Holding

The levy under Section 52(1)(a) of the Uttar Pradesh Water Supply and Sewerage Act, 1975 is a tax on lands and buildings within the meaning of Entry 49 of List II, not a fee, and is constitutionally valid.

Summary

The Supreme Court examined a challenge to the water and sewerage taxes levied under Sections 52(1)(a), 55(b)(1) and 56 of the Uttar Pradesh Water Supply and Sewerage Act, 1975. The first respondent argued that the levy was a fee, not a tax, and therefore beyond the State's competence under Entry 49 of List II. The Court held that the levy is a tax on premises (land and building) situated within the Jal Sansthan's area, irrespective of water connection, and that the label "water tax" does not alter its character. It clarified that the distinction between tax and fee has been eroded and that the levy falls squarely within Entry 49, not Entry 17. Consequently, the constitutional challenge was rejected, the High Court's order was set aside, and the appellants were entitled to recover the outstanding dues with interest. The appeal was allowed.

Issues considered

Whether the demand of water tax and sewerage tax under Sections 52(1)(a), 55(b)(1) and 56 of the Uttar Pradesh Water Supply and Sewerage Act, 1975 is a valid tax within the State's legislative competence.
Whether the levy under Section 52(1)(a) is a tax or a fee, and consequently whether it is barred by Article 285 of the Constitution.

Legislation cited

Uttar Pradesh Water Supply and Sewerage Act, 1975s. 2(18), s. 44, s. 52(1)(a), s. 52(1)(b), s. 53, s. 55, s. 56, s. 57, s. 59, s. 63, s. 64

Subjects

water taxsewerage taxtax vs feeEntry 49 List IIUttar Pradesh Water Supply and Sewerage Actconstitutional validitytax jurisprudencepremises

Judgment

210 [2021]REPORTS
SUPREME COURT 12 S.C.R. 210 [2021] 12 S.C.R.

A JALKAL VIBHAG NAGAR NIGAM & ORS.
v.
PRADESHIYA INDUSTRIAL AND INVESTMENT
CORPORATION & ANR.
B (Civil Appeal No. 6107 of 2021)
OCTOBER 22, 2021
[DR. DHANANJAYA Y CHANDRACHUD, VIKRAM NATH
AND B. V. NAGARATHNA, JJ.]
C
Uttar Pradesh Water Supply and Sewerage Act 1975 –
ss.52(1)(a), 55(b)(1), 56 – Constitutional validity of – Challenge to
– Held: Rejected – Levy u/s.52 falls squarely under the ambit of
Entry 49, List II as it is in the nature of a tax and not a fee –
Nomenclature of the tax does not indicate its true character and
D substance – Nor does the fact that the law enables the Jal Sansthan
to levy the tax render it a tax on water – Tax has been labelled as
the water tax or a sewerage tax 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
E is a tax on lands and buildings within the meaning of Entry 49 of
List II of the Seventh Schedule – Tax is imposed on an occupier or
owner of the building or land falling within the area of the Jal
Sansthan irrespective of whether a connection of water supply or
sewerage has been obtained to the land or building – Basis for the
levy of the taxes is on the location of premises within the area of the
F Jal Sansthan – Since the respondent’s premises are located within
the area of the appellant’s authority, the respondent is liable to pay
the water tax as well as the sewerage tax as the owner and occupier
of the premises – Judgment of High Court set aside – Writ petition
filed by the first respondent dismissed – Appellants entitled to recover
G the balance of the dues remaining to be recovered in pursuance of
the notice of demand with interest @ 9% p.a. – Constitution of India
– Seventh Schedule, List II, Entry 49 – Jal Sansthan (Assessment of
Annual Value of Premises) Rules 1981 – Jal Sansthan (Radius
regarding Levy of Water Tax) Rules 1993.

H
210
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 211
INVESTMENT CORP.

Uttar Pradesh Water Supply and Sewerage Act 1975 – s.52 – A
Held: Levy u/s.52 is a tax simplicitor and cannot be regarded either
as a charge or a fee for a service rendered – Observations in Union
of India v. State of U.P. and Others reported as [2007] 11 SCR 792
that though the charges are loosely termed as tax, it is in substance
a fee, is per incuriam and are overruled.
B
Uttar Pradesh Water Supply and Sewerage Act 1975 – ss.52,
24, 25, 53 – Levy of tax u/s.52 – Purpose of legislation – Discussed.
Uttar Pradesh Water Supply and Sewerage Act 1975 – ss.52,
55 – Restrictions on the levy of tax u/s.52 – Held: Restrictions
imposed by s.55 do not render the tax a fee, nor are they indicative C
of the tax being charged for the actual use of water.
Uttar Pradesh Water Supply and Sewerage Act 1975 – ss.52,
56 – Held: Payment of water tax and sewerage tax is regardless of
whether the premises are connected with water supply or with a
sewer of the Jal Sansthan – There is no exemption from the payment D
of water tax or sewerage tax as both the contingencies- the premises
being connected with water supply (or, as the case may be, with a
sewer of the Jal Sansthan) or there being no such connection have
been covered u/s.56 – So long as a provision for water supply or a
sewerage is made by the Jal Sansthan in the area covered, the E
occupier or the owner of the premises is liable to pay the taxes.
Constitution of India – Constitutional jurisprudence –
Distinction between tax and fee – Held: It has substantially been
effaced in the development of the constitutional jurisprudence.
F
Words & Phrases – “premises” in s.2(18) – Held: In the
context of s.52, the levy by the Jal Sansthan is “on premises situated
within its area” meaning the area within which the Jal Sansthan
exercises its jurisdiction and powers – Levy is on premises –
“Premises” is defined in s.2(18) to mean “any land or building” –
Hence, read together with the definition of the expression “premises”, G
the levy is squarely on lands and buildings situated within the area
of the Jal Sansthan – Uttar Pradesh Water Supply and Sewerage
Act 1975 – ss.2(18), 52.

H
212 SUPREME COURT REPORTS [2021] 12 S.C.R.

A Allowing the appeals, the Court
HELD : 1.1 An overview of the provisions of the UP Water
Supply and Sewerage Act indicate that separate and distinct
provisions are contained in Chapter VI for (i) taxes; (ii) fees; and
(iii) charges. The levy of taxes is provided for in Section 52, the
B determination of the cost of water to be charged for water
connections in Section 59 and the charge of fees in Section 63.
Section 64 indicates that the dues of the Jal Sansthan could be in
the form of a tax, fee, cost of water, cost of disposal of waste
water, meter rent, penalty, damage or surcharge. The legislature
has distinguished between the expressions “tax”, “fee”, “cost
C of water”, “meter rent”, “penalty”, “damage or surcharge” by
providing separate provisions under the Act. In the present case,
the controversy is over the liability for the payment of tax. A
legislative enactment which provides for the imposition of a tax
may make provisions for (i) The levy of the tax on the basis of a
D taxable event; (ii) The measure of the tax; (iii) The rate at which
the tax will be imposed; (iv) The incidence of the tax; and (v)
Assessment, collection, recovery and other incidental provisions.
[Paras 17, 19][233-B-D, F; 234-C-D]
Govind Saran Ganga Saran v. CST 1985 Supp SCC
E 205 : [1985] SCR 985; Commissioner of Income Tax
(Central)- I, New Delhi v. Vatika Township Private
Limited (2015) 1 SCC 1 : [2014] (12) SCR 1037;
Federation of Hotel and Restaurant Association of India
v. Union of India (1989) 3 SCC 634 : [1989] (2) SCR
918; State of West Bengal v. Kesoram Industries Ltd
F (2004) 10 SCC 201 : [2004] (1) SCR 564 – followed.
Ralla Ram v. Province of East Punjab AIR 1949 FC
81; Sainik Motors v. State of Rajasthan AIR 1961 SC
1480; D.G Gose & Co. (Agents) P. Ltd. v. State of Kerala
(1980) 2 SCC 410 : [1980] (1) SCR 804; Hingir Rampur
G Coal Co. Ltd. v. State of Orissa AIR 1961 SC 459 –
referred to.
1.2 A basic principle of tax jurisprudence is that the levy of
a tax cannot be conflated with its measure. In the context of
Section 52, the levy by the Jal Sansthan is “on premises situated
H
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 213
INVESTMENT CORP.

within its area” meaning the area within which the Jal Sansthan A
exercises its jurisdiction and powers. The levy is on premises.
The expression ‘premises” is defined in Section 2(18) to mean
“any land or building”. Hence, read together with the definition
of the expression “premises”, the levy is squarely on lands and
buildings situated within the area of the Jal Sansthan. While
B
imposing the levy under clause (a) of Section 52(1) the legislature
has provided that the levy will be on premises situated within the
area of the Jal Sansthan, where the area is covered by the water
supply services of the Jal Sansthan. This stipulation in clause (a)
does not render the levy a fee instead of a tax. The purpose of
the legislation in imposing a tax, which is prescribed as a water C
tax, is to enable the Jal Sansthan to finance the activities which it
undertakes to plan, promote and execute schemes for and operate
an efficient system of water supply. Besides the above function
in Section 24(1), the Jal Sansthan has to manage its affairs to
provide the people of the area within its jurisdiction with wholesale
D
water. It is in this context that Section 25, which defines the powers
of the Jal Sansthan, stipulates in sub-Section (1) that the Jal
Sansthan shall have the power to do anything which may be
expedient and necessary to carry out its functions under the UP
Water Supply and Sewerage Act. These powers are to inter alia
include under clause (vi) of sub-Section (2) the collection of taxes E
and charges for these services as may be prescribed. These
provisions indicate that the levy of tax is intended to secure
adequate means of finance for the Jal Sansthan to undertake its
activities. But the raising of revenue in terms of Section 52(1)(a)
is in the nature of a tax. The levy is on premises situated within
F
the area of the Jal Sansthan. The measure of the tax is the assessed
annual value of the premises, annual value being assessed in the
manner indicated in Section 53. The rate of tax in the case of a
local area, other than a city, has to be not less than 6 per cent and
not more than 14 per cent. In the case of the water tax in a city
the rate is to be not less than 7.5 per cent and not more than 12.5 G
per cent. A similar provision has been incorporated in regard to
the levy of a sewerage tax in Section 52(1)(b) and sub-Sections
(2) and (3) provide for the measure and the rate of tax. [Para 24]
[238-A-G]
H
214 SUPREME COURT REPORTS [2021] 12 S.C.R.

A 1.3 Section 55 contains restrictions on the levy of the tax
set out in Section 52. Clause (a) specifies that a tax shall not be
levied on land which is used exclusively for agricultural purposes
unless water is supplied by the Jal Sansthan for such purpose to
that land. Clause (b) of Section 55 contains two further restrictions
on the levy of water tax by providing that it shall not be levied on
B
premises: (i) not situated within the radius prescribed of the
nearest stand post or other water works on which water is made
available to the public by the Jal Sansthan; or (ii) whose annual
value does not exceed Rs. 360 and to which no water is supplied
by the Jal Sansthan. The restrictions which are imposed by Section
C 55 do not render the tax a fee, nor are they indicative of the tax
being charged for the actual use of water. While imposing the
levy in Section 52(1)(a), the legislature has considered it
appropriate to restrict the levy within the parameters which are
specified in Section 55. That does not alter the fundamental nature
of the levy, which is constituted as one on premises (defined to
D
mean land and building) situated within the area of Jal Sansthan.
[Para 25][238-H; 239-A-C]
1.4 Section 56 is a provision in relation to the incidence of
the tax. Section 56 is a clear indicator of the tax being in the
nature of a compulsory exaction arising out of the fact that the
E premises comprise of land and building situated within the area
of the Jal Sansthan, so long as the restrictions which are contained
in Section 55 are not attracted. Section 52 and Section 56 also
indicate that the intention of the legislature is to collect water
tax and sewerage tax from the occupier of the premises, where
F the premises are connected with water supply or, as the case
may be, with a sewer of the Jal Sansthan and, in case where the
premises are not so connected, from the owner of the premises.
Therefore, the payment of water tax and sewerage tax is
regardless of whether the premises are connected with water
supply or with a sewer of the Jal Sansthan. There is no exemption
G from the payment of water tax or sewerage tax as both the
contingencies- the premises being connected with water supply
(or, as the case may be, with a sewer of the Jal Sansthan) or there
being no such connection- have been covered under the provisions

H
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 215
INVESTMENT CORP.

of Section 56. So long as a provision for water supply or a A
sewerage is made by the Jal Sansthan in the area covered, the
occupier or the owner of the premises is liable to pay the taxes.
Both the water tax as well as the sewerage tax could be
consolidated for the purpose of levying, assessing and collecting
them under Section 57 of the Act. [Para 26][239-D, F-H;
B
240-A-B]
1.5 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 C
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 D
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 E
the Seventh Schedule. [Para 28][240-E-H]
1.6 The levy which is imposed under Section 52 is a tax on
lands and buildings situated within the area of the Jal Sansthan
for the purpose of imposing the tax. The tax is imposed on
premises which fall within the territorial area of the Jal Sansthan. F
The expression ‘premises’ is defined to mean land and building.
The tax is on lands and buildings. The nomenclature of the tax
does not indicate its true character and substance. Nor does the
fact that the law enables the Jal Sansthan to levy the tax render it
a tax on water. The charging section indicates in unambiguous G
terms that it is a tax on lands and buildings. The restrictions in
Section 55 do not detract from the nature of the levy nor would
the liability which is imposed on the owner and occupier be
anything other than a tax on lands and building within the meaning
of Entry 49 of List II. The tax is imposed on an occupier or owner
H
216 SUPREME COURT REPORTS [2021] 12 S.C.R.

A of the building or land falling within the area of the Jal Sansthan
irrespective of whether a connection of water supply or sewerage
has been obtained to the land or building. In another words, the
basis for the levy of the taxes is on the location of premises within
the area of the Jal Sansthan as notified by the State Government.
Since the respondent’s premises are located within the area of
B
the appellant’s authority, the respondent is liable to pay the water
tax as well as the sewerage tax as the owner and occupier of the
premises. 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. Thus, the applicability of Entry 17, which is a non-taxing entry,
C does not arise in this case. [Paras 36, 40][246-G; 247-A, D-F;
249-E]
2.1 The distinction between a tax and fee has substantially
been effaced in the development of our constitutional
jurisprudence. The distinction that while a tax is a compulsory
D exaction, a fee constitutes a voluntary payment for services
rendered does not hold good. As in the case of a tax, so also in
the case of a fee, the exaction may not be truly of a voluntary
nature. Similarly, the element of a service may not be totally absent
in a given case in the context of a provision which imposes a tax.
As in the case of a tax, a fee may also involve a compulsory
E 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 on premises situated within the
F area of the Jal Sansthan. 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.
G 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
H
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 217
INVESTMENT CORP.

upon whom the tax is levied. Unlike the charge under Section 59 A
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
B
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. [Paras 42, 47][250-A, D-E; 254-B-F]
Southern Pharmaceuticals and Chemicals, Trichur v.
State of Kerala (1981) 4 SCC 391 : [1982] (1) SCR
519; Municipal Corporation of Delhi v. Mohd. Yasin C
(1983) 3 SCC 229 : [1983] (2) SCR 999; Sreenivasa
General Traders and Others v. State of Andhra Pradesh
(1983) 4 SCC 353 : [1983] (3) SCR 843 – relied on.
Sirsilk Ltd. v. Textile Committee 1989 Supp. (1) SCC
168:[1988] (2) Suppl. SCR 880 – referred to. D

2.2 The two judge Bench in Union of India v. State of U.P.
and others 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 E
observations. Section 52 is contained in Chapter VI which is titled
“taxes, fees and charges”. The observations in paragraph 23 of
the judgment indicate that the title of Chapter VI was conflated
with the nature of the provision which is contained in Section 52.
Section 52 provides for the levy of taxes and not for fees or F
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. The statute contains distinct provisions for the levy of
taxes and for the imposition of charges and the recovery of fees. G
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. are overruled. [Para 48][257-C-F]
H
218 SUPREME COURT REPORTS [2021] 12 S.C.R.

A Union of India v. State of U.P. and others (2007) 11
SCC 324 : [2007] (11) SCR 792 – overruled.
3. The constitutional challenge to the validity of Sections
52(1)(a), Section 55(b)(1) and Section 56 of the UP Water Supply
and Sewerage Act is rejected. The judgment of the High Court is
B set aside. The writ petition filed by the first respondent is
dismissed. The appellants are entitled to recover the balance 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. [Para 49][257-G-H; 258-A]
C Ajoy Kumar Mukherjee v. Local Board of Barpeta AIR
1965 SC 1561; Assistant Commissioner of Urban Land
Tax v. Buckingham and Carnatic Co. Ltd. Etc. (1969) 2
SCC 55 : [1970] (1) SCR 268; Union of India v. HS
Dhillon AIR 1972 SC 1061 – followed.
D Goodricke Group Limited v. State of WB 1995 Suppl.
(1) SCC 707 : [1994] (6) Suppl. SCR 120; M.P.V.
Sundararamier & Co. v. State of AP 1958 SCR 1422 –
relied on.
Corporation of Calcutta v. Liberty Cinema AIR 1965
E SC 1107; Jindal Stainless Ltd. v. State of Haryana AIR
2016 SC 5617:[2016] (10) SCR 1 – referred to.
V Pattabhiraman v. The Assistant Commissioner of
Urban Land Tax, North Madras (North West)
Ayanavaram AIR 1971 Mad 61 (FB); Raza Buland
F Sugar Co. Ltd. v. Municipal Board, Rampur AIR 1962
All 83; Nizam Sugar Factory Ltd. v. City Municipality,
Bodhan AIR 1965 AP 91 – referred to.
Case Law Reference
[2007] (11) SCR 792 overruled Para 1
G
[1985] SCR 985 followed Para 20
[2014] (12) SCR 1037 followed Para 21
[1989] (2) SCR 918 followed Para 22

H
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 219
INVESTMENT CORP.

[2004] (1) SCR 564 followed Para 23 A
AIR 1961 SC 1480 referred to Para 23
[1980] (1) SCR 804 referred to Para 23
AIR 1961 SC 459 referred to Para 23
AIR 1965 SC 1561 followed Para 31 B
[1970] (1) SCR 268 followed Para 32
AIR 1972 SC 1061 followed Para 33
[1994] (6) Suppl. SCR 120 relied on Para 34
C
1958 SCR 1422 relied on Para 38
AIR 1965 SC 1107 referred to Para 39
[2016] (10) SCR 1 referred to Para 39
[1982] (1) SCR 519 relied on Para 44
D
[1983] (2) SCR 999 relied on Para 45
[1983] (3) SCR 843 relied on Para 46
[1988] (2) Suppl. SCR 880 referred to Para 46
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6107
E
of 2021.
From the Judgment and Order dated 07.03.2014 of the High Court
of Judicature at Allahabad, Lucknow Bench in W.P. No.2557 of 1995
(M/B).
With F
Civil Appeal No. 6108 of 2021.
Pradeep Kant, Sr. Adv., Divyanshu Sahay, Ms. Adviteeya, Rakesh
K. Sharma, Advs. for the Appellants.
Ms. Madhavi Goradia Divan, ASG, Rupesh Kumar, Ms. Neelam G
Sharma, Ms. Pankhuri Shrivastava, Alekshendra Sharma, Advs. for the
Respondents.

H
220 SUPREME COURT REPORTS [2021] 12 S.C.R.

A The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
This judgment has been divided into the following sections to
facilitate analysis:
B A Factual Background..................................................3*
B Issues.....................................................................5*
C Rival Submissions......................................................6*
D Analysis................................................................11*
C D.1 Statutory Provisions.......................................11*
D.2 Nature of levy under Section 52 of the UP Water
Supply and Sewerage Act...............................20*
D.3 Entry 49 List II: Taxes on Lands and
Buildings............................................................28*
D
D.4 Tax and fee......................................................38*
D.5 The ‘Railways’ judgment................................44*
E Conclusion............................................................47*

E
A Factual Background
1. By its judgment dated 7 March 2014, a Division Bench at the
Lucknow Bench of the High Court of Judicature at Allahabad allowed a
petition under Article 226 of the Constitution of India instituted by the
F first respondent and directed the appellants to refund water and sewerage
taxes levied and collected under the provisions of the Uttar Pradesh
Water Supply and Sewerage Act 19751. In coming to the conclusion that
the levy was contrary to law, the High Court relied upon a decision of
this Court in Union of India v. State of U.P. and others2.
G 2. The first respondent commenced construction of a building at
Vibhuti Khand, Gomti Nagar, Lucknow in 1986 under the auspices of
the U.P. Rajkiya Nirman Nigam Limited. Construction of the building
was completed in 1991 and its possession was handed over on 31 May
Ed. Note - *denotes the actual pagination in the Original Judgment.
1
“UP Water Supply and Sewerage Act”
H 2
(2007) 11 SCC 324
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 221
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

1991. The building was thereafter known as ‘PICUP Bhawan’. On 5 A
January 1995 a demand was raised by the appellants by Bill No. 12/26
for an amount 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 first respondent sought a clarification on the location of the sewer
and water standpost and other water pipelines; distance from PICUP
B
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.
3. The bill was rectified on 28 January 1995 by which a demand
of water tax for the amount of Rs.16,45,875.00/- was raised in terms of
the provisions of Section 52(1). The respondent by its communication of C
31 January 1995, once again, sought certain clarifications. The appellant
clarified the queries and reiterated its demand. The first respondent
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. On 7
September 1995 a writ petition was instituted by the first respondent D
under Article 226 of the Constitution of India for challenging the levy of
water tax and sewerage tax on the premise that the first respondent
had, during the construction of the building, not obtained any water from
the pipeline laid down by the appellants within the area nor had it made
a request for a fresh water connection. A challenge was raised to the
validity of Sections 52(a), 55(b)(i) and 56(b) of the UP Water Supply E
and Sewerage Act on the ground that they are ultra vires the provisions
of Article 265 of the Constitution. The petition was contested by the
appellants, who filed a counter affidavit. By its judgment dated 7 March
2014, the Division Bench of the High Court allowed the writ petition and
directed the appellants to refund the water and sewerage taxes levied F
and collected. The review petition against this judgment was also
dismissed by the High Court by order dated 9 August 2014. On 7 August
2015, while entertaining the special leave petition and issuing notice, this
Court stayed the operation of the impugned judgments of the High Court.
B Issues G
4. Principally, two issues arise in these proceedings: -
(i) 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
H
222 SUPREME COURT REPORTS [2021] 12 S.C.R.

A (ii) Whether the State Legislature has the legislative
competence to levy the tax under the provisions of Section
52(1)(a).
5. We must note at the outset that the High Court has allowed the
prayer for refund purely on the basis of a judgment of a two-judge Bench
B of this Court in Union of India v. State of U.P. (supra). The judgment
of the High Court has been drafted in a rather casual manner which is
evident from the fact that:
(i) While extracting from a portion of the judgment of this Court
noted above, the High Court has neither referred to the
C citation nor the name of the case;
(ii) After citing the extract from the judgment, the High Court
recorded the submissions of the first respondent that the
law laid down in the above case “is also extended to” the
first respondent and then proceeded to allow the petition in
D the following terms:
“Accordingly, we dispose of the writ petition with a direction to
the Jal Sansthan, Lucknow to refund the amount, which has been
paid to the petitioner, if there is no legal impediment or any
outstanding against the petitioner.
E Accordingly, writ petition is disposed of.”
6. There is absolutely no discussion on the merits. There is no
discussion of the basis on which the High Court accepted the contention
of the first respondent that the judgment of this Court noted earlier was
applicable to the facts of the present case. The proceedings have been
F pending before this Court for well over six years and a remand to the
High Court will only result in another round of proceedings and possibly
further appeals. That apart, the decision in Union of India v. State of
U.P. (supra) is of a two-judge Bench of this Court and we shall explain
the judgment which contains observations that were per incuriam and
in any event contrary to the statute. In this backdrop, at this point of time
G
we have desisted from following the course of remanding the proceedings
since the appeal has been argued fully on merits on behalf of the appellants
by Mr Pradeep Kant, Senior Counsel and Ms Madhavi Divan, Additional
Solicitor General, who appeared on behalf of the first respondent - the
original petitioner before the High Court. Submissions have been urged
H before this Court both on the construction of the statute as well as on the
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 223
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

constitutional challenge and we shall, during the course of the present A
judgment, deal with both aspects.
C Rival Submissions
Statutory Construction
7. Mr Pradeep Kant, Senior Counsel appearing on behalf of the B
appellants, has made the following submissions in relation to the
construction of the statute in question, the UP Water Supply and
Sewerage Act:
(i) The UP Water Supply and Sewerage Act contains provisions
which can be broadly classified in four heads: C
(a) establishment of the Jal Sansthan and provisions for
its functions and powers in Chapters-II and III;
(b) vesting of properties, assets, liabilities and obligations
and transfer of employees in Chapter- IV;
D
(c) taxes, fees and charges in Chapter-VI;
(d) water supply and sewerage services in Chapters-
VII-VIII; and
(e) penalties and procedure, external control and
miscellaneous provisions in Chapters IX to XI. E
(ii) The scheme of the legislation provides for the levy,
imposition, collection and realization of water tax and
sewerage tax under Section 52(1);
(iii) The decision of this Court in Union of India v. State of
U.P. (supra) is not an authority for the interpretation of F
Section 52 since in that case a service charge was levied
on the railways. The challenge to the levy was raised by
the railways on the ground that the Jal Sansthan was levying
a tax in violation of the provisions of Article 285 of the
Constitution and it was this submission which was rejected, G
by holding that the levy was of a service charge in the nature
of a fee and not a tax; and
(iv) In the present case, the imposition is of water tax and
sewerage tax which falls within the ambit of Section
52(1)(a).
H
224 SUPREME COURT REPORTS [2021] 12 S.C.R.

A Constitutional Challenge
8. Ms Madhavi Divan, Additional Solicitor General appearing on
behalf of the first respondent, has urged a constitutional challenge to the
provisions of Section 52(1)(a), Section 55(d)(a) and Section 56(b) of the
UP Water Supply and Sewerage Act. Ms Divan has prefaced her
B submissions at the outset by stating that there is no challenge to the
validity of the sewerage charges, which the first respondent is ready
and willing to pay. The challenge to the levy of a water tax has been
assailed on the following submissions:
(i) The levy of a water tax under Section 52(1)(a) is not a tax
C on ‘lands and buildings’ within the meaning of Entry 49 of
List II to the Seventh Schedule to the Constitution;
(ii) Essentially the charge under Section 52(1)(a) is of a fee
and not a tax, which will not be subsumed under Entry 49
of List II;
D (iii) Though Section 52(1)(a) seeks to impose the levy “on
premises situated within the area of the Jal Sansthan”, this
is only to identify the territorial limit and jurisdiction. If the
long title to the legislation and its provisions are considered
holistically, it would be evident that the tax is not one on
E ‘lands and buildings’ within Entry 49 of List II;
(iv) The nature of a levy has to be deduced from the primary
object and essential character of the legislation;
(v) The following provisions of the legislation would make it
clear that the imposition is, strictly speaking, not a tax on
F lands and buildings within the meaning of Entry 49 of List
II:
(a) Section 56 makes a distinction between whether or
not the premises are connected with water supply;
(b) A distinction has been made by the statute between
G an owner and occupier which would be alien to a tax
on lands and buildings under Entry 49 of List II;
(c) Section 25(2)(vi) empowers the Jal Sansthan to
introduce or amend the tariff for water supply and
sewerage services and to collect all taxes and
H charges for these services as may be prescribed;
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 225
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

(d) Section 44 empowers the Jal Sansthan to fix and A
adjust its rates of taxes and charges to enable it to
meet the cost of its operations, maintenance and debt
service and where practicable to achieve an
economic return on its fixed assets;
(e) The collection of water tax is credited to a separate B
fund and Section 101(2) stipulates that the moneys
shall be applied exclusively for water supply or
sewerage services or both, as the case may be.
(vi) On the above grounds it has been urged that if the statute is
interpreted in a holistic context, it would emerge that: C
(a) Though labelled as a water tax, the levy under Section
52(1)(a) is in the nature of a fee and not a tax; and
(b) In consequence, the levy cannot be sustained under
Entry 49 List II.
D
(vii) Entry 17 of List II provides for “water and water supplies”.
(viii) In sum and substance, the levy under Section 52(1)(a)
though described as a water tax, is a fee and not a tax and
though the legislature has used the nomenclature of “water
tax”, the levy in effect is an exaction on water or water
E
supply.
9. Opposing the above submissions challenging the constitutional
validity of the statute, Mr Pradeep Kant, Senior Counsel urged that:
(i) The two judge Bench of this Court in Union of India v.
State of U.P. (supra) has erroneously interpreted the F
provisions of Section 52 to be in the nature of a fee and not
a tax;
(ii) In that case the levy imposed by the Jal Sansthan on the
railways was a service charge for the use of water and
sewerage; the levy was not in the nature of a tax, as a G
consequence of which this Court came to the conclusion
that the immunity in Article 285 on taxing property of the
Union of India was not attracted;
(iii) As a consequence, the observations of the Court to the
effect that the imposition under Section 52 is in the nature H
226 SUPREME COURT REPORTS [2021] 12 S.C.R.

A of a fee are per incuriam, since this Court held that the
levy was in the nature of a service charge and the issue did
not arise for determination;
(iv) The levy of a tax under Section 52(1)(a) is on premises
situated within the area of the Jal Sansthan. The expression
B ‘premises’ is defined to mean land and building. Hence,
though labelled as a water tax, the levy provides for the
imposition of a tax on lands and buildings within the meaning
of Entry 49 of List II;
(v) Entry 17 of List II inter alia deals with water and water
C supplies, while Entry 49 of List II deals with the taxes on
lands and buildings. Properly construed, the levy is not a
tax on water but a tax on lands and buildings. The measure
of the tax is assessable value. The tax is imposed at a rate
being a percentage of the assessable value. The incidence
of the tax is on the owner and occupier;
D
(vi) The taxing event or the levy must be distinguished from the
measure, the rate and the incidence of the tax.
10. Mr Pradeep Kant has, during the course of his submissions,
relied upon a judgment of a Division Bench of the Allahabad High Court
E in Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur3 and
on the judgment of the Andhra Pradesh High Court in Nizam Sugar
Factory Ltd. v. City Municipality, Bodhan4.
D Analysis
11. As we assess the rival submissions, it becomes necessary at
F the outset to analyse the provisions of the enactment.
D.1 Statutory Provisions
12. The UP Water Supply and Sewerage Act is described by its
long title as “an Act to provide for the establishment of a Corporation,
authorities and organisations for the development and regulation
G of water supply and sewerage services and for matters connected
therewith”. Chapter I contains preliminary provisions including definitions.
Significant among the definitions for the purposes of this case is the

3
AIR 1962 All 83
4
H AIR 1965 AP 91
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 227
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

expression “premises” which is defined in Section 2 (18) to mean “any A
land or building”. Chapter II provides for the establishment, conduct of
business, functions and powers of the UP Jal Nigam. Chapter III provides
for the establishment, conduct of business, functions and powers of the
Jal Sansthan. Section 18(1) provides thus:
“18. Establishment of Jal Sansthans.- (1) If in the opinion of the B
State Government, local conditions so require and it is considered
necessary or expedient for the improvement of water supply and
sewerage services in any area, it may constitute a body to be
known as Jal Sansthan for that area.”
Section 24 specifies the functions of a Jal Sansthan: C
“24. Functions of a Jal Sansthan.- The functions of a Jal Sansthan
shall be as follows:
(i) to plan, promote and execute schemes of and operate an
efficient system of water supply;
(ii) where feasible, to plan, promote and execute schemes of, and D
operate, sewerage, sewage treatment and disposal and treatment
of trade effluents;
(iii) to manage all its affairs so as to provide the people of the area
within its jurisdiction with wholesome water and where feasible,
efficient sewerage service; E
(iv) to take such other measures, as may be necessary, to ensure
water supply in times of any emergency;
(v) such other functions as may be entrusted to it by the State
Government by notification in the Gazette.”
F
Section 25 enunciates the powers of a Jal Sansthan:
“25. Powers of a Jal Sansthan.-
(1) Every Jal Sansthan shall, subject to the provisions of this Act,
have power to do anything which may be necessary or expedient
for carrying out its functions under this Act. G
(2) Without prejudice to the generality of the foregoing provision
such powers shall include the power-
(i) to exercise all powers and perform all the functions relating to
water supply, sewerage and sewage disposal of the area which
lies within its jurisdiction; H
228 SUPREME COURT REPORTS [2021] 12 S.C.R.

A (ii) to acquire, possess and hold lands and other property and to
carry any water or sewerage works through, across, over or under
any highway, road, street or place and, after reasonable notice, in
writing to the owner or occupier, into, through, over or under any
building or land;
B (iii) to abstract water from any natural source and dispose of
waste water;
(iv) to enter into contract or agreement with any person or body
as the Jal Sansthan may deem necessary;
(v) to adopt its own budget annually;
C
(vi) to introduce or amend tariff for water supply and sewerage
services, subject to approval of the Nigam and collect all taxes
and charges for these services as may be prescribed:
Provided that no decision to introduce or amend such tariff shall
D be taken except by a special resolution in that behalf brought after
giving such notice as may be prescribed, and passed by the majority
of two-thirds of the members of the Jal Sansthan;
(vii) to incur expenditure and manage its own funds;
(viii) to obtain loans, advances, subventions and grants from the
E Nigam.”
13. Chapter IV deals with vesting of properties, assets, liabilities
and obligations and transfer of employees. Section 33 provides for the
vesting of existing water supplies and sewerage services in the Jal
Sansthan upon its constitution. Section 34 envisages that the Jal Sansthan
F will assume the obligations of the local authority in respect of the matters
to which the UP Water Supply and Sewerage Act applies. Section 34
reads as under:
“34. Jal Sansthan to assume obligations of local authority in respect
of matters to which this Act applies-
G All debts and obligations incurred, all contracts entered into all
matters and things engaged to be done by, with or for any local
body before the said date in respect of any of the functions specified
in Section 24 shall be deemed to have been incurred, entered into
or engaged to be done, by. with or for the Jal Sansthan, and all
H suits or other legal proceedings instituted or which might but for
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 229
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

vesting and transfer under sub-section (1) of Section 33, have A
been instituted or defended by or against the local body, may be
continued or instituted or defended by or against the Jal Sansthan.”
14. The finance and property of the Jal Sansthan are dealt with in
Chapter V of the Act. Section 41 envisages that every Jal Sansthan
shall have its own fund which shall be deemed to be a local fund to B
which shall be credited all monies received by or on behalf of the Jal
Sansthan. Section 44 provides for the general principles governing the
finance of the Jal Sansthan in the following terms:
“44. General principles for Jal Sansthan’s Finance.- A Jal Sansthan
shall from time to time so fix and adjust its rates of taxes and C
charges under this Act as to enable it to meet, as soon as feasible,
the cost of its operations, maintenance and debt service and where
practicable to achieve an economic return on its fixed assets.”
15. Chapter VI of the enactment is titled “taxes, fees and charges”.
The provisions of Chapter VI contained a separate delineation of taxes, D
charges and fees. Section 52 provides for the levy of taxes in the following
terms:
“52. Taxes leviable.- (l) For the purposes of this Act, a Jal Sansthan
shall levy, on premises situated within its area:
(a) where the area is covered by the water supply services of Jal E
Sansthan, a water tax; and
(b) where the area is covered by the sewerage services of Jal
Sansthan, a sewerage tax.
(2) The taxes mentioned in sub-section (1) shall in a local area
F
other than a city, be levied at such rate which in the case of water
tax shall be not less than 6 per cent and not more than 14 per cent
and in the case of sewerage tax shall be not less than 2 per cent
and not more than 4 per cent of the assessed annual value of the
premises as the Government may, from time to time after
considering the recommendation of the Nigam, by notification in G
the Gazette, declare.
(3) The taxes mentioned in sub-section (1), shall, in a city, be
levied at such rate which in the case of water tax shall not be less
than 7.5 per cent and not more than 12.5 per cent and in the case
of sewerage tax shall not be less than 2.5 per cent and not more H
230 SUPREME COURT REPORTS [2021] 12 S.C.R.

A than 5 per cent of the annual value of the premises determined
under the Uttar Pradesh Municipal Corporations Act, 1959, as
the State Government may, from time to time, after considering
the recommendation of the Nigam, by notification in the Gazette,
declare.
B [Explanation.-For the purposes of this section-
(i) the expression “city~ shall have the meaning assigned to it in
the .Uttar Pradesh Municipal Corporations Act, 1959; and
(ii) the expression “sewerage tax~shall have the same meaning
as the “drainage tax~ has been assigned in the Uttar Pradesh
C Municipal Corporations Act, 1959.].”
Section 53 enunciates provisions for the assessment of the annual
value in the following terms:
“53. Assessment of annual value.- (l) For the purposes of [sub-
D section (2) of] of Section 52, annual value means-
(a) in the case of railway stations, educational institutions (including
their hostels and halls) factories (as defined in the Factories Act,
1948), and commercial establishments (as defined in the Uttar
Pradesh Dookan Aur Vanijya Adhisthan Adhiniyam, 1956), five
per cent of the market value of the premises;
E
(b) in the case of any other premises, the gross annual rent for
which such premises are actually let or where the premises are
not let, the gross annual rent for which the premises might
reasonably be expected to be let:
F Provided that the annual value in the case of premises occupied
by the owner himself shall be deemed to be twenty-five per cent
less than the annual value otherwise determined under this section.
(2) The annual value of premises for the purposes of the levy of
taxes under subsection (2) of Section 52 shall be assessed by
G such authority as the State Government may, by general or special
order direct, and such authority may be either the Jal Sansthan
itself or any other agency as may be specified in the order.
(3) Where the assessment is made by the Jal Sansthan or by any
other agency the Jal Sansthan or such other agency shall follow
H the prescribed procedure.
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 231
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

(4) Until an assessment of the annual value of premises in any A
local area is made by the Jal Sansthan or any other agency specified
under sub-section (2) the annual value of all premises in that local
area, as assessed by the local body concerned for the purposes of
house tax shall be deemed to be the annual value of the premises
for the purposes of this Act as well.
B
(5) Where the annual value of premises in any local area is assessed
by the Jal Sansthan or other agency specified under sub-section
(2), it shall, subject to any variation therein on appeal under Section
54, be deemed to be the annual value of the premises for the
purposes also of house tax levied by the local body concerned,
anything contained in the law constituting such local body C
notwithstanding.”
For the purpose of assessment of annual value of the premises,
the Jal Sansthan (Assessment of Annual Value of Premises) Rules 1981
were formulated under Section 96(2)(c) of the Act. Section 54 contains
provisions for an appeal against an order of assessment to the prescribed D
authority. Section 55 enacts restrictions on the levy of taxes. Section 55
reads as follows:
“55. Restriction on levy of taxes.- The levy of taxes mentioned in
Section 52 shall be subject to the following restrictions, namely-
E
(a) they shall not be levied on any land exclusively used for
agricultural purposes unless water is supplied by the Jal Sansthan
for such purposes to that land;
(b) the water tax shall not be levied on any premises-
(i) of which no part is situate within the radius prescribed from F
the nearest stand-post or other waterworks at which water is
made available to the public by the Jal Sansthan; or
(ii) the annual value of which does not exceed rupees three hundred
and sixty, and to which no water is supplied by the Jal Sansthan.]
(c) the sewerage tax shall not be levied on any premises- G

(i) of which no part is within a radius of one hundred metres from
the nearest sewer of the Jal Sansthan, or
(ii) the annual value of which does not exceed one hundred fifty
rupees.” H
232 SUPREME COURT REPORTS [2021] 12 S.C.R.

A Pursuant to Section 55(b)(i), the Jal Sansthan (Radius regarding
Levy of Water Tax) Rules 1993 were framed to define the ‘radius’ to
which the authority of the Jal Sansthan extends to. Section 56 enunciates
the liability for the payment of taxes in the following terms:
“56. Liability for payment of taxes.- The taxes mentioned in Section
B 52 shall be recoverable-
(a) in the case of premises connected with water supply or, as the
case may be, with the sewer of A Jal Sansthan, from the occupier
of the premises;

C (b) in the case of premises not so connected, from the owner of
the premises.”
16. As distinct from the levy of taxes, Section 59 enables the Jal
Sansthan to fix the cost of water to be supplied by it according to the
minimum cost to be charged in respect of each connection. In lieu of
D charging the cost of water according to volume, the Jal Sansthan is
empowered to accept a fixed sum for a specified period on the expected
consumption of water during the period. Section 59 provides as follows:
“59. Cost of water.- (1) A Jal Sansthan shall, by notification in the
Gazette, fix the cost of water to be supplied by it according to its
E volume, and also the minimum cost to be charged in respect of
each connection.
(2) A Jal Sansthan may, in lieu of charging the cost of water
according to volume, accept a fixed sum for a specified period on
the basis of expected consumption of water during that period.”
F Section 60 provides for the fixation of the cost of disposal of waste
water by the Jal Sansthan. Section 61 provides for the provision of water
meters and the recovery of charges for the rent of the meters according
to the bye-laws. Section 62 is a provision enabling the Jal Sansthan to
demand security from the consumer in connection with the supply of a
G meter or for the sewer connection as provided in the bye-laws. Section
63 deals with the levy of fees in the following terms:
“63. Fees.- A Jal Sansthan may charge such fees, for connection,
disconnection, reconnection of any water supply or sewer or
testing or supervision or for any other service rendered or work
H executed or supervised as may be provided by bye-laws.”
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 233
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

Section 645 contains provisions for the recovery of taxes, fees, A
cost of sewerage, cost of disposal of waste water, meter rent, penalty,
damage or surcharge as arrears of land revenue. Chapter VII of the
Act deals with water supply, of which Section 65 defines the supply of
water for domestic purposes. Chapter VIII contains provisions for
sewerage.
B
17. An overview of the provisions of the UP Water Supply and
Sewerage Act would indicate that separate and distinct provisions are
contained in Chapter VI for (i) taxes; (ii) fees; and (iii) charges. The
levy of taxes is provided for in Section 52, the determination of the cost
of water to be charged for water connections in Section 59 and the
charge of fees in Section 63. Section 64 indicates that the dues of the Jal C
Sansthan could be in the form of a tax, fee, cost of water, cost of disposal
of waste water, meter rent, penalty, damage or surcharge. The following
sections deal with these dues :
(i) Water tax and sewerage tax (Section 52);
D
(ii) Fees (Section 63);
(iii) Cost of water (Section 59);
(iv) Cost of disposal of waste water (Section 60);
(v) Meter rent (Section 61);
E
(vi) General penalty (Section 84); and
(vii) Surcharge or damage (Section 51)
The legislature has distinguished between the expressions “tax”,
“fee”, “cost of water”, “meter rent”, “penalty”, “damage or surcharge”
by providing separate provisions under the Act. In the present case, the F
controversy is over the liability for the payment of tax.
18. There are two submissions which require our consideration.
First is the challenge raised to the constitutionality of the levy under

5
G
“64. Recovery of taxes and other sums due.- (1) Any sum due to A Jal Sansthan on
account of tax, fee, cost of water, cost of disposal of waste water, the meter-rent,
penalty, damage or surcharge under this Act, shall be recoverable as arrears of land
revenue.
(2) Nothing in sub-section (1) shall affect the power of [the Jal] Sansthan to cut off in
accordance with its bye-laws, the connection of water supply in the event of nonpayment
by the consumer of any dues referred to in that sub-section.” H
234 SUPREME COURT REPORTS [2021] 12 S.C.R.

A Section 52 of the UP Water Supply and Sewerage Act. Ms Divan has
submitted that the levy does not constitute a tax on ‘lands and buildings’
and is thus, outside the domain of the State legislature under Article 246
of the Constitution read with Entry 49 of List II. Second, that the levy
under Section 52(1)(a), though labelled as a water tax, is in the nature of
a fee. We shall consider each of these submissions in turn.
B
D.2 Nature of levy under Section 52 of the UP Water Supply
and Sewerage Act
19. A legislative enactment which provides for the imposition of a
tax may make provisions for
C (i) The levy of the tax on the basis of a taxable event;
(ii) The measure of the tax;
(iii) The rate at which the tax will be imposed;
(iv) The incidence of the tax; and
D (v) Assessment, collection, recovery and other incidental
provisions.
20. This characterization of the components of a tax has been
described repeatedly in the decisions of this Court. The locus classicus
on this point was a two judge Bench decision in Govind Saran Ganga
E Saran v. CST6. Justice RS Pathak (as the learned Chief Justice then
was) held:
“6. The components which enter into the concept of a tax
are well known. The first is the character of the imposition
known by its nature which prescribes the taxable event
F attracting the levy, the second is a clear indication of the
person on whom the levy is imposed and who is obliged to
pay the tax, the third is the rate at which the tax is imposed,
and the fourth is the measure or value to which the rate
will be applied for computing the tax liability. If those
components are not clearly and definitely ascertainable, it is difficult
G to say that the levy exists in point of law. Any uncertainty or
vagueness in the legislative scheme defining any of those
components of the levy will be fatal to its validity.”
(emphasis supplied)
6
H 1985 Supp SCC 205
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 235
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

21. In Commissioner of Income Tax (Central)- I, New Delhi A
v. Vatika Township Private Limited7a Constitution Bench of this Court
while holding that the rate of tax is an important component of the tax
regime, noted:
“39.2. The rate at which tax, or for that matter surcharge is to be
levied is an essential component of the tax regime. In Govind B
Saran Ganga Saran v. CST [1985 Supp SCC 205 : 1985 SCC
(Tax) 447 : (1985) 155 ITR 144] , this Court, while explaining the
conceptual meaning of a tax, delineated four components therein,
as is clear from the following passage from the said judgment:
(SCC pp. 209-10, para 6)
“6. The components which enter into the concept of a tax are C
well known. The first is the character of the imposition known
by its nature which prescribes the taxable event attracting
the levy, the second is a clear indication of the person on
whom the levy is imposed and who is obliged to pay the tax,
the third is the rate at which the tax is imposed, and the fourth D
is the measure or value to which the rate will be applied for
computing the tax liability. If those components are not clearly
and definitely ascertainable, it is difficult to say that the levy
exists in point of law. Any uncertainty or vagueness in the
legislative scheme defining any of those components of the
levy will be fatal to its validity.” E
It is clear from the above that the rate at which the tax is to be
imposed is an essential component of tax and where the rate is
not stipulated or it cannot be applied with precision, it would be
difficult to tax a person. This very conceptualisation of tax was
rephrased in CIT v. B.C. Srinivasa Setty [(1981) 2 SCC 460 : F
1981 SCC (Tax) 119 : (1981) 128 ITR 294] , in the following
manner: (SCC p. 465, para 10)
“10. … The character of computation of provisions in each
case bears a relationship to the nature of the charge. Thus
the charging section and the computation provisions together G
constitute an integrated code. When there is a case to which
the computation provisions cannot apply at all, it is evident
that such a case was not intended to fall within the charging
section.””
7
(2015) 1 SCC 1 H
236 SUPREME COURT REPORTS [2021] 12 S.C.R.

A 22. In Federation of Hotel and Restaurant Association of
India v. Union of India8, a challenge was raised to the constitutional
validity of the Expenditure Tax Act 1987 which imposed an ‘expenditure
tax’ on persons incurring “chargeable expenditure” in a class of hotels.
In that case, the petitioners argued that the Act in essence levied a tax
on luxuries, which falls within Entry 62 of List II and lies outside the
B competence of Parliament. Rejecting this contention, the Constitution
Bench, speaking through Justice MN Venkatachaliah (as the learned
Chief Justice then was), observed:
“43. The subject of a tax is different from the measure of
the levy. The measure of the tax is not determinative of its
C essential character or of the competence of the legislature.
In Sainik Motors v. State of Rajasthan [AIR 1961 SC 1480 :
(1962) 1 SCR 517] , the provisions of a State law levying a
tax on passengers and goods under Entry 56 of List I were
assailed on the ground that the State was, in the guise of
taxing passengers and goods, in substance and reality taxing
D
the income of the stage carriage operators or, at any rate,
was taxing the “fares and freights”, both outside of its
powers. It was pointed out that the operators were required
to pay the tax calculated at a rate related to the value of the
fare and freight. Repelling the contention, Hidayatullah, J.,
E speaking for the court said : (SCR p. 525)
“We do not agree that the Act, in its pith and substance, lays
the tax upon income and not upon passengers and goods.
Section 3, in terms, speaks of the charge of the tax ‘in respect
of all passengers carried and goods transported by motor
vehicles’, and though the measure of the tax is furnished by
F
the amount of fare and freight charged, it does not cease to
be a tax on passengers and goods.”
Indeed, reference may be made to the following statement
in Encyclopaedia Britannica (Vol. 14 p. 459) on “Luxury Tax”:
“A different approach to luxury taxation, much less frequently
G found, seeks to single out the luxury component of spending
on a given object rather than taxing specified goods and
services as luxuries. One example of this is the Massachusetts
5 per cent tax on restaurant meal of $. 1 or more....”
(emphasis supplied)
8
H (1989) 3 SCC 634
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 237
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

44. The submissions of the learned Attorney General that the tax A
is essentially a tax on expenditure and not on luxuries or sale of
goods falling within the State power, must, in our opinion, be
accepted. As contended by the learned Attorney General, the
distinct aspect, namely, “the expenditure” aspect of the transaction
falling with the Union power must be distinguished and the
B
legislative competence to impose a tax thereon sustained.
Contention (a) is, in our opinion, unsubstantial and, accordingly,
fails.”
(emphasis supplied)
23. In State of West Bengal v. Kesoram Industries Ltd9 a
Constitution Bench of this Court held that the measure employed for C
assessing a tax must not be confused with the nature of the tax. In doing
so, Justice RC Lahoti (as the learned Chief Justice then was), adverted
to a line of decisions in Ralla Ram v. Province of East Punjab10,
Sainik Motors v. State of Rajasthan11, D.G Gose & Co. (Agents)
P. Ltd. v. State of Kerala12 and Hingir Rampur Coal Co. Ltd. v. D
State of Orissa13, and observed
“33. […] It has been long recognised that the measure
employed for assessing a tax must not be confused with
the nature of the tax. A tax has two elements : first, the
person, thing or activity on which the tax is imposed, and E
second, the amount of tax. The amount may be measured
in many ways; but a distinction between the subject-matter
of a tax and the standard by which the amount of tax is
measured must not be lost sight of. These are described
respectively as the subject of a tax and the measure of a
tax. It is true that the standard adopted as a measure of the F
levy may be indicative of the nature of the tax, but it does
not necessarily determine it. The nature of the mechanism
by which the tax is to be assessed is not decisive of the
essential characteristic of the particular tax charged, though
it may throw light on the general character of the tax.” G
(emphasis supplied)
9
(2004) 10 SCC 201
10
AIR 1949 FC 81
11
AIR 1961 SC 1480
12
(1980) 2 SCC 410
13
AIR 1961 SC 459 H
238 SUPREME COURT REPORTS [2021] 12 S.C.R.

A 24. A basic principle of tax jurisprudence is that the levy of a tax
cannot be conflated with its measure. In the context of Section 52, the
levy by the Jal Sansthan is “on premises situated within its area” meaning
the area within which the Jal Sansthan exercises its jurisdiction and
powers. The levy is on premises. The expression ‘premises” is defined
in Section 2(18) to mean “any land or building”. Hence, read together
B
with the definition of the expression “premises”, the levy is squarely on
lands and buildings situated within the area of the Jal Sansthan. While
imposing the levy under clause (a) of Section 52(1) the legislature has
provided that the levy will be on premises situated within the area of the
Jal Sansthan, where the area is covered by the water supply services of
C the Jal Sansthan. This stipulation in clause (a) does not render the levy a
fee instead of a tax. The purpose of the legislation in imposing a tax,
which is prescribed as a water tax, is to enable the Jal Sansthan to
finance the activities which it undertakes to plan, promote and execute
schemes for and operate an efficient system of water supply. Besides
the above function in Section 24(1), the Jal Sansthan has to manage its
D
affairs to provide the people of the area within its jurisdiction with
wholesale water. It is in this context that Section 25, which defines the
powers of the Jal Sansthan, stipulates in sub-Section (1) that the Jal
Sansthan shall have the power to do anything which may be expedient
and necessary to carry out its functions under the UP Water Supply and
E Sewerage Act. These powers are to inter alia include under clause (vi)
of sub-Section (2) the collection of taxes and charges for these services
as may be prescribed. These provisions indicate that the levy of tax is
intended to secure adequate means of finance for the Jal Sansthan to
undertake its activities. But the raising of revenue in terms of Section
52(1)(a) is in the nature of a tax. The levy is on premises situated within
F
the area of the Jal Sansthan. The measure of the tax is the assessed
annual value of the premises, annual value being assessed in the manner
indicated in Section 53. The rate of tax in the case of a local area, other
than a city, has to be not less than 6 per cent and not more than 14 per
cent. In the case of the water tax in a city the rate is to be not less than
G 7.5 per cent and not more than 12.5 per cent. A similar provision has
been incorporated in regard to the levy of a sewerage tax in Section
52(1)(b) and sub-Sections (2) and (3) provide for the measure and the
rate of tax.
25. Section 55 contains restrictions on the levy of the tax set out
H in Section 52. Clause (a) specifies that a tax shall not be levied on land
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 239
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

which is used exclusively for agricultural purposes unless water is supplied A
by the Jal Sansthan for such purpose to that land. Clause (b) of Section
55 contains two further restrictions on the levy of water tax by providing
that it shall not be levied on premises: (i) not situated within the radius
prescribed of the nearest stand post or other water works on which
water is made available to the public by the Jal Sansthan; or (ii) whose
B
annual value does not exceed Rs. 360 and to which no water is supplied
by the Jal Sansthan. The restrictions which are imposed by Section 55
do not render the tax a fee, nor are they indicative of the tax being
charged for the actual use of water. While imposing the levy in Section
52(1)(a), the legislature has considered it appropriate to restrict the levy
within the parameters which are specified in Section 55. That does not C
alter the fundamental nature of the levy, which is constituted as one on
premises (defined to mean land and building) situated within the area of
Jal Sansthan.
26. Section 56, which is a provision in relation to the incidence of
the tax, provides that the tax mentioned in Section 52 would be D
recoverable:
(i) from the occupiers of the premises, in the case of premises
connected with water supply or as the case may be with
the sewer of a Jal Sansthan; and
E
(ii) from the owner of the premises, in the case of premises
not connected with water supply or the sewer of the Jal
Sansthan.
Section 56 is a clear indicator of the tax being in the nature of a
compulsory exaction arising out of the fact that the premises comprise F
of land and building situated within the area of the Jal Sansthan, so long
as the restrictions which are contained in Section 55 are not attracted.
Section 52 and Section 56 also indicate that the intention of the legislature
is to collect water tax and sewerage tax from the occupier of the premises,
where the premises are connected with water supply or, as the case
may be, with a sewer of the Jal Sansthan and, in case where the premises G
are not so connected, from the owner of the premises. Therefore, the
payment of water tax and sewerage tax is regardless of whether the
premises are connected with water supply or with a sewer of the Jal
Sansthan. There is no exemption from the payment of water tax or
sewerage tax as both the contingencies- the premises being connected
H
240 SUPREME COURT REPORTS [2021] 12 S.C.R.

A with water supply (or, as the case may be, with a sewer of the Jal
Sansthan) or there being no such connection- have been covered under
the provisions of Section 56. So long as a provision for water supply or a
sewerage is made by the Jal Sansthan in the area covered, the occupier
or the owner of the premises is liable to pay the taxes. Both the water
tax as well as the sewerage tax could be consolidated for the purpose of
B
levying, assessing and collecting them under Section 57 of the Act.
27. Chapter VI makes a clear distinction between a tax, a charge
and a fee. We have already noticed the provisions of Chapter VI governing
the levy and imposition of taxes. Section 59 provides for the fixation of
C the cost of water to be supplied by the Jal Sansthan according to its
volume as well as the minimum cost to be charged in respect of each
connection. The Jal Sansthan may, in lieu of charging for the cost of
water according to volume, charge a fixed sum on the basis of expected
consumption. A similar provision for the recovery of sewerage charges
is contained in Section 60. A distinct provision is contained in Section 63
D for the recovery of fees. Fees under Section 63 can be recovered for
the connection, disconnection or reconnection of water supply or sewer,
for testing or supervision or for any other purpose or work executed or
supervised as provided in the bye-laws. The provisions of Section 63
indicate that the recovery of a fee is, broadly speaking in relation to a
E service which is provided.
28. 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
F 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.
G 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.
H
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 241
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

D.3 Entry 49 List II: Taxes on Lands and Buildings A
29. The ambit of the expression “taxes on lands and buildings” in
Entry 49 of List II has come up for consideration before the Federal
Court and this Court. In Ralla Ram (supra) the Federal Court interpreted
Item 42 of List II (the Provincial Legislative List) under Section 100 of
the Government of India Act 1935. Item 42 of List II dealt with “taxes B
on lands and buildings, hearths and windows”. In this case, a tax was
imposed on the basis of annual value of buildings and lands by a Provincial
legislature and the question before the Court was whether it was in
substance, an income tax. The Federal Court emphasized that annual
value is not necessarily actual income but only a standard by which
C
income may be measured. The Court observed:
“Now once it is realised that the annual value is not
necessarily actual income, but is only a standard by which
income may be measured, much of the difficulty which
appears on the surface is removed. In our opinion, the
D
crucial question to be answered is whether merely because
the Income-tax Act has adopted the annual value as the
standard for determining the income, it must necessarily
follow that, if the same standard is employed as a measure
for any other tax, that tax becomes a tax on income? If the
answer to this question is to be given in the affirmative, then certain E
taxes which cannot possibly be described as income-tax must be
held to be so. A case in point is to be found in In re a Reference
under the Government of Ireland Act, 1920: In re s. 3 of the
Finance Act (Northern Ireland), 1934 [[1986] A.C. 852.] .
[…] F
This case demolishes the broad contention that wherever
the annual value is the basis of a tax, that tax becomes a
tax on income. It shows that there are other factors to be
taken into consideration and that it is the essential nature
of the tax charged and not the nature of the machinery which G
is to be looked at.”
(emphasis supplied)
30. In a subsequent decision of the Full Bench of the Madras
High Court in V Pattabhiraman v. The Assistant Commissioner of H
242 SUPREME COURT REPORTS [2021] 12 S.C.R.

A Urban Land Tax, North Madras (North West) Ayanavaram14,the
validity of the Madras Urban Land Tax Act 1966, which imposed a tax
on the basis of the market value of land, was challenged on the ground
that it was in substance an income tax. Following the decision in Ralla
Ram (supra), the High Court held the law to be within the purview of
Entry 49 of List II.
B
31. In Ajoy Kumar Mukherjee v. Local Board of Barpeta15,
a Constitution Bench of this Court upheld the validity of an annual tax
levied by local boards upon lands used for holding markets created under
the Assam Local Self-Government Act 1953. Justice KN Wanchoo,
speaking for the Constitution Bench, observed that:
C
“4. … It is well-settled that the entries in the three legislative lists
have to be interpreted in their widest amplitude and therefore if a
tax can reasonably be held to be a tax on land it will come within
Entry 49. Further it is equally well-settled that tax on land may be
based on the annual value of the land and would still be a tax on
D land and would not be beyond the competence of the State
legislature on the ground that it is a tax on income: (see Ralla
Ram v. Province of East Punjab [(1948) FCR 207] . It follows
therefore that the use to which the land is put can be taken
into account in imposing a tax on it within the meaning of
E Entry 49 of List II, for the annual value of land which can
certainly be taken into account in imposing a tax for the
purpose of this entry would necessarily depend upon the
use to which the land is put. It is in the light of this settled
proposition that we have to examine the scheme of Section 62 of
the Act, which imposes the tax under challenge.
F […]
6. […] This will again show that the tax provided by Section 52(2)
is a tax for the use of the land and it is not a tax on the market as
such, for the income from the market in the shape of tolls, rents
and other dues is not liable to tax under Section 52 and is different
G from tax. The scheme of Section 62 therefore shows that
whenever any land is used for the purpose of holding a
market, the owner, occupier or farmer of that land has to
pay a certain tax for its use as such. But there is no tax on
14
AIR 1971 Mad 61 (FB)
H 15
AIR 1965 SC 1561
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 243
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

any transaction that may take place within the market. A
Further the amount of tax depends upon the area of the
land on which market is held and the importance of the
market subject to a maximum fixed by the State
Government. We have therefore no hesitation in coming to
the conclusion on a consideration of the scheme of Section
52 of the Act that the tax provided therein is a tax on land, B
though its incidence depends upon the use of the land as a
market. Further as we have already indicated Section 62(2)
which uses the words “impose an annual tax thereon”
clearly shows that the word “thereon” refers to any land
for which a licence is issued for use as a market and not to C
the word “market”. Thus the tax in the present case being
on land would clearly be within the competence of the State
legislature. The contention of the appellant that the State
legislature was not competent to impose this tax because
there is no provision in List II of the Seventh Schedule for
imposing a tax on markets as such must therefore fail.” D
(emphasis supplied)
Thus, the Court reaffirmed the principle that the use to which the
land has been put can be taken into account in imposing a tax which is
within the meaning of Entry 49 of List II.
E
32. In Assistant Commissioner of Urban Land Tax v.
Buckingham and Carnatic Co. Ltd. Etc.16 a Constitution Bench held
that for the purpose of levying a tax under Entry 49 of List II, the State
legislature may adopt the annual or capital value of the lands and buildings
for determining the incidence of the tax. Justice V Ramaswami (I)
observed: F
“4. The first question to be considered in these appeals is whether
the Madras Legislature was competent to enact the legislation
under Entry 49 of List II of Schedule VII of the Constitution which
reads: “Taxes on lands and buildings”. It was argued on behalf of
the petitioners that the impugned Act fell under Schedule VII, G
List I, Entry 86, that is “Taxes on the capital value of the assets,
exclusive of agricultural land of individuals and companies; taxes
on the capital of companies.”
[…]
16
(1969) 2 SCC 55 H
244 SUPREME COURT REPORTS [2021] 12 S.C.R.

A In our opinion there is no conflict between Entry 86 of List I and
Entry 49 of List II. The basis of taxation under the two entries is
quite distinct. As regards Entry 86 of List I the basis of the taxation
is the capital value of the asset. It is not a tax directly on the
capital value of assets of individuals and companies on the valuation
date. […]
B
But Entry 49 of List II, contemplates a levy of tax on lands
and buildings on both as units. It is not concerned with the
division of interest or ownership in the units of lands or
buildings which are brought to tax. Tax on lands and
buildings is directly imposed on lands and buildings, and
C bears a definite relation to it. Tax on the capital value of
assets bears no definable relation to lands and buildings
which may form a component of the total assets of the
assessee. By legislation in exercise of power under Entry
86, List I tax is contemplated to be levied on the value of
the assets. For the purpose of levying tax under Entry 49,
D List II the State Legislature may adopt for determining the
incidence of tax the annual or the capital value of the lands
and buildings. But the adoption of the annual or capital value
of lands and buildings for determining tax liability will not
make the fields of legislation under the two entries
E overlapping. The two taxes are entirely different in their basic
concept and fall on different subject-matters.”
(emphasis supplied)
33. Another case in which the interpretation of Entry 49 of List II
came up for consideration before a Constitution Bench of this Court is
F Union of India v. HS Dhillon17.In that case, the appeal arose from a
judgment of the Punjab and Haryana High Court holding that Section 24
of the Finance Act 1969 insofar as it amended the relevant provisions of
the Wealth Tax Act 1957 was beyond the legislative competence of
Parliament. The High Court held that the Wealth Tax Act as amended
was ultra vires the Constitution insofar as it included the capital value
G of agricultural land for the purposes of computing net wealth. The majority
(4:1) of the High Court had also held that the law was not one with
respect to Entry 49 of List II. Chief Justice SM Sikri in the course of the
judgment of the Constitution Bench of this Court enunciated the essential
elements of a tax under Entry 49 of List II by observing that
H 17
AIR 1972 SC 1061
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 245
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

“74. The requisites of a tax under Entry 49, List II, may be A
summarised thus:
(1) It must be a tax on units, that is lands and buildings separately
as units.
(2) The tax cannot be a tax on totality, i.e., it is not a composite
tax on the value of all lands and buildings. B

(3) The tax is not concerned with the division of interest in the
building or land. In other words, it is not concerned whether one
person owns or occupies it or two or more persons own or occupy
it.”
C
In other words, it was held that the tax under Entry 49 of List II
“is not a personal tax but a tax on property”. Consequently, the wealth
tax imposed under the Wealth Tax Act was held to be distinct from a tax
under Entry 49 of List II.
34. A Bench of three learned judges of this Court in Goodricke D
Group Limited v. State of WB18 considered the validity of the levy of
an education cess on rural employment by the West Bengal Taxation
Laws (Second Amendment) Act 1989. The levy of the rural employment
cess was annually imposed on a tea estate at the rate of 12 paise for
each kilogram of green tea leaves produced in the State. The issue was
whether the levy was a tax on lands and buildings within the meaning of E
Entry 49 of List II. After adverting to the above decisions, Justice BP
Jeevan Reddy speaking for the three judge Bench came to the following
conclusion:
“20. It is thus clear from the aforesaid decisions that merely
because a tax on land or building is imposed with reference to its F
income or yield, it does not cease to be a tax on land or building.
The income or yield of the land/building is taken merely as a
measure of the tax; it does not alter the nature or character of the
levy. It still remains a tax on land or building. There is no set
pattern of levy of tax on lands and buildings — indeed there can
G
be no such standardisation. No one can say that a tax under a
particular entry must be levied only in a particular manner, which
may have been adopted hitherto. The legislature is free to adopt
such method of levy as it chooses and so long as the character of

18
1995 Suppl. (1) SCC 707 H
246 SUPREME COURT REPORTS [2021] 12 S.C.R.

A levy remains the same, i.e., within the four corners of the particular
entry, no objection can be taken to the method adopted. In the
cases before us, the cess is no doubt calculated on the basis of
the yield — for every kilogram of tea leaves produced in a tea
estate, a particular cess is levied. But that is a well-accepted mode
of levy of tax on land. The tax is upon the land — upon the “tea
B
estate” which is classified as a separate category, as a separate
unit, for the purpose of levy and assessment of the said cess
quantified on the basis of the quantum of produce of the tea estate.
It cannot be characterised as a tax on production for that reason.
As pointed out in Moopil Nair [(1961) 3 SCR 77 : AIR 1961 SC
C 552] — “a tax on land is assessed on the actual or potential
productivity of the land sought to be taxed”. There cannot be
uniform levy unrelated to the quality, character or income/yield of
the land. Any such levy has been held to be arbitrary and
discriminatory.”
D 35. During the course of his submissions, Mr Pradeep Kant has
also relied on the decision of the High Court of Allahabad in Raza Buland
Sugar Co. Ltd. v. Municipal Board, Rampur19 and the decision of
the High Court of Andhra Pradesh in Nizam Sugar Factory Ltd. v.
City Municipality, Bodhan20. In both these decisions, the question
before the High Courts was whether a water tax imposed on the annual
E
value of lands and buildings by the Municipality was within the competence
of the State legislature. The High Courts, referring to the pith and
substance doctrine, observed that though the tax was named as ‘water
tax’, it was not levied on the production of water or on the quantity of
water supplied and consumed, but instead was a tax on land and buildings
F falling under Entry 49 of List II.
36. In view of the above decisions, there can be no manner of
doubt that the levy which is imposed under Section 52 is a tax on lands
and buildings situated within the area of the Jal Sansthan for the purpose
of imposing the tax. The tax is imposed on premises which fall within the
G territorial area of the Jal Sansthan. The expression ‘premises’ is defined
to mean land and building. The tax is on lands and buildings. The
nomenclature of the tax does not indicate its true character and substance.

19
AIR 1962 All 83
20
H AIR 1965 AP 91
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 247
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

Nor does the fact that the law enables the Jal Sansthan to levy the tax A
render it a tax on water. The charging section indicates in unambiguous
terms that it is a tax on lands and buildings. The legislature has introduced
certain restrictions in Section 55 inter alia stipulating in clause (a) that
for land which is exclusively used for agricultural purposes, the tax shall
not be levied unless water is supplied by the Jal Sansthan for such purposes
B
to the land and in clause (b) stipulating that
(i) the premises should be situated within the prescribed radius
from the nearest stand-post or other waterworks at which
the water is made available to the public; and
(ii) the annual value of which does not exceed Rs. 360 and to C
which no water has been supplied by the Jal Sansthan.
These restrictions do not detract from the nature of the levy nor
would the liability which is imposed on the owner and occupier be anything
other than a tax on lands and building within the meaning of Entry 49 of
List II. The water tax and sewerage tax are taxes levied in order to D
augment the finances of the Jal Sansthan for the purpose of meeting the
cost of its operation, maintenance and services, so as to achieve an
economic return on its fixed assets. The collection is ultimately for
providing water supply and sewerage in the area of the Jal Sansthan,
even if it may not be provided to the particular premises. The tax is
E
imposed on an occupier or owner of the building or land falling within the
area of the Jal Sansthan irrespective of whether a connection of water
supply or sewerage has been obtained to the land or building. In another
words, the basis for the levy of the taxes is on the location of premises
within the area of the Jal Sansthan as notified by the State Government.
Since the respondent’s premises are located within the area of the F
appellant’s authority, the respondent is liable to pay the water tax as well
as the sewerage tax as the owner and occupier of the premises.
37. Ms Divan has also submitted that the levy under Section 52 is
in consonance with Entry 17 of List II, instead of Entry 49 of List II.
Entry 17 of List II provides for “water, that is to say, water supplies, G
irrigation and canals, drainage and embankments, water storage and
water power subject to the provisions of entry 56 of List I”. Extending
this argument, Ms Divan submitted that it is a fee for the supply of
water, and no fee can be levied when water is not supplied.
H
248 SUPREME COURT REPORTS [2021] 12 S.C.R.

A 38. We do not find any merit in this submission. Long years ago in
1958, this Court in M.P.V. Sundararamier & Co. v. State of AP21 held
that the Constitution makes a differentiation between the subject matter
of the legislation, and the tax in relation to the said subject matter in the
Union, State and Concurrent List in the Seventh Schedule. Justice TL
Venkatarama Aiyar, speaking for the majority (4:1), observed that :
B
“51. In List I, Entries 1 to 81 mention the several matters over
which Parliament has authority to legislate. Entries 82 to 92
enumerate the taxes which could be imposed by a law of
Parliament. An examination of these two groups of Entries shows
that while the main subject of legislation figures in the first group,
C a tax in relation thereto is separately mentioned in the second.
Thus, Entry 22 in List I is “Railways”, and Entry 89 is “Terminal
taxes on goods or passengers, carried by railway, sea or air; taxes
on railway fares and freights”. If Entry 22 is to be construed as
involving taxes to be imposed, then Entry 89 would be superfluous.
D Entry 41 mentions “Trade and commerce with foreign countries;
import and export across customs frontiers”. If these expressions
are to be interpreted as including duties to be levied in respect of
that trade and commerce, then Entry 83 which is “Duties of
customs including export duties” would be wholly redundant.
Entries 43 and 44 relate to incorporation, regulation and winding
E up of corporations. Entry 85 provides separately for corporation
tax. Turning to List II, Entries 1 to 44 form one group mentioning
the subjects on which the States could legislate. Entries 45 to 63
in that List form another group, and they deal with taxes. Entry
18, for example, is “Land” and Entry 45 is “Land revenue”. Entry
F 23 is “Regulation of mines” and Entry 50 is “Taxes on mineral
rights”. The above analysis — and it is not exhaustive of the
Entries in the Lists — leads to the inference that taxation
is not intended to be comprised in the main subject in which
it might on an extended construction be regarded as
included, but is treated as a distinct matter for purposes of
G legislative competence. And this distinction is also manifest in
the language of Article 248, clauses (1) and (2) and of Entry 97 in
List I of the Constitution. Construing Entry 42 in the light of the
above scheme, it is difficult to resist the conclusion that the power

21
H 1958 SCR 1422
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 249
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

of Parliament to legislate on inter-State trade and commerce under A
Entry 42 does not include a power to impose a tax on sales in the
course of such trade and commerce.
[…]
55. To sum up: (1) Entry 54 is successor to Entry 48 in the
Government of India Act, and it would be legitimate to construe it B
as including tax on inter State sales, unless there is anything
repugnant to it in the Constitution, and there is none such. (2)
Under the scheme of the entries in the Lists, taxation is
regarded as a distinct matter and is separately set out. (3)
Article 286(2) proceeds on the basis that it is the States that have C
the power to enact laws imposing tax on inter-State sales. It is a
fair inference to draw from these considerations that under Entry
54 in List II the States are competent to enact laws imposing tax
on inter-State sales.” (emphasis supplied)
39. The interpretation of the scheme of the entries laid down in D
Sundararamier (supra) has been followed by this Court in Goodricke
(supra), Corporation of Calcutta v. Liberty Cinema 22; Jindal
Stainless Ltd. v. State of Haryana23 and other decisions.
40. As explained above, 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 E
a fee. Thus, the applicability of Entry 17, which is a non-taxing entry,
does not arise in this case.
D.4 Tax and fee
41. Ms Divan’s submission that the tax which is imposed in Section
52(1)(a) is truly speaking a fee is premised on the argument that a true F
tax on lands and buildings under Entry 49 of List II
(i) should be agnostic as between owners and occupiers;
(ii) should make no differentiation between those who do and
do not consume water; and
G
(iii) should contain no provision for a separate fund into which
the revenue of the Jal Sansthan is earmarked.

22
AIR 1965 SC 1107
23
AIR 2016 SC 5617 H
250 SUPREME COURT REPORTS [2021] 12 S.C.R.

A 42. The distinction between a tax and fee has substantially been
effaced in the development of our constitutional jurisprudence. At one
time, it was possible for courts to assume that there is a distinction
between a tax and a fee: a tax being in the nature of a compulsory
exaction while a fee is for a service rendered. This differentiation, based
on the element of a quid pro quo in the case of a fee and its absence in
B
the case of a tax, has gradually, yet steadily, been obliterated to the point
where it lacks any practical or constitutional significance. For one thing,
the payment of a charge or a fee may not be truly voluntary and the
charge may be imposed simply on a class to whom the service is made
available. For another, the service may not be provided directly to a
C person as distinguished from a general service which is provided to the
members of a group or class of which that person is a part. Moreover,
as the law has progressed, it has come to be recognized that there need
not be any exact correlation between the expenditure which is incurred
in providing a service and the amount which is realized by the State. The
distinction that while a tax is a compulsory exaction, a fee constitutes a
D
voluntary payment for services rendered does not hold good. As in the
case of a tax, so also in the case of a fee, the exaction may not be truly
of a voluntary nature. Similarly, the element of a service may not be
totally absent in a given case in the context of a provision which imposes
a tax.
E 43. The gradual obliteration of the distinction between a tax and a
fee on a conceptual level has been the subject matter of several decisions
of this Court.
44. In Southern Pharmaceuticals and Chemicals, Trichur v.
State of Kerala24 Justice AP Sen speaking for the Court held:
F
“24. The distinction between a “tax” and a “fee” is well settled.
The question came up for consideration for the first time in this
Court in the Commissioner, H.R.E., Madras v. Lakshmindra
Thirtha Swamiar of Shirur Mutt [AIR 1954 SC 282 : 1954 SCR
1005 : 1954 SCJ 335].
G
[…]
25. ”Fees” are the amounts paid for a privilege, and are not an
obligation, but the payment is voluntary. Fees are distinguished
from taxes in that the chief purpose of a tax is to raise funds for
24
H (1981) 4 SCC 391
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 251
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

the support of the Government or for a public purpose, while a A
fee may be charged for the privilege or benefit conferred, or service
rendered or to meet the expenses connected therewith. Thus,
fees are nothing but payment for some special privilege granted
on service rendered. Taxes and taxation are, therefore,
distinguishable from various other contributions, charges, or burdens
B
paid or imposed for particular purposes and under particular powers
or functions of the Government. It is now increasingly realised
that merely because the collections for the services
rendered or grant of a privilege or licence, are taken to the
consolidated fund of the State and are not separately
appropriated towards the expenditure for rendering the C
service is not by itself decisive. That is because the
Constitution did not contemplate it to be an essential
element of a fee that it should be credited to a separate
fund and not to the consolidated fund. It is also increasingly
realised that the element of quid pro quo stricto senso is
D
not always a sine qua non of a fee. It is needless to stress
that the element of quid pro quo is not necessarily absent
in every tax. We may, in this connection, refer with profit to the
observations of Seervai in his Constitutional Law, to the effect:
[HM Seervai Constitutional Law of India, 2nd Edn, Vol. 2, p 1252,
para 2239] E
“It is submitted that as recognised by Mukherjea, J. himself,
the fact that the collections are not merged in the consolidated
fund, is not conclusive, though that fact may enable a court
to say that very important feature of a fee was present. But
the attention of the Supreme Court does not appear to have F
been called to Article 266 which requires that all revenues of
the Union of India and the States must go into their respective
consolidated funds and all other public moneys must go into
the respective public accounts of the Union and the States. It
is submitted that if the services rendered are not by a separate
body like the Charity Commissioner, but by a government G
department, the character of the imposition would not change
because under Article 266 the moneys collected for the
services must be credited to the consolidated fund. It may be
mentioned that the element of quid pro quo is not necessarily
absent in every tax.” H
252 SUPREME COURT REPORTS [2021] 12 S.C.R.

A Our attention has been drawn to the observations in Kewal
Krishan Puri v. State of Punjab [(1980) 1 SCC 416, 425 : (1979)
3 SCR 1217, 1230] : (SCC p. 425, para 8)
“The element of quid pro quo must be established between
the payer of the fee and the authority charging it. It may not
B be the exact equivalent of the fee by a mathematical precision,
yet, by and large, or predominantly, the authority collecting
the fee must show that the service which they are rendering in
lieu of fee is for some special benefit of the payer of the fee.”
To our mind, these observations are not intended and meant
C as laying down a rule of universal application. The Court
was considering the rate of a market fee, and the question
was whether there was any justification for the increase in
rate from Rs 2 per every hundred rupees to Rs 3. There
was no material placed to justify the increase in rate of the
fee and, therefore, it partook the nature of a tax. It seems
D
that the Court proceeded on the assumption that the
element of quid pro quo must always be present in a fee.
The traditional concept of quid pro quo is undergoing a
transformation.”
(emphasis supplied)
E
45. In Municipal Corporation of Delhi v. Mohd. Yasin25, Justice
O Chinnappa Reddy, while speaking for two judge Bench of this Court,
referred to the decision in Southern Pharmaceuticals (supra) and
observed:
F “9. What do we learn from these precedents? We learn that there
is no generic difference between a tax and a fee, though broadly
a tax is a compulsory exaction as part of a common burden, without
promise of any special advantages to classes of taxpayers whereas
a fee is a payment for services rendered, benefit provided or
privilege conferred. Compulsion is not the hallmark of the distinction
G
between a tax and a fee. That the money collected does not go
into a separate fund but goes into the consolidated fund does not
also necessarily make a levy a tax. Though a fee must have relation
to the services rendered, or the advantages conferred, such relation

25
H (1983) 3 SCC 229
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 253
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

need not be direct, a mere causal relation may be enough. Further, A
neither the incidence of the fee nor the service rendered need be
uniform. That others besides those paying the fees are also
benefitted does not detract from the character of the fee. In fact
the special benefit or advantage to the payers of the fees may
even be secondary as compared with the primary motive of
B
regulation in the public interest. Nor is the court to assume the
role of a cost accountant. It is neither necessary nor expedient to
weigh too meticulously the cost of the services rendered etc.
against the amount of fees collected so as to evenly balance the
two. A broad co-relationship is all that is necessary. Quid pro quo
in the strict sense is not the one and only true index of a fee; nor C
is it necessarily absent in a tax.”
46. In Sreenivasa General Traders and Others v. State of
Andhra Pradesh26, a three judge Bench of this Court held:
“32. There is no generic difference between a tax and a fee.
D
Both are compulsory exactions of money by public authorities.
Compulsion lies in the fact that payment is enforceable by law
against a person in spite of his unwillingness or want of consent.
A levy in the nature of a fee does not cease to be of that character
merely because there is an element of compulsion or coerciveness
present in it, nor is it a postulate of a fee that it must have direct E
relation to the actual service rendered by the authority to each
individual who obtains the benefit of the service. It is now
increasingly realised that merely because the collections for the
services rendered or grant of a privilege or licence are taken to
the consolidated fund of the State and not separately appropriated
F
towards the expenditure for rendering the service is not by itself
decisive. Presumably, the attention of the Court in the Shirur Mutt
case [(1980) 1 SCC 416 : AIR 1980 SC 1008 : (1979) 3 SCR
1217] was not drawn to Article 266 of the Constitution. The
Constitution nowhere contemplates it to be an essential element
of fee that it should be credited to a separate fund and not to the G
consolidated fund. It is also increasingly realised that the element
of quid pro quo in the strict sense is not always a sine qua non for
a fee. It is needless to stress that the element of quid pro quo is

26
(1983) 4 SCC 353 H
254 SUPREME COURT REPORTS [2021] 12 S.C.R.

A not necessarily absent in every tax: Constitutional Law of
India by H.M. Seervai, Vol. 2, 2nd Edn., p. 1252, paras 22, 39.”
(See also in this context, the decision in Sirsilk Ltd. v. Textile
Committee 27).
47. In view of this consistent line of authority, it emerges that the
B
practical and even constitutional, distinction between a tax and fee has
been weathered down. 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
C tax. In the present case, the tax has been imposed by the legislature in
Section 52 on premises situated within the area of the Jal Sansthan. 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
D
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
E 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
F
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.
D.5 The ‘Railways’ judgment
G
48. The High Court in the present case has relied on the decision
of a two judge Bench of this Court in Union of India v. State of U.P.
(supra) in support of its decision to order a refund of the taxes collected

27
H 1989 Supp. (1) SCC 168
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 255
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 C
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
D
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 F
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
G
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
256 SUPREME COURT REPORTS [2021] 12 S.C.R.

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
B
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
C 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
D 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
E
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
JALKAL VIBHAG NAGAR NIGAM v. PRADESHIYA INDUSTRIAL AND 257
INVESTMENT CORP. [DR. DHANANJAYA Y CHANDRACHUD, J.]

made clear that what is exempted by Article 285 is a tax on the A
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
B
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
C
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
49. 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
258 SUPREME COURT REPORTS [2021] 12 S.C.R.

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

B
Divya Pandey Appeals allowed.

C

D

E

F

G

H