Union of India & Ors Vs. State of U.P.
& Ors [2007] Insc 1106 (1 November 2007)
A.K.Mathur
& Markandey Katju A.K. Mathur, J.
1.
This appeal is directed against the judgment dated 12.12.2000 passed by the
Division Bench of the Allahabad High Court whereby the Division Bench has
dismissed the writ petition filed by the appellants and upheld the recovery
proceedings initiated against the appellants for the demand raised by the Jal Sansthan,
Allahabad as water and sewer charges.
2. The
Union of India and two others filed a writ petition before the High Court of Allahabad
challenging the orders of recovery dated 1.7.1999 and 20.12.1999 issued by the
Executive Engineer, Jal Sansthan, Khusru Bagh, Allahabad on account of service
charges on Railway properties situated at Allahabad for the period from
October, 1994 to March, 1999. The appellants also challenged the recovery
certificate issued by the Tahasildar, Sadar, Allahabad for recovery of a sum of Rs.26,23,360/- from the appellant
No.2 i.e. the Divisional Railway Manager, Northern Railway, Allahabad. It was alleged by the Jal Sansthan
that the appellants were liable to pay the sewerage charges for 3125 seats at
the rates notified under Allahabad Jal Sansthan Notification published in U.P.
Gazette dated 19.11.1994. The plea of the appellants was that they were holding
the property of the Central Government for which the service charges were not
payable under Article 285 of the Constitution of India as such charges were in
the nature of a tax. It was submitted that in view of the policy taken by the
Ministry of Railways, Government of India such charges cannot be recovered as
this was totally exempted but the respondent Jal Sansthan did not heed to it
and they moved the Tahasildar, Sadar, Allahabad for effecting recovery. Therefore, the appellants were constrained to
file the present writ petition before the High Court of Allahabad.
3. The
writ petition was contested by the respondents and they filed their reply and
pointed out that in view of various circulars of the Ministry of Railways, the
appellants have been paying the service charges to the Jal Sansthan and in that
connection it was pointed out that other Central Government Offices situated in
Allahabad i.e. Telephone Department; Post
Offices; Accountant General Office;
Central
Excise Department; Income Tax Offices were all making regular payment of
service charge and sewerage charge to the Jal Sansthan, Allahabad. It was also
pointed out that earlier the demand of service charges was being paid by the
Railway Administration to the Allahabad Nagar Mahapalika but with the
establishment of Allahabad Jal Sansthan under the U.P. Water Supply and
Sewerage Act, 1975 (herein after to be referred to as the Act) the
aforesaid charges were being levied and realized by the Allahabad Jal Sansthan.
4. On
the basis of these pleadings the question that came up before the Division
Bench of the High Court was whether such demand raised by Allahabad Jal Sansthan
for the services rendered by it to the Railway colonies was sustainable or not.
The short question was whether Article 285 of the Constitution of India will
exempt the Railway Administration from paying the water and sewerage charges
under the Act of 1975. In this connection, reference was specially made to two
decisions of this Court i.e. Union of India v. Purna Municipal Council &
Ors. [(1992) 1SCC 100] & Union of India
& Anr. V. Ranchi Municipal Corporation, Ranchi & Ors. [(1996) 7 SCC
542].
There
is no dispute that the bulk of water is supplied by the Jal Sansthan for
maintenance of the railway platforms as well as railway colonies and the Jal Sansthan
is catering to the need of maintaining the sewerage system not only at the
railway stations but in the adjoining areas and also the residential quarters,
offices, godowns, shades are being maintained by the Union of India through the
Railways. The contention of the appellants in the writ petition was that in
view of the aforesaid two decisions of this Court the question is no more res integra
and the Jal Sansthan cannot charge for the supply of water and maintenance of
sewerage system. In this connection, Section 184 of the Railways Act, 1989 was
also referred to which lays down that the railway administration shall not be
liable to pay any tax in aid of the funds of any authority unless the Central
Government by notification declares the railway administration to be liable to
pay the tax specified in such notification. In this connection, Clause (I) of
Article 289 of the Constitution was also pressed into service. But the High
Court did not dwell on this aspect in absence of the material placed in support
thereof and did not permit to raise this plea.
5. As
against this, it was contended on behalf of the respondents that the writ
petitioner- appellants herein were paying its predecessors the amount for water
and sewerage charges and there was no reason why they should discontinue the
payment for the same.
However,
it was contended by the appellants that merely because they were paying the charges
that does not become law or a vested right accrued in favour of the respondents
to continue with the charges.
6. It
was contended by the Jal Sansthan that the so called water and sewer charges is
not a tax and it is a fee for the services rendered by the Jal Sansthan. Hence
the exemption granted to the property of the Union from the State taxation under Article 285 of the
Constitution has no relevance to the present case as the property of the Union
of India was not being subjected to any tax. It was only a fee which has been charged
for the services rendered and this has been the practice which is prevalent
since long as other departments of the Central Government have been paying the
same. In this background, the Division Bench of the High Court after
exhaustively dealing with several cases on the subject came to the conclusion
that in view of the provisions of the Act of 1975 and with reference to Article
285 and Article 289 of the Constitution of India, consumption charges on water
or such services which are rendered under the statutory obligation for which
the Jal Sansthan is to maintain its own funds is a fee and not tax. Hence, the
writ petitioners were liable to pay such charges and they must honour the bills
which have been served upon them. It was also observed that the appellants have
been uninterruptedly paying such bills as a contractual obligation. It was also
pointed out that the railway is not being charged with any tax but what is
being charged is a fee for the service rendered by the Jal Sansthan. Aggrieved
against this order passed by the Division Bench of the High Court, the present
appeal was filed by the appellants.
7. We
have heard learned counsel for the parties and perused the record. One thing is
very clear from the facts, namely, that the Jal Sansthan which has been
established under the Act of 1975, has taken over certain duties of the
Municipality i.e. supply of water and maintenance of sewer. It is also not in
dispute that prior to this, the railways were paying for the services like
water and sewer to the then Municipality and likewise other departments of the
Central Government are also paying the same charges. Therefore, the question is
whether the service charges like supply of water and sewerage can be said to be
a tax on the properties of the Railways.
8.
Article 285 exempts the property of the Union
from State taxation. Article 285 of the Constitution reads as under :
285. Exemption of property of the Union
from State taxation.-
(1)
The property of the Union shall, save in so far as Parliament
may by law otherwise provide, be exempt from all taxes imposed by a State or by
any authority within a State.
(2)
Nothing in clause (1) shall, until Parliament by law otherwise provides,
prevent any authority within a State from levying any tax on any property of
the Union to which such property was immediately before the commencement of
this Constitution liable or treated as liable, so long as that tax continues to
be levied in that State.
9.
From a perusal of Article 285 it is clear that no property of the Union of
India shall be subject to tax imposed by the State, save as Parliament may
otherwise provide. The question is whether the charges for supply of
water and maintenance of sewerage is in the nature of a tax or a fee for the
services rendered by the Jal Sansthan. There is a distinction between a tax and
a fee, and hence one has to see the nature of the levy whether it is in the
nature of tax or whether it is in the nature of fee for the services rendered
by any instrumentality of the State like the Jal Sansthan. There is no two opinion
in the matter that so far as supply of water and maintenance of sewerage is
concerned, the Jal Sansthan is to maintain it and it is they who bear all the
expenses for the maintenance of sewerage and supply of water. It has to create
its own funds and therefore, levy under the Act is a must. In order to supply
water and maintain sewerage system, the Jal Sansthan has to incur the
expenditure for the same. It is in fact a service which is being rendered by
the Jal Sansthan to the Railways, and the Railways cannot take this service
from the Jal Sansthan without paying the charges for the same. Though the
expression tax has been used in the Act of 1975 but in fact it is in the nature
of a fee for the services rendered by the Jal Sansthan. What is contemplated
under Article 285 is taxation on the property of the Union. In our opinion the Jal Sansthan is not charging any
tax on the property of the Union; what is
being charged is a fee for services rendered to the Union through the Railways. Therefore, it is a plain and
simple charge for service rendered by the Jal Sansthan for which the Jal Sansthan
has to maintain staff for regular supply of water as well as for sewerage
system of the effluent discharge by the railway over their platform 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.
10.
The distinction has to be kept in mind between a tax and a fee. Exemption under
Article 285 is on the levy of any tax on the property of the Union by the State, and exemption is not for charges for
the services rendered by the State or its instrumentality which in reality
amounts to a fee. In this connection, a reference was made to the decision of
this Court in re Sea Customs Act (1878), S.20(2) [ AIR 1963 SC 1760]. This was
a case in which a reference was made by the President of India with regard to
levy of custom and excise duties on the State under Article 289 of the
Constitution of India wherein Sinha, CJ, Gajendragadkar, Wanchoo and Shah,JJ
answered the question at paragraph 31 as follows :
(31) For the reasons given above, it must be held that the immunity granted to
the States in respect of Union Taxation does not extend to duties of customs
including export duties or duties of excise. The answer to the three questions
referred to us must, therefore, be in the negative.
11.
But a contrary view was taken by S.K.Das, Sarkar and Das Gupta,JJ. They
concluded in paragraph 71 as follows:
(71) For the reasons given above our opinion is that the answers to the three
questions referred to this court must be in the affirmative and against the
stand taken by the Union.
12. Hidayatullah,
J. answering the question in paragraph 121, held as follows :
(121) My answers to the questions are:
(1)
The provisions of the Art. 289 of the Constitution preclude the Union from imposing or authorizing the imposition of,
customs duties on the import or export of the property of a State used for
purpose other than those specified in cl. (2) of that Article, if the
imposition is to raise revenue but not to regulate external trade.
(2)
The provisions of Art. 289 of the Constitution of India preclude the Union from
imposing, or authorizing the imposition of excise duties on the production or
manufacture in India of the property of a State used for purposes other than
those specified in cl.(2) of that Article.
13. Ayyangar,J.
has also expressed a separate opinion concurring with the Chief Justice. This
decision on reference of the President of India only dealt with the question of
Article 289 of the Constitution and we are not concerned in the present case
with the effect of Article 289 which is, so far as the present controversy is
concerned, of no useful assistance.
14. Learned
counsel for the appellant has relied on the decision of this Court in Union of
India v Purna Municipal Council (supra). In this case, the Railways challenged
the notice of demand issued by Purna Municipal Council claiming Rs.28,400/- by
way of service charges due for the period from 1954 to 1960. The
Union of India made a reference to Article 285 of the Constitution of India
read with Section 135 of the Indian Railways Act, 1890. It is not clear from
this decision whether the service charge demanded by the Purna Municipal
Council was in reality a tax on the property of the Union or a charge for some service rendered, rather the
decision proceeded on the assumption that it was a tax and not a fee. The Court
disposed of the matter holding as follows:
The interplay of the constitutional and legal provisions being well cut and
well defined requires no marked elaboration to stress the point.
Accordingly,
we allow this appeal, set aside the judgment and order of the High Court and
issue the writ and direction asked for in favour of the Union of India
restraining the respondent council from raising demands on the railway in
regard to service charges. We make it clear that the rights of the local
authority as flowing under Section 135 of the Indian Railways Act, 1890 stand
preserved in the event of the Central Government moving into the matter, if not
already moved. In the circumstances of the case, however, there will be no
order as to costs.
15.
From this it is not clear whether the impugned demand was a charge for some
service rendered, such as that which is involved in the present case with
regard to water supply or with regard to sewerage. As already pointed out, what
is prohibited by Article 285 is taxation on the property of the Railways and it
does not prohibit charge of a fee on account of some service rendered by the
local bodies or instrumentality of the State like supply of water or
maintenance of sewerage. Such a charge would be in the nature of a fee and not
a tax.
16.
The other decision which has been heavily relied on by the appellants in Ranchi
Municipal Corporation, Ranchi & Ors. (supra). In this case, their Lordships
merely followed the decision in Purna Municipal Council (supra) and disposed of
the matter. Again the question is what was the nature of the demand raised by
the State against the Railways. In this case, their Lordships after following
the judgment in Purna Municipal Council (supra) observed as follows :
Therefore, it cannot be construed that there is any contract between the Union
of India and the Municipality. In view of the fact that the Municipality has no
right to demand service charges from the Union of India, the demand made by the
Municipality is clearly ultra vires its power. It is true that earlier WP
No.2844 of 1992 was filed and was dismissed by the High Court and the special
leave was refused by this Court on the ground of gross delay. It was also
observed at paragraph 5 as follows :
It is now settled law that the summary dismissal does not constitute res judicata
for deciding the controversy. Moreover, this being a recurring liability which
is ultra vires the power, earlier summary dismissal of the case does not
operate as a res judicata.
17.
Therefore, from the perusal of these two decisions what emerges is that no
property of the Union of India can be subjected to State taxation, but these
decisions do not deal with a charge for services rendered by any State or an
instrumentality of the State. In this connection, our attention was invited to
a decision of this Court in New Delhi Municipal Council v. State of Punjab
& Ors. [ (1997) 7 SCC 339]. This was also a case where Articles 289,
246(4), 245(1) and 1(2), 3(b) and 285 came up for consideration. As per the
majority it was held that levy of property tax on such lands / buildings which
are not used or occupied for the purpose of any trade or business carried on by
the State Government with profit motive was invalid and incompetent by virtue
of Article 289(1). But if the levy is on lands/ buildings used or occupied for
any trade or business carried on by or on behalf of the State Governments, then
by virtue of Article 289(2), the levy would be valid. It was also observed that
it was for the authorities under the enactments to determine with notice to the
affected State Governments, which land or building is used or occupied for the
purposes of any trade or business carried on by or on behalf of the State
Government. As against this, the minority view was that the States are entitled
to exemption from levy of property tax on their lands/ buildings situated
within NCT including those occupied for trade or business purposes. This case
also does not throw any light on the question whether the services which are
being given by the State Government or its instrumentality or the local bodies
like supply of water and maintenance of sewerage will have the exemption under
Article 285 of the Constitution ?
This
was also a case with regard to levy on the property of the State. So far as we
are concerned in the present case, there is no levy on the property of the
Union of India. Therefore, this case also does not provide us any useful
assistance. As against this, our attention was invited to a subsequent decision
of this Court in Municipal Corporation, Amritsar v. Senior Superintendent of
Post Offices, Amritsar Division & Anr. [(2004) 3 SCC 92]. In this case,
their Lordships were directly dealing with charges for the water supply, street
light, drainage services being rendered to P & T Departments buildings
situated within the Municipal limits. In that context, their Lordships held as follows
:
The demand so made was with regard to the services rendered to the
respondents Department, like water supply, street-lighting, drainage and
approach roads to the land and buildings. In the counter, the respondents
averred that they are paying for the services rendered by the appellant
Corporation by way of water and sewerage charges and power charges separately.
It is also categorically averred that no other specific services are being
provided to the respondents for which the tax in the shape of service charges
can be levied and realized from the respondents. There is no provision in the
Municipal Corporation Act for levying service charges. The only provision is by
way of tax.
Undisputedly,
the appellant Corporation is collecting the tax from general public for water
supply, street-lighting and approach roads etc.
Thus,
the tax was sought to be imposed in the garb of service
charges. The interplay of the constitutional and legal provisions being
well cut and well defined, it was clearly not within the competence of the
Corporation to impose tax on the property of the Union of India, the same being
violative of Article 285(1) of the Constitution.
18. In
this case, what is clear is that in fact the P & T Department was paying
for water supply and sewerage separately and it was over and above that some
service charges were levied under the garb of service charges which was
exempted by the Constitution. In the present case, what is being charged is in
fact water supply and sewerage. Therefore, so far as this part is concerned, it
is affirmed by this Court in the aforesaid decision. But what is not accepted
was that over and above the charges for supply of water and sewerage and power
charges, the Municipal Corporation was levying service charges which were not
contemplated under the Municipal Corporation Act for levying such service
charges. Therefore, indirectly so far as demand for water supply, sewerage was
concerned, it was accepted by the P & T Department and they were paying the
same to the Municipal Corporation.
19.
Our attention was invited to another decision of this Court in Sona Chandi Oal
Committee & Ors. V. State of Maharashtra [(2005) 2 SCC 345]. In this case, the question was whether
levy of inspection fee for renewal of moneylenders licence was valid or
not. Their Lordships held that fee charged is regulatory in nature to further
the objects of the Act and it has nexus with services rendered to moneylenders.
However, it was observed that service to be rendered is not a condition
precedent and there should be reasonable relationship between levy of fee and
services rendered and in that context, their Lordships affirmed the validity of
levy of fee under the Bombay Money-Lenders Act, 1946.
20.
Our attention was also invited to a decision of this Court in Vijayalashmi Rice
Mill & Ors. V. Commercial Tax Officers, Palakol & Ors. [(2006) 6 SCC
763]. In this case, their Lordships considered the distinction between fee, cesses
and taxes. Their Lordships held that ordinarily a tax generates general revenue
not for any service rendered. However, the nomenclature is not important.
Sometimes a tax may be in reality a fee, depending upon its nature.
It was observed that the earlier concept of fee has undergone a sea change and
rendering of some specific service to a particular payer of fee is no longer
considered necessary to sustain the levy of fee provided there is a broad and
general correlationship between the totality of the fee imposed and the
totality of the expenses on the service rendered. This discussion makes it
clear that the distinction between a tax and a fee remains, even though the
concept of a fee has undergone a sea change.
21. A
reference was also made to another decision of this Court in Karya Palak
Engineer, CPWD, Bikaner v. Rajasthan Taxation Board, Ajmer
& Ors. [(2004) 7 SCC 195]. In this case, a three Judge Bench held that
Article 285 which contemplates exemption of Union property from State tax, does
not extent to exemption from levy of indirect tax. In this case, the question
was exemption of sales tax in a works contract for erection of barbed wire.
CPWD in terms of the contract supplied the construction materials after
purchasing the same on payment of consideration and was adjusting the value of
the materials in the final bills of the contractor. The question was whether
there was immunity for the property of the Union
from the State taxation under Article 285. Their Lordships held that from the
case law it is clear that the Union is not
exempted from the levy of indirect tax under Article 285. Their Lordships after
examining the decision in re Sea Customs Act (1878) S.20(2) (supra) in
reference by a nine Judge Bench observed that Article 285 is a mandate and not
indirect tax such as sales tax. Their Lordships concluded with reference to
sales tax which reads as follows :
We may in this connection contrast sales tax which is also imposed with
reference to goods sold, where the taxable event is the act of sale.
Therefore,
though both excise duty and sales tax are levied with reference to goods, the
two are very different imposts; in one case the imposition is on the act of
manufacture or production while in the other it is on the fact of sale. In
neither case therefore can it be said that the excise duty or sales tax is a
tax directly on the goods for in that event they will really become the same
tax.
22.
The aforesaid decision came up consideration in New Delhi Municipal Council
(supra). Their Lordships concluded at paragraph 16 as follows :
From the above judgment of this Court, it is clear that the Union is not
exempted from the levy of indirect tax under Article 285 of the Constitution.
The above discussion also shows that reliance placed on the judgment of this
Court in the case of New Delhi Municipal Council by one of the learned counsel
for the appellants is wholly misconceived and is opposed to his contention with
reference to Article 285 of the Constitution.
23.
Though these observations were in reference to Sales Tax Act but the reasoning
equally applies in this case also. 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 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 made clear that what is exempted
by Article 285 is a tax on the property of the Union of India but not a charge
for services which are being rendered in the nature of water supply, for
maintenance of sewerage system. Therefore, in our opinion, the view taken by
the Division Bench of the Allahabad High Court is correct that the charge is a
fee, being service charges for supply of water and maintenance of sewerage
system, which cannot be said to be tax on the property of the Union. Hence it
is not violative of the provisions of Article 285 of the Constitution.
24. As
a result of our above discussion, we do not find any merit in this appeal and
the same is dismissed. There will be no order as to costs.
Back
Pages: 1 2
