Supreme Court: The 3-judg bench of Dr. DY Chandrachud*, Vikram Nath and BV Nagarathna, JJ has upheld the validity of Sections 52 (1)(a), Section 55(b)(1) and Section 56 of the UP Water Supply and Sewerage Act, 1975 and has held that the levy under Section 52 falls squarely under the ambit of Entry 49 of List II as it is in the nature of a tax and not a fee. The Court also went on to hold that the levy which is imposed under Section 52 is a tax on lands and buildings within the meaning of Entry 49 of List II.
Nomenclature of the Tax imposed
The Court held that the nomenclature that the legislature has ascribed to the tax does not determine either the nature of the levy or its true and essential character. While the legislature may choose a label for a tax, the said label however will not determine or for that matter clarify the nature of the levy.
“The legislature may choose a label for the tax based on the nature of the levy. On the other hand, the legislature may choose a label having a relationship with the function of the authority which imposes the tax …”
The nature of the levy has to be deduced from the nature of the tax, the provision which specifies the taxing event and, as in the case of Section 52, the unit upon which the levy is to be imposed. The tax has been labelled as the water tax or a sewerage tax simply because it is imposed by the Jal Sansthan constituted under the UP Water Supply and Sewerage Act. That does not alter the nature of the levy which in substance is a tax on lands and buildings within the meaning of Entry 49 of List II of the Seventh Schedule.
Entry 49 List II: Taxes on Lands and Buildings
There can be no manner of doubt that the levy which is imposed under Section 52 is a tax on lands and buildings situated within the area of the Jal Sansthan for the purpose of imposing the tax. The tax is imposed on premises which fall within the territorial area of the Jal Sansthan.
The expression ‘premises’ is defined to mean land and building. The tax is on lands and buildings. The nomenclature of the tax does not indicate its true character and substance. Nor does the fact that the law enables the Jal Sansthan to levy the tax render it a tax on water. The charging section indicates in unambiguous terms that it is a tax on lands and buildings.
The legislature has introduced certain restrictions in Section 55 inter alia stipulating in clause (a) that for land which is exclusively used for agricultural purposes, the tax shall not be levied unless water is supplied by the Jal Sansthan for such purposes to the land and in clause (b) stipulating that
- the premises should be situated within the prescribed radius from the nearest stand-post or other waterworks at which the water is made available to the public; and
- the annual value of which does not exceed Rs. 360 and to which no water has been supplied by the Jal Sansthan.
These restrictions do not detract from the nature of the levy nor would the liability which is imposed on the owner and occupier be anything other than a tax on lands and building within the meaning of Entry 49 of List II.
“The water tax and sewerage tax are taxes levied in order to augment the finances of the Jal Sansthan for the purpose of meeting the cost of its operation, maintenance and services, so as to achieve an economic return on its fixed assets. The collection is ultimately for providing water supply and sewerage in the area of the Jal Sansthan, even if it may not be provided to the particular premises.”
The tax is imposed on an occupier or owner of the building or land falling within the area of the Jal Sansthan irrespective of whether a connection of water supply or sewerage has been obtained to the land or building. In another words, the basis for the levy of the taxes is on the location of premises within the area of the Jal Sansthan as notified by the State Government.
Tax and fee – Difference
the practical and even constitutional, distinction between a tax and fee has been weathered down. As in the case of a tax, a fee may also involve a compulsory exaction. A fee may involve an element of compulsion and its proceeds may form a part of the Consolidated Fund. Similarly, the element of a quid pro quo is not necessarily absent in the case of every tax.
Levy under Section 52 (1) is a tax and not a fee
The tax has been imposed by the legislature in Section 52 on premises situated within the area of the Jal Sansthan. The proceeds of the tax are intended to constitute revenue available to the Jal Sansthan to carry out its mandatory obligations and functions under the statute of making water and sewerage facilities available in the area under its jurisdiction. The levy is imposed by virtue of the presence of the premises within the area of the jurisdiction of the Jal Sansthan. The water tax is levied so long as the Jal Sansthan has provided a stand post or waterworks within a stipulated radius of the premises through which water has been made available to the public by the Jal Sansthan. The levy of the tax does not depend upon the actual consumption of water by the owner or occupier upon whom the tax is levied. Unlike the charge under Section 59 which is towards the cost of water to be supplied by the Jal Sansthan according to its volume or, in lieu thereof on a fixed sum, the tax under Section 52 is a compulsory exaction. Where the premises are connected with water supply, the tax is levied on the occupier of the premises. On the other hand, where the premises are not so connected, it is the owner of the premises who bears the tax. The levy under Section 52 (1) is hence a tax and not a fee. Moreover, it is a tax on lands and buildings within the meaning of Entry 49 of List II.
[Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial and Investment Corporation, 2021 SCC OnLine SC 960, decided on 22.10.2021]
For appellants: Senior Advocate Pradeep Kant
For First Respondent: Madhavi Divan, Additional Solicitor General
*Judgment by: Justice Dr. DY Chandrachud