Nomenclature Of Tax Does Not Determine Its Nature Of Levy Or True Character : Supreme Court

The Supreme Court on Friday held that the nomenclature ascribed to a tax does not determine the nature of the levy or its true and essential character. Holding so, the Court observed that the tax labelled as "water tax" or "sewerage tax" under the UP Water Supply and Sewerage Act is in substance a tax on land and buildings situated with the area of the Jal Sansthan authority. The Court also noted that as per the statutory provisions, the tax labelled as "water tax" was not dependent on the actual consumption of water and was based on the provision for water supply given by the authority.A bench comprising Justices DY Chandrachud, Vikram Nath and BV Nagarathna observed :"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."Factual BackgroundThe Court was deciding the case Jalkal Vibhag Nagar Nigam and Ors v. Pradeshiya Industrial and Investment Corporation & Anr, which was an appeal arising from the Allahabad High Court. The respondent Pradeshiya Industrial and Investment Corporation ("Corporation") completed construction of a building in 1991 in Lucknow which was known as "PICUP Bhawan". On January 5, 1995 Jalkal Vibhag Nagar Nigam ("Vibhag") raised a bill 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 Corporation sought a clarification on the location of the sewer and water stand post 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. On rectification, the Vibhag u/s 52(1) of the Act raised a demand of water tax for the amount of Rs.16,45,875.00/-. The Corporation 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. Case Before Allahabad High Court The Corporation approached the High Court challenging the levy of water tax and sewage tax on the premise that the Corporation during building's construction did not obtain any water from the pipeline laid down by the Vibhag within the area and neither made a request for fresh water connection. A challenge was also 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 High Court on March 7, 2014 allowed the petition and directed the Vibhag to refund the water and sewerage taxes levied and collected. On August 9, 2014 the High Court also dismissed the review petition. The High Court relied on the judgment of the Supreme Court in Union of India v. State of U.P (2007) 11 SCC 324 Aggrieved, the Vibhag approached the Top Court. The Top Court on August 7, 2015 while staying the High Court's impugned judgement issued notice in the Special Leave Petition. Submissions Of Counsels Appearing for the Vibhag, Senior Advocate Pradeep Kant on the aspect of construction of the Statue (UP Water Supply and Sewerage Act) submitted that the Top Court's judgement in Union of India v. State of U.P. was not an authority for interpreting section 52 of the Act as that case service charge was levied on the Railways. In this regard he further contended that in the present case, the imposition was of water tax and sewerage tax which fell within the ambit of Section 52(1)(a). On the aspect of challenge to the constitutionality Sections 52(a), 55(b)(i) and 56(b) of the Act, Senior Counsel contended that levy of tax u/s 52(1)(a) was on premises situation within Jal Sansthan's area and the expression "premises" was defined to mean land and building. Justifying the levy, Senior Advocate further contended that though labelled as a water tax, the levy provided for the imposition of a tax on lands and buildings within the meaning of Entry 49 of List II. It was also his contention that in Union of India...

Nomenclature Of Tax Does Not Determine Its Nature Of Levy Or True Character : Supreme Court

Shruti Kakkar

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