2021 (10) TMI 1071 - SC - Indian Laws

Water and sewerage taxes on premises u/s52: treated as property tax, not service fee; challenge dismissed

The dominant issue was whether water and sewerage 'taxes' levied under s.52(1)(a) of the Uttar Pradesh Water Supply and Sewerage Act, 1975 were in ... Tax on lands and buildings - legislative competence under Entry 49 List II - distinction between tax and fee - taxing event, measure, rate and incidence - pith and substance - Entry 17 List II (water supplies) versus Entry 49 List II (taxes on lands and buildings) - immunity of Union property from State taxation under Article 285Tax on lands and buildings - taxing event, measure, rate and incidence - Entry 49 List II - Validity and characterisation of the levy under Section 52 of the UP Water Supply and Sewerage Act - whether it is a tax on premises and therefore within the competence of the State under Entry 49 of List II. - HELD THAT: - The Court analysed the statutory scheme of the UP Water Supply and Sewerage Act and concluded that Section 52 levies a tax on 'premises situated within its area', where 'premises' is defined to mean land or building. The components of a tax - the taxable event, the person on whom the levy is imposed, the measure and the rate - are discernible in Section 52 read with Sections 53 and 56. The measure is the assessed annual value (determined as per Section 53), rates are prescribed (minimum and maximum percentages in subsections (2) and (3)) and incidence is provided by Section 56 (occupier where connected; owner where not connected). Restrictions in Section 55 (radius, minimum annual value, agricultural use) are parameters of levy and do not convert its essential character into a fee. Applying established precedents, the Court held that using annual value or other measures does not alter the nature of a levy where, in pith and substance, the charge is on land/building. Therefore the levy under Section 52 is a tax on lands and buildings and falls within the State's legislative competence under Entry 49 List II. [Paras 24, 25, 26, 36]Section 52(1)(a) levies a tax on premises (land and building) and is intra vires the State under Entry 49 of List II.Distinction between tax and fee - Entry 17 List II (water supplies) versus Entry 49 List II - immunity of Union property from State taxation under Article 285 - Whether the levy under Section 52 is in substance a fee for services (and therefore not a tax) as held in Union of India v. State of U.P., and whether that decision must be followed. - HELD THAT: - The Court reviewed the statutory separation in Chapter VI between taxes (Section 52), charges for cost of water (Section 59), and fees (Section 63), and emphasised that nomenclature alone does not determine character. Relying on constitutional jurisprudence, the Court explained that the conceptual distinction between taxes and fees has been eroded and must be determined from the statute's essential character. Section 52 is a compulsory exaction imposed on premises, irrespective of actual consumption, with assessable value and prescribed rates; by contrast Section 59 and Section 63 address cost-of-service charges and fees respectively. The two-judge Bench decision in Union of India v. State of U.P. treated the particular levy on railway property as a service charge and, in doing so, conflated the chapter-heading with Section 52; those observations to the extent they characterised Section 52 as a fee were per incuriam or incorrect and are overruled. The applicability of Entry 17 (water supplies) does not supplant Entry 49 where the levy in pith and substance is on lands and buildings. [Paras 28, 41, 44, 48]The levy under Section 52 is a tax (not a fee) and the contrary observations in Union of India v. State of U.P. insofar as they treat Section 52 as a fee are overruled; Entry 17 does not displace Entry 49 in this case.Final Conclusion: The appeals are allowed. The judgment of the High Court dated 7 March 2014 is set aside, the writ petition is dismissed, and the appellants are entitled to recover the balance of dues in pursuance of the demand notice with interest. No order as to costs. 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.