9911796707
TMI Blog2021 (10) TMI 1071X X X X Extracts X X X X X X X X Extracts X X X X ..... ... 6 D Analysis ........................................................................................................... 11 D.1 Statutory Provisions .............................................................................. 11 D.2 Nature of levy under Section 52 of the UP Water Supply and Sewerage Act .......................................................................................... 20 D.3 Entry 49 List II: Taxes on Lands and Buildings ................................. 28 D.4 Tax and fee .............................................................................................. 38 D.5 The 'Railways' judgment ....................................................................... 44 E Conclusion ...................................................................................................... 47 A Factual Background 1 By its judgment dated 7 March 2014, a Division Bench at the Lucknow Bench of the High Court of Judicature at Allahabad allowed a petition under Article 226 of the Constitution of India instituted by the first respondent and directed the appellants to refund water and sewerage taxes levied and collected under the provisions of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... water and sewerage taxes levied and collected. The review petition against this judgment was also dismissed by the High Court by order dated 9 August 2014. On 7 August 2015, while entertaining the special leave petition and issuing notice, this Court 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 is sustainable with reference to the provisions of the UP Water Supply and Sewerage Act; and (ii) Whether the State Legislature has the legislative competence to levy the tax under the provisions of Section 52(1)(a). 5 We must note at the outset that the High Court has allowed the prayer for refund purely on the basis of a judgment of a two-judge Bench of this Court in Union of India v. State of U.P. (supra). The judgment of the High Court has been drafted in a rather casual manner which is evident from the fact that: (i) While extracting from a portion of the judgment of this Court noted above, the High Court has neither referred to the citation nor the name of the case; (ii) After citing the extract from the judgment, the High Court recorded the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (e) penalties and procedure, external control and miscellaneous provisions in Chapters IX to XI. (ii) The scheme of the legislation provides for the levy, imposition, collection and realization of water tax and sewerage tax under Section 52(1); (iii) The decision of this Court in Union of India v. State of U.P. (supra) is not an authority for the interpretation of Section 52 since in that case a service charge was levied on the railways. The challenge to the levy was raised by the railways on the ground that the Jal Sansthan was levying a tax in violation of the provisions of Article 285 of the Constitution and it was this submission which was rejected, by holding that the levy was of a service charge in the nature of a fee and not a tax; and (iv) In the present case, the imposition is of water tax and sewerage tax which falls within the ambit of Section 52(1)(a). Constitutional Challenge 8 Ms Madhavi Divan, Additional Solicitor General appearing on behalf of the first respondent, has urged a constitutional challenge to the provisions of Section 52(1)(a), Section 55(d)(a) and Section 56(b) of the UP Water Supply and Sewerage Act. Ms Divan has prefaced her submissions at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be sustained under Entry 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 and though the legislature has used the nomenclature of "water tax", the levy in effect is an exaction on water or water supply. 9 Opposing the above submissions challenging the constitutional validity 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 the provisions of Section 52 to be in the nature of a fee and not a tax; (ii) In that case the levy imposed by the Jal Sansthan on the railways was a service charge for the use of water and sewerage; the levy was not in the nature of a tax, as a consequence of which this Court came to the conclusion that the immunity in Article 285 on taxing property of the Union of India was not attracted; (iii) As a consequence, the observations of the Court to the effect that the imposition under Section 52 is in the nature of a fee are per incuriam, since this Court held that the levy was in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 Sansthan shall be as follows: (i) to plan, promote and execute schemes of and operate an efficient system of water supply; (ii) where feasible, to plan, promote and execute schemes of, and operate, sewerage, sewage treatment and disposal and treatment of trade effluents; (iii) to manage all its affairs so as to provide the people of the area within its jurisdiction with wholesome water and where feasible, efficient sewerage service; (iv) to take such other measures, as may be necessary, to ensure water supply in times of any emergency; (v) such other functions as may be entrusted to it by the State Government 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 expedient for carrying out its functions under this Act. (2) Without prejudice to the generality of the foregoing provision such powers shall include the power- (i) to exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty of the Jal Sansthan are dealt with in Chapter V of the Act. Section 41 envisages that every Jal Sansthan shall have its own fund which shall be deemed to be a local fund to which shall be credited all monies received by or on behalf of the Jal Sansthan. Section 44 provides for the general principles governing the finance of the Jal Sansthan in the following terms: "44. General principles for Jal Sansthan's Finance.- A Jal Sansthan shall from time to time so fix and adjust its rates of taxes and charges under this Act as to enable it to meet, as soon as feasible, the cost of its operations, maintenance and debt service and where practicable 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 following terms: "52. Taxes leviable.- (l) For the purposes of this Act, a Jal Sansthan shall levy, on premises situated within its area: (a) where the area is covered by the water supply services of Jal Sansthan, a water tax; and (b) where the area is covered by the sewerag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxes under subsection (2) of Section 52 shall be assessed by such authority as the State Government may, by general or special order direct, and such authority may be either the Jal Sansthan itself or any other agency as may be specified in the order. (3) Where the assessment is made by the Jal Sansthan or by any other agency the Jal Sansthan or such other agency shall follow the prescribed procedure. (4) Until an assessment of the annual value of premises in any local area is made by the Jal Sansthan or any other agency specified under sub-section (2) the annual value of all premises in that local area, as assessed by the local body concerned for the purposes of house tax shall be deemed to be the annual value of the premises for the purposes of this Act as well. (5) Where the annual value of premises in any local area is assessed by the Jal Sansthan or other agency specified under sub-section (2), it shall, subject to any variation therein on appeal under Section 54, be deemed to be the annual value of the premises for the purposes also of house tax levied by the local body concerned, anything contained in the law constituting such local body notwithstanding." For the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to be supplied by it according to its volume, and also the minimum cost to be charged in respect of each connection. (2) A Jal Sansthan may, in lieu of charging the cost of water according to volume, accept a fixed sum for a specified period on the basis of expected consumption of water during that period." Section 60 provides for the fixation of the cost of disposal of waste water by the Jal Sansthan. Section 61 provides for the provision of water meters and the recovery of charges for the rent of the meters according to the bye-laws. Section 62 is a provision enabling the Jal Sansthan to demand security from the consumer in connection with the supply of a meter or for the sewer connection as provided in the bye-laws. Section 63 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 or testing or supervision or for any other service rendered or work executed or supervised as may be provided by bye-laws." Section 64 "64. Recovery of taxes and other sums due.- (1) Any sum due to A Jal Sansthan on account of tax, fee, cost of water, cost of disposal of waste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nature of levy under Section 52 of the UP Water Supply and Sewerage Act 19 A legislative enactment which provides for the imposition of a tax may make provisions for (i) The levy of the tax on the basis of a taxable event; (ii) The measure of the tax; (iii) The rate at which the tax will be imposed; (iv) The incidence of the tax; and (v) Assessment, collection, recovery and other incidental provisions. 20 This characterization of the components of a tax has been described repeatedly in the decisions of this Court. The locus classicus on this point was a two judge Bench decision in Govind Saran Ganga Saran v. CST 1985 Supp SCC 205. Justice RS Pathak (as the learned Chief Justice then was) held: "6. The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom 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 fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction."" 22 In Federation of Hotel and Restaurant Association of India v. Union of India (1989) 3 SCC 634, a challenge was raised to the constitutional validity of the Expenditure Tax Act 1987 which imposed an 'expenditure tax' on persons incurring "chargeable expenditure" in a class of hotels. In that case, the petitioners argued that the Act in essence levied a tax on luxuries, which falls within Entry 62 of List II and lies outside the competence of Parliament. Rejecting this contention, the Constitution Bench, speaking through Justice MN Venkatachaliah (as the learned Chief Justice then was), observed: "43. The subject of a tax is different from the measure of the levy. The measure of the tax is not determinative of its essential 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 a tax on passengers and goods under Entry 56 of List I were assailed on the ground that the State was, in the guise of taxing passengers and goods, in substance and reality taxing the income of the stage carriage operators or, at any rate, was taxing the "fares and freights", both out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax is imposed, and second, the amount of tax. The amount may be measured in many ways; but a distinction between the subject-matter of a tax and the standard by which the amount of tax is measured must not be lost sight of. These are described respectively as the subject of a tax and the measure of a tax. It is true that the standard adopted as a measure of the levy may be indicative of the nature of the tax, but it does not necessarily determine it. The nature of the mechanism by which the tax is to be assessed is not decisive of the essential characteristic of the particular tax charged, though it may throw light on the general character of the tax." (emphasis supplied) 24 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 build ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r restrictions on the levy of water tax by providing that it shall not be levied on premises: (i) not situated within the radius prescribed of the nearest stand post or other water works on which water is made available to the public by the Jal Sansthan; or (ii) whose annual value does not exceed Rs. 360 and to which no water is supplied by the Jal Sansthan. The restrictions which are imposed by Section 55 do not render the tax a fee, nor are they indicative of the tax being charged for the actual use of water. While imposing the levy in Section 52(1)(a), the legislature has considered it appropriate to restrict the levy within the parameters which are specified in Section 55. That does not alter the fundamental nature of the levy, which is constituted as one on premises (defined to mean land and building) situated within the area of Jal Sansthan. 26 Section 56, which is a provision in relation to the incidence of the tax, provides that the tax mentioned in Section 52 would be recoverable: (i) from the occupiers of the premises, in the case of premises connected with water supply or as the case may be with the sewer of a Jal Sansthan; and (ii) from the owner of the premises, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Section 63 indicate that the recovery of a fee is, broadly speaking in relation to a service which is provided. 28 The nomenclature that the legislature has ascribed to the tax does not determine either the nature of the levy or its true and essential character. The legislature may choose a label for a tax. The label however will not determine or for that matter clarify the nature of the levy. The nature of the levy has to be deduced from the nature of the tax, the provision which specifies the taxing event and, as in the case of Section 52, the unit upon which the levy is to be imposed. The legislature may choose a label for the tax based on the nature of the levy. On the other hand, the legislature may choose a label having a relationship with the function of the authority which imposes the tax as in the present case. The tax has been labelled as the water tax or a sewerage tax simply because it is imposed by the Jal Sansthan constituted under the UP Water Supply and Sewerage Act. That does not alter the nature of the levy which in substance is a tax on lands and buildings within the meaning of Entry 49 of List II of the Seventh Schedule. D.3 Entry 49 List II: Taxes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the law to be within the purview of Entry 49 of List II. 31 In Ajoy Kumar Mukherjee v. Local Board of Barpeta AIR 1965 SC 1561, a Constitution Bench of this Court upheld the validity of an annual tax levied by local boards upon lands used for holding markets created under the Assam Local Self-Government Act 1953. Justice KN Wanchoo, speaking for the Constitution Bench, observed that: "4. ... It is well-settled that the entries in the three legislative lists have to be interpreted in their widest amplitude and therefore if a tax can reasonably be held to be a tax on land it will come within Entry 49. Further it is equally well-settled that tax on land may be based on the annual value of the land and would still be a tax on land and would not be beyond the competence of the State legislature on the ground that it is a tax on income: (see Ralla Ram v. Province of East Punjab [(1948) FCR 207] . It follows therefore that the use to which the land is put can be taken into account in imposing a tax on it within the meaning of Entry 49 of List II, for the annual value of land which can certainly be taken into account in imposing a tax for the purpose of this entry would necessarily depe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tent to enact the legislation under Entry 49 of List II of Schedule VII of the Constitution which reads: "Taxes on lands and buildings". It was argued on behalf of the 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; taxes on the capital of companies." [...] In our opinion there is no conflict between Entry 86 of List I and Entry 49 of List II. The basis of taxation under the two entries is quite distinct. As regards Entry 86 of List I the basis of the taxation is the capital value of the asset. It is not a tax directly on the capital value of assets of individuals and companies on the valuation date. [...] But Entry 49 of List II, contemplates a levy of tax on lands and buildings on both as units. It is not concerned with the division of interest or ownership in the units of lands or buildings which are brought to tax. Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it. Tax on the capital value of assets bears no definable relation to lands and buildings which may form a component o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 considered the validity of the levy of an education cess on rural employment by the West Bengal Taxation Laws (Second Amendment) Act 1989. The levy of the rural employment cess was annually imposed on a tea estate at the rate of 12 paise for each kilogram of green tea leaves produced in the State. The issue was whether the levy was a tax on lands and buildings within the meaning of Entry 49 of List II. After adverting to the above decisions, Justice BP Jeevan Reddy speaking for the three judge Bench came to the following conclusion: "20. It is thus clear from the aforesaid decisions that merely because a tax on land or building is imposed with reference to its income 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 a measure of the tax; it does not alter the nature or character of the levy. It still remains a tax on land or building. There is no set pattern of levy of tax on lands and buildings - indeed there can be no such standardisation. No one can say that a tax under a particular entry must be levied only in a particular manner, which may have been adopted hitherto. The legislature is free to adopt su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (i) 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 (ii) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and export across customs frontiers". If these expressions are to be interpreted as including duties to be levied in respect of that trade and commerce, then Entry 83 which is "Duties of customs including export duties" would be wholly redundant. Entries 43 and 44 relate to incorporation, regulation and winding up of corporations. Entry 85 provides separately for corporation tax. Turning to List II, Entries 1 to 44 form one group mentioning the subjects on which the States could legislate. Entries 45 to 63 in that List form another group, and they deal with taxes. Entry 18, for example, is "Land" and Entry 45 is "Land revenue". Entry 23 is "Regulation of mines" and Entry 50 is "Taxes on mineral rights". The above analysis - and it is not exhaustive of the Entries in the Lists - leads to the inference that taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of Article 248, clauses (1) and (2) and of Entry 97 in List I of the Constitution. Construing Entry 42 in the light of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , been obliterated to the point where it lacks any practical or constitutional significance. For one thing, the payment of a charge or a fee may not be truly voluntary and the charge may be imposed simply on a class to whom the service is made available. For another, the service may not be provided directly to a person as distinguished from a general service which is provided to the members 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 need not be any exact correlation between the expenditure which is incurred in providing a service and the amount which is realized by the State. The distinction that while a tax is a compulsory exaction, a fee constitutes a voluntary payment for services rendered does not hold good. As in the case of a tax, so also in the case of a fee, the exaction may not be truly of a voluntary nature. Similarly, the element of a service may not be totally absent in a given case in the context of a provision which imposes a tax. 43 The gradual obliteration of the distinction between a tax and a fee on a conceptual level has been the subject matter of several decisions of this Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r respective consolidated funds and all other public moneys must go into the respective public accounts of the Union and the States. It is submitted that if the services rendered are not by a separate body like the Charity Commissioner, but by a government department, the character of the imposition would not change because under Article 266 the moneys collected for the services must be credited to the consolidated fund. It may be mentioned that the element of quid pro quo is not necessarily absent in every tax." Our attention has been drawn to the observations in Kewal Krishan 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 between the payer of the fee and the authority charging it. It may not be the exact equivalent of the fee by a mathematical precision, yet, by and large, or predominantly, the authority collecting the fee must show that the service which they are rendering in lieu of fee is for some special benefit of the payer of the fee." To our mind, these observations are not intended and meant as laying down a rule of universal application. The Court was considering the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of money by public authorities. Compulsion lies in the fact that payment is enforceable by law against 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 character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It is now increasingly realised that merely because the collections for the services rendered or grant of a privilege or licence are taken to the consolidated fund of the State and not separately appropriated towards the expenditure for rendering the service is not by itself decisive. Presumably, the attention of the Court in the Shirur Mutt case [(1980) 1 SCC 416 : AIR 1980 SC 1008 : (1979) 3 SCR 1217] was not drawn to Article 266 of the Constitution. The Constitution nowhere contemplates it to be an essential element of fee that it should be credited to a separate fund and not to the consolidated fund. It is also increasingly realised that the element of quid pro quo in the strict sense is not always ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts decision to order a refund of the taxes collected by the appellants. In that case, the writ petition which was filed by the Union of India before the High Court challenged certain orders for the recovery of service charges on railway properties issued by the Jal Sansthan, Allahabad. The Jal Sansthan had directed the recovery of a sum of money towards sewerage charges for 3125 "seats" from the Divisional Railway Manager of the Northern Railway at Allahabad. The levy was sought to be challenged on the ground that the Railways were holding the property of the Central Government for which service charges were not payable under Article 285 of the Constitution as such charges were in the nature of a tax. The bulk of the water was supplied by the Jal Sansthan for maintenance of the railway platforms as well as railway colonies. 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. It must be noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for service rendered and not any tax on the property of the Railways." The above observations make it clear that what was being charged in that case were charges for the supply of water and maintenance of sewerage. This was held to be plain and simple a charge for service rendered by the Jal Sansthan. As a consequence, Article 285 of the Constitution had no application on the ground that what is prohibited by Article 285 is taxation on the property of the Union of India, but it does not prohibit a charge of a fee on account of a service rendered by local bodies or an instrumentality of the State, such as the supply of water or the maintenance of sewerage. This Court ruled that the charge would be 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 Section 52 and held thus: "23. In this case what is being charged is for service rendered by the Jal Sansthan i.e. an instrumentality of the State under the Act of 1975. Section 52 of the Act states that the Jal Sansthan can levy tax, fee and charge for water supply and for sewerage services rendered by it as water tax and sewerage tax at the rates m ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
