The Supreme Court ruled that the nomenclature attributed to the tax does not determine the nature of the levy or its true and essential character.
The questions raised by the petitioner, Jalkal Vibhag Nagar Nigam, were whether the demand for water tax and sanitation tax is viable with reference to the provisions of the UP law on water supply and sanitation ; and whether the state legislature has legislative authority to collect the tax under the provisions of section 52 (1) (a).
The bench of three judges composed of judges DY Chandrachud, Vikram Nath and BV Nagarathna observed that “the nomenclature that the legislator has attributed to the tax does not determine the nature of the levy nor its true and essential character. The legislator can choose a label for a tax. The label will not, however, determine or otherwise clarify the nature of the sample. The nature of the levy must be deduced from the nature of the tax, from the provision which specifies the tax event and, as in the case of Article 52, from the unit on which the levy is to be taxed. The legislator can choose a label for the tax according to the nature of the levy. On the other hand, the legislator can choose a label having a relation with the function of the authority which imposes the tax as in the present case. The tax has been referred to as a water tax or a sanitation tax simply because it is imposed by the Jal Sansthan formed under the UP Water Supply and Sanitation Law. This does not change the nature of the levy, which is in substance a land and property tax within the meaning of entry 49 of list II of the seventh annex.
The court observed that while imposing the tax under clause (a) of Article 52 (1), the legislator provided that the tax will be on the spot located in the area of Jal Sansthan, where the area is covered. by the water supply services of Jal Sansthan. This provision of subparagraph (a) does not make the levy a royalty instead of a tax. The purpose of the legislation in imposing a tax, which is prescribed as a water tax, is to enable Jal Sansthan to finance the activities it undertakes to plan, promote and execute projects and operate an efficient system of ‘water supply. In addition to the above function in section 24 (1), the Jal Sansthan must manage its affairs to provide wholesale water to the inhabitants of the area under its jurisdiction.
The court said there is no doubt that the levy that is imposed under section 52 is a tax on land and buildings located in the Jal Sansthan area for the purpose of imposing the tax. The tax is imposed on the premises that fall within the territorial area of Jal Sansthan. The expression “premises” is defined to mean land and a building. The tax is on land and buildings. The tax nomenclature does not indicate its true character and substance. The fact that the law allows Jal Sansthan to collect the tax does not make it a water tax either. The taxation section clearly states that this is a tax on land and buildings. The legislator introduced certain restrictions in Article 55, in particular by stipulating in clause (a) that for land which is exclusively used for agricultural purposes, the tax will not be collected unless the water is supplied by the Jal Sansthan for these purposes.
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