Supreme Court Upholds Sewerage Cess on Industries Discharging Effluents via Common Treatment Plant (2019)

Date of the Judgment: 13 February 2019

Citation: [Not Available in Source]

Judges: R. Banumathi, J., Indira Banerjee, J.

Can an industry avoid paying sewerage cess by discharging its effluents through a common treatment plant instead of directly into the municipal sewer system? The Supreme Court of India addressed this question in a case involving Vasant Chemicals Limited and the Hyderabad Metropolitan Water Supply and Sewerage Board. The court had to determine whether the company was liable to pay sewerage cess despite not having a direct connection to the Board’s sewer lines. This judgment clarifies the scope of liability for sewerage cess under the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989. The judgment was delivered by a bench comprising of Justice R. Banumathi and Justice Indira Banerjee, with Justice R. Banumathi authoring the opinion.

Case Background

Vasant Chemicals Limited, an amalgamation of three companies, manufactures and exports dye intermediates and other organic chemicals at its plant in Jeedimetla Industrial Estate, Hyderabad. The industrial effluents produced by Vasant Chemicals and other industries in the area were not suitable for direct discharge into the Hyderabad Metropolitan Water Supply and Sewerage Board’s (HMWS&SB) sewer lines. Therefore, these industries established a Common Effluent Treatment Plant (CETP) called Jeedimetla Effluents Treatment Limited (JETL) in 1987 to treat their effluents. Vasant Chemicals invested significantly in JETL, holding over 29% of its shares.

From 1988 to 1995, JETL treated the effluents to meet the standards set by the Water (Prevention and Control of Pollution) Act, 1974, and the Environment (Protection) Act, 1986, and discharged the treated water into open drains. Following discussions with HMWS&SB and the Andhra Pradesh Pollution Control Board (APPCB), a dedicated pipeline was laid from JETL to connect with the HMWS&SB sewerage system at Balanagar, approximately 10.38 kilometers away. JETL contributed Rs. 75,00,000 towards the cost of this pipeline, with the remaining amount funded by the Board and the Government of Andhra Pradesh. The pipeline became operational on January 31, 1998. The industries in Jeedimetla, including Vasant Chemicals, discharge their industrial effluents to JETL, which partially treats them before releasing them into the dedicated pipeline connected to the Board’s sewer line.

Vasant Chemicals obtained a bulk water supply connection from HMWS&SB, with a sanctioned supply of 36,200 gallons per day. An agreement was signed on April 27, 1995, which stipulated the terms of water supply and payments. Clause 16 of this agreement required Vasant Chemicals to pay sewerage cess according to Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989. Clause 17 obligated the company to use the Board’s sewer facility if its premises were within 35 meters of the sewer line.

Timeline

Course of Proceedings

Vasant Chemicals challenged the notices demanding water and sewerage cess by filing writ petitions (WP(C) No. 4917/2000 and WP(C) No. 5044/2000) in the High Court of Andhra Pradesh at Hyderabad. The High Court dismissed these petitions on October 29, 2003, upholding the levy of sewerage cess. The court reasoned that even though Vasant Chemicals’ premises were not directly connected to the Board’s sewer line, their industrial effluents were being carried to JETL, partially treated, and then discharged into the Board’s system. The High Court referred to Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989, stating that the occupier of a premise has to pay the sewerage cess if the sewerage or effluents are let into the sewer facility provided by the Board by any means, irrespective of whether the area is served by the sewerage system of the Board. The High Court also noted that this liability was incorporated in Clause 16 of the agreement between Vasant Chemicals and the Board.

Vasant Chemicals filed review petitions (Review MP No. 33154/2003 and Review MP No. 33158/2003) which were also dismissed by the High Court on December 29, 2003, stating that the judgment did not have any error on the face of the record.

Legal Framework

The core legal provision at the heart of this case is Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989. This section deals with the charges for the use of sewerage systems. It states:

“55. Charges towards the use of sewerage cess— Every occupier of both domestic and non-domestic premises shall pay to the Board at the rate not exceeding thirty five percent of the bill charging for the water consumed or at such rate as may be prescribed by rules, to defray the capital cost of sewerage and sewage treatment works undertaken by the Board and the operation and maintenance of the sewerage system from time to time: Provided that no such charges shall be levied in any premises situated in the areas which are not served by the sewerage system of the Board.”

This section mandates that every occupier of premises, whether domestic or non-domestic, must pay a sewerage cess to the Board. This cess is to cover the costs of sewerage and sewage treatment works and the operation and maintenance of the sewerage system. However, the proviso to this section states that no such charges shall be levied in areas not served by the Board’s sewerage system.

Arguments

Arguments by Vasant Chemicals Limited (Appellant):

• Vasant Chemicals argued that their premises are not connected to the sewerage system of the Board and are situated in an area not served by the Board’s sewerage system. Therefore, according to the proviso to Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989, no sewerage cess should be levied on them.

• They contended that the statutory liability to pay sewerage cess cannot be imposed on the basis of Clause 16 of the agreement, as the proviso to Section 55 exempts them from such levy.

• Without prejudice, they argued that the agreement between JETL and the Board dated 31.08.2000 already levies various charges on JETL, which are effectively sewerage cess. Therefore, levying sewerage cess on Vasant Chemicals would amount to double taxation for the same service.

Arguments by Jeedimetla Effluents Treatment Limited (JETL):

• JETL argued that the charges levied on them by the Board under the agreement dated 31.08.2000, such as capital contribution, sewerage connection charges, maintenance of sewer line charges, sewerage maintenance and treatment charges, and sewerage surcharge, are all effectively sewerage cess under Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989.

• They submitted that levying sewerage cess on Vasant Chemicals for the same act of discharging sewage would amount to a double levy on the industrial units.

Arguments by Hyderabad Metropolitan Water Supply and Sewerage Board (HMWS&SB):

• The Board argued that Vasant Chemicals, obtaining bulk water supply from them and discharging sewage into their sewer line, is liable to pay sewerage cess under Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989.

• They contended that even though the effluents are partially treated at JETL, they are ultimately let into the Board’s sewer line, which carries them to the Sewerage Treatment Plant (STP) at Amberpet. Thus, Vasant Chemicals is connected to the Board’s sewerage system.

• The Board argued that Clause 16 of the agreement incorporates the levy under Section 55 of the Act, making Vasant Chemicals liable to pay sewerage cess as per the terms of the agreement.

• Regarding the plea of double taxation, the Board submitted that JETL was not a party to the writ petitions filed by Vasant Chemicals. Further, a writ petition filed by JETL challenging the sewerage surcharge was dismissed for default by the High Court.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for determination:

1. Whether the appellant is right in contending that the appellant unit is not connected to the sewerage system of the Board and so the levy of sewerage cess on the appellant under Section 55 of HMWS&S Act is not sustainable?
2. Whether the appellant is right in contending that since the appellant’s unit is not served by a sewerage system of the Board, as per proviso to Section 55 of HMWS&S Act, no sewerage cess can be levied?
3. Whether the charges collected from JETL under the agreement dated 31.08.2000 is in effect, sewerage cess in terms of Section 55 of HMWS&S Act, thereby amounting to double levy of sewerage cess/charge for the same service/same taxable amount?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Cases:

• Indian Council for Enviro Legal Action and others v. Union of India and others, (1998) 9 SCC 580 – The Supreme Court referred to this case to highlight the issue of pollution and discharge of effluents in Andhra Pradesh, including the industrial region of Jeedimetla, and the directions given to set up a common effluent treatment plant.
• World Saviors v. Union of India and others, (1998) 9 SCC 247 – This case was cited in relation to the problem of industrial pollution and the need for proper effluent treatment.
• Ultra Tech Cement Ltd. v. State of Maharashtra and another, (2011) 13 SCC 497 – The appellant relied on this case to argue that when an enactment exempts a specific class of persons from paying a cess, the State Government cannot make the lessee liable to pay the said cess based on an agreement under a different enactment. However, the court distinguished it by stating that the appellant was not covered under the proviso of Section 55.
• Romesh Kumar Sharma v. Union of India and others, (2006) 6 SCC 510 – This case was used to interpret the function of a proviso in a statute, stating that it is to except something out of the enactment or to qualify something enacted therein. The court emphasized that a proviso should not be interpreted as a general rule.

Statutes:

• Water (Prevention and Control of Pollution) Act, 1974 – The court noted that industrial effluents needed to be treated to comply with the provisions of this Act.
• Environment (Protection) Act, 1986 – The court noted that industrial effluents needed to be treated to comply with the provisions of this Act.
• Hyderabad Metropolitan Water Supply and Sewerage Act, 1989, Section 55 – The court analyzed this section, which deals with the levy of sewerage cess, and its proviso.
• Hyderabad Metropolitan Water Supply and Sewerage Act, 1989, Section 54 – The court referred to this section to indicate that sewage that is likely to damage or interfere with the free maintenance of the sewerage system of the Board cannot be passed into the Board sewer and sewage treatment works.

Books:

• Environmental & Pollution laws in India by Justice T. S. Doabia (2nd Edition-2010) – The court cited this book to define a ‘trunk sewer’.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court referred to Indian Council for Enviro Legal Action and others v. Union of India and others, (1998) 9 SCC 580* to highlight the issue of pollution and the need for a common effluent treatment plant.
• The Supreme Court referred to World Saviors v. Union of India and others, (1998) 9 SCC 247* to highlight the problem of industrial pollution and the need for proper effluent treatment.
• The Supreme Court distinguished Ultra Tech Cement Ltd. v. State of Maharashtra and another, (2011) 13 SCC 497*, stating that the appellant was not covered under the proviso of Section 55.
• The Supreme Court used Romesh Kumar Sharma v. Union of India and others, (2006) 6 SCC 510* to interpret the function of a proviso, stating that a proviso should not be interpreted as a general rule.
• The Supreme Court referred to Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989 to determine the levy of sewerage cess and its proviso.
• The Supreme Court referred to Section 54 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989 to indicate that sewage that is likely to damage or interfere with the free maintenance of the sewerage system of the Board cannot be passed into the Board sewer and sewage treatment works.
• The Supreme Court referred to the book Environmental & Pollution laws in India by Justice T. S. Doabia (2nd Edition-2010) to define a ‘trunk sewer’.

The Supreme Court held that Vasant Chemicals was liable to pay sewerage cess under Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989. The court reasoned that even though Vasant Chemicals did not directly discharge its effluents into the Board’s sewer line, the effluents were ultimately discharged into the Board’s system after partial treatment at JETL. The court emphasized that the proviso to Section 55, which exempts premises not served by the Board’s sewerage system, did not apply in this case since the appellant was using the Board’s sewerage system through JETL.

The Court rejected the argument of double taxation, stating that the charges paid by JETL to the Board were for the treatment and transmission of effluents, while the sewerage cess was a statutory levy on the occupier of the premises for using the Board’s sewerage system. The Court also noted that Vasant Chemicals, as a consumer of water from the Board, was liable to pay the sewerage cess under Section 55 of the Act and Clause 16 of the agreement.

“The sewerage cess aims to recover the cost of treating the effluents of strength stronger than domestic sewage and to make the effluents of acceptable quality.”

“The liability of the appellant to pay sewerage cess to the Board arises from the Statute and also by way of an agreement which was agreed upon by the appellant.”

“Where the appellant’s effluents are being eventually sent to the Board’s sewer, the contention of the appellant that its premises are not served with a sewer line by the Board defies logic and runs contrary to the object of the Act.”

The Court stated that the agreement between Vasant Chemicals and JETL was an internal contractual agreement and did not absolve Vasant Chemicals from its statutory liability to pay sewerage cess to the Board.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Statutory Interpretation: The court emphasized the plain reading of Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989, and its proviso. The court held that the proviso applies only to premises that do not use the Board’s sewerage system by any means. Since Vasant Chemicals’ effluents were ultimately discharged into the Board’s system, the proviso did not apply to them.
• Use of Board’s Sewerage System: The court highlighted that Vasant Chemicals was using the Board’s sewerage system, even if indirectly through JETL. The court noted that the dedicated pipeline from JETL to the Board’s sewer line was partly funded by the Board, indicating that it was part of the Board’s system.
• Statutory Liability: The court stated that the liability to pay sewerage cess was a statutory one under Section 55 of the Act and was also incorporated in the agreement between Vasant Chemicals and the Board.
• No Double Taxation: The court clarified that the charges paid by JETL to the Board were for treatment and transmission of effluents, while the sewerage cess was a statutory levy on the occupier of the premises for using the Board’s sewerage system. Therefore, there was no double taxation.
• Purpose of Sewerage Cess: The court recognized that the sewerage cess was intended to recover the costs of treating effluents and maintaining the sewerage system. The court noted that the Board incurred significant costs in treating and transmitting the effluents to the treatment plant.

Logical Reasoning

Key Takeaways

• Industries cannot avoid paying sewerage cess by discharging their effluents through a common effluent treatment plant if the effluents are ultimately discharged into the municipal sewer system.
• The proviso to Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989, which exempts premises not served by the Board’s sewerage system, does not apply to industries that use the Board’s sewer system indirectly through a common treatment plant.
• The charges paid by a common effluent treatment plant to the Board for treatment and transmission of effluents are different from the statutory sewerage cess levied on the occupier of the premises.
• Agreements between industries and common effluent treatment plants do not absolve the industries from their statutory liability to pay sewerage cess to the Board.

Directions

The Supreme Court directed Vasant Chemicals to pay the arrears of sewerage cess within eight weeks with 6% interest from the date the cess fell due. If the arrears are not paid within the stipulated period, they would carry interest at 12% thereafter.

Development of Law

The ratio decidendi of this case is that industries cannot avoid paying sewerage cess by discharging their effluents through a common effluent treatment plant if the effluents are ultimately discharged into the municipal sewer system. This clarifies that the proviso to Section 55 of the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989, does not apply to such industries. This judgment reinforces the statutory liability of industries to pay sewerage cess when they use the Board’s sewerage system, even indirectly.