Tax nomenclature does not determine the nature of the levy or its true character

Supreme Court in matter of  Jalkal Vibhag Nagar Nigam & Ors. v/s Pradeshiya Industrial and Investment Corporation & Anr. held that 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. 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.

Principally, two issues arise in these proceedings:

• Whether the demand of water tax and sewerage tax is sustainable with reference to the provisions of the UP Water Supply and Sewerage Act; and
• Whether the State Legislature has the legislative competence to levy the tax under the provisions of Section 52(1)(a).

The levy under Section 52 (1) is a tax and not a fee.

• As in the case of a tax, a fee may also involve a compulsory exaction.
• A fee may involve an element of compulsion and its proceeds may form a part of the Consolidated Fund.
• Similarly, the element of a quid pro quo is not necessarily absent in the case of every tax.
• In the present case, the tax has been imposed by the legislature in Section 52. The proceeds of the tax are intended to constitute revenue available to the Jal Sansthan to carry out its mandatory obligations and functions under the statute of making water and sewerage facilities available in the area under its jurisdiction. The levy is imposed by virtue of the presence of the premises within the area of the jurisdiction of the Jal Sansthan. The water tax is levied so long as the Jal Sansthan has provided a stand post or waterworks within a stipulated radius of the premises through which water has been made available to the public by the Jal Sansthan. The levy of the tax does not depend upon the actual consumption of water by the owner or occupier upon whom the tax is levied. Unlike the charge under Section 59 which is towards the cost of water to be supplied by the Jal Sansthan according to its volume or, in lieu thereof on a fixed sum, 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.

The levy under Section 52 falls squarely under the ambit of Entry 49 of List II as it is in the nature of a tax and not a fee.

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