Rebate from water cess for effective water treatment in industrial plant.

Tata Iron and Steel Ltd v. Union of India, AIR 1991 Pat 75.

Prabha Shankar & S.B.Sinha, JJ.

Sec. 3 of Water (Prevention and Control of Pollution) Cess Act (36 of 1977)

Constitution of India Art. 248, Schedule VII

The company is engaged in the production of steel. In addition it supplies drinking water to the city of Jamshedpur and maintains a large underground network for the disposal of sewage. The States under Art. 252 adopted the Water (Prevention and Control) of Water Act, 1974. The Central government under this Act has established a Central Board and respective State Boards. To secure revenue for them, the government introduced a cess on certain industries. If the company had installed treatment of sewage plants they were entitled to a rebate. The petitioners claimed that they had established such a plant and should receive the rebate. The respondent contended that as the petitioner had not installed a plant for the treatment of the entire sewage they were not entitled to any rebate. They further contended that they had the requisite authority to pass such an order. The respondents then challenged the ver validity of the Act.

The Court observed that 'water' falls under Entry 17 of List II. Entry 66 allows the State to charge fees on any matters in the List. However, Entry 97 of List I confers residuary powers on the Centre. The petitioner submitted that the cess is in the nature of a fee and not a tax and thus Parliament has no right to legislate on this point. Even if it were considered a tax it would come within the legislative competence of only the State government. The Court considered the various authorities on the point of distinction between a fee and a tax.

The purpose for which the fund is to be spent is not for the special benefit of the industries. It is imposed to ensure the preservation of the purity of the water. For these reasons the Court concluded that the cess was in the form of a tax. The power to tax falls into the residuary powers and thus the Parliament had the power to pass the Act. It is not ultra vires the Constitution.

As far as the second issue of rebate goes, the purpose behind the rebate was to encourage persons to set up treatment plants. The Court looked at the wording of Sec. 7 and Rule 6 to determine if all the waste had to be treated to avail of the rebate and concluded that the petitioners were entitled to rebate to the extent water was treated in their plant as long as the plant functioned smoothly.

The Court held that the question as to whether the imposition of Cess is in the nature of a tax, such tax can be imposed in terms of entry No.97 of list I of the 7^th schedule of the constitution or not may be considered. Entry No.97 of list I of the 7^th schedule of the constitution of India, on a plain reading, is in two parts. Firstly it contains a provision empowering the parliament to enact any laws in respect of any matter which is not covered by list II or list III of the 7^th schedule of the constitution. However the words including any tax not mentioned in either of those lists are important. This entry has to be read with Art.248 of the constitution which reads as follows:

1) Parliament has exclusive power to make any law with respect to any matter enumerated in the concurrent list or state list.

2) Such power shall include the power of making any law imposing a tax not mentioned in either of those lists.

Further the court held that once it is established that power to impose tax is not covered by any entry in list II or list III of the constitution, it would be competent for the parliament to impose tax by making a legislation in this regard in exercise of its power under entry no. 97.