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A 3-judge bench of Supreme Court on Friday upheld the constitutional validity of Sections 52 (1)(a), Section 55(b)(1) and Section 56 of the UP Water Supply and Sewerage Act.

With this view, the Court ordered that Jalkal Vibhag Nagar Nigam was entitled to recover the balance of the water and sewerage taxes due from the respondent corporation with interest at the rate of 9 per cent per annum.

This observation was made by a bench of Justices Dr Dhananjaya Y Chandrachud, Vikram Nath and BV Nagarathna in an appeal filed against a decision of the Allahabad High Court directing the Nagar Nigam to refund water and sewerage taxes levied and collected under the provisions of the Uttar Pradesh Water Supply and Sewerage Act, 1975 as such levy was contrary to law.

Pradeshiya Industrial and Investment Corporation, the respondent constructed a building at Vibhuti Khand, Gomti Nagar, Lucknow under the auspices of the U.P. Rajkiya Nirman Nigam Limited which was completed in 1991.

In January 1995 a demand for water tax was raised by the appellants for an amount of Rs.16,45,875.00/- in terms of the provisions of Section 52(1).   

The respondents after paying a part of the dues, in September 1995 filed a writ petition under Article 226 of the Constitution of India challenging the levy of water tax and sewerage tax on the premise that they 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 further 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 same was allowed by the High Court with a direction to refund any amount paid by the respondents. This was challenged in the instant SLP filed in August 2015.

Additional Solicitor General Madhavi Divan argued that 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 and the charge under Section 52(1)(a) is of a fee and not a tax, which would not be subsumed under Entry 49 of List II;

She further submitted that though Section 52(1)(a) seeks to impose the levy “on premises situated within the area of the Jal Sansthan”, this was only to identify the territorial limit and jurisdiction and 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.

The Court noted that for the purpose of assessment of annual value of the premises, the Jal Sansthan (Assessment of Annual Value of Premises) Rules 1981 were formulated under  Section 96(2)(c) of the Act.

Moreover, pursuant to Section 55(b)(i), the Jal Sansthan (Radius regarding Levy of Water  Tax) Rules 1993 were framed to define the ‘radius’ to which the authority of the  Jal Sansthan extends to.

It was further noted,

“An overview of the provisions of the UP Water Supply and Sewerage Act would 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.”

In the context of Section 52, the Court found that the levy by the Jal  Sansthan was “on premises situated within its area” meaning the area within which the Jal Sansthan exercises its jurisdiction and powers. It added,

“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.”

With regard to the restrictions imposed by Section 55 on the levy of the tax, the Court found that the provision did not render the tax a fee, nor was it 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”, it held.

It was further held that the nomenclature that the legislature has ascribed to the tax did not determine either the nature of the levy or its true and essential character.

The Court said that the legislature may choose a label for a tax but the nature of the levy had to be deduced from the nature of the tax, the provision which specifies the taxing event.

Placing reliance on Raza Buland Sugar Co. Ltd. v.  Municipal Board, Rampur and Nizam Sugar Factory Ltd. v. City Municipality, Bodhan, the bench observed that the question before the High Courts was whether a water tax imposed on the annual value of lands and buildings by the Municipality was within the competence of the State legislature.

The High Courts, referring to the pith and substance doctrine, observed that though the tax was named as ‘water tax’, it was not levied on the production of water or on the quantity of water supplied and consumed, but instead was a tax on land and buildings falling under Entry 49 of List II, noted the Court.

Referring to submission that the tax imposed in Section 52(1)(a) was a fee, it was opined that distinction between a tax and fee had substantially been effaced in the development of our constitutional jurisprudence.

“…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, for the reasons that we have indicated above, it is a tax on lands and buildings within the meaning of Entry 49 of List II.”

With this view, the court went on to dispose the appeal.

Cause Title: Jalkal Vibhag Nagar Nigam & Ors. v. Pradeshiya Industrial and Investment Corporation & Anr.

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