of the taxes is on the location of premises withinthe area of the Jal Sansthan as notified by the State Government.Since the respondent’s premises are located within the area ofBthe appellant’s authority, the respondent is liable to pay the watertax as well as the sewerage tax as the owner and occupier of thepremises. The levy under Section 52 falls squarely under theambit of Entry 49 of List II as it is in the nature of a tax and not afee. Thus, the applicability of Entry 17, which is a non-taxing entry,Cdoes 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 substantiallybeen effaced in the development of our constitutionaljurisprudence. The distinction that while a tax is a compulsoryDexaction, a fee constitutes a voluntary payment for servicesrendered does not hold good. As in the case of a tax, so also inthe case of a fee, the exaction may not be truly of a voluntarynature. Similarly, the element of a service may not be totally absentin 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 compulsoryEexaction. A fee may involve an element of compulsion and itsproceeds may form a part of the Consolidated Fund. Similarly,the element of a quid pro quo is not necessarily absent in thecase of every tax. In the present case, the tax has been imposedby the legislature in Section 52 on premises situated within theFarea of the Jal Sansthan. The proceeds of the tax are intended toconstitute revenue available to the Jal Sansthan to carry out itsmandatory obligations and functions under the statute of makingwater and sewerage facilities available in the area under itsjurisdiction. The levy is imposed by virtue of the presence of the premises within the area of the jurisdiction of the Jal Sansthan.GThe water tax is levied so long as the Jal Sansthan has provideda stand post or waterworks within a stipulated radius of thepremises through which water has been made available to thepublic by the Jal Sansthan. The levy of the tax does not dependupon the actual consumption of water by the owner or occupierH

upon whom the tax is levied. Unlike the charge under Section 59which is towards the cost of water to be supplied by the JalSansthan according to its volume or, in lieu thereof on a fixedsum, the tax under Section 52 is a compulsory exaction. Wherethe premises are connected with water supply, the tax is leviedon the occupier of the premises. On the other hand, where thepremises are not so connected, it is the owner of the premiseswho bears the tax. The levy under Section 52 (1) is hence a taxand 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) SCR519; Municipal Corporation of Delhi v. Mohd. Yasin(1983) 3 SCC 229 : [1983] (2) SCR 999; SreenivasaGeneral 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) SCC168:[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 canlevy tax, fee and charge for water supply and for sewerageservices” and though the charge was termed as a tax, in substanceit is a fee for the supply of water. There is an evident error in theobservations. Section 52 is contained in Chapter VI which is titled“taxes, fees and charges”. The observations in paragraph 23 ofthe judgment indicate that the title of Chapter VI was conflatedwith the nature of the provision which is contained in Section 52.Section 52 provides for the levy of taxes and not for fees orcharges for which there are distinct provisions in Chapter VI.The observations of the Court that though the charges are looselytermed as tax, it is in substance a fee, is per incuriam and in anyevent not reflective of a correct reading of the provisions of thestatute. The statute contains distinct provisions for the levy oftaxes and for the imposition of charges and the recovery of fees.The levy under Section 52 is a tax simplicitor and cannot beregarded either as a charge or a fee for a service rendered. Tothat extent, the observations in paragraph 23 of the decision inUnion of India v. State of U.P. are overruled. [Para 48][257-C-F]

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218SUPREME COURT REPORTS

[2021] 12 S.C.R.

AUnion of India v. State of U.P. and others (2007) 11SCC 324 : [2007] (11) SCR 792 – overruled.

3. The constitutional challenge to the validity of Sections52(1)(a), Section 55(b)(1) and Section 56 of the UP Water Supplyand Sewerage Act is rejected. The judgment of the High Court isBset aside. The writ petition filed by the first respondent isdismissed. The appellants are entitled to recover the balance ofthe dues remaining to be recovered in pursuance of the notice ofdemand, together with interest at the rate of 9 per cent perannum. [Para 49][257-G-H; 258-A]

CAjoy Kumar Mukherjee v. Local Board of Barpeta AIR1965 SC 1561; Assistant Commissioner of Urban LandTax v. Buckingham and Carnatic Co. Ltd. Etc. (1969) 2SCC 55 : [1970] (1) SCR 268; Union of India v. HSDhillon AIR 1972 SC 1061 – followed.

DGoodricke 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 1965ESC 1107; Jindal Stainless Ltd. v. State of Haryana AIR2016 SC 5617:[2016] (10) SCR 1 – referred to.

V Pattabhiraman v. The Assistant Commissioner ofUrban Land Tax, North Madras (North West)Ayanavaram AIR 1971 Mad 61 (FB); Raza BulandFSugar Co. Ltd. v. Municipal Board, Rampur AIR 1962All 83; Nizam Sugar Factory Ltd. v. City Municipality,Bodhan AIR 1965 AP 91 – referred to.

Case Law Reference

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JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL ANDINVESTMENT CORP.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6107of 2021.

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From the Judgment and Order dated 07.03.2014 of the High Courtof Judicature at Allahabad, Lucknow Bench in W.P. No.2557 of 1995(M/B).

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With

Civil Appeal No. 6108 of 2021.

Pradeep Kant, Sr. Adv., Divyanshu Sahay, Ms. Adviteeya, RakeshK. Sharma, Advs. for the Appellants.

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Ms. Madhavi Goradia Divan, ASG, Rupesh Kumar, Ms. NeelamSharma, Ms. Pankhuri Shrivastava, Alekshendra Sharma, Advs. for theRespondents.

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AThe Judgment of the Court was delivered byDR. DHANANJAYA Y CHANDRACHUD, J.

This judgment has been divided into the following sections tofacilitate analysis:

AFactual Background..................................................3*BIssues.....................................................................5*

B

CRival Submissions......................................................6*

DAnalysis................................................................11*

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D.1Statutory Provisions.......................................11*

D.2Nature of levy under Section 52 of the UP WaterSupply and Sewerage Act...............................20*

D.3Entry 49 List II: Taxes on Lands andBuildings............................................................28*

D

D.4Tax and fee......................................................38*

D.5The ‘Railways’ judgment................................44*

EConclusion............................................................47*

E

A Factual Background

1. By its judgment dated 7 March 2014, a Division Bench at theLucknow Bench of the High Court of Judicature at Allahabad allowed apetition under Article 226 of the Constitution of India instituted by theFfirst respondent and directed the appellants to refund water and seweragetaxes levied and collected under the provisions of the Uttar PradeshWater Supply and Sewerage Act 1975[1]. In coming to the conclusion thatthe levy was contrary to law, the High Court relied upon a decision ofthis Court in Union of India v. State of U.P. and others[2].

G2. The first respondent commenced construction of a building atVibhuti Khand, Gomti Nagar, Lucknow in 1986 under the auspices ofthe U.P. Rajkiya Nirman Nigam Limited. Construction of the buildingwas completed in 1991 and its possession was handed over on 31 May Ed. Note - [*]denotes the actual pagination in the Original Judgment.1 “UP Water Supply and Sewerage Act”H2 (2007) 11 SCC 324

1991. The building was thereafter known as ‘PICUP Bhawan’. On 5January 1995 a demand was raised by the appellants by Bill No. 12/26for an amount of Rs. 46,63,312.50/- towards water tax for the periodfrom October 1986 to March 1995. By its letter dated 25 January 1995,the first respondent sought a clarification on the location of the sewerand water standpost and other water pipelines; distance from PICUPBhawan and a copy of the relevant notification or order prescribing the‘radius’ under Section 55(b)(i) of the UP Water Supply and SewerageAct.

3. The bill was rectified on 28 January 1995 by which a demandof water tax for the amount of Rs.16,45,875.00/- was raised in terms ofthe provisions of Section 52(1). The respondent by its communication of31 January 1995, once again, sought certain clarifications. The appellantclarified the queries and reiterated its demand. The first respondentdeposited an amount of Rs. 3,46,500.00/- under protest on 15 March1995, and a further sum of Rs. 9,41,942.77/- on 29 April 1995. On 7September 1995 a writ petition was instituted by the first respondentunder Article 226 of the Constitution of India for challenging the levy ofwater tax and sewerage tax on the premise that the first respondenthad, during the construction of the building, not obtained any water fromthe pipeline laid down by the appellants within the area nor had it madea request for a fresh water connection. A challenge was raised to thevalidity of Sections 52(a), 55(b)(i) and 56(b) of the UP Water Supplyand Sewerage Act on the ground that they are ultra vires the provisionsof Article 265 of the Constitution. The petition was contested by theappellants, who filed a counter affidavit. By its judgment dated 7 March2014, the Division Bench of the High Court allowed the writ petition anddirected the appellants to refund the water and sewerage taxes leviedand collected. The review petition against this judgment was alsodismissed by the High Court by order dated 9 August 2014. On 7 August2015, while entertaining the special leave petition and issuing notice, thisCourt stayed the operation of the impugned judgments of the High Court.

B Issues

4. Principally, two issues arise in these proceedings: -

(i) Whether the demand of water tax and sewerage tax issustainable with reference to the provisions of the UP WaterSupply and Sewerage Act; and A

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A(ii)Whether the State Legislature has the legislativecompetence to levy the tax under the provisions of Section52(1)(a).

5. We must note at the outset that the High Court has allowed theprayer for refund purely on the basis of a judgment of a two-judge BenchBof this Court in Union of India v. State of U.P. (supra). The judgmentof the High Court has been drafted in a rather casual manner which isevident from the fact that:

(i) While extracting from a portion of the judgment of this Courtnoted above, the High Court has neither referred to theCcitation nor the name of the case;

(ii) After citing the extract from the judgment, the High Courtrecorded the submissions of the first respondent that thelaw laid down in the above case “is also extended to” thefirst respondent and then proceeded to allow the petition inDthe following terms:

“Accordingly, we dispose of the writ petition with a direction tothe Jal Sansthan, Lucknow to refund the amount, which has beenpaid to the petitioner, if there is no legal impediment or anyoutstanding against the petitioner.

EAccordingly, writ petition is disposed of.”

6. There is absolutely no discussion on the merits. There is nodiscussion of the basis on which the High Court accepted the contentionof the first respondent that the judgment of this Court noted earlier wasapplicable to the facts of the present case. The proceedings have beenFpending before this Court for well over six years and a remand to theHigh Court will only result in another round of proceedings and possiblyfurther appeals. That apart, the decision in Union of India v. State ofU.P. (supra) is of a two-judge Bench of this Court and we shall explainthe judgment which contains observations that were per incuriam andin any event contrary to the statute. In this backdrop, at this point of timeGwe have desisted from following the course of remanding the proceedingssince the appeal has been argued fully on merits on behalf of the appellantsby Mr Pradeep Kant, Senior Counsel and Ms Madhavi Divan, AdditionalSolicitor General, who appeared on behalf of the first respondent - theoriginal petitioner before the High Court. Submissions have been urgedHbefore this Court both on the construction of the statute as well as on the constitutional challenge and we shall, during the course of the presentjudgment, deal with both aspects.

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C Rival Submissions

Statutory Construction

7. Mr Pradeep Kant, Senior Counsel appearing on behalf of theappellants, has made the following submissions in relation to theconstruction of the statute in question, the UP Water Supply andSewerage Act:

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(i) The UP Water Supply and Sewerage Act contains provisionswhich can be broadly classified in four heads:

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(a) establishment of the Jal Sansthan and provisions forits functions and powers in Chapters-II and III; (b)vesting of properties, assets, liabilities and obligationsand transfer of employees in Chapter- IV; D

(c) taxes, fees and charges in Chapter-VI; (d)water supply and sewerage services in Chapters-VII-VIII; and (e)penalties and procedure, external control andmiscellaneous provisions in Chapters IX to XI.

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(ii) The scheme of the legislation provides for the levy,imposition, collection and realization of water tax andsewerage tax under Section 52(1);

(iii) The decision of this Court in Union of India v. State ofU.P. (supra) is not an authority for the interpretation ofFSection 52 since in that case a service charge was leviedon the railways. The challenge to the levy was raised bythe railways on the ground that the Jal Sansthan was levyinga tax in violation of the provisions of Article 285 of theConstitution and it was this submission which was rejected,Gby holding that the levy was of a service charge in the natureof a fee and not a tax; and

(iv) In the present case, the imposition is of water tax andsewerage tax which falls within the ambit of Section52(1)(a).

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224SUPREME COURT REPORTS

AConstitutional Challenge

8. Ms Madhavi Divan, Additional Solicitor General appearing onbehalf of the first respondent, has urged a constitutional challenge to theprovisions of Section 52(1)(a), Section 55(d)(a) and Section 56(b) of theUP Water Supply and Sewerage Act. Ms Divan has prefaced herBsubmissions at the outset by stating that there is no challenge to thevalidity of the sewerage charges, which the first respondent is readyand willing to pay. The challenge to the levy of a water tax has beenassailed on the following submissions:

(i) The levy of a water tax under Section 52(1)(a) is not a taxCon ‘lands and buildings’ within the meaning of Entry 49 ofList II to the Seventh Schedule to the Constitution;

(ii) Essentially the charge under Section 52(1)(a) is of a feeand not a tax, which will not be subsumed under Entry 49of List II; D

(iii) Though Section 52(1)(a) seeks to impose the levy “onpremises situated within the area of the Jal Sansthan”, thisis only to identify the territorial limit and jurisdiction. If thelong title to the legislation and its provisions are consideredholistically, it would be evident that the tax is not one onE‘lands and buildings’ within Entry 49 of List II;

(iv) The nature of a levy has to be deduced from the primaryobject and essential character of the legislation;

(v) The following provisions of the legislation would make itclear that the imposition is, strictly speaking, not a tax onFlands and buildings within the meaning of Entry 49 of ListII:

(a) Section 56 makes a distinction between whether ornot the premises are connected with water supply; (b)A distinction has been made by the statute betweenGan owner and occupier which would be alien to a taxon lands and buildings under Entry 49 of List II;

(c) Section 25(2)(vi) empowers the Jal Sansthan tointroduce or amend the tariff for water supply andsewerage services and to collect all taxes andHcharges for these services as may be prescribed; (d)Section 44 empowers the Jal Sansthan to fix andadjust its rates of taxes and charges to enable it tomeet the cost of its operations, maintenance and debtservice and where practicable to achieve aneconomic return on its fixed assets; (e)The collection of water tax is credited to a separatefund and Section 101(2) stipulates that the moneysshall be applied exclusively for water supply orsewerage services or both, as the case may be.

(vi) On the above grounds it has been urged that if the statute isinterpreted in a holistic context, it would emerge that:

(a) Though labelled as a water tax, the levy under Section52(1)(a) is in the nature of a fee and not a tax; and (b)In consequence, the levy cannot be sustained underEntry 49 List II.

(vii) Entry 17 of List II provides for “water and water supplies”.

(viii) In sum and substance, the levy under Section 52(1)(a)though described as a water tax, is a fee and not a tax andthough the legislature has used the nomenclature of “watertax”, the levy in effect is an exaction on water or watersupply.

9. Opposing the above submissions challenging the constitutionalvalidity of the statute, Mr Pradeep Kant, Senior Counsel urged that:

(i) The two judge Bench of this Court in Union of India v.State of U.P. (supra) has erroneously interpreted theprovisions of Section 52 to be in the nature of a fee and nota tax;

(ii) In that case the levy imposed by the Jal Sansthan on therailways was a service charge for the use of water andsewerage; the levy was not in the nature of a tax, as aconsequence of which this Court came to the conclusionthat the immunity in Article 285 on taxing property of theUnion of India was not attracted;

(iii) As a consequence, the observations of the Court to theeffect that the imposition under Section 52 is in the nature A

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Aof a fee are per incuriam, since this Court held that thelevy was in the nature of a service charge and the issue didnot arise for determination;

(iv) The levy of a tax under Section 52(1)(a) is on premisessituated within the area of the Jal Sansthan. The expressionB‘premises’ is defined to mean land and building. Hence,though labelled as a water tax, the levy provides for theimposition of a tax on lands and buildings within the meaningof Entry 49 of List II;

(v) Entry 17 of List II inter alia deals with water and waterCsupplies, while Entry 49 of List II deals with the taxes onlands and buildings. Properly construed, the levy is not atax on water but a tax on lands and buildings. The measureof the tax is assessable value. The tax is imposed at a ratebeing a percentage of the assessable value. The incidenceof the tax is on the owner and occupier;D

(vi) The taxing event or the levy must be distinguished from themeasure, the rate and the incidence of the tax.

10. Mr Pradeep Kant has, during the course of his submissions,relied upon a judgment of a Division Bench of the Allahabad High CourtEin Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur[3] andon the judgment of the Andhra Pradesh High Court in Nizam SugarFactory Ltd. v. City Municipality, Bodhan[4].

D Analysis

11. As we assess the rival submissions, it becomes necessary atFthe outset to analyse the provisions of the enactment.

D.1 Statutory Provisions

12. The UP Water Supply and Sewerage Act is described by itslong title as “an Act to provide for the establishment of a Corporation,authorities and organisations for the development and regulationGof water supply and sewerage services and for matters connectedtherewith”. Chapter I contains preliminary provisions including definitions.Significant among the definitions for the purposes of this case is the 3 AIR 1962 All 83H4 AIR 1965 AP 91

expression “premises” which is defined in Section 2 (18) to mean “anyland or building”. Chapter II provides for the establishment, conduct ofbusiness, functions and powers of the UP Jal Nigam. Chapter III providesfor the establishment, conduct of business, functions and powers of theJal Sansthan. Section 18(1) provides thus:

“18. Establishment of Jal Sansthans.- (1) If in the opinion of theState Government, local conditions so require and it is considerednecessary or expedient for the improvement of water supply andsewerage services in any area, it may constitute a body to beknown as Jal Sansthan for that area.”

Section 24 specifies the functions of a Jal Sansthan:

“24. Functions of a Jal Sansthan.- The functions of a Jal Sansthanshall be as follows:

(i) to plan, promote and execute schemes of and operate anefficient system of water supply;

(ii) where feasible, to plan, promote and execute schemes of, andoperate, sewerage, sewage treatment and disposal and treatmentof trade effluents;

(iii) to manage all its affairs so as to provide the people of the areawithin its jurisdiction with wholesome water and where feasible,efficient sewerage service;

(iv) to take such other measures, as may be necessary, to ensurewater supply in times of any emergency;

(v) such other functions as may be entrusted to it by the StateGovernment by notification in the Gazette.”

Section 25 enunciates the powers of a Jal Sansthan:

“25. Powers of a Jal Sansthan.-

(1) Every Jal Sansthan shall, subject to the provisions of this Act,have power to do anything which may be necessary or expedientfor carrying out its functions under this Act.

(2) Without prejudice to the generality of the foregoing provisionsuch powers shall include the power-

(i) to exercise all powers and perform all the functions relating towater supply, sewerage and sewage disposal of the area whichlies within its jurisdiction; A

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(ii) to acquire, possess and hold lands and other property and tocarry any water or sewerage works through, across, over or underany highway, road, street or place and, after reasonable notice, inwriting to the owner or occupier, into, through, over or under anybuilding or land; A

B(iii) to abstract water from any natural source and dispose ofwaste water;

(iv) to enter into contract or agreement with any person or bodyas the Jal Sansthan may deem necessary;

(v) to adopt its own budget annually;

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(vi) to introduce or amend tariff for water supply and sewerageservices, subject to approval of the Nigam and collect all taxesand charges for these services as may be prescribed:

Provided that no decision to introduce or amend such tariff shallDbe taken except by a special resolution in that behalf brought aftergiving such notice as may be prescribed, and passed by the majorityof two-thirds of the members of the Jal Sansthan;

(vii) to incur expenditure and manage its own funds;

(viii) to obtain loans, advances, subventions and grants from theENigam.”

13. Chapter IV deals with vesting of properties, assets, liabilitiesand obligations and transfer of employees. Section 33 provides for thevesting of existing water supplies and sewerage services in the JalSansthan upon its constitution. Section 34 envisages that the Jal SansthanFwill assume the obligations of the local authority in respect of the mattersto which the UP Water Supply and Sewerage Act applies. Section 34reads as under:

“34. Jal Sansthan to assume obligations of local authority in respectof matters to which this Act applies- G

All debts and obligations incurred, all contracts entered into allmatters and things engaged to be done by, with or for any localbody before the said date in respect of any of the functions specifiedin Section 24 shall be deemed to have been incurred, entered intoor engaged to be done, by. with or for the Jal Sansthan, and allHsuits or other legal proceedings instituted or which might but for vesting and transfer under sub-section (1) of Section 33, havebeen instituted or defended by or against the local body, may becontinued or instituted or defended by or against the Jal Sansthan.”

14. The finance and property of the Jal Sansthan are dealt with inChapter V of the Act. Section 41 envisages that every Jal Sansthanshall have its own fund which shall be deemed to be a local fund towhich shall be credited all monies received by or on behalf of the JalSansthan. Section 44 provides for the general principles governing thefinance of the Jal Sansthan in the following terms:

“44. General principles for Jal Sansthan’s Finance.- A Jal Sansthanshall from time to time so fix and adjust its rates of taxes andcharges under this Act as to enable it to meet, as soon as feasible,the cost of its operations, maintenance and debt service and wherepracticable to achieve an economic return on its fixed assets.”

15. Chapter VI of the enactment is titled “taxes, fees and charges”.The provisions of Chapter VI contained a separate delineation of taxes,charges and fees. Section 52 provides for the levy of taxes in the followingterms:

“52. Taxes leviable.- (l) For the purposes of this Act, a Jal Sansthanshall levy, on premises situated within its area:

(a) where the area is covered by the water supply services of JalSansthan, a water tax; and (b) where the area is covered by the sewerage services of JalSansthan, a sewerage tax.

(2) The taxes mentioned in sub-section (1) shall in a local areaother than a city, be levied at such rate which in the case of watertax shall be not less than 6 per cent and not more than 14 per centand in the case of sewerage tax shall be not less than 2 per centand not more than 4 per cent of the assessed annual value of thepremises as the Government may, from time to time afterconsidering the recommendation of the Nigam, by notification inthe Gazette, declare.

(3) The taxes mentioned in sub-section (1), shall, in a city, belevied at such rate which in the case of water tax shall not be lessthan 7.5 per cent and not more than 12.5 per cent and in the caseof sewerage tax shall not be less than 2.5 per cent and not more A

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SUPREME COURT REPORTS

Athan 5 per cent of the annual value of the premises determinedunder the Uttar Pradesh Municipal Corporations Act, 1959, asthe State Government may, from time to time, after consideringthe recommendation of the Nigam, by notification in the Gazette,declare.

B[Explanation.-For the purposes of this section-

(i) the expression “city~ shall have the meaning assigned to it inthe .Uttar Pradesh Municipal Corporations Act, 1959; and

(ii) the expression “sewerage tax~shall have the same meaningas the “drainage tax~ has been assigned in the Uttar PradeshCMunicipal Corporations Act, 1959.].”

Section 53 enunciates provisions for the assessment of the annualvalue in the following terms:

“53. Assessment of annual value.- (l) For the purposes of [sub-Dsection (2) of] of Section 52, annual value means- (a) in the case of railway stations, educational institutions (includingtheir hostels and halls) factories (as defined in the Factories Act,1948), and commercial establishments (as defined in the UttarPradesh Dookan Aur Vanijya Adhisthan Adhiniyam, 1956), fiveper cent of the market value of the premises;E

(b) in the case of any other premises, the gross annual rent forwhich such premises are actually let or where the premises arenot let, the gross annual rent for which the premises mightreasonably be expected to be let:

FProvided that the annual value in the case of premises occupiedby the owner himself shall be deemed to be twenty-five per centless than the annual value otherwise determined under this section.

(2) The annual value of premises for the purposes of the levy oftaxes under subsection (2) of Section 52 shall be assessed byGsuch authority as the State Government may, by general or specialorder direct, and such authority may be either the Jal Sansthanitself or any other agency as may be specified in the order.

(3) Where the assessment is made by the Jal Sansthan or by anyother agency the Jal Sansthan or such other agency shall followHthe prescribed procedure.

(4) Until an assessment of the annual value of premises in anylocal area is made by the Jal Sansthan or any other agency specifiedunder sub-section (2) the annual value of all premises in that localarea, as assessed by the local body concerned for the purposes ofhouse tax shall be deemed to be the annual value of the premisesfor the purposes of this Act as well.

(5) Where the annual value of premises in any local area is assessedby the Jal Sansthan or other agency specified under sub-section(2), it shall, subject to any variation therein on appeal under Section54, be deemed to be the annual value of the premises for thepurposes also of house tax levied by the local body concerned,anything contained in the law constituting such local bodynotwithstanding.”

For the purpose of assessment of annual value of the premises,the Jal Sansthan (Assessment of Annual Value of Premises) Rules 1981were formulated under Section 96(2)(c) of the Act. Section 54 containsprovisions for an appeal against an order of assessment to the prescribedauthority. Section 55 enacts restrictions on the levy of taxes. Section 55reads as follows:

“55. Restriction on levy of taxes.- The levy of taxes mentioned inSection 52 shall be subject to the following restrictions, namely- (a) they shall not be levied on any land exclusively used foragricultural purposes unless water is supplied by the Jal Sansthanfor such purposes to that land; (b) the water tax shall not be levied on any premises-

(i) of which no part is situate within the radius prescribed fromthe nearest stand-post or other waterworks at which water ismade available to the public by the Jal Sansthan; or

(ii) the annual value of which does not exceed rupees three hundredand sixty, and to which no water is supplied by the Jal Sansthan.]

(c) the sewerage tax shall not be levied on any premises-

(i) of which no part is within a radius of one hundred metres fromthe nearest sewer of the Jal Sansthan, or

(ii) the annual value of which does not exceed one hundred fiftyrupees.”

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APursuant to Section 55(b)(i), the Jal Sansthan (Radius regardingLevy of Water Tax) Rules 1993 were framed to define the ‘radius’ towhich the authority of the Jal Sansthan extends to. Section 56 enunciatesthe liability for the payment of taxes in the following terms:

“56. Liability for payment of taxes.- The taxes mentioned in SectionB52 shall be recoverable- (a) in the case of premises connected with water supply or, as thecase may be, with the sewer of A Jal Sansthan, from the occupierof the premises; (b) in the case of premises not so connected, from the owner ofCthe premises.”

16. As distinct from the levy of taxes, Section 59 enables the JalSansthan to fix the cost of water to be supplied by it according to theminimum cost to be charged in respect of each connection. In lieu ofDcharging the cost of water according to volume, the Jal Sansthan isempowered to accept a fixed sum for a specified period on the expectedconsumption of water during the period. Section 59 provides as follows:

“59. Cost of water.- (1) A Jal Sansthan shall, by notification in theGazette, fix the cost of water to be supplied by it according to itsEvolume, and also the minimum cost to be charged in respect ofeach connection.

(2) A Jal Sansthan may, in lieu of charging the cost of wateraccording to volume, accept a fixed sum for a specified period onthe basis of expected consumption of water during that period.”

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Section 60 provides for the fixation of the cost of disposal of wastewater by the Jal Sansthan. Section 61 provides for the provision of watermeters and the recovery of charges for the rent of the meters accordingto the bye-laws. Section 62 is a provision enabling the Jal Sansthan todemand security from the consumer in connection with the supply of aGmeter or for the sewer connection as provided in the bye-laws. Section63 deals with the levy of fees in the following terms:

“63. Fees.- A Jal Sansthan may charge such fees, for connection,disconnection, reconnection of any water supply or sewer ortesting or supervision or for any other service rendered or workHexecuted or supervised as may be provided by bye-laws.”

Section 64[5] contains provisions for the recovery of taxes, fees,cost of sewerage, cost of disposal of waste water, meter rent, penalty,damage or surcharge as arrears of land revenue. Chapter VII of theAct deals with water supply, of which Section 65 defines the supply ofwater for domestic purposes. Chapter VIII contains provisions forsewerage.

17. An overview of the provisions of the UP Water Supply andSewerage Act would indicate that separate and distinct provisions arecontained in Chapter VI for (i) taxes; (ii) fees; and (iii) charges. Thelevy of taxes is provided for in Section 52, the determination of the costof water to be charged for water connections in Section 59 and thecharge of fees in Section 63. Section 64 indicates that the dues of the JalSansthan could be in the form of a tax, fee, cost of water, cost of disposalof waste water, meter rent, penalty, damage or surcharge. The followingsections deal with these dues :

(i) Water tax and sewerage tax (Section 52);

(ii) Fees (Section 63);

(iii) Cost of water (Section 59);

(iv) Cost of disposal of waste water (Section 60);

(v) Meter rent (Section 61);

(vi) General penalty (Section 84); and

(vii) Surcharge or damage (Section 51)

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, thecontroversy is over the liability for the payment of tax.

18. There are two submissions which require our consideration.First is the challenge raised to the constitutionality of the levy under 5 “64. Recovery of taxes and other sums due.- (1) Any sum due to A Jal Sansthan onaccount of tax, fee, cost of water, cost of disposal of waste water, the meter-rent,penalty, damage or surcharge under this Act, shall be recoverable as arrears of landrevenue.

(2) Nothing in sub-section (1) shall affect the power of [the Jal] Sansthan to cut off inaccordance with its bye-laws, the connection of water supply in the event of nonpaymentby the consumer of any dues referred to in that sub-section.”

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ASection 52 of the UP Water Supply and Sewerage Act. Ms Divan hassubmitted that the levy does not constitute a tax on ‘lands and buildings’and is thus, outside the domain of the State legislature under Article 246of the Constitution read with Entry 49 of List II. Second, that the levyunder Section 52(1)(a), though labelled as a water tax, is in the nature ofa fee. We shall consider each of these submissions in turn.BD.2 Nature of levy under Section 52 of the UP Water Supplyand Sewerage Act

19. A legislative enactment which provides for the imposition of atax may make provisions for C

(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

D(v)Assessment, collection, recovery and other incidentalprovisions.

20. This characterization of the components of a tax has beendescribed repeatedly in the decisions of this Court. The locus classicuson this point was a two judge Bench decision in Govind Saran GangaESaran v. CST[6]. Justice RS Pathak (as the learned Chief Justice thenwas) held:

“6. The components which enter into the concept of a taxare well known. The first is the character of the impositionknown by its nature which prescribes the taxable eventFattracting the levy, the second is a clear indication of theperson on whom the levy is imposed and who is obliged topay the tax, the third is the rate at which the tax is imposed,and the fourth is the measure or value to which the ratewill be applied for computing the tax liability. If thosecomponents are not clearly and definitely ascertainable, it is difficultGto say that the levy exists in point of law. Any uncertainty orvagueness in the legislative scheme defining any of thosecomponents of the levy will be fatal to its validity.”

H6 1985 Supp SCC 205

21. In Commissioner of Income Tax (Central)- I, New Delhiv. Vatika Township Private Limited[7]a Constitution Bench of this Courtwhile holding that the rate of tax is an important component of the taxregime, noted:

“39.2. The rate at which tax, or for that matter surcharge is to belevied is an essential component of the tax regime. In GovindSaran Ganga Saran v. CST [1985 Supp SCC 205 : 1985 SCC(Tax) 447 : (1985) 155 ITR 144] , this Court, while explaining theconceptual meaning of a tax, delineated four components therein,as is clear from the following passage from the said judgment:(SCC pp. 209-10, para 6)

“6. The components which enter into the concept of a tax arewell known. The first is the character of the imposition knownby its nature which prescribes the taxable event attractingthe levy, the second is a clear indication of the person onwhom the levy is imposed and who is obliged to pay the tax,the third is the rate at which the tax is imposed, and the fourthis the measure or value to which the rate will be applied forcomputing the tax liability. If those components are not clearlyand definitely ascertainable, it is difficult to say that the levyexists in point of law. Any uncertainty or vagueness in thelegislative scheme defining any of those components of thelevy will be fatal to its validity.”

It is clear from the above that the rate at which the tax is to beimposed is an essential component of tax and where the rate isnot stipulated or it cannot be applied with precision, it would bedifficult to tax a person. This very conceptualisation of tax wasrephrased in CIT v. B.C. Srinivasa Setty [(1981) 2 SCC 460 :1981 SCC (Tax) 119 : (1981) 128 ITR 294] , in the followingmanner: (SCC p. 465, para 10)

“10. … The character of computation of provisions in eachcase bears a relationship to the nature of the charge. Thusthe charging section and the computation provisions togetherconstitute an integrated code. When there is a case to whichthe computation provisions cannot apply at all, it is evidentthat such a case was not intended to fall within the chargingsection.””

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A22. In Federation of Hotel and Restaurant Association ofIndia v. Union of India[8], a challenge was raised to the constitutionalvalidity of the Expenditure Tax Act 1987 which imposed an ‘expendituretax’ on persons incurring “chargeable expenditure” in a class of hotels.In that case, the petitioners argued that the Act in essence levied a taxon luxuries, which falls within Entry 62 of List II and lies outside theBcompetence of Parliament. Rejecting this contention, the ConstitutionBench, speaking through Justice MN Venkatachaliah (as the learnedChief Justice then was), observed:

“43. The subject of a tax is different from the measure ofthe levy. The measure of the tax is not determinative of itsCessential character or of the competence of the legislature.In Sainik Motors v. State of Rajasthan [AIR 1961 SC 1480 :(1962) 1 SCR 517] , the provisions of a State law levying atax on passengers and goods under Entry 56 of List I wereassailed on the ground that the State was, in the guise oftaxing passengers and goods, in substance and reality taxingDthe income of the stage carriage operators or, at any rate,was taxing the “fares and freights”, both outside of itspowers. It was pointed out that the operators were requiredto pay the tax calculated at a rate related to the value of thefare and freight. Repelling the contention, Hidayatullah, J.,Espeaking for the court said : (SCR p. 525)

“We do not agree that the Act, in its pith and substance, laysthe tax upon income and not upon passengers and goods.Section 3, in terms, speaks of the charge of the tax ‘in respectof all passengers carried and goods transported by motorvehicles’, and though the measure of the tax is furnished byFthe amount of fare and freight charged, it does not cease tobe a tax on passengers and goods.”

Indeed, reference may be made to the following statementin Encyclopaedia Britannica (Vol. 14 p. 459) on “Luxury Tax”:

“A different approach to luxury taxation, much less frequentlyGfound, seeks to single out the luxury component of spendingon a given object rather than taxing specified goods andservices as luxuries. One example of this is the Massachusetts5 per cent tax on restaurant meal of $. 1 or more....”

44. The submissions of the learned Attorney General that the taxis essentially a tax on expenditure and not on luxuries or sale ofgoods falling within the State power, must, in our opinion, beaccepted. As contended by the learned Attorney General, thedistinct aspect, namely, “the expenditure” aspect of the transactionfalling with the Union power must be distinguished and thelegislative competence to impose a tax thereon sustained.Contention (a) is, in our opinion, unsubstantial and, accordingly,fails.”

23. In State of West Bengal v. Kesoram Industries Ltd[9] aConstitution Bench of this Court held that the measure employed forassessing a tax must not be confused with the nature of the tax. In doingso, Justice RC Lahoti (as the learned Chief Justice then was), advertedto a line of decisions in Ralla Ram v. Province of East Punjab[10],Sainik Motors v. State of Rajasthan[11], D.G Gose & Co. (Agents)P. Ltd. v. State of Kerala[12] and Hingir Rampur Coal Co. Ltd. v.State of Orissa[13], and observed “33. […] It has been long recognised that the measureemployed for assessing a tax must not be confused withthe nature of the tax. A tax has two elements : first, theperson, thing or activity on which the tax is imposed, andsecond, the amount of tax. The amount may be measuredin many ways; but a distinction between the subject-matterof a tax and the standard by which the amount of tax ismeasured must not be lost sight of. These are describedrespectively as the subject of a tax and the measure of atax. It is true that the standard adopted as a measure of thelevy may be indicative of the nature of the tax, but it doesnot necessarily determine it. The nature of the mechanismby which the tax is to be assessed is not decisive of theessential characteristic of the particular tax charged, thoughit may throw light on the general character of the tax.”

9 (2004) 10 SCC 201

10 AIR 1949 FC 81

11 AIR 1961 SC 1480

12 (1980) 2 SCC 410

13 AIR 1961 SC 459

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A24. A basic principle of tax jurisprudence is that the levy of a taxcannot be conflated with its measure. In the context of Section 52, thelevy by the Jal Sansthan is “on premises situated within its area” meaningthe area within which the Jal Sansthan exercises its jurisdiction andpowers. The levy is on premises. The expression ‘premises” is definedin Section 2(18) to mean “any land or building”. Hence, read togetherBwith the definition of the expression “premises”, the levy is squarely onlands and buildings situated within the area of the Jal Sansthan. Whileimposing the levy under clause (a) of Section 52(1) the legislature hasprovided that the levy will be on premises situated within the area of theJal Sansthan, where the area is covered by the water supply services ofCthe Jal Sansthan. This stipulation in clause (a) does not render the levy afee 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 tofinance the activities which it undertakes to plan, promote and executeschemes for and operate an efficient system of water supply. Besidesthe above function in Section 24(1), the Jal Sansthan has to manage itsDaffairs to provide the people of the area within its jurisdiction withwholesale water. It is in this context that Section 25, which defines thepowers of the Jal Sansthan, stipulates in sub-Section (1) that the JalSansthan shall have the power to do anything which may be expedientand necessary to carry out its functions under the UP Water Supply andESewerage Act. These powers are to inter alia include under clause (vi)of sub-Section (2) the collection of taxes and charges for these servicesas may be prescribed. These provisions indicate that the levy of tax isintended to secure adequate means of finance for the Jal Sansthan toundertake its activities. But the raising of revenue in terms of Section52(1)(a) is in the nature of a tax. The levy is on premises situated withinFthe area of the Jal Sansthan. The measure of the tax is the assessedannual value of the premises, annual value being assessed in the mannerindicated in Section 53. The rate of tax in the case of a local area, otherthan a city, has to be not less than 6 per cent and not more than 14 percent. In the case of the water tax in a city the rate is to be not less thanG7.5 per cent and not more than 12.5 per cent. A similar provision hasbeen incorporated in regard to the levy of a sewerage tax in Section52(1)(b) and sub-Sections (2) and (3) provide for the measure and therate of tax.

25. Section 55 contains restrictions on the levy of the tax set outHin Section 52. Clause (a) specifies that a tax shall not be levied on land which is used exclusively for agricultural purposes unless water is suppliedby the Jal Sansthan for such purpose to that land. Clause (b) of Section55 contains two further restrictions on the levy of water tax by providingthat it shall not be levied on premises: (i) not situated within the radiusprescribed of the nearest stand post or other water works on whichwater is made available to the public by the Jal Sansthan; or (ii) whoseannual value does not exceed Rs. 360 and to which no water is suppliedby the Jal Sansthan. The restrictions which are imposed by Section 55do not render the tax a fee, nor are they indicative of the tax beingcharged for the actual use of water. While imposing the levy in Section52(1)(a), the legislature has considered it appropriate to restrict the levywithin the parameters which are specified in Section 55. That does notalter the fundamental nature of the levy, which is constituted as one onpremises (defined to mean land and building) situated within the area ofJal Sansthan.

26. Section 56, which is a provision in relation to the incidence ofthe tax, provides that the tax mentioned in Section 52 would berecoverable:

(i) from the occupiers of the premises, in the case of premisesconnected with water supply or as the case may be withthe sewer of a Jal Sansthan; and

(ii) from the owner of the premises, in the case of premisesnot connected with water supply or the sewer of the JalSansthan.

Section 56 is a clear indicator of the tax being in the nature of acompulsory exaction arising out of the fact that the premises compriseof land and building situated within the area of the Jal Sansthan, so longas the restrictions which are contained in Section 55 are not attracted.Section 52 and Section 56 also indicate that the intention of the legislatureis to collect water tax and sewerage tax from the occupier of the premises,where the premises are connected with water supply or, as the casemay be, with a sewer of the Jal Sansthan and, in case where the premisesare not so connected, from the owner of the premises. Therefore, thepayment of water tax and sewerage tax is regardless of whether thepremises are connected with water supply or with a sewer of the JalSansthan. There is no exemption from the payment of water tax orsewerage tax as both the contingencies- the premises being connected A

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Awith water supply (or, as the case may be, with a sewer of the JalSansthan) or there being no such connection- have been covered underthe provisions of Section 56. So long as a provision for water supply or asewerage is made by the Jal Sansthan in the area covered, the occupieror the owner of the premises is liable to pay the taxes. Both the watertax as well as the sewerage tax could be consolidated for the purpose ofBlevying, assessing and collecting them under Section 57 of the Act.

27. Chapter VI makes a clear distinction between a tax, a chargeand a fee. We have already noticed the provisions of Chapter VI governingthe levy and imposition of taxes. Section 59 provides for the fixation ofCthe cost of water to be supplied by the Jal Sansthan according to itsvolume as well as the minimum cost to be charged in respect of eachconnection. The Jal Sansthan may, in lieu of charging for the cost ofwater according to volume, charge a fixed sum on the basis of expectedconsumption. A similar provision for the recovery of sewerage chargesis contained in Section 60. A distinct provision is contained in Section 63Dfor the recovery of fees. Fees under Section 63 can be recovered forthe connection, disconnection or reconnection of water supply or sewer,for testing or supervision or for any other purpose or work executed orsupervised as provided in the bye-laws. The provisions of Section 63indicate that the recovery of a fee is, broadly speaking in relation to aEservice which is provided.

28. The nomenclature that the legislature has ascribed to the taxdoes not determine either the nature of the levy or its true and essentialcharacter. The legislature may choose a label for a tax. The label howeverwill not determine or for that matter clarify the nature of the levy. TheFnature of the levy has to be deduced from the nature of the tax, theprovision which specifies the taxing event and, as in the case of Section52, the unit upon which the levy is to be imposed. The legislature maychoose a label for the tax based on the nature of the levy. On the otherhand, the legislature may choose a label having a relationship with thefunction of the authority which imposes the tax as in the present case.GThe tax has been labelled as the water tax or a sewerage tax simplybecause it is imposed by the Jal Sansthan constituted under the UP WaterSupply and Sewerage Act. That does not alter the nature of the levywhich in substance is a tax on lands and buildings within the meaning ofEntry 49 of List II of the Seventh Schedule.

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D.3 Entry 49 List II: Taxes on Lands and Buildings

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D.3 Entry 49 List II: Taxes on Lands and Buildings

29. The ambit of the expression “taxes on lands and buildings” inEntry 49 of List II has come up for consideration before the FederalCourt and this Court. In Ralla Ram (supra) the Federal Court interpretedItem 42 of List II (the Provincial Legislative List) under Section 100 ofthe Government of India Act 1935. Item 42 of List II dealt with “taxeson lands and buildings, hearths and windows”. In this case, a tax wasimposed on the basis of annual value of buildings and lands by a Provinciallegislature and the question before the Court was whether it was insubstance, an income tax. The Federal Court emphasized that annualvalue is not necessarily actual income but only a standard by whichincome may be measured. The Court observed:

“Now once it is realised that the annual value is notnecessarily actual income, but is only a standard by whichincome may be measured, much of the difficulty whichappears on the surface is removed. In our opinion, thecrucial question to be answered is whether merely becausethe Income-tax Act has adopted the annual value as thestandard for determining the income, it must necessarilyfollow that, if the same standard is employed as a measurefor any other tax, that tax becomes a tax on income? If theanswer to this question is to be given in the affirmative, then certaintaxes which cannot possibly be described as income-tax must beheld to be so. A case in point is to be found in In re a Referenceunder the Government of Ireland Act, 1920: In re s. 3 of theFinance Act (Northern Ireland), 1934 [[1986] A.C. 852.] .

[…]

This case demolishes the broad contention that whereverthe annual value is the basis of a tax, that tax becomes atax on income. It shows that there are other factors to betaken into consideration and that it is the essential natureof the tax charged and not the nature of the machinery whichis to be looked at.”

30. In a subsequent decision of the Full Bench of the MadrasHigh Court in V Pattabhiraman v. The Assistant Commissioner of A

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AUrban Land Tax, North Madras (North West) Ayanavaram[14],thevalidity of the Madras Urban Land Tax Act 1966, which imposed a taxon the basis of the market value of land, was challenged on the groundthat it was in substance an income tax. Following the decision in RallaRam (supra), the High Court held the law to be within the purview ofEntry 49 of List II.B

31. In Ajoy Kumar Mukherjee v. Local Board of Barpeta[15],a Constitution Bench of this Court upheld the validity of an annual taxlevied by local boards upon lands used for holding markets created underthe Assam Local Self-Government Act 1953. Justice KN Wanchoo,speaking for the Constitution Bench, observed that:C

“4. … It is well-settled that the entries in the three legislative listshave to be interpreted in their widest amplitude and therefore if atax can reasonably be held to be a tax on land it will come withinEntry 49. Further it is equally well-settled that tax on land may bebased on the annual value of the land and would still be a tax onDland and would not be beyond the competence of the Statelegislature on the ground that it is a tax on income: (see RallaRam v. Province of East Punjab [(1948) FCR 207] . It followstherefore that the use to which the land is put can be takeninto account in imposing a tax on it within the meaning ofEEntry 49 of List II, for the annual value of land which cancertainly be taken into account in imposing a tax for thepurpose of this entry would necessarily depend upon theuse to which the land is put. It is in the light of this settledproposition that we have to examine the scheme of Section 62 ofthe Act, which imposes the tax under challenge.F[…]

6. […] This will again show that the tax provided by Section 52(2)is a tax for the use of the land and it is not a tax on the market assuch, for the income from the market in the shape of tolls, rentsand other dues is not liable to tax under Section 52 and is differentGfrom tax. The scheme of Section 62 therefore shows thatwhenever any land is used for the purpose of holding amarket, the owner, occupier or farmer of that land has topay a certain tax for its use as such. But there is no tax on 14 AIR 1971 Mad 61 (FB)H15 AIR 1965 SC 1561

any transaction that may take place within the market.Further the amount of tax depends upon the area of theland on which market is held and the importance of themarket subject to a maximum fixed by the StateGovernment. We have therefore no hesitation in coming tothe conclusion on a consideration of the scheme of Section52 of the Act that the tax provided therein is a tax on land,though its incidence depends upon the use of the land as amarket. Further as we have already indicated Section 62(2)which uses the words “impose an annual tax thereon”clearly shows that the word “thereon” refers to any landfor which a licence is issued for use as a market and not tothe word “market”. Thus the tax in the present case beingon land would clearly be within the competence of the Statelegislature. The contention of the appellant that the Statelegislature was not competent to impose this tax becausethere is no provision in List II of the Seventh Schedule forimposing a tax on markets as such must therefore fail.”

Thus, the Court reaffirmed the principle that the use to which theland has been put can be taken into account in imposing a tax which iswithin the meaning of Entry 49 of List II.

32. In Assistant Commissioner of Urban Land Tax v.Buckingham and Carnatic Co. Ltd. Etc.[16 ]a Constitution Bench heldthat for the purpose of levying a tax under Entry 49 of List II, the Statelegislature may adopt the annual or capital value of the lands and buildingsfor determining the incidence of the tax. Justice V Ramaswami (I)observed:

“4. The first question to be considered in these appeals is whetherthe Madras Legislature was competent to enact the legislationunder Entry 49 of List II of Schedule VII of the Constitution whichreads: “Taxes on lands and buildings”. It was argued on behalf ofthe petitioners that the impugned Act fell under Schedule VII,List I, Entry 86, that is “Taxes on the capital value of the assets,exclusive of agricultural land of individuals and companies; taxeson the capital of companies.”

[…]

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AIn our opinion there is no conflict between Entry 86 of List I andEntry 49 of List II. The basis of taxation under the two entries isquite distinct. As regards Entry 86 of List I the basis of the taxationis the capital value of the asset. It is not a tax directly on thecapital value of assets of individuals and companies on the valuationdate. […]

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But Entry 49 of List II, contemplates a levy of tax on landsand buildings on both as units. It is not concerned with thedivision of interest or ownership in the units of lands orbuildings which are brought to tax. Tax on lands andbuildings is directly imposed on lands and buildings, andCbears a definite relation to it. Tax on the capital value ofassets bears no definable relation to lands and buildingswhich may form a component of the total assets of theassessee. By legislation in exercise of power under Entry86, List I tax is contemplated to be levied on the value ofthe assets. For the purpose of levying tax under Entry 49,DList II the State Legislature may adopt for determining theincidence of tax the annual or the capital value of the landsand buildings. But the adoption of the annual or capital valueof lands and buildings for determining tax liability will notmake the fields of legislation under the two entriesEoverlapping. The two taxes are entirely different in their basicconcept and fall on different subject-matters.”

33. Another case in which the interpretation of Entry 49 of List IIcame up for consideration before a Constitution Bench of this Court isFUnion of India v. HS Dhillon[17].In that case, the appeal arose from ajudgment of the Punjab and Haryana High Court holding that Section 24of the Finance Act 1969 insofar as it amended the relevant provisions ofthe Wealth Tax Act 1957 was beyond the legislative competence ofParliament. The High Court held that the Wealth Tax Act as amendedwas ultra vires the Constitution insofar as it included the capital valueGof agricultural land for the purposes of computing net wealth. The majority(4:1) of the High Court had also held that the law was not one withrespect to Entry 49 of List II. Chief Justice SM Sikri in the course of thejudgment of the Constitution Bench of this Court enunciated the essentialelements of a tax under Entry 49 of List II by observing that H17 AIR 1972 SC 1061

“74. The requisites of a tax under Entry 49, List II, may besummarised thus:

(1) It must be a tax on units, that is lands and buildings separatelyas units.

(2) The tax cannot be a tax on totality, i.e., it is not a compositetax on the value of all lands and buildings.

(3) The tax is not concerned with the division of interest in thebuilding or land. In other words, it is not concerned whether oneperson owns or occupies it or two or more persons own or occupyit.”

In other words, it was held that the tax under Entry 49 of List II“is not a personal tax but a tax on property”. Consequently, the wealthtax imposed under the Wealth Tax Act was held to be distinct from a taxunder Entry 49 of List II.

34. A Bench of three learned judges of this Court in GoodrickeGroup Limited v. State of WB[18 ]considered the validity of the levy ofan education cess on rural employment by the West Bengal TaxationLaws (Second Amendment) Act 1989. The levy of the rural employmentcess was annually imposed on a tea estate at the rate of 12 paise foreach kilogram of green tea leaves produced in the State. The issue waswhether the levy was a tax on lands and buildings within the meaning ofEntry 49 of List II. After adverting to the above decisions, Justice BPJeevan Reddy speaking for the three judge Bench came to the followingconclusion:

“20. It is thus clear from the aforesaid decisions that merelybecause a tax on land or building is imposed with reference to itsincome or yield, it does not cease to be a tax on land or building.The income or yield of the land/building is taken merely as ameasure of the tax; it does not alter the nature or character of thelevy. It still remains a tax on land or building. There is no setpattern of levy of tax on lands and buildings — indeed there canbe no such standardisation. No one can say that a tax under aparticular entry must be levied only in a particular manner, whichmay have been adopted hitherto. The legislature is free to adoptsuch method of levy as it chooses and so long as the character of A

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Alevy remains the same, i.e., within the four corners of the particularentry, no objection can be taken to the method adopted. In thecases before us, the cess is no doubt calculated on the basis ofthe yield — for every kilogram of tea leaves produced in a teaestate, a particular cess is levied. But that is a well-accepted modeof levy of tax on land. The tax is upon the land — upon the “teaBestate” which is classified as a separate category, as a separateunit, for the purpose of levy and assessment of the said cessquantified on the basis of the quantum of produce of the tea estate.It cannot be characterised as a tax on production for that reason.As pointed out in Moopil Nair [(1961) 3 SCR 77 : AIR 1961 SCC552] — “a tax on land is assessed on the actual or potentialproductivity of the land sought to be taxed”. There cannot beuniform levy unrelated to the quality, character or income/yield ofthe land. Any such levy has been held to be arbitrary anddiscriminatory.”

D35. During the course of his submissions, Mr Pradeep Kant hasalso relied on the decision of the High Court of Allahabad in Raza BulandSugar Co. Ltd. v. Municipal Board, Rampur[19] and the decision ofthe High Court of Andhra Pradesh in Nizam Sugar Factory Ltd. v.City Municipality, Bodhan[20]. In both these decisions, the questionbefore the High Courts was whether a water tax imposed on the annualEvalue of lands and buildings by the Municipality was within the competenceof the State legislature. The High Courts, referring to the pith andsubstance doctrine, observed that though the tax was named as ‘watertax’, it was not levied on the production of water or on the quantity ofwater supplied and consumed, but instead was a tax on land and buildingsFfalling under Entry 49 of List II.

36. In view of the above decisions, there can be no manner ofdoubt that the levy which is imposed under Section 52 is a tax on landsand buildings situated within the area of the Jal Sansthan for the purposeof imposing the tax. The tax is imposed on premises which fall within theGterritorial area of the Jal Sansthan. The expression ‘premises’ is definedto mean land and building. The tax is on lands and buildings. Thenomenclature of the tax does not indicate its true character and substance.

19 AIR 1962 All 83H20 AIR 1965 AP 91

Nor does the fact that the law enables the Jal Sansthan to levy the taxrender it a tax on water. The charging section indicates in unambiguousterms that it is a tax on lands and buildings. The legislature has introducedcertain restrictions in Section 55 inter alia stipulating in clause (a) thatfor land which is exclusively used for agricultural purposes, the tax shallnot be levied unless water is supplied by the Jal Sansthan for such purposesto the land and in clause (b) stipulating that

(i) the premises should be situated within the prescribed radiusfrom the nearest stand-post or other waterworks at whichthe water is made available to the public; and

(ii) the annual value of which does not exceed Rs. 360 and towhich no water has been supplied by the Jal Sansthan.

These restrictions do not detract from the nature of the levy norwould the liability which is imposed on the owner and occupier be anythingother than a tax on lands and building within the meaning of Entry 49 ofList II. The water tax and sewerage tax are taxes levied in order toaugment the finances of the Jal Sansthan for the purpose of meeting thecost of its operation, maintenance and services, so as to achieve aneconomic return on its fixed assets. The collection is ultimately forproviding water supply and sewerage in the area of the Jal Sansthan,even if it may not be provided to the particular premises. The tax isimposed on an occupier or owner of the building or land falling within thearea of the Jal Sansthan irrespective of whether a connection of watersupply or sewerage has been obtained to the land or building. In anotherwords, the basis for the levy of the taxes is on the location of premiseswithin the area of the Jal Sansthan as notified by the State Government.Since the respondent’s premises are located within the area of theappellant’s authority, the respondent is liable to pay the water tax as wellas the sewerage tax as the owner and occupier of the premises.

37. Ms Divan has also submitted that the levy under Section 52 isin consonance with Entry 17 of List II, instead of Entry 49 of List II.Entry 17 of List II provides for “water, that is to say, water supplies,irrigation and canals, drainage and embankments, water storage andwater power subject to the provisions of entry 56 of List I”. Extendingthis argument, Ms Divan submitted that it is a fee for the supply ofwater, and no fee can be levied when water is not supplied.

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A38. We do not find any merit in this submission. Long years ago in1958, this Court in M.P.V. Sundararamier & Co. v. State of AP[21 ]heldthat the Constitution makes a differentiation between the subject matterof the legislation, and the tax in relation to the said subject matter in theUnion, State and Concurrent List in the Seventh Schedule. Justice TLVenkatarama Aiyar, speaking for the majority (4:1), observed that :B

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“51. In List I, Entries 1 to 81 mention the several matters overwhich Parliament has authority to legislate. Entries 82 to 92enumerate the taxes which could be imposed by a law ofParliament. An examination of these two groups of Entries showsthat while the main subject of legislation figures in the first group,Ca tax in relation thereto is separately mentioned in the second.Thus, Entry 22 in List I is “Railways”, and Entry 89 is “Terminaltaxes on goods or passengers, carried by railway, sea or air; taxeson railway fares and freights”. If Entry 22 is to be construed asinvolving taxes to be imposed, then Entry 89 would be superfluous.DEntry 41 mentions “Trade and commerce with foreign countries;import and export across customs frontiers”. If these expressionsare to be interpreted as including duties to be levied in respect ofthat trade and commerce, then Entry 83 which is “Duties ofcustoms including export duties” would be wholly redundant.Entries 43 and 44 relate to incorporation, regulation and winding E

up of corporations. Entry 85 provides separately for corporationtax. Turning to List II, Entries 1 to 44 form one group mentioningthe subjects on which the States could legislate. Entries 45 to 63in that List form another group, and they deal with taxes. Entry18, for example, is “Land” and Entry 45 is “Land revenue”. EntryF23 is “Regulation of mines” and Entry 50 is “Taxes on mineralrights”. The above analysis — and it is not exhaustive of theEntries in the Lists — leads to the inference that taxationis not intended to be comprised in the main subject in whichit might on an extended construction be regarded asincluded, but is treated as a distinct matter for purposes ofGlegislative competence. And this distinction is also manifest inthe language of Article 248, clauses (1) and (2) and of Entry 97 inList I of the Constitution. Construing Entry 42 in the light of theabove scheme, it is difficult to resist the conclusion that the power of Parliament to legislate on inter-State trade and commerce underEntry 42 does not include a power to impose a tax on sales in thecourse of such trade and commerce.

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55. To sum up: (1) Entry 54 is successor to Entry 48 in theGovernment of India Act, and it would be legitimate to construe itas including tax on inter State sales, unless there is anythingrepugnant to it in the Constitution, and there is none such. (2)Under the scheme of the entries in the Lists, taxation isregarded as a distinct matter and is separately set out. (3)Article 286(2) proceeds on the basis that it is the States that havethe power to enact laws imposing tax on inter-State sales. It is afair inference to draw from these considerations that under Entry54 in List II the States are competent to enact laws imposing taxon inter-State sales.”(emphasis supplied)

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39. The interpretation of the scheme of the entries laid down inSundararamier (supra) has been followed by this Court in Goodricke(supra), Corporation of Calcutta v. Liberty Cinema[22]; JindalStainless Ltd. v. State of Haryana[23] and other decisions.

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40. As explained above, the levy under Section 52 falls squarelyunder the ambit of Entry 49 of List II as it is in the nature of a tax and nota fee. Thus, the applicability of Entry 17, which is a non-taxing entry,does not arise in this case.

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D.4 Tax and fee

41. Ms Divan’s submission that the tax which is imposed in Section52(1)(a) is truly speaking a fee is premised on the argument that a trueFtax on lands and buildings under Entry 49 of List II

(i) should be agnostic as between owners and occupiers;

(ii) should make no differentiation between those who do anddo not consume water; and G

(iii) should contain no provision for a separate fund into whichthe revenue of the Jal Sansthan is earmarked.

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23 AIR 2016 SC 5617

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A42. The distinction between a tax and fee has substantially beeneffaced in the development of our constitutional jurisprudence. At onetime, it was possible for courts to assume that there is a distinctionbetween a tax and a fee: a tax being in the nature of a compulsoryexaction while a fee is for a service rendered. This differentiation, basedon the element of a quid pro quo in the case of a fee and its absence inBthe case of a tax, has gradually, yet steadily, been obliterated to the pointwhere it lacks any practical or constitutional significance. For one thing,the payment of a charge or a fee may not be truly voluntary and thecharge may be imposed simply on a class to whom the service is madeavailable. For another, the service may not be provided directly to aCperson as distinguished from a general service which is provided to themembers of a group or class of which that person is a part. Moreover,as the law has progressed, it has come to be recognized that there neednot be any exact correlation between the expenditure which is incurredin providing a service and the amount which is realized by the State. Thedistinction that while a tax is a compulsory exaction, a fee constitutes aDvoluntary payment for services rendered does not hold good. As in thecase of a tax, so also in the case of a fee, the exaction may not be trulyof a voluntary nature. Similarly, the element of a service may not betotally absent in a given case in the context of a provision which imposesa tax.E43. The gradual obliteration of the distinction between a tax and afee on a conceptual level has been the subject matter of several decisionsof this Court.

44. In Southern Pharmaceuticals and Chemicals, Trichur v.State of Kerala[24 ]Justice AP Sen speaking for the Court held:F

“24. The distinction between a “tax” and a “fee” is well settled.The question came up for consideration for the first time in thisCourt in the Commissioner, H.R.E., Madras v. LakshmindraThirtha Swamiar of Shirur Mutt [AIR 1954 SC 282 : 1954 SCR1005 : 1954 SCJ 335].

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25. ”Fees” are the amounts paid for a privilege, and are not anobligation, but the payment is voluntary. Fees are distinguishedfrom taxes in that the chief purpose of a tax is to raise funds for H24 (1981) 4 SCC 391

the support of the Government or for a public purpose, while afee may be charged for the privilege or benefit conferred, or servicerendered or to meet the expenses connected therewith. Thus,fees are nothing but payment for some special privilege grantedon service rendered. Taxes and taxation are, therefore,distinguishable from various other contributions, charges, or burdenspaid or imposed for particular purposes and under particular powersor functions of the Government. It is now increasingly realisedthat merely because the collections for the servicesrendered or grant of a privilege or licence, are taken to theconsolidated fund of the State and are not separatelyappropriated towards the expenditure for rendering theservice is not by itself decisive. That is because theConstitution did not contemplate it to be an essentialelement of a fee that it should be credited to a separatefund and not to the consolidated fund. It is also increasinglyrealised that the element of quid pro quo stricto senso isnot always a sine qua non of a fee. It is needless to stressthat the element of quid pro quo is not necessarily absentin every tax. We may, in this connection, refer with profit to theobservations of Seervai in his Constitutional Law, to the effect:[HM Seervai Constitutional Law of India, 2nd Edn, Vol. 2, p 1252,para 2239]

“It is submitted that as recognised by Mukherjea, J. himself,the fact that the collections are not merged in the consolidatedfund, is not conclusive, though that fact may enable a courtto say that very important feature of a fee was present. Butthe attention of the Supreme Court does not appear to havebeen called to Article 266 which requires that all revenues ofthe Union of India and the States must go into their respectiveconsolidated funds and all other public moneys must go intothe respective public accounts of the Union and the States. Itis submitted that if the services rendered are not by a separatebody like the Charity Commissioner, but by a governmentdepartment, the character of the imposition would not changebecause under Article 266 the moneys collected for theservices must be credited to the consolidated fund. It may bementioned that the element of quid pro quo is not necessarilyabsent in every tax.”

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AOur attention has been drawn to the observations in KewalKrishan Puri v. State of Punjab [(1980) 1 SCC 416, 425 : (1979)3 SCR 1217, 1230] : (SCC p. 425, para 8)

“The element of quid pro quo must be established betweenthe payer of the fee and the authority charging it. It may notBbe the exact equivalent of the fee by a mathematical precision,yet, by and large, or predominantly, the authority collectingthe fee must show that the service which they are rendering inlieu of fee is for some special benefit of the payer of the fee.”

To our mind, these observations are not intended and meantCas laying down a rule of universal application. The Courtwas considering the rate of a market fee, and the questionwas whether there was any justification for the increase inrate from Rs 2 per every hundred rupees to Rs 3. Therewas no material placed to justify the increase in rate of thefee and, therefore, it partook the nature of a tax. It seemsDthat the Court proceeded on the assumption that theelement of quid pro quo must always be present in a fee.The traditional concept of quid pro quo is undergoing atransformation.”

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45. In Municipal Corporation of Delhi v. Mohd. Yasin[25], JusticeO Chinnappa Reddy, while speaking for two judge Bench of this Court,referred to the decision in Southern Pharmaceuticals (supra) andobserved:

F“9. What do we learn from these precedents? We learn that thereis no generic difference between a tax and a fee, though broadlya tax is a compulsory exaction as part of a common burden, withoutpromise of any special advantages to classes of taxpayers whereasa fee is a payment for services rendered, benefit provided orprivilege conferred. Compulsion is not the hallmark of the distinctionGbetween a tax and a fee. That the money collected does not gointo a separate fund but goes into the consolidated fund does notalso necessarily make a levy a tax. Though a fee must have relationto the services rendered, or the advantages conferred, such relation H25 (1983) 3 SCC 229

need not be direct, a mere causal relation may be enough. Further,neither the incidence of the fee nor the service rendered need beuniform. That others besides those paying the fees are alsobenefitted does not detract from the character of the fee. In factthe special benefit or advantage to the payers of the fees mayeven be secondary as compared with the primary motive ofregulation in the public interest. Nor is the court to assume therole of a cost accountant. It is neither necessary nor expedient toweigh too meticulously the cost of the services rendered etc.against the amount of fees collected so as to evenly balance thetwo. A broad co-relationship is all that is necessary. Quid pro quoin the strict sense is not the one and only true index of a fee; noris it necessarily absent in a tax.”

46. In Sreenivasa General Traders and Others v. State ofAndhra Pradesh[26], a three judge Bench of this Court held:

“32. There is no generic difference between a tax and a fee.Both are compulsory exactions of money by public authorities.Compulsion lies in the fact that payment is enforceable by lawagainst a person in spite of his unwillingness or want of consent.A levy in the nature of a fee does not cease to be of that charactermerely because there is an element of compulsion or coercivenesspresent in it, nor is it a postulate of a fee that it must have directrelation to the actual service rendered by the authority to eachindividual who obtains the benefit of the service. It is nowincreasingly realised that merely because the collections for theservices rendered or grant of a privilege or licence are taken tothe consolidated fund of the State and not separately appropriatedtowards the expenditure for rendering the service is not by itselfdecisive. Presumably, the attention of the Court in the Shirur Muttcase [(1980) 1 SCC 416 : AIR 1980 SC 1008 : (1979) 3 SCR1217] was not drawn to Article 266 of the Constitution. TheConstitution nowhere contemplates it to be an essential elementof fee that it should be credited to a separate fund and not to theconsolidated fund. It is also increasingly realised that the elementof quid pro quo in the strict sense is not always a sine qua non fora fee. It is needless to stress that the element of quid pro quo is A

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254SUPREME COURT REPORTS

Anot necessarily absent in every tax: Constitutional Law ofIndia by H.M. Seervai, Vol. 2, 2nd Edn., p. 1252, paras 22, 39.”(See also in this context, the decision in Sirsilk Ltd. v. TextileCommittee[27]).

47. In view of this consistent line of authority, it emerges that theBpractical and even constitutional, distinction between a tax and fee hasbeen weathered down. As in the case of a tax, a fee may also involve acompulsory exaction. A fee may involve an element of compulsion andits proceeds may form a part of the Consolidated Fund. Similarly, theelement of a quid pro quo is not necessarily absent in the case of everyCtax. In the present case, the tax has been imposed by the legislature inSection 52 on premises situated within the area of the Jal Sansthan. Theproceeds of the tax are intended to constitute revenue available to theJal Sansthan to carry out its mandatory obligations and functions underthe statute of making water and sewerage facilities available in the areaunder its jurisdiction. The levy is imposed by virtue of the presence ofDthe premises within the area of the jurisdiction of the Jal Sansthan. Thewater tax is levied so long as the Jal Sansthan has provided a stand postor waterworks within a stipulated radius of the premises through whichwater has been made available to the public by the Jal Sansthan. Thelevy of the tax does not depend upon the actual consumption of water byEthe owner or occupier upon whom the tax is levied. Unlike the chargeunder Section 59 which is towards the cost of water to be supplied bythe Jal Sansthan according to its volume or, in lieu thereof on a fixedsum, the tax under Section 52 is a compulsory exaction. Where thepremises are connected with water supply, the tax is levied on theoccupier of the premises. On the other hand, where the premises areFnot so connected, it is the owner of the premises who bears the tax. Thelevy under Section 52 (1) is hence a tax and not a fee. Moreover, for thereasons that we have indicated above, it is a tax on lands and buildingswithin the meaning of Entry 49 of List II.

D.5 The ‘Railways’ judgmentG

48. The High Court in the present case has relied on the decisionof a two judge Bench of this Court in Union of India v. State of U.P.(supra) in support of its decision to order a refund of the taxes collected by the appellants. In that case, the writ petition which was filed by theUnion of India before the High Court challenged certain orders for therecovery of service charges on railway properties issued by the JalSansthan, Allahabad. The Jal Sansthan had directed the recovery of asum of money towards sewerage charges for 3125 “seats” from theDivisional Railway Manager of the Northern Railway at Allahabad. Thelevy was sought to be challenged on the ground that the Railways wereholding the property of the Central Government for which service chargeswere not payable under Article 285 of the Constitution as such chargeswere in the nature of a tax. The bulk of the water was supplied by theJal Sansthan for maintenance of the railway platforms as well as railwaycolonies. The Jal Sansthan was catering to the need of maintaining thesewerage system not only at the railway stations but in the adjoiningareas as well as the residential quarters, offices, gardens, and shedsmaintained by the Union of India through the railways. The DivisionBench of the High Court dismissed the writ petition challenging the levy.It must be noted that it was contended by the Union of India that thelevy of service charge was in the nature of a tax and hence fell withinthe ambit of Article 285 of the Constitution. On the other hand, the JalSansthan contended that the water and sewerage charges did notconstitute a tax but were a fee for services rendered by the Jal Sansthanto which Article 285 had no application. In that context, Justice AKMathur speaking for a two judge Bench of this Court observed:

“10. From a perusal of Article 285 it is clear that no property ofthe Union of India shall be subject to tax imposed by the State,save as Parliament may otherwise provide. The question iswhether “the charges for” supply of water and maintenance ofsewerage is in the nature of a tax or a fee for the services renderedby the Jal Sansthan. There is a distinction between a tax and afee, and hence one has to see the nature of the levy whether it isin the nature of tax or whether it is in the nature of fee for theservices rendered by any instrumentality of the State like the JalSansthan. There are no two opinions in the matter that so far assupply of water and maintenance of sewerage is concerned, theJal Sansthan is to maintain it and it is they who bear all the expensesfor the maintenance of sewerage and supply of water. It has tocreate its own funds and therefore, levy under the Act is a must.In order to supply water and maintain sewerage system, the JalSansthan has to incur the expenditure for the same. It is in fact a AB

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Aservice which is being rendered by the Jal Sansthan to theRailways, and the Railways cannot take this service from the JalSansthan without paying the charges for the same. Though theexpression tax has been used in the Act of 1975 but in fact it is inthe nature of a fee for the services rendered by the Jal Sansthan.What is contemplated under Article 285 is taxation on the propertyBof the Union. In our opinion the Jal Sansthan is not charging anytax on the property of the Union; what is being charged is a feefor services rendered to the Union through the Railways.Therefore, it is a plain and simple charge for service rendered bythe Jal Sansthan for which the Jal Sansthan has to maintain staffCfor regular supply of water as well as for sewerage system of theeffluent discharged by the railway over their platforms or fromtheir staff quarters. It is in the nature of a fee for service renderedand not any tax on the property of the Railways.”

A

The above observations make it clear that what was being chargedDin that case were charges for the supply of water and maintenance ofsewerage. This was held to be plain and simple a charge for servicerendered by the Jal Sansthan. As a consequence, Article 285 of theConstitution had no application on the ground that what is prohibited byArticle 285 is taxation on the property of the Union of India, but it doesnot prohibit a charge of a fee on account of a service rendered by localEbodies or an instrumentality of the State, such as the supply of water orthe maintenance of sewerage. This Court ruled that the charge wouldbe in the nature of a fee and not a tax. Having drawn the above conclusion,the Court in the concluding paragraph of the decision adverted to Section52 and held thus:F

“23. In this case what is being charged is for service rendered bythe Jal Sansthan i.e. an instrumentality of the State under the Actof 1975. Section 52 of the Act states that the Jal Sansthan canlevy tax, fee and charge for water supply and for sewerage servicesrendered by it as water tax and sewerage tax at the ratesGmentioned therein. Though the charge was loosely termed as “tax”but as already mentioned before, nomenclature is not important.In substance what is being charged is fee for the supply of wateras well as maintenance of the sewerage system. Therefore, inour opinion, such service charges are a fee and cannot be said tobe hit by Article 285 of the Constitution. In this context it is to beH

made clear that what is exempted by Article 285 is a tax on theproperty of the Union of India but not a charge for services whichare being rendered in the nature of water supply, for maintenanceof sewerage system. Therefore, in our opinion, the view taken bythe Division Bench of the Allahabad High Court is correct thatthe charge is a fee, being service charges for supply of water andmaintenance of sewerage system, which cannot be said to be taxon the property of the Union. Hence it is not violative of theprovisions of Article 285 of the Constitution.”

In the above extract, the two judge Bench held that Section 52“states that the Jal Sansthan can levy tax, fee and charge for watersupply and for sewerage services” and though the charge was termedas a tax, in substance it is a fee for the supply of water. There is anevident error in the above observations. Section 52 is contained in ChapterVI which is titled “taxes, fees and charges”. The observations inparagraph 23 quoted above indicate that the title of Chapter VI wasconflated with the nature of the provision which is contained in Section52. Section 52 provides for the levy of taxes and not for fees or chargesfor which there are distinct provisions in Chapter VI. The observationsof the Court that though the charges are loosely termed as tax, it is insubstance a fee, is per incuriam and in any event not reflective of acorrect reading of the provisions of the statute. As we have indicatedabove in Section D.1, the statute contains distinct provisions for the levyof taxes and for the imposition of charges and the recovery of fees. Thelevy under Section 52 is a tax simplicitor and cannot be regarded eitheras a charge or a fee for a service rendered. To that extent, theobservations in paragraph 23 of the decision in Union of India v. Stateof U.P. (supra) would have to be and are accordingly overruled.

E Conclusion

49. For the above reasons, we are of the view that there is nomerit in the challenge raised in the writ proceedings before the HighCourt of Judicature at Allahabad. We reject the constitutional challengeto the validity of Sections 52 (1)(a), Section 55(b)(1) and Section 56 ofthe UP Water Supply and Sewerage Act. The appeals shall accordinglystand allowed and the judgment of the High Court of Judicature atAllahabad at its Lucknow Bench dated 7 March 2014 shall stand setaside. The writ petition filed by the first respondent shall in consequencestand dismissed. The appellants shall be entitled to recover the balance AB

CD

EF

G

H

Aof the dues remaining to be recovered in pursuance of the notice ofdemand, together with interest at the rate of 9 per cent per annum. Inthe circumstances of the case, there shall be no order as to costs.

50. Pending application(s), if any, stand disposed of.

B

Divya Pandey

Appeals allowed.

C

D

E

F

G

H