Holding

The service charges are fees for services rendered, not taxes, and therefore are not barred by Article 285 of the Constitution.

Summary

The Uttar Pradesh Jal Sansthan, created under the U.P. Water Supply and Sewerage Act, 1975, supplied water and maintained sewerage for railway colonies and stations and demanded service charges from the Railways. The Union of India contended that these charges were a tax on Union property and therefore exempt under Article 285 of the Constitution. The Allahabad High Court dismissed the writ petition, holding the charges permissible. On appeal, the Supreme Court examined whether the levy was a tax or a fee, emphasizing the distinction between the two and noting that the Jal Sansthan incurs expenses and creates its own funds to provide the service. It held that the charges are fees for services rendered, not a tax on Union property, and thus Article 285 does not bar them. Consequently, the appeal was dismissed.

Issues considered

Whether the water and sewerage service charges demanded by the Jal Sansthan from the Union constitute a tax on Union property within the meaning of Article 285.
Whether such charges are a fee for services rendered and therefore permissible despite Article 285.
Interpretation of the distinction between tax and fee under constitutional and statutory provisions.

Legislation cited

Subjects

Article 285tax vs feeservice chargeswater supplysewerageUnion propertyconstitutional exemptionU.P. Water Supply and Sewerage ActJal SansthanRailwaysstate taxationpublic utility charges

Judgment

)

Y-.

A UNION OF INDIA AND ORS.
v.
STATE OF U.P. AND ORS.

NOVEMBER 1, 2007
B
[A.K. MATHUR AND MARKANDEY KATJU, JJ.)
.,\

UP.. Water Supply and Sewerage Act, 1975-s.52-Jal Sanstha~
an instrumentality of the State-Supplied water to Railway colonies
c and Railway stations and also maintained their sewerage system-
Service charges demanded by Jal Sansthan from Railways for supply
ofwater and maintenance ofsewerage-Held: Was in the nature ofa ,
fee for services rendered by Jal Sansthan to the Union through the
Railways and not a tax on property ofthe Union-Such service charges
D not violative ofArticle 285 ofthe Constitution as property ofthe Union
was not being subjected to any tax-Constitution ofIndia, 1950-Art.
285.
Taxation-Tax andfee-Distinction between-Discussed.

E Jal Sans than, an instrumentality of the State ofUttar Pradesh,
established under the U.P. Water Supply and Sewerage Act, 1975,
supplied water to Railway colonies and Railway stations and also
maintained their sewerage system. For rendering such senrices, the
Jal Sansthan demanded 'water' and 'sewer' charges from the·
F Railways. ~-

The demand was challenged by the Railways on the ground t~at
-·~ r.
"
they were holding the property of the Central Government for wh~ch
service charges were not payable under Article 285 of the·
Constitution as such charges were in the nature of a tax. It was
G submitted that in view of the policy taken by the Ministry of
Railways, Government oflndia such charges cannot be recovered
""' ...
as this was totally exempted. But the Jal Sansthan did not heed to it
and initiated recovery proceedings against the Railways which filed

H 792
j
UNION OF INDIA v. STATE 793

writ petition before the High Court but the same was dismissed. A

In appeal to this Court the question which arose for
consideration is whether the service charges for supply of water and
maintenance of sewerage was a fee for the services rendered by the
Jal Sansthan and not a tax on the properties of the Railways and
hence the exemption granted to property of the Union oflndia from B
State taxation under Article 285 of the Constitution was not relevant
to the present case as property of the Union oflndia was not being
subjected to any tax.
Dismissing the appeal, the Court c
HELD: 1.1. 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 Sans than.
[Para 9] [799-B] D
1.2. 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 E
its own funds and therefore, levy under the U.P. Water Supply and
Sewerage Act, 1975 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 F
from the Jal Sansthan without paying the charges for the same.
Though the expression tax has been used in the Act, but in fact it is
in the nature of a fee for the services rendered by the Jal Sansthan.
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 G
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 ofwater as well as
for sewerage system of the effluent discharge by the railway over

H
794 SUPREME COURT REPORTS [2007] 11 S.C.R.

A 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.
[Pal'a 9) [799-C-F)

1.3. Exemption under Article 285 of the Constitution is on the
levy of any tax on the property of the Union by the State, and
B exemption is not for charges for the services rendered by the State
or its instrumentality which in reality amounts to a f~e. 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
C supply of water or maintenance of sewerage. Such a charge would
be in the nature of a fee and not a tax.
[Paras 10and15] (799-G; 801-F]
1.4. Section 52 of the Act states that the Jal Sansthan can levy
D 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
nomenclature is not important. In substance what is being charged
is fee for the supply of water as well as maintenance of the sewerage
E system. Therefore such service charges are a fee and cannot be said
to be hit by Article 285 of the Constitution. What is exempted by
Article 285 is a tax on the property of the Union oflndia but not a
charge for services which are being rendered in the nature of water
supply, for maintenance of sewerage system. Therefore, the view
F taken by the 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. [Para 23) [806-B-D]
G In re: Sea Customs Act (1878), S.20(2) AIR 1963 SC 1760; Union
of India v. Purna Municipal Council & Ors., (1992) 1 SCC 100 and
Union ofIndia & Anr. v. Ranchi Municipal C01poration, Ranchi & Ors.,
(1996} 7 sec 542, distinguished.

New Delhi Municipal Council v. State ofPunjab & Ors., [1997)
H

-·
/
l.
/
UNIONOFINDIAv. STATE[A.K.MATHUR,J.] 795

7 SCC 339; Municipal Corporation, Amritsar v. Senior Superintendent A
of Post Offices, Amritsar Division & Anr., [2004) 3 SCC 92; Sona
Chandi Oaf Committee & Ors. v. State ofMaharashtra, [2005) 2 SCC
345; Vijayalashmi Rice Mill & Ors. v. Commercial Tax Officers,
Palakol & Ors., (2006) 6 SCC 763 and Karya PalakEngineer, CPWD,
Bikaner v. Rajasthan Taxation Board, Ajmer & Ors., (2004) 7 SCC B
195, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2549 of
2001.
From the final Judgment and Order dated 12.12.2000 of the High c
CoUit of Allahabad in Civil Miscellaneous Writ Petition No. 7444of2000. ,
Shail Kumar Dwivedi, AAG. (U.P.), T.S. Doabia, Kiran Bhardwaj,
Asha G. Nair, Vishal Nayar, Manpreet Singh Doabia, R.C. Kathia, D.S.
Mahra, Anil Katiyar, Rajesh, Wasim Ahmad Qadri, Manoj Kumar
Dwivedi, G. Venkateswara Rao, Chitra Markandaya, Vivek Vishnoi, 0
Mukesh Verma, Manish Shanker, M.R. Shamshad and Yash Pal Dhingra
Appearing parties.
The Judgment of the Court was delivered by
A.K. MATHUR, J. 1. This appeal is directed against the judgment E
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. F
2. The Union oflndia 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 G.
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
H
796 SUPREME COURT REPORTS [2007] 11 S.C.R.

A 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 appellarits was that they were holding the
property of the Central Government for which the service charges were
B not payable under Article 285 of the Constitution oflndia 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,'
c 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
D 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
E 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') t~·>
F aforesaid charges were being levied and realized by the Allahabad Jail
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.
G 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 ofIndia v. Purna Municipal Council & Ors., [1992]
H
"
-- " "t
UNION OF INDIA v. ST ATE [A.K. MATHUR, J.] 797

1SCC100 & Union ofIndia & Anr. v. Ranchi Municipal Corporation, A
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
platfonns 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, B
godowns, shades are being maintained by the Union oflndia through tp.e
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 m~re
res integra and the Jal Sansthan cannot charge for the supply of water
and maintenance of sewerage system. In this connection, Section 184 of c
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 declates
the railway administration to be liable to pay the tax specified in such

. t-
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.
D

5. As against this, it was contended on behalf of the respondehts
that the writ petitioner- appellants herein were paying its predecessors E
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
cl)arges that does not become law or a vested right accrued in favour of
_..,
)>
the respondents to continue with the charges. F
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 G
)--
,6(
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
H
)

798 SUPREME COURT REPORTS [2007] 11 S.C.R.
y-,

A 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 oflndia,
consumption charges on water or such services which are rendered under
the statutory obligation for which theJal Sansthan is to maintain its own
B 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
C 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
D which has been established under the Act of 1975, has ~en over certain
duties of the Municipality i.e. supply of water and J;naintenance 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.
E 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:
F "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
G
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."
H
UNION OF INDIA v. STATE [A.K. MATHUR, J.] 799
~'T

9. From a perusal of Article 285 it is clear that no property of the A
Union of India shall be subject to tax imposed by the State, save as
Parliament may otherwise provide. The question is whether 'the chrutges
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 B
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 c
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 expendiuire
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 D
-... r 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
E
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
t staff quarters. It is in the nature of a fee for service rendered and not any F
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 G
rendered by the State or its instrumentality which in reality amounts to a
.JV
' 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 oflndia with
regard to levy of custom and excise duties on the State under Article 289 H
}

800 SUPREME COURT REPORTS [2007] 11 S.C.R.

A of the Constitution ofIndia 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
B 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:
c "(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 tpc
D as follows:
"(121) My answers to the que,stions are: 1 "'
(1) The provisions of the Art. 289 of the Constitution preclude
the Union from imposing or authorizing the imposition of,
E customs duties on the import or export of the property of a 'r-

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
F preclude the Union from imposing, or authorizing the imposition r--
~

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;"

G
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.
H 14. Learned counsel for the appellant has relied on the decision of
f
}\
I
UNION OF INDIA v. STATE [A.K. MATHUR, J.] 801
,..-,.
'1

this Court in Union of India v. Purna Municipal Council (supra). In A
this case, the Railways challenged the notice of demani:lissued by Puma
Municipal Council claiming Rs.28,400/- by way of 'service charges' due
for the period from 1954 to 1960. The Union oflndia made a reference
to Article 285 of the Constitution oflndia read with Section 135 of the
f.
Indian Railways Act, 1890. It is not clear from this decision whether the
service charge demanded by the Puma 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 c
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 ofthe Union of India restraining the respondent council
~
from raising demands on the railway in regard to service charges. D
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." E
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
F
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 G
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 H
\

802 SUPREME COURT REPORTS [2007] 11 S.C.R.

A 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 oflndia, the demand made by the Municipality is
B 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."

c 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."
D
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,
E our attention was invited to a decision of this Com1 in New Delhi
Municipal Council V. State ofPunjab & Ors., [1997] 7 sec 339. This
was also a case where Artides 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 lan~s/buildings which are not used or occupied
p 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
G 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
H tax on their lands/ buildings situated within NCI including those occupied
UNIONOFINDIAv. STATE[A.K.MATHUR,J.] 803
"' ...,,
.

for trade or business purposes. This case also does not throw any light . A
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, B
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 C
Lordships were directly dealing with charges for the water supply, street
light, drainage services being rendered to P & T Department's 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 D
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 E
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, p
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 G
the Corporation to impose tax on the property of the Union oflndia,
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
H
\

i\
\
804 SUPREME COURT REPORTS [2007] 11 S.C.R.

A 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 affinned by this Court in the aforesaid
decision. But what is not accepted was that over and above the charges
B 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
C paying the Sa.me to the Municipal Corporation.
19. Our attention was invited to another decision of this Court in
Sona Chandi Oal Committee & Ors. v. State ofMaharashtra, [2005]
2 sec 345. In this case, the question was whether levy of inspection fee
for renewal of moneylender's licence was valid or not. Their Lordships
D 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 th.ere should be reasonable relationship between levy of fee and
services rendered and in that context, their Lordships affinned the validity
E 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
F 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
G 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.
H
I

~
(
UNION OF INDIA v. STATE [A.K. MATHUR, J.] 805

" 'T
21. A reference was also made to another decision of this Court in A
Karya Patak 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, B
for erection of barbed wire. CPWD in terms of the contract supplied the
f 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 c
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
D
reference to sales tax which reads as follows :
r "We may in this connection contrast sales tax which is also impose4
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 E
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."
F
,"1
-I
22. The aforesaid decision came up consideration in New De(hi
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 G
285 of the Constitution. The above discussion also shows that
reliance placed on the judgment of this Court in the case.ofNew
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." H
806 SUPREME COURT REPORTS [2007] 11 S.C.R.
"f I

A 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 ana charge for water supply
B and for sewerage services rendered by it as water tax and sewerage ta
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
c 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 oflndia 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
D 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.
E 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.
B.B.B. Appeal dismissed.