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2021 (10) TMI 1071 - SC - Indian LawsDifference between Fee and Tax - Refund of water and sewerage taxes levied and collected under the provisions of the Uttar Pradesh Water Supply and Sewerage Act 1975 (UP Water Supply and Sewerage Act) - legislative competence of State Legislature to levy the tax under the provisions of Section 52(1)(a) - Applicability of judgement in the two judge Bench of this Court in Union of India v. State of U.P. 2007 (11) TMI 701 - SUPREME COURT - HELD THAT - A basic principle of tax jurisprudence is that the levy of a tax cannot be conflated with its measure. In the context of Section 52, the levy by the Jal Sansthan is on premises situated within its area meaning the area within which the Jal Sansthan exercises its jurisdiction and powers. The levy is on premises. The expression premises is defined in Section 2(18) to mean any land or building . Hence, read together with the definition of the expression premises , the levy is squarely on lands and buildings situated within the area of the Jal Sansthan. While imposing the levy under clause (a) of Section 52(1) the legislature has provided that the levy will be on premises situated within the area of the Jal Sansthan, where the area is covered by the water supply services of the Jal Sansthan. This stipulation in clause (a) does not render the levy a fee instead of a tax. The levy is on premises situated within the area of the Jal Sansthan. The measure of the tax is the assessed annual value of the premises, annual value being assessed in the manner indicated in Section 53. The rate of tax in the case of a local area, other than a city, has to be not less than 6 per cent and not more than 14 per cent. In the case of the water tax in a city the rate is to be not less than 7.5 per cent and not more than 12.5 per cent. A similar provision has been incorporated in regard to the levy of a sewerage tax in Section 52(1)(b) and sub-Sections (2) and (3) provide for the measure and the rate of tax - The restrictions which are imposed by Section 55 do not render the tax a fee, nor are they indicative of the tax being charged for the actual use of water. While imposing the levy in Section 52(1)(a), the legislature has considered it appropriate to restrict the levy within the parameters which are specified in Section 55. That does not alter the fundamental nature of the levy, which is constituted as one on premises (defined to mean land and building) situated within the area of Jal Sansthan. Chapter VI makes a clear distinction between a tax, a charge and a fee. We have already noticed the provisions of Chapter VI governing the levy and imposition of taxes. Section 59 provides for the fixation of the cost of water to be supplied by the Jal Sansthan according to its volume as well as the minimum cost to be charged in respect of each connection. The Jal Sansthan may, in lieu of charging for the cost of water according to volume, charge a fixed sum on the basis of expected consumption - The legislature may choose a label for the tax based on the nature of the levy. On the other hand, the legislature may choose a label having a relationship with the function of the authority which imposes the tax as in the present case. The tax has been labelled as the water tax or a sewerage tax simply because it is imposed by the Jal Sansthan constituted under the UP Water Supply and Sewerage Act. That does not alter the nature of the levy which in substance is a tax on lands and buildings within the meaning of Entry 49 of List II of the Seventh Schedule. 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 levy under Section 52 falls squarely under the ambit of Entry 49 of List II as it is in the nature of a tax and not a fee. Thus, the applicability of Entry 17, which is a non-taxing entry, does not arise in this case. Tax and fee - HELD THAT - 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. It is a tax on lands and buildings within the meaning of Entry 49 of List II. Applicability of judgement in the two judge Bench of this Court in Union of India v. State of U.P. 2007 (11) TMI 701 - SUPREME COURT - HELD THAT - The Jal Sansthan was catering to the need of maintaining the sewerage system not only at the railway stations but in the adjoining areas as well as the residential quarters, offices, gardens, and sheds maintained by the Union of India through the railways. The Division Bench of the High Court dismissed the writ petition challenging the levy. The two judge Bench held that Section 52 states that the Jal Sansthan can levy tax, fee and charge for water supply and for sewerage services and though the charge was termed as a tax, in substance it is a fee for the supply of water. There is an evident error in the above observations. Section 52 is contained in Chapter VI which is titled taxes, fees and charges . The observations in paragraph 23 quoted above indicate that the title of Chapter VI was conflated with the nature of the provision which is contained in Section 52. Section 52 provides for the levy of taxes and not for fees or charges for which there are distinct provisions in Chapter VI. The observations of the Court that though the charges are loosely termed as tax, it is in substance a fee, is per incuriam and in any event not reflective of a correct reading of the provisions of the statute. The levy under Section 52 is a tax simplicitor and cannot be regarded either as a charge or a fee for a service rendered. To that extent, the observations in paragraph 23 of the decision in Union of India v. State of U.P. would have to be and are accordingly overruled. There is no merit in the challenge raised in the writ proceedings before the High Court of Judicature at Allahabad - the constitutional challenge to the validity of Sections 52 (1)(a), Section 55(b)(1) and Section 56 of the UP Water Supply and Sewerage Act, is rejected - appeal allowed.
Issues Involved:
1. Sustainability of the demand for water tax and sewerage tax under the UP Water Supply and Sewerage Act. 2. Legislative competence of the State Legislature to levy the tax under Section 52(1)(a) of the UP Water Supply and Sewerage Act. Issue-wise Detailed Analysis: 1. Sustainability of the demand for water tax and sewerage tax under the UP Water Supply and Sewerage Act: The judgment begins with a factual background, noting that the High Court of Judicature at Allahabad had directed the appellants to refund water and sewerage taxes levied under the UP Water Supply and Sewerage Act 1975, relying on a previous decision by the Supreme Court in Union of India v. State of U.P. The High Court’s decision was criticized for its lack of detailed reasoning and for relying on a precedent without proper examination of its applicability. The Supreme Court undertook a comprehensive analysis of the statutory provisions of the UP Water Supply and Sewerage Act. It highlighted that the Act delineates clear distinctions between taxes, fees, and charges. Section 52 specifically pertains to the levy of taxes on premises situated within the area of the Jal Sansthan, with the measure of the tax being the assessed annual value of the premises. The Court emphasized that the levy under Section 52 is a tax on lands and buildings and not a fee for services rendered. 2. Legislative competence of the State Legislature to levy the tax under Section 52(1)(a): The Court examined the constitutional validity of Section 52(1)(a) of the Act. It noted that the levy is on premises defined as land and building, situated within the area of the Jal Sansthan, and is intended to finance the activities of the Jal Sansthan. The Court rejected the argument that the levy is a fee rather than a tax, stating that the levy is a compulsory exaction on lands and buildings within the meaning of Entry 49 of List II of the Seventh Schedule to the Constitution. The judgment also addressed the distinction between a tax and a fee, noting that the practical and constitutional distinctions have been substantially effaced in jurisprudence. The Court concluded that the levy under Section 52(1)(a) is a tax on lands and buildings, and the proceeds are intended to fund the Jal Sansthan’s statutory obligations. Separate Judgment Analysis: The Supreme Court overruled the observations made in Union of India v. State of U.P., where it was held that the charges for water supply and sewerage maintenance were in the nature of a fee rather than a tax. The Court clarified that Section 52 pertains to taxes and not fees or charges, and the observations in the previous case were per incuriam. Conclusion: The Supreme Court allowed the appeals, setting aside the High Court’s judgment and dismissing the writ petition filed by the first respondent. The appellants were entitled to recover the balance dues with interest. The Court upheld the constitutional validity of Sections 52(1)(a), 55(b)(1), and 56 of the UP Water Supply and Sewerage Act, affirming the State Legislature’s competence to levy the tax.
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