Supreme Court Remands Water Usage Fee Dispute Between TISCO and Bihar Government

The Supreme Court of India, in the case of Tata Iron and Steel Co. Ltd. (TISCO) & Another vs. State of Bihar & Others, ruled on the long-standing dispute over the payment of water charges demanded by the State Government for industrial use. The case also involved a counter-appeal by the State of Jharkhand. The Court set aside the High Court’s ruling and remanded the matter for reconsideration, emphasizing the need for a clear legal basis to justify such demands.

Background of the Case

The case revolved around a demand for Rs. 31.351 million issued by the Bihar government in 1993 to TISCO for water drawn from the Subarnarekha River near its Jamshedpur plant. The demand was further revised, totaling Rs. 55.43 crores for the period between 1992 and 1998. TISCO challenged the demand in the Jharkhand High Court, asserting that it had acquired riparian and easementary rights over the water source, thus making any such levy illegal.

Claims by TISCO

TISCO contended that:

• The land and water source were part of a 1912 and 1929 agreement when land was originally allocated for industrial use.
• The company had established the necessary infrastructure for water usage without any intervention from the State.
• The imposition of a levy was unconstitutional under Article 265 of the Indian Constitution, which bars taxation without legal backing.
• The demands were in violation of riparian rights, as water use was integral to their industrial operations.
• They had an easementary right by continuous usage of the water.

Counterclaims by the State of Bihar

The Bihar government justified the demand, arguing that:

• Water is a state resource, and its use must be regulated and monetized.
• The Bihar Irrigation Act, 1876, and the Bihar Public Irrigation and Drainage Works Act, 1947, allowed the government to impose a charge.
• The construction of the Chandil Dam, part of the Subarnarekha River Multi-Purpose Project, had benefited TISCO, justifying the levy.
• The demand was a fee rather than a tax and therefore was not subject to the constraints of Article 265.

High Court Ruling

The Jharkhand High Court ruled in favor of the State, holding that:

• The Bihar government had the legislative power under Entry 17 of List II (State List) of the Constitution to regulate water usage.
• The levy was justified under Entry 66 of List II which allows states to collect fees.
• The demand should be reassessed to ensure industrial and domestic users paid different rates.

Supreme Court’s Observations

The Supreme Court, in a judgment delivered by Justice J. Chelameswar and Justice S. Abdul Nazeer, made the following observations:

“The High Court failed to determine whether the demand was a tax, fee, or a contractual obligation.”

Other key findings included:

• The High Court’s reasoning that mere existence of legislative entries justified the demand was flawed.
• The government must demonstrate a specific statutory provision supporting the levy.
• The Bihar Irrigation Act, 1876, and the Bihar Public Irrigation and Drainage Works Act, 1947, did not explicitly authorize such charges.
• If the levy was a fee, the State must show a corresponding service to justify it.
• The issue of whether TISCO had a contractual obligation to pay remained unresolved.

Final Judgment

The Supreme Court:

• Set aside the High Court’s ruling.
• Remanded the case for fresh consideration.
• Directed that pending demands against TISCO be stayed until the High Court reached a final verdict.
• Left open the issue of water charges for industrial versus domestic use for reconsideration.

Impact of the Judgment

This ruling has far-reaching implications:

• Clarifies the nature of water usage charges: Governments cannot arbitrarily levy fees without statutory backing.
• Ensures due process: The ruling emphasizes that taxes and fees must be imposed only through clear legislative mechanisms.
• Strengthens industrial protections: Ensures that industrial users have legal clarity before being subjected to government levies.
• Influences future infrastructure projects: Governments must establish clear policies before imposing charges related to state-led projects.

The Supreme Court’s decision reinforces the principle that no exaction can be imposed arbitrarily and ensures that private entities are protected against unauthorized levies by the State.

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Download Judgment: Tata Iron and Steel vs State of Bihar & Oth Supreme Court of India Judgment Dated 15-12-2017.pdf

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