# JALKAL VIBHAG NAGAR NIGAM & ORS v. PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION & ANR

- **Citation:** [2021] 12 S.C.R. 210
- **Court:** Supreme Court of India
- **Decided:** 2021-10-22
- **Case number:** Civil Appeal No. 6107 of 2021
- **Bench:** Dr. Dhananjaya Y Chandrachud, Vikram Nath, B. V. Nagarathna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jalkal-vibhag-nagar-nigam-ors-v-pradeshiya-industrial-and-investment-34799
- **Pages:** 49

## Headnote

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 of
Entry 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 and
substance - Nor does the fact that the law enables the Jal Sansthan
to levy the tax render it a tax on water - Tax has been labelled as
the water tax or a sewerage tax 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 - 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 - Basis for the
levy of the taxes is on the location of premises within the area of the
Jal Sansthan - Since the respondent's premises are located within
the area of the appellant's authority, the respondent is liable to pay
the water tax as well as the sewerage tax as the owner and occupier
of the premises - Judgment of High Court set aside - Writ petition
filed by the first respondent dismissed - Appellants entitled to recover
the balance of the dues remaining to be recovered in pursuance of
the notice of demand with interest @ 9% p.a. - Constitution of India
- Seventh Schedule, List II, Entry 49 - Jal Sansthan (Assessment of
Annual Value of Premises) Rules 1981 - Jal Sansthan (Radius
regarding 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 either
as a charge or a fee for a service rendered - Observations in Union
of India v. State of U.P. and Others reported as [2007] 11 SCR 792
that though the charges are loosely termed as tax, it is in substance
a fee, is per incuriam and are overruled.
Uttar Pradesh Water Supply and Sewerage Act 1975 - ss.52,
24, 25, 53 - Levy of tax u/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: Restrictions
imposed by s.55 do not render the tax a fee, nor are they indicative
of the tax being charged for the actual use of water.
Uttar Pradesh Water Supply and Sewerage Act 1975 - ss.52,
56 - Held: Payment of water tax and sewerage tax is regardless of
whether the premises are connected with water supply or with a
sewer of the Jal Sansthan - There is no exemption from the payment
of water tax or sewerage tax as both the contingencies- the premises
being connected with water supply (or, as the case may be, with a
sewer of the Jal Sansthan) or there being no such connection have
been covered u/s.56 - So long as a provision for water supply or a
sewerage is made by the Jal Sansthan in the area covered, the
occupier or the owner of the premises is liable to pay the taxes.
Constitution of India - Constitutional jurisprudence -
Distinction between tax and fee - Held: It has substantially been
effaced in the development of the constitutional jurisprudence.
Words & Phrases - "premises" in s.2(18) - Held: In the
context of s.52, the levy by the Jal Sansthan is "on premises situated
within its area" meaning the area within which the Jal Sansthan
exercises its jurisdiction and powers - Levy is on premises -
"Premises" is defined in s.2(18) to mean "any land or building" -
Hence, read together with the definition of the expression "premises",
the levy is squarely on lands and buildings situated within the area
of the Jal Sansthan - Uttar Pradesh Water Supply and Sewerage
Act 1975 - ss.2(18), 52.
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND
INVESTMENT CORP.
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Allowing the appeals, t

## Text

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[2021] 12 S.C.R. 210
210
JALKAL VIBHAG NAGAR NIGAM & ORS.
v.
PRADESHIYA INDUSTRIAL AND INVESTMENT
CORPORATION & ANR.
(Civil Appeal No. 6107 of 2021)
OCTOBER 22, 2021
[DR. DHANANJAYA Y CHANDRACHUD, VIKRAM NATH
AND B. V. NAGARATHNA, JJ.]
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 of
Entry 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 and
substance - Nor does the fact that the law enables the Jal Sansthan
to levy the tax render it a tax on water - Tax has been labelled as
the water tax or a sewerage tax 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 - 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 - Basis for the
levy of the taxes is on the location of premises within the area of the
Jal Sansthan - Since the respondent's premises are located within
the area of the appellant's authority, the respondent is liable to pay
the water tax as well as the sewerage tax as the owner and occupier
of the premises - Judgment of High Court set aside - Writ petition
filed by the first respondent dismissed - Appellants entitled to recover
the balance of the dues remaining to be recovered in pursuance of
the notice of demand with interest @ 9% p.a. - Constitution of India
- Seventh Schedule, List II, Entry 49 - Jal Sansthan (Assessment of
Annual Value of Premises) Rules 1981 - Jal Sansthan (Radius
regarding 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 either
as a charge or a fee for a service rendered - Observations in Union
of India v. State of U.P. and Others reported as [2007] 11 SCR 792
that though the charges are loosely termed as tax, it is in substance
a fee, is per incuriam and are overruled.
Uttar Pradesh Water Supply and Sewerage Act 1975 - ss.52,
24, 25, 53 - Levy of tax u/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: Restrictions
imposed by s.55 do not render the tax a fee, nor are they indicative
of the tax being charged for the actual use of water.
Uttar Pradesh Water Supply and Sewerage Act 1975 - ss.52,
56 - Held: Payment of water tax and sewerage tax is regardless of
whether the premises are connected with water supply or with a
sewer of the Jal Sansthan - There is no exemption from the payment
of water tax or sewerage tax as both the contingencies- the premises
being connected with water supply (or, as the case may be, with a
sewer of the Jal Sansthan) or there being no such connection have
been covered u/s.56 - So long as a provision for water supply or a
sewerage is made by the Jal Sansthan in the area covered, the
occupier or the owner of the premises is liable to pay the taxes.
Constitution of India - Constitutional jurisprudence -
Distinction between tax and fee - Held: It has substantially been
effaced in the development of the constitutional jurisprudence.
Words & Phrases - "premises" in s.2(18) - Held: In the
context of s.52, the levy by the Jal Sansthan is "on premises situated
within its area" meaning the area within which the Jal Sansthan
exercises its jurisdiction and powers - Levy is on premises -
"Premises" is defined in s.2(18) to mean "any land or building" -
Hence, read together with the definition of the expression "premises",
the levy is squarely on lands and buildings situated within the area
of the Jal Sansthan - Uttar Pradesh Water Supply and Sewerage
Act 1975 - ss.2(18), 52.
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND
INVESTMENT CORP.
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Allowing the appeals, the Court
HELD : 1.1 An overview of the provisions of the UP Water
Supply and Sewerage Act indicate that separate and distinct
provisions are contained in Chapter VI for (i) taxes; (ii) fees; and
(iii) charges. The levy of taxes is provided for in Section 52, the
determination of the cost of water to be charged for water
connections in Section 59 and the charge of fees in Section 63.
Section 64 indicates that the dues of the Jal Sansthan could be in
the form of a tax, fee, cost of water, cost of disposal of waste
water, meter rent, penalty, damage or surcharge. The legislature
has distinguished between the expressions "tax", "fee", "cost
of water", "meter rent", "penalty", "damage or surcharge" by
providing separate provisions under the Act. In the present case,
the controversy is over the liability for the payment of tax. A
legislative enactment which provides for the imposition of a tax
may make provisions for (i) The levy of the tax on the basis of a
taxable event; (ii) The measure of the tax; (iii) The rate at which
the tax will be imposed; (iv) The incidence of the tax; and (v)
Assessment, collection, recovery and other incidental provisions.
[Paras 17, 19][233-B-D, F; 234-C-D]
Govind Saran Ganga Saran v. CST 1985 Supp SCC
205 : [1985] SCR 985; Commissioner of Income Tax
(Central)- I, New Delhi v. Vatika Township Private
Limited (2015) 1 SCC 1 : [2014] (12) SCR 1037;
Federation of Hotel and Restaurant Association of India
v. Union of India (1989) 3 SCC 634 : [1989] (2) SCR
918; State of West Bengal v. Kesoram Industries Ltd
(2004) 10 SCC 201 : [2004] (1) SCR 564 - followed.
Ralla Ram v. Province of East Punjab AIR 1949 FC
81; Sainik Motors v. State of Rajasthan AIR 1961 SC
1480; D.G Gose & Co. (Agents) P. Ltd. v. State of Kerala
(1980) 2 SCC 410 : [1980] (1) SCR 804; Hingir Rampur
Coal Co. Ltd. v. State of Orissa AIR 1961 SC 459 -
referred to.
1.2 A basic principle of tax jurisprudence is that the levy of
a tax cannot be conflated with its measure. In the context of
Section 52, the levy by the Jal Sansthan is "on premises situated
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within its area" meaning the area within which the Jal Sansthan
exercises its jurisdiction and powers. The levy is on premises.
The expression 'premises" is defined in Section 2(18) to mean
"any land or building". Hence, read together with the definition
of the expression "premises", the levy is squarely on lands and
buildings situated within the area of the Jal Sansthan. While
imposing the levy under clause (a) of Section 52(1) the legislature
has provided that the levy will be on premises situated within the
area of the Jal Sansthan, where the area is covered by the water
supply services of the Jal Sansthan. This stipulation in clause (a)
does not render the levy a fee instead of a tax. The purpose of
the legislation in imposing a tax, which is prescribed as a water
tax, is to enable the Jal Sansthan to finance the activities which it
undertakes to plan, promote and execute schemes for and operate
an efficient system of water supply. Besides the above function
in Section 24(1), the Jal Sansthan has to manage its affairs to
provide the people of the area within its jurisdiction with wholesale
water. It is in this context that Section 25, which defines the powers
of the Jal Sansthan, stipulates in sub-Section (1) that the Jal
Sansthan shall have the power to do anything which may be
expedient and necessary to carry out its functions under the UP
Water Supply and Sewerage Act. These powers are to inter alia
include under clause (vi) of sub-Section (2) the collection of taxes
and charges for these services as may be prescribed. These
provisions indicate that the levy of tax is intended to secure
adequate means of finance for the Jal Sansthan to undertake its
activities. But the raising of revenue in terms of Section 52(1)(a)
is in the nature of a tax. The levy is on premises situated within
the area of the Jal Sansthan. The measure of the tax is the assessed
annual value of the premises, annual value being assessed in the
manner indicated in Section 53. The rate of tax in the case of a
local area, other than a city, has to be not less than 6 per cent and
not more than 14 per cent. In the case of the water tax in a city
the rate is to be not less than 7.5 per cent and not more than 12.5
per cent. A similar provision has been incorporated in regard to
the levy of a sewerage tax in Section 52(1)(b) and sub-Sections
(2) and (3) provide for the measure and the rate of tax. [Para 24]
[238-A-G]
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND
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1.3 Section 55 contains restrictions on the levy of the tax
set out in Section 52. Clause (a) specifies that a tax shall not be
levied on land which is used exclusively for agricultural purposes
unless water is supplied by the Jal Sansthan for such purpose to
that land. Clause (b) of Section 55 contains two further restrictions
on the levy of water tax by providing that it shall not be levied on
premises: (i) not situated within the radius prescribed of the
nearest stand post or other water works on which water is made
available to the public by the Jal Sansthan; or (ii) whose annual
value does not exceed Rs. 360 and to which no water is supplied
by the Jal Sansthan. The restrictions which are imposed by Section
55 do not render the tax a fee, nor are they indicative of the tax
being charged for the actual use of water. While imposing the
levy in Section 52(1)(a), the legislature has considered it
appropriate to restrict the levy within the parameters which are
specified in Section 55. That does not alter the fundamental nature
of the levy, which is constituted as one on premises (defined to
mean land and building) situated within the area of Jal Sansthan.
[Para 25][238-H; 239-A-C]
1.4 Section 56 is a provision in relation to the incidence of
the tax. Section 56 is a clear indicator of the tax being in the
nature of a compulsory exaction arising out of the fact that the
premises comprise of land and building situated within the area
of the Jal Sansthan, so long as the restrictions which are contained
in Section 55 are not attracted. Section 52 and Section 56 also
indicate that the intention of the legislature is to collect water
tax and sewerage tax from the occupier of the premises, where
the premises are connected with water supply or, as the case
may be, with a sewer of the Jal Sansthan and, in case where the
premises are not so connected, from the owner of the premises.
Therefore, the payment of water tax and sewerage tax is
regardless of whether the premises are connected with water
supply or with a sewer of the Jal Sansthan. There is no exemption
from the payment of water tax or sewerage tax as both the
contingencies- the premises being connected with water supply
(or, as the case may be, with a sewer of the Jal Sansthan) or there
being no such connection- have been covered under the provisions
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of Section 56. So long as a provision for water supply or a
sewerage is made by the Jal Sansthan in the area covered, the
occupier or the owner of the premises is liable to pay the taxes.
Both the water tax as well as the sewerage tax could be
consolidated for the purpose of levying, assessing and collecting
them under Section 57 of the Act. [Para 26][239-D, F-H;
240-A-B]
1.5 The nomenclature that the legislature has ascribed to
the tax does not determine either the nature of the levy or its
true and essential character. The legislature may choose a label
for a tax. The label however will not determine or for that matter
clarify the nature of the levy. The nature of the levy has to be
deduced from the nature of the tax, the provision which specifies
the taxing event and, as in the case of Section 52, the unit upon
which the levy is to be imposed. The legislature may choose a
label for the tax based on the nature of the levy. On the other
hand, the legislature may choose a label having a relationship
with the function of the authority which imposes the tax as in the
present case. The tax has been labelled as the water tax or a
sewerage tax simply because it is imposed by the Jal Sansthan
constituted under the UP Water Supply and Sewerage Act. That
does not alter the nature of the levy which in substance is a tax
on lands and buildings within the meaning of Entry 49 of List II of
the Seventh Schedule. [Para 28][240-E-H]
1.6 The levy which is imposed under Section 52 is a tax on
lands and buildings situated within the area of the Jal Sansthan
for the purpose of imposing the tax. The tax is imposed on
premises which fall within the territorial area of the Jal Sansthan.
The expression 'premises' is defined to mean land and building.
The tax is on lands and buildings. The nomenclature of the tax
does not indicate its true character and substance. Nor does the
fact that the law enables the Jal Sansthan to levy the tax render it
a tax on water. The charging section indicates in unambiguous
terms that it is a tax on lands and buildings. The restrictions in
Section 55 do not detract from the nature of the levy nor would
the liability which is imposed on the owner and occupier be
anything other than a tax on lands and building within the meaning
of Entry 49 of List II. The tax is imposed on an occupier or owner
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND
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of the building or land falling within the area of the Jal Sansthan
irrespective of whether a connection of water supply or sewerage
has been obtained to the land or building. In another words, the
basis for the levy of the taxes is on the location of premises within
the area of the Jal Sansthan as notified by the State Government.
Since the respondent's premises are located within the area of
the appellant's authority, the respondent is liable to pay the water
tax as well as the sewerage tax as the owner and occupier of the
premises. The levy under Section 52 falls squarely under the
ambit of Entry 49 of List II as it is in the nature of a tax and not a
fee. Thus, the applicability of Entry 17, which is a non-taxing entry,
does not arise in this case. [Paras 36, 40][246-G; 247-A, D-F;
249-E]
2.1 The distinction between a tax and fee has substantially
been effaced in the development of our constitutional
jurisprudence. The distinction that while a tax is a compulsory
exaction, a fee constitutes a voluntary payment for services
rendered does not hold good. As in the case of a tax, so also in
the case of a fee, the exaction may not be truly of a voluntary
nature. Similarly, the element of a service may not be totally absent
in a given case in the context of a provision which imposes a tax.
As in the case of a tax, a fee may also involve a compulsory
exaction. A fee may involve an element of compulsion and its
proceeds may form a part of the Consolidated Fund. Similarly,
the element of a quid pro quo is not necessarily absent in the
case of every tax. In the present case, the tax has been imposed
by the legislature in Section 52 on premises situated within the
area of the Jal Sansthan. The proceeds of the tax are intended to
constitute revenue available to the Jal Sansthan to carry out its
mandatory obligations and functions under the statute of making
water and sewerage facilities available in the area under its
jurisdiction. The levy is imposed by virtue of the presence of the
premises within the area of the jurisdiction of the Jal Sansthan.
The water tax is levied so long as the Jal Sansthan has provided
a stand post or waterworks within a stipulated radius of the
premises through which water has been made available to the
public by the Jal Sansthan. The levy of the tax does not depend
upon the actual consumption of water by the owner or occupier
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upon whom the tax is levied. Unlike the charge under Section 59
which is towards the cost of water to be supplied by the Jal
Sansthan according to its volume or, in lieu thereof on a fixed
sum, the tax under Section 52 is a compulsory exaction. Where
the premises are connected with water supply, the tax is levied
on the occupier of the premises. On the other hand, where the
premises are not so connected, it is the owner of the premises
who bears the tax. The levy under Section 52 (1) is hence a tax
and not a fee. [Paras 42, 47][250-A, D-E; 254-B-F]
Southern Pharmaceuticals and Chemicals, Trichur v.
State of Kerala (1981) 4 SCC 391 : [1982] (1) SCR
519; Municipal Corporation of Delhi v. Mohd. Yasin
(1983) 3 SCC 229 : [1983] (2) SCR 999; Sreenivasa
General Traders and Others v. State of Andhra Pradesh
(1983) 4 SCC 353 : [1983] (3) SCR 843 - relied on.
Sirsilk Ltd. v. Textile Committee 1989 Supp. (1) SCC
168:[1988] (2) Suppl. SCR 880 - referred to.
2.2 The two judge Bench in Union of India v. State of U.P.
and others held that Section 52 "states that the Jal Sansthan can
levy tax, fee and charge for water supply and for sewerage
services" and though the charge was termed as a tax, in substance
it is a fee for the supply of water. There is an evident error in the
observations. Section 52 is contained in Chapter VI which is titled
"taxes, fees and charges". The observations in paragraph 23 of
the judgment indicate that the title of Chapter VI was conflated
with the nature of the provision which is contained in Section 52.
Section 52 provides for the levy of taxes and not for fees or
charges for which there are distinct provisions in Chapter VI.
The observations of the Court that though the charges are loosely
termed as tax, it is in substance a fee, is per incuriam and in any
event not reflective of a correct reading of the provisions of the
statute. The statute contains distinct provisions for the levy of
taxes and for the imposition of charges and the recovery of fees.
The levy under Section 52 is a tax simplicitor and cannot be
regarded either as a charge or a fee for a service rendered. To
that extent, the observations in paragraph 23 of the decision in
Union of India v. State of U.P. are overruled. [Para 48][257-C-F]
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND
INVESTMENT CORP.
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Union of India v. State of U.P. and others (2007) 11
SCC 324 : [2007] (11) SCR 792 - overruled.
3. The constitutional challenge to the validity of Sections
52(1)(a), Section 55(b)(1) and Section 56 of the UP Water Supply
and Sewerage Act is rejected. The judgment of the High Court is
set aside. The writ petition filed by the first respondent is
dismissed. The appellants are entitled to recover the balance of
the dues remaining to be recovered in pursuance of the notice of
demand, together with interest at the rate of 9 per cent per
annum. [Para 49][257-G-H; 258-A]
Ajoy Kumar Mukherjee v. Local Board of Barpeta AIR
1965 SC 1561; Assistant Commissioner of Urban Land
Tax v. Buckingham and Carnatic Co. Ltd. Etc. (1969) 2
SCC 55 : [1970] (1) SCR 268; Union of India v. HS
Dhillon AIR 1972 SC 1061 - followed.
Goodricke Group Limited v. State of WB 1995 Suppl.
(1) SCC 707 : [1994] (6) Suppl. SCR 120; M.P.V.
Sundararamier & Co. v. State of AP 1958 SCR 1422 -
relied on.
Corporation of Calcutta v. Liberty Cinema AIR 1965
SC 1107; Jindal Stainless Ltd. v. State of Haryana AIR
2016 SC 5617:[2016] (10) SCR 1 - referred to.
V Pattabhiraman v. The Assistant Commissioner of
Urban Land Tax, North Madras (North West)
Ayanavaram AIR 1971 Mad 61 (FB); Raza Buland
Sugar Co. Ltd. v. Municipal Board, Rampur AIR 1962
All 83; Nizam Sugar Factory Ltd. v. City Municipality,
Bodhan AIR 1965 AP 91 - referred to.
Case Law Reference
[2007] (11) SCR 792
overruled
Para 1
[1985] SCR 985
followed
Para 20
[2014] (12) SCR 1037
followed
Para 21
[1989] (2) SCR 918
followed
Para 22
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B
C
D
E
F
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H
219
[2004] (1) SCR 564
followed
Para 23
AIR 1961 SC 1480
referred to
Para 23
[1980] (1) SCR 804
referred to
Para 23
AIR 1961 SC 459
referred to
Para 23
AIR 1965 SC 1561
followed
Para 31
[1970] (1) SCR 268
followed
Para 32
AIR 1972 SC 1061
followed
Para 33
[1994] (6) Suppl. SCR 120
relied on
Para 34
1958 SCR 1422
relied on
Para 38
AIR 1965 SC 1107
referred to
Para 39
[2016] (10) SCR 1
referred to
Para 39
[1982] (1) SCR 519
relied on
Para 44
[1983] (2) SCR 999
relied on
Para 45
[1983] (3) SCR 843
relied on
Para 46
[1988] (2) Suppl. SCR 880
referred to
Para 46
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6107
of 2021.
From the Judgment and Order dated 07.03.2014 of the High Court
of Judicature at Allahabad, Lucknow Bench in W.P. No.2557 of 1995
(M/B).
With
Civil Appeal No. 6108 of 2021.
Pradeep Kant, Sr. Adv., Divyanshu Sahay, Ms. Adviteeya, Rakesh
K. Sharma, Advs. for the Appellants.
Ms. Madhavi Goradia Divan, ASG, Rupesh Kumar, Ms. Neelam
Sharma, Ms. Pankhuri Shrivastava, Alekshendra Sharma, Advs. for the
Respondents.
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND
INVESTMENT CORP.
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The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
This judgment has been divided into the following sections to
facilitate analysis:
A
Factual Background..................................................3*
B
Issues.....................................................................5*
C
Rival Submissions......................................................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 Uttar Pradesh
Water Supply and Sewerage Act 19751. In coming to the conclusion that
the levy was contrary to law, the High Court relied upon a decision of
this Court in Union of India v. State of U.P. and others2.
2. The first respondent commenced construction of a building at
Vibhuti Khand, Gomti Nagar, Lucknow in 1986 under the auspices of
the U.P. Rajkiya Nirman Nigam Limited. Construction of the building
was 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"
2 (2007) 11 SCC 324
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1991. The building was thereafter known as 'PICUP Bhawan'. On 5
January 1995 a demand was raised by the appellants by Bill No. 12/26
for an amount of Rs. 46,63,312.50/- towards water tax for the period
from October 1986 to March 1995. By its letter dated 25 January 1995,
the first respondent sought a clarification on the location of the sewer
and water standpost and other water pipelines; distance from PICUP
Bhawan and a copy of the relevant notification or order prescribing the
'radius' under Section 55(b)(i) of the UP Water Supply and Sewerage
Act.
3. The bill was rectified on 28 January 1995 by which a demand
of water tax for the amount of Rs.16,45,875.00/- was raised in terms of
the provisions of Section 52(1). The respondent by its communication of
31 January 1995, once again, sought certain clarifications. The appellant
clarified the queries and reiterated its demand. The first respondent
deposited an amount of Rs. 3,46,500.00/- under protest on 15 March
1995, and a further sum of Rs. 9,41,942.77/- on 29 April 1995. On 7
September 1995 a writ petition was instituted by the first respondent
under Article 226 of the Constitution of India for challenging the levy of
water tax and sewerage tax on the premise that the first respondent
had, during the construction of the building, not obtained any water from
the pipeline laid down by the appellants within the area nor had it made
a request for a fresh water connection. A challenge was raised to the
validity of Sections 52(a), 55(b)(i) and 56(b) of the UP Water Supply
and Sewerage Act on the ground that they are ultra vires the provisions
of Article 265 of the Constitution. The petition was contested by the
appellants, who filed a counter affidavit. By its judgment dated 7 March
2014, the Division Bench of the High Court allowed the writ petition and
directed the appellants to refund the 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
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(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 submissions of the first respondent that the
law laid down in the above case "is also extended to" the
first respondent and then proceeded to allow the petition in
the following terms:
"Accordingly, we dispose of the writ petition with a direction to
the Jal Sansthan, Lucknow to refund the amount, which has been
paid to the petitioner, if there is no legal impediment or any
outstanding against the petitioner.
Accordingly, writ petition is disposed of."
6. There is absolutely no discussion on the merits. There is no
discussion of the basis on which the High Court accepted the contention
of the first respondent that the judgment of this Court noted earlier was
applicable to the facts of the present case. The proceedings have been
pending before this Court for well over six years and a remand to the
High Court will only result in another round of proceedings and possibly
further appeals. That apart, the decision in Union of India v. State of
U.P. (supra) is of a two-judge Bench of this Court and we shall explain
the judgment which contains observations that were per incuriam and
in any event contrary to the statute. In this backdrop, at this point of time
we have desisted from following the course of remanding the proceedings
since the appeal has been argued fully on merits on behalf of the appellants
by Mr Pradeep Kant, Senior Counsel and Ms Madhavi Divan, Additional
Solicitor General, who appeared on behalf of the first respondent - the
original petitioner before the High Court. Submissions have been urged
before this Court both on the construction of the statute as well as on the
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constitutional challenge and we shall, during the course of the present
judgment, deal with both aspects.
C Rival Submissions
Statutory Construction
7. Mr Pradeep Kant, Senior Counsel appearing on behalf of the
appellants, has made the following submissions in relation to the
construction of the statute in question, the UP Water Supply and
Sewerage Act:
(i)
The UP Water Supply and Sewerage Act contains provisions
which can be broadly classified in four heads:
(a)
establishment of the Jal Sansthan and provisions for
its functions and powers in Chapters-II and III;
(b)
vesting of properties, assets, liabilities and obligations
and transfer of employees in Chapter- IV;
(c)
taxes, fees and charges in Chapter-VI;
(d)
water supply and sewerage services in ChaptersVII-VIII; 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).
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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 the outset by stating that there is no challenge to the
validity of the sewerage charges, which the first respondent is ready
and willing to pay. The challenge to the levy of a water tax has been
assailed on the following submissions:
(i)
The levy of a water tax under Section 52(1)(a) is not a tax
on 'lands and buildings' within the meaning of Entry 49 of
List II to the Seventh Schedule to the Constitution;
(ii)
Essentially the charge under Section 52(1)(a) is of a fee
and not a tax, which will not be subsumed under Entry 49
of List II;
(iii)
Though Section 52(1)(a) seeks to impose the levy "on
premises situated within the area of the Jal Sansthan", this
is only to identify the territorial limit and jurisdiction. If the
long title to the legislation and its provisions are considered
holistically, it would be evident that the tax is not one on
'lands and buildings' within Entry 49 of List II;
(iv)
The nature of a levy has to be deduced from the primary
object and essential character of the legislation;
(v)
The following provisions of the legislation would make it
clear that the imposition is, strictly speaking, not a tax on
lands and buildings within the meaning of Entry 49 of List
II:
(a)
Section 56 makes a distinction between whether or
not the premises are connected with water supply;
(b)
A distinction has been made by the statute between
an owner and occupier which would be alien to a tax
on lands and buildings under Entry 49 of List II;
(c)
Section 25(2)(vi) empowers the Jal Sansthan to
introduce or amend the tariff for water supply and
sewerage services and to collect all taxes and
charges for these services as may be prescribed;
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(d)
Section 44 empowers the Jal Sansthan to fix and
adjust its rates of taxes and charges to enable it to
meet the cost of its operations, maintenance and debt
service and where practicable to achieve an
economic return on its fixed assets;
(e)
The collection of water tax is credited to a separate
fund and Section 101(2) stipulates that the moneys
shall be applied exclusively for water supply or
sewerage services or both, as the case may be.
(vi)
On the above grounds it has been urged that if the statute is
interpreted in a holistic context, it would emerge that:
(a)
Though labelled as a water tax, the levy under Section
52(1)(a) is in the nature of a fee and not a tax; and
(b)
In consequence, the levy cannot 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
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of a fee are per incuriam, since this Court held that the
levy was in the nature of a service charge and the issue did
not arise for determination;
(iv)
The levy of a tax under Section 52(1)(a) is on premises
situated within the area of the Jal Sansthan. The expression
'premises' is defined to mean land and building. Hence,
though labelled as a water tax, the levy provides for the
imposition of a tax on lands and buildings within the meaning
of Entry 49 of List II;
(v)
Entry 17 of List II inter alia deals with water and water
supplies, while Entry 49 of List II deals with the taxes on
lands and buildings. Properly construed, the levy is not a
tax on water but a tax on lands and buildings. The measure
of the tax is assessable value. The tax is imposed at a rate
being a percentage of the assessable value. The incidence
of the tax is on the owner and occupier;
(vi)
The taxing event or the levy must be distinguished from the
measure, 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 Court
in Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur3 and
on the judgment of the Andhra Pradesh High Court in Nizam Sugar
Factory Ltd. v. City Municipality, Bodhan4.
D Analysis
11. As we assess the rival submissions, it becomes necessary at
the outset to analyse the provisions of the enactment.
D.1 Statutory Provisions
12. The UP Water Supply and Sewerage Act is described by its
long title as "an Act to provide for the establishment of a Corporation,
authorities and organisations for the development and regulation
of water supply and sewerage services and for matters connected
therewith". Chapter I contains preliminary provisions including definitions.
Significant among the definitions for the purposes of this case is the
3 AIR 1962 All 83
4 AIR 1965 AP 91
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expression "premises" which is defined in Section 2 (18) to mean "any
land or building". Chapter II provides for the establishment, conduct of
business, functions and powers of the UP Jal Nigam. Chapter III provides
for the establishment, conduct of business, functions and powers of the
Jal Sansthan. Section 18(1) provides thus:
"18. Establishment of Jal Sansthans.- (1) If in the opinion of the
State Government, local conditions so require and it is considered
necessary or expedient for the improvement of water supply and
sewerage services in any area, it may constitute a body to be
known 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 all powers and perform all the functions relating to
water supply, sewerage and sewage disposal of the area which
lies within its jurisdiction;
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(ii) to acquire, possess and hold lands and other property and to
carry any water or sewerage works through, across, over or under
any highway, road, street or place and, after reasonable notice, in
writing to the owner or occupier, into, through, over or under any
building or land;
(iii) to abstract water from any natural source and dispose of
waste water;
(iv) to enter into contract or agreement with any person or body
as the Jal Sansthan may deem necessary;
(v) to adopt its own budget annually;
(vi) to introduce or amend tariff for water supply and sewerage
services, subject to approval of the Nigam and collect all taxes
and charges for these services as may be prescribed:
Provided that no decision to introduce or amend such tariff shall
be taken except by a special resolution in that behalf brought after
giving such notice as may be prescribed, and passed by the majority
of 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 the
Nigam."
13. Chapter IV deals with vesting of properties, assets, liabilities
and obligations and transfer of employees. Section 33 provides for the
vesting of existing water supplies and sewerage services in the Jal
Sansthan upon its constitution. Section 34 envisages that the Jal Sansthan
will assume the obligations of the local authority in respect of the matters
to which the UP Water Supply and Sewerage Act applies. Section 34
reads as under:
"34. Jal Sansthan to assume obligations of local authority in respect
of matters to which this Act appliesAll debts and obligations incurred, all contracts entered into all
matters and things engaged to be done by, with or for any local
body before the said date in respect of any of the functions specified
in Section 24 shall be deemed to have been incurred, entered into
or engaged to be done, by.