Name is important. It assigns an identity, being indicative of the background, connections and ties associated with the name. Thus, name is often determinative and consequential. In legal context, name, however, is irrelevant for, according to settled legal position, nothing turns on the nomenclature of the tax or a provision in fiscal laws. This article traverses this aspect particularly in the wake of a recent decision of the Supreme Court, in Jalkal Vibhag[1], which concludes that “water and sewage tax” is actually not a tax in relation to either water or sewage and is instead a “tax on land and buildings”.
In Jalkal Vibhag[2], repelling the challenge to the constitutional validity of the water and sewage tax, the Supreme Court inter alia noted the following to delineate the relevance (or rather irrelevance) of the name assigned to a particular levy:
- 38. 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 labelled as the water tax or a sewerage tax simply because it is imposed by the Jal Sansthan constituted under the U.P. 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.
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- 48. 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 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 the 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.
Multiple propositions follow from the aforesaid observations:
(a) The name of a tax neither describes the nature of the tax nor is determinative of its essential character.
(b) There is an absolute choice available to the legislature to name a tax in any fashion it desires. The name, after all, is just a label which is thoroughly insignificant.
(c) The nature of the tax is neither linked nor altered by the name chosen by the legislature. Instead, the nature of the tax is to be assessed from the intrinsic attributes and characterises of the tax.
(d) The fact that a particular name has been given to a tax does not imply that it cannot be a different type of tax. For illustration, the nomenclature of the levy in this case as a water and sewerage tax does not detract from the levy actually being a tax on land and building.
Having said that, it must be appreciated that neither the decision of the Supreme Court in Jalkal Vibhag[3] nor the aforesaid propositions are the first on the subject. It is now fairly settled, for illustration by way of the categorical declaration of the Supreme Court in terms of its decision in AIFTP, that the “nomenclature of a levy is not conclusive for deciding its true character and nature” and instead, “[f]or deciding the true character and nature of a particular levy, with reference to the legislative competence, the court has to look into the pith and substance of the legislation.”[4] Similar observations were earlier made in Continental wherein it was declared by the Supreme Court that the scope and coverage of the fiscal law is not determined by the nomenclature used in the relevant statutory provision.[5]
The decision in Jalkal Vibhag[6] is, however, critical from another perspective, which is that it overrules an earlier decision of the Supreme Court in Union of India v. State of U.P.[7] The relevance of this aspect is the fact that in this earlier decision in State of U.P.[8], the Supreme Court had opined on the very same provision (i.e. Section 52 of the U.P. Water Supply and Sewerage Act, 1975) and also similarly concluded that nomenclature of the levy is irrelevant. However, in State of U.P.[9] the Supreme Court had concluded that the levy under Section 52 was not a “tax” and instead was a “fee” even though Section 52 referred the levy as a “tax”. It was inter alia observed in State of U.P.[10] that “[t]hough 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.…”[11] However, the Supreme Court in Jalkal Vibhag[12] overruled State of U.P.[13] to conclude that the levy under Section 52 was indeed a tax, though not a water tax or a sewage tax and instead a tax on land and building.[14] In short, the Supreme Court in both State of U.P.[15] and Jalkal Vibhag[16] concurs that the nomenclature of the levy (under Section 52) is irrelevant and yet comes to different and diametrically opposite conclusions. This aspect illustrates both the criticality and nebulous nature of the issues and consequences arising out of irrelevance assigned to nomenclature of the levy.
An earlier decision of the Supreme Court in Drive-In sheds further insights on this aspect.[17] In this case the High Court had declared as ultra vires the provisions of the Karnataka Entertainments Tax Act, 1958 insofar as they imposed entertainment tax upon admission of cars into drive-in theatres. In appeal the Supreme Court declared that the nomenclature of the levy was not decisive of the matter and thus, even though the provision gave the impression that the levy was on admission of cars in the drive-in theatre actually “the levy is on the person entertained who takes the car inside the theatre and watches the film while sitting in his car”. Thus, the Supreme Court reversed the decision of the High Court on the ground that the true nature of the levy had to be determined on the basis of the pith and substance of the levy and not on the basis of the expressions employed and named in the provision.
In fact, it is not just the nature of the levy which is considered as not dependent upon the nomenclature. Instead, in the context of fiscal laws, the assigned name is irrelevant for various other aspects.[18] To illustrate, the nomenclature assigned to the entries in the schedules to the taxing laws (particularly commodity taxation), is often overlooked to give way to the principles of interpretation which determine the actual construct of these entries.[19] As another illustration, the nomenclature given in the entries to the books of accounts is inconsequential and their actual treatment in the books alone is relevant for determining the application of the fiscal laws thereupon.[20] The same legal treatment is extended to the nomenclature given in an agreement between private parties, which is not considered decisive to determine their intention,[21] similar to the description accorded by the parties to their respective obligations, which have to be determined independent of the terminology deployed in the agreement.[22] This is similar to the interpretative principle commonly applied under commercial and private laws wherein it is near universally acknowledged that headings are not consequential to determine the parties’ intentions.[23]
The aforesaid reflections on the irrelevance of nomenclature, however, must be caveated with the declaration which is made in certain decisions where nomenclature is indeed relied upon, albeit for a limited purpose and subject to conditions. A limited reliance on the assigned nomenclature is witnessed in instances where the legislative scheme reflects that a particular nomenclature has been employed for a specific purpose and the legislature has consciously chosen to distinguish the nomenclature at other places. Such was the situation before the Supreme Court in Sun Oil wherein it was inter alia observed that the “perusal of the provisions extracted above which are clear and unambiguous shows that the legislature itself has referred to two forms of impost under the Act differently. In Section 4, it is referred to as ‘a tax’, whereas in Section 4-AAA, it is referred to as ‘a turnover tax’. The difference in nomenclature is consistently maintained in the said sections as well as other sections of the Act.”[24] Thus, the Supreme Court assigned relative weightage to the nomenclature assigned in the law to describe a tax.
Subject to the above minor deviation, it appears that on an overall basis nomenclature is generally not given much importance in the construction of fiscal statutes. For that matter, it stands clarified that a levy can be considered a tax even though the law refers to such levy as fee once the intrinsic characteristics of the levy satisfy the distinguishing criteria.[25] So much from the name in tax laws.
† Tarun Jain, Advocate, Supreme Court of India; LLM (Taxation), London School of Economics.
[1] Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial and Investment Corpn., 2021 SCC Online SC 960.
[4] All India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527, seeking to delineate the legislative provisions relating to levy of service tax. See also, Goodyear India Ltd. v. State of Haryana, (1990) 2 SCC 71 and Municipal Council, Kota v. Delhi Cloth and General Mills Co. Ltd., (2001) 3 SCC 654 to similar effect.
[5] Continental Construction Ltd. v. CIT, 1992 Supp (2) SCC 567, inter alia reflecting upon the scope of deemed income under Section 9 of the Income Tax Act.
[11] This decision inter alia also observed that “[o]ur attention was also invited to a decision of this Court in Vijayalashmi Rice Mill v. CTO, (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.”
[14] It is critical to note that even earlier, the Supreme Court in Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur, AIR 1965 SC 895 had concluded similarly to opine that water tax in that case was not a tax on water but was a tax on land and building.
[17] State of Karnataka v. Drive-In Enterprises, (2001) 4 SCC 60.
[18] See generally, Shrimant Padmaraje R. Kadambande v. CIT, (1992) 3 SCC 432.
[19] For illustration, see Akbar Badrudin Giwani v. Collector of Customs, (1990) 2 SCC 203; Atul Glass Industries (P) Ltd. v. CCE, (1986) 3 SCC 480; etc.
[20] CIT v. Groz-Beckert Saboo Ltd., (1979) 1 SCC 340.
[21] CIT v. Alagappa Textile (Cochin) Ltd., (1980) 1 SCC 214.
[22] Central Wines v. CTO, (1987) 2 SCC 371 inter alia observing that “consideration obtained by the vendor from the vendee would in the eye of the law be the sale price regardless of what nomenclature is given to a part of the price charged by him.”
[23] See generally, Sasan Power Ltd. v. North American Coal Corpn. (India) (P) Ltd. (2016) 10 SCC 813. See, contra, Eastern Coalfields Ltd. v. Sanjay Transport Agency, (2009) 7 SCC 345.
[24] Sun Oil Co. (P) Ltd. v. State of W.B., (1998) 7 SCC 237.
[25] For illustration, see State of T.N. v. TVL South Indian Sugar Mills Assn., (2015) 13 SCC 748.
