JALKAL VIBHAG NAGAR NIGAM & ORS. v. PRADESHIYA INDUSTRIAL AND INVESTMENT CORPORATION & ANR.

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INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

by the appellants. In that case, the writ petition which was filed by the A Union of India before the High Court challenged certain orders for the recovery of service charges on railway properties issued by the Jal Sansthan, Allahabad. The Jal Sansthan had directed the recovery of a sum of money towards sewerage charges for 3125 “seats” from the Divisional Railway Manager of the Northern Railway at Allahabad. The B levy was sought to be challenged on the ground that the Railways were holding the property of the Central Government for which service charges were not payable under Article 285 of the Constitution as such charges were in the nature of a tax. The bulk of the water was supplied by the Jal Sansthan for maintenance of the railway platforms as well as railway colonies. The Jal Sansthan was catering to the need of maintaining the sewerage system not only at the railway stations but in the adjoining areas as well as the residential quarters, offices, gardens, and sheds maintained by the Union of India through the railways. The Division Bench of the High Court dismissed the writ petition challenging the levy. It must be noted that it was contended by the Union of India that the levy of service charge was in the nature of a tax and hence fell within the ambit of Article 285 of the Constitution. On the other hand, the Jal Sansthan contended that the water and sewerage charges did not constitute a tax but were a fee for services rendered by the Jal Sansthan to which Article 285 had no application. In that context, Justice AK Mathur speaking for a two judge Bench of this Court observed: E “10. From a perusal of Article 285 it is clear that no property of the Union of India shall be subject to tax imposed by the State, save as Parliament may otherwise provide. The question is whether “the charges for” supply of water and maintenance of sewerage is in the nature of a tax or a fee for the services rendered by the Jal Sansthan. There is a distinction between a tax and a fee, and hence one has to see the nature of the levy whether it is in the nature of tax or whether it is in the nature of fee for the services rendered by any instrumentality of the State like the Jal Sansthan. There are no two opinions in the matter that so far as supply of water and maintenance of sewerage is concerned, the Jal Sansthan is to maintain it and it is they who bear all the expenses for the maintenance of sewerage and supply of water. It has to create its own funds and therefore, levy under the Act is a must. In order to supply water and maintain sewerage system, the Jal Sansthan has to incur the expenditure for the same. It is in fact a H

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A service which is being rendered by the Jal Sansthan to the Railways, and the Railways cannot take this service from the Jal Sansthan without paying the charges for the same. Though the expression tax has been used in the Act of 1975 but in fact it is in the nature of a fee for the services rendered by the Jal Sansthan. What is contemplated under Article 285 is taxation on the property of the Union. In our opinion the Jal Sansthan is not charging any tax on the property of the Union; what is being charged is a fee for services rendered to the Union through the Railways. Therefore, it is a plain and simple charge for service rendered by the Jal Sansthan for which the Jal Sansthan has to maintain staff for regular supply of water as well as for sewerage system of the effluent discharged by the railway over their platforms or from their staff quarters. It is in the nature of a fee for service rendered and not any tax on the property of the Railways.” The above observations make it clear that what was being charged in that case were charges for the supply of water and maintenance of sewerage. This was held to be plain and simple a charge for service rendered by the Jal Sansthan. As a consequence, Article 285 of the Constitution had no application on the ground that what is prohibited by Article 285 is taxation on the property of the Union of India, but it does not prohibit a charge of a fee on account of a service rendered by local bodies or an instrumentality of the State, such as the supply of water or the maintenance of sewerage. This Court ruled that the charge would be in the nature of a fee and not a tax. Having drawn the above conclusion, the Court in the concluding paragraph of the decision adverted to Section 52 and held thus: F “23. In this case what is being charged is for service rendered by the Jal Sansthan i.e. an instrumentality of the State under the Act of 1975. Section 52 of the Act states that the Jal Sansthan can levy tax, fee and charge for water supply and for sewerage services rendered by it as water tax and sewerage tax at the rates G mentioned therein. Though the charge was loosely termed as “tax” but as already mentioned before, nomenclature is not important. In substance what is being charged is fee for the supply of water as well as maintenance of the sewerage system. Therefore, in our opinion, such service charges are a fee and cannot be said to be hit by Article 285 of the Constitution. In this context it is to be H

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INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

made clear that what is exempted by Article 285 is a tax on the property of the Union of India but not a charge for services which are being rendered in the nature of water supply, for maintenance of sewerage system. Therefore, in our opinion, the view taken by the Division Bench of the Allahabad High Court is correct that the charge is a fee, being service charges for supply of water and maintenance of sewerage system, which cannot be said to be tax on the property of the Union. Hence it is not violative of the provisions of Article 285 of the Constitution.” In the above extract, the two judge Bench held that Section 52 “states that the Jal Sansthan can levy tax, fee and charge for water supply and for sewerage services” and though the charge was termed as a tax, in substance it is a fee for the supply of water. There is an evident error in the above observations. Section 52 is contained in Chapter VI which is titled “taxes, fees and charges”. The observations in paragraph 23 quoted above indicate that the title of Chapter VI was conflated with the nature of the provision which is contained in Section D

52. Section 52 provides for the levy of taxes and not for fees or charges for which there are distinct provisions in Chapter VI. The observations of the Court that though the charges are loosely termed as tax, it is in substance a fee, is per incuriam and in any event not reflective of a correct reading of the provisions of the statute. As we have indicated E above in Section D.1, the statute contains distinct provisions for the levy of taxes and for the imposition of charges and the recovery of fees. The levy under Section 52 is a tax simplicitor and cannot be regarded either as a charge or a fee for a service rendered. To that extent, the observations in paragraph 23 of the decision in Union of India v. State of U.P. (supra) would have to be and are accordingly overruled. F E Conclusion

49Copy pinpoint49. For the above reasons, we are of the view that there is no merit in the challenge raised in the writ proceedings before the High Court of Judicature at Allahabad. We reject the constitutional challenge G to the validity of Sections 52 (1)(a), Section 55(b)(1) and Section 56 of the UP Water Supply and Sewerage Act. The appeals shall accordingly stand allowed and the judgment of the High Court of Judicature at Allahabad at its Lucknow Bench dated 7 March 2014 shall stand set aside. The writ petition filed by the first respondent shall in consequence stand dismissed. The appellants shall be entitled to recover the balance H

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A of the dues remaining to be recovered in pursuance of the notice of demand, together with interest at the rate of 9 per cent per annum. In the circumstances of the case, there shall be no order as to costs.

50Copy pinpoint50. Pending application(s), if any, stand disposed of.

B Divya Pandey Appeals allowed.