Nomenclature ascribed to Tax does not determine Nature of Levy or its true and essential character: Supreme Court [Read Judgment]

Nomenclature ascribed to tax - Supreme Court - Taxscan

The Supreme Court held that the nomenclature ascribed to tax does not determine the nature of the levy or its true and essential character.

The issues raised by the petitioner, Jalkal Vibhag Nagar Nigam was whether the demand of water tax and sewerage tax is sustainable with reference to the provisions of the UP Water Supply and Sewerage Act; and Whether the State Legislature has the legislative competence to levy the tax under the provisions of Section 52(1)(a).

The three-judge bench comprising Justices DY Chandrachud, Vikram Nath, and BV Nagarathna observed, “the nomenclature that the legislature has ascribed to the tax does not determine either the nature of the levy or its true and essential character. The legislature may choose a label for a tax. The label however will not determine or for that matter clarify the nature of the levy. The nature of the levy has to be deduced from the nature of the tax, the provision which specifies the taxing event, 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. The tax has been labeled 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.”

The court observed that 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 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 affairs to provide the people of the area within its jurisdiction with wholesale water.

The court said that 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 that fall within the 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. Nor does the fact that the law enables Jal Sansthan to levy the tax 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 the water is supplied by the Jal Sansthan for such purposes to the land.

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