Substance over label in municipal levies: service charges treated as tax and barred against Union property.

A municipal levy described as service charges was treated as a tax because it funded general municipal amenities such as water supply, street lighting, drainage and approach roads, and the municipality had no independent charging basis apart from taxation. The label used for the demand did not alter its legal character. Since the levy was in substance a tax, Article 285(1) barred its enforcement against Union property, and administrative circulars could not override that constitutional protection. The demand was therefore unconstitutional and unenforceable against the Union respondents.

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Issues: (i) whether the municipal demand described as service charges was in substance a tax; and (ii) whether such demand on Union property was barred by Article 285(1) of the Constitution of India.

Issue (i): whether the municipal demand described as service charges was in substance a tax.

Analysis: The demand was levied for municipal amenities such as water supply, street lighting, drainage and approach roads. The Court noted that the municipality did not have an independent power to levy service charges apart from taxation and that the demand was being raised on the same basis as tax from the general public. The label attached to the demand did not change its true character.

Conclusion: The demand was in substance a tax and not a mere service charge.

Issue (ii): whether such demand on Union property was barred by Article 285(1) of the Constitution of India.

Analysis: Article 285(1) exempts Union property from all taxes imposed by a State or by any authority within a State, unless Parliament otherwise provides. The administrative circulars relied upon by the municipality could not override the constitutional bar. Since the levy was in substance a tax and no statutory basis was shown to justify it against Union property, the demand was unconstitutional. The Court also followed earlier decisions holding that similar municipal demands could not be enforced against Union instrumentalities on the footing of service charges.

Conclusion: The demand was barred by Article 285(1) and was unenforceable against the respondents.

Final Conclusion: The municipal demand could not be sustained in law, and the challenge to the High Court's order failed.

Ratio Decidendi: A municipal levy, though styled as service charges, will be treated as a tax where it is imposed for general municipal services and lacks an independent charging basis, and such a levy cannot be enforced against Union property in view of Article 285(1) of the Constitution of India.

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