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PETITIONER:

STATE OF M.P.

Vs.

RESPONDENT:

MAHALAXMI FABRIC MILLS LIMITED & ORS.

DATE OF JUDGMENT01/02/1995

BENCH:

MAJMUDAR S.B. (J)

BENCH:

MAJMUDAR S.B. (J)

KULDIP SINGH (J)

HANSARIA B.L. (J)

CITATION:

1995 AIR 2213 1995 SCC Supl. (1) 642

JT 1995 (3) 93 1995 SCALE (1)758

ACT:

HEADNOTE:

JUDGMENT:

MAJMUDAR, J.:

1. Leave granted in both the petitions.

98

2.Two main questions are involved in these four appeals,

namely, whether Section 9(3) of the Mines and Minerals

(Regulation & Development) Act. 1957, (hereinafter referred

to as 'the Act') is ultra vires the Constitution and

secondly whether Notification dated 1st August 1991 issued

by the Central Government under Section 9(3) of the Act is

ultra vires, illegal and inoperative in law. On these com-

mon questions we have heard learned counsel for the

contesting parties and are, therefore, disposing of these

appeals by this common judgment.

3.A few relevant facts leading to these cases may be stated

at the outset. Appellants in C.A. Nos. 275/94 and 276/94

being State of M.P. and Union of India respectively, were

respondents before, the High Court Special Civil

Miscellaneous Petition No. 10/93. The respondents in these

appeals were the original writ petitioners in the High

Court. These respondents are purchasers of coal form Coal

India Ltd. which was respondent No.3 in writ petition. The

writ petitioners complained that the Notification dated 1st

August, 1991 issued by the Union of India fixing new rates

of royalty on various varieties of coal was illegal and

inoperative in law on various grounds, that before 1.8.91

royalty was payable at the rate of Rs.6.50 per ton vide

earlier Notification but the same was sought to be increased

to Rs. 120/- per ton by the new Notification. Since the

said Notification was issued under Section 9(3) of the Act,

it was submitted that the said provision confers unguided,

unchannelized and arbitrary discretion to the Central Gov-

ernment to increase the rates of royalty to any higher

amount and as no guidelines were provided for effecting the

said increases either under this Section or elsewhere in the

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Act, the Section itself is an instance of excessive

delegation of essential legislative power and hence it was

void. That royalty on various varieties of coal was fixed

in the year 1981 vide earlier Notification issued by the

Central Government under Section 9(3). Proviso to Section

9(3) permits revision of the rates of royalty once during

every three years. In the year 1982, several coal producing

States imposed coal development cess and started receiving

revenue for effecting development of their mining areas,

till they were challenged by consumers of coal by filing

several writ petitions in the High Courts. The controversy

ultimately came to be decided by this Court in Orissa Cement

Limited v. State of Orissa (AIR 1991 SC 1674), whereby such

cess was held to be invalid and beyond the legislative com-

petence of the State Government. It appears that soon after

the aforesaid invalidation of the cess the coal producing

States were faced with problem of refunding the amounts

obtained by them that far. They, therefore, approached the

central Government for help in the matter. In pursuance to

the said approach, the Parliament passed an Act validating

the cess paid by the coal consumers upto the date of the

judgment by issuing an ordinance styled as 'The Cess & Other

Taxes of Minerals Validation Ordinance, 1992. We are not

concerned with the said Ordinance and the subsequent Act in

the present proceedings. It appears that since the State

Government had suffered financial losses because of the

invalidation of the cess, they also approached the Central

Government for help in the matter. As a consequence

thereof, a working group was constituted in this behalf The

said working group suggested an increase in the royalty to

the extent of Rs.70/- per ton of coal. The working group

also found

99

sufficient justification for compensating the coal producing

States to the extent of 100 per cent of the loss caused by

the aforesaid judgment of this Court. Since the

recommendation was accepted by the Central Government, the

impugned Notification was issued by the Central Government.

According to the writ petitioners before the High Court the

increase in the rates of royalty pursuant to the Notifica-

tion was to the extent of 400 per cent to 2000 per cent as

compared to the royalty fixed in 1981 on various varieties

of coal. It was further contended before the High Court by

the writ petitioners that the royalty fixed in the impugned

Notification was payable to the concerned State Governments

by the coal companies. The coal companies passed on this

burden to their customers and showed this amount clearly and

specifically in bills issued by them. The coal companies

have no objection to ,the Notification and are supporting

the Central Government in this behalf The purchasers being

consumers of coal were the affected parties who challenged

the said Notification. About 60 petitions were filed before

the M.P. High Court by various consumers of coal. The High

Court heard learned counsel for all the respective parties.

The Division Bench by its judgment dated 17th December, 1993

took the view that Section 9(3) of the Act was not invalid

or illegal on any ground. However, so far as impugned

Notification on Section 9(3) was concerned, the High Court

was of the opinion that the said Notification was lacking in

bonafides and as it was issued for meeting the financial

deficiency suffered by States on account of the judgment of

this Court in Orissa Cement Case (supra) it was outside the

scope of Section 9(3) of the Act. Having reached that

conclusion, the Division Bench of the High Court quashed the

impugned Notification dated 1.8.91 but so far as the ques-

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tion of refund was concerned, the High Court took the view

that no direction of refund of any amount could be issued as

the burden of enhanced royalty was already passed on to the

customers by the manufacturers. Accordingly, the writ pe-

tition was partly allowed. This order of the Division Bench

dated 17.12.93 is brought in challenge by the State of

Madhya Pradesh by filing C.A. No. 275/ 94 after obtaining

special leave to appeal against the said order from this

Court. The Union of India has also challenged the very same

order in C.A. No.276/94 after obtaining special leave. So

far as Special leave petition No.8190/94 is concerned, it is

filed by M/s. Birla Jute & Industries Ltd., one of the

consumers of coal, which has also felt aggrieved by the hike

in royalty of coal as imposed by the impugned Notification.

It raised the very same contention in the High Court by way

of Misc. Civil Case No.833/93. The writ petition filed by

M/s. Birla Jute Industries Ltd., was also partly allowed by

the High Court following its order dated 17.12.93. By the

order dated 28.1.94, it was held that the petitioner therein

was entitled to the same benefit on the same lines as was

available to the writ petitioners in matter decided on

17.12.93. The petitioner, Ws. Birla Jute Industries Ltd.,

by special leave has contended that the High Court was in

error in not granting refund of the illegally collected

royalty as impugned Notification was struck down by the High

Court. In appeal, pursuant to SLP(C) No. 3395/94, the State

of M.P. has brought in challenge a similar order passed by

the High Court on 17.12.93 in Misc. Petition No. 7907/ 92.

100

4.There are number of other civil appeals arising from the

similar orders passed in the said writ petitions. But as we

have heard learned counsel in these four matters, we are

disposing of only these four matters in the first instance

by this judgment.

S.Learned Solicitor General and Additional Solicitor General

in support of C.A. Nos. 275/94, 276/94 and Civil Appeal

arising out of SLP(C) No. 3 3 95/94, vehemently contended

that the High Court was patently in error in striking down

the impugned Notification dated 1.8.91. It was submitted by

them that once this Court took the view in Orissa Cement

Company's case that royalty could not be imposed by States,

that it was within the domain of the Central Legislature in

view of the Entry 54 of List I of Schedule VII of the

Constitution and when the Parliament had already occupied

the field pertaining to regulation and development of mines

and minerals in the country be enacting the Act in 1957, if

the rates of royalty were to be increased, it was only the

Central Government which could exercise power under Section

9(3) of the Act and as the royalty had to be paid to the

States, there was nothing wrong in issuing the impugned

Notification under which increased rates of royalty would be

made available to the concerned States. Equally, there was

nothing wrong in Section 9(3) which gives enough guidance to

the Central Government for issuing such Notification and

that such Notification could not be said to be ultra vires

or illegal or unconstitutional as wrongly held by the High

Court. On the other hand, Mr. Sanghi, senior counsel

appearing for the respondents, submitted that Section 9(3)

of the Act was a piece of excessive delegation of

legislative power of Parliament, that it laid down no

guidelines for the Central Government to follow for

increasing the rates of royalty. That even otherwise as it

sought to tax mineral rights the said Section was beyond the

legislative competence of the Parliament as such legislation

would be covered by Entry 50 of the List 2 of the VIIth

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Schedule. It was next contended by Shri Sanghi that the

impugned Notification enhancing the royalty by almost 200

per cent was ultra vires the purpose and object of the Act

as the purpose of the Notification was to increase the rev-

enues of the State Governments in whose territories the

concerned mines were situated and as it had nothing to do

with the development of the mines, the Notification was

beyond the scope and ambit of Section 9(3) of the Act. Mr.

Sorabjee, learned senior counsel appearing for the

appellant, M/s.Birla Jute Industries Ltd., adopted the

arguments of Mr. Sanghi and further submitted that the

Notification issued under Section 9(3) must have direct

nexus with royalty which would be a payment made for the

privilege of removing the minerals and it had to be charged

on the quantity removed. That no Notification under Section

9(3) could be issued by the Central Government only for

increasing the general revenues of the States, that such a

purpose is outside the scope of Section 9(3) and in

substance by the impugned Notification, the Central

Government had imposed a tax for the purpose of swelling the

revenues of the States and not for the purpose of increasing

royalty on any permissible ground which may be within the

scope of Section 9(3) of the Act. Mr. Dholakia, learned

senior counsel appearing for Respondent No.1 in Civil Appeal

1994/95 arising out of SLP(C) No. 3395/ 94, broadly

supported the aforesaid contentions of Shri Sanghi and Shri

Sorabjee and further contended that Section 9 of

101

the Act has nothing to do with mineral development and,

therefore, enactment of Section 9 could not be supported

under Entry 54 of the Union List but would be covered by the

sweep of Entry5O of the State List. Mr. Chidambaram,

learned senior counsel, appearing for some of the original

writ petitioners before the High Court in companion matters,

also adopted the arguments of Shri Sanghi and Shri Sorabjee

and further contended that as laid down by this Court in

Indian Cement case royalty is a tax, and there was no Entry

in the Union List which could support such a tax and it

would clearly fall within the scope and ambit of Entry 50 of

the State List. He further contended that every tax should

have a tax entry and as there was no specific entry

regarding imposition of tax by way of royalty in the Union

List such tax could be covered by Entry 50 of the State

list, and so, impugned Section 9(3) is beyond the

legislative power of the Parliament.

6.Mr. Ramaswamy, leamed senior counsel, who was permitted to

intervene supported the contention of the aforesaid leamed

counsel for the writ petitioners and further contended that

the impugned Notification, even if assumed partly to be

based on relevant grounds, at least partly was not based on

relevant grounds as it was not wholly issued for the purpose

of development of minerals but for the purpose of

development of State coffers and, therefore, the entire

Notification has to be struck down as invalid and

incompetent. An alien purpose cannot be mixed with the

relevant purpose for exercising any statutory powereven

including the power to exercise delegated legislative

function.

7. In the light of the aforesaid rival conditions, the

following points arise for our determination:-

1. Whether Section 9(3) of the Act is ultra vires the

Constitution and/or is illegal on any other ground?

2. Whether the impugned Notification is beyond scope of

Section 9(3) of the Act and, therefore, incompetent and

invalid?

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3. Whether the impugned Notification is a piece of

colourable exercise of power?

4. Whether the impugned Notification is arbitrary and

confiscatory in nature?

As discussed hereinafter, answers to the above points are as

follows:-

1st In the negative;

2nd In the negative,

3rd In the negative;

4th In the negative.

8. We shall deal with these points seriatim.

Point No. 1

9. So far as vires of Section 9 are concerned, it must be

kept in view that a Constitution Bench of this Court has

held in the case Baijnath v.State of Bihar, (AIR 1970 SC

1436) that the Act is enacted by Parliament under Entry 54

of the Union list. In this connection the Constitution

Bench speaking through Hdayatullah C.J., has made the

following observations:-

"Entry 54 of the Union List speaks both of

Regulation and mines and minerals development

and Entry 23 of State list is subject to Entry

54 of Union list. It is open to Parliament to

declare that it is ex-

102

pedient in the public interest that the con-

trol should vest in Central Government. To

what extent such a declaration can go is for

Parliament to determine and this must be

commensurate with public interest. Once this

declaration is made and the extent laid down,

the subject of legislation to the extent laid

down becomes an exclusive subject for

legislation by Parliament. Any legislation by

the State after such declaration and trenching

upon the field disclosed in the declaration

must necessarily be unconstitutional because

that field is abstracted from the legislative

competence of the State legislative.

10.Once it is held that the entire Act is within the

exclusive domain of legislative power of the Parliament

under Entry 54 of the Union list it becomes obvious that

Section 9 which is a part and parcel of the same Act would

also fall within Entry 5 which deals with regulation of

mines an development of minerals and for which declaration

is already found in Section 2 of the Act to the effect that

such regulation of mines and minerals development under

control of the Union is expedient in public interest. We

may now turn to Section 9 which reads as under:-

"9. Royalties in respect of mining leases:-

(1) The holder of mining lease granted

before the commencement of this Act shall, not

withstanding anything contained in instrument

of lease or in any law in force at such

commencement, pay royalty in respect of an

y

mineral removed or consumed by him or by his

agent, manager, employee, contractor or sub-

lessee from the leased area after such

commencement at the rate for the time being

specified in the Second Schedule in respect of

that mineral.

(2) The holder of a mining lease granted on

or after the commencement of this Act shall

pay royalty in respect of any mineral removed

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or consumed by him or by his agent, manager,

employee, contractor or sub-lessee from the

leased area at the rate for the time being

specified in the Second Schedule in respect of

that mineral.

(2-A) The holder of a mining lease, whether

granted before or after commencement of the

Mines and Minerals (Regulation & Development)

Amendment Act, 1972, (56 of 1972) shall not be

liable to pay any royalty in respect of any

coal consumed by a workman engaged in a

colliery provided that such consumption by the

workman does not exceed one-third of a tonne

per month.

(3) The Central Government may, by

notification in the official Gazette, amend

the Second Schedule so as to enhance or reduce

the rate at which royalty shall be payable in

respect of any minerals with effect from such

date as may be specified in the notification:

Provided that the Central Government shall not

enhance the rate of royalty in respect of any

mineral more than once during any period of

(three years)."

11.It becomes obvious that Parliament while enacting Section

9 has already laid down the rates of royalty to be charged

on the removal and consumption of mineral by any lessee of

mining lease, his agent or manager of sub-lessee, from the

leased area. The rates of royalty are scheduled in the Act.

So far as coal is concerned it is by Entry 11 of the Second

Schedule. Separate rates of royalty are prescribed for dif-

ferent types of coal. However, the Parliament felt that

these rates of royalty may be required to be enhanced or

reduced from time to time due to fall of money value

103

with the passage of time of vice versa. For that very

purpose the Central Government as per Section 9(3) is

permitted by Parliament to amend the Second Schedule by

Notification to be published in Official Gazette from time

to time-subject to the proviso that the Central Government

shall not enhance mineral and mines royalty for more than

once during the period of three years. The power conferred

upon the Central Government under Section 9(3) is by way of

delegated legislative power. Vires of Section 9(3) was

challenged on twin grounds by Shri Sanghi, learned senior

counsel. In the first instance he submitted that if royalty

is a tax, there should be a clear entry in the Union list

permitting the Parliament to impose such a tax. He placed

reliance on M/s. International Tourist Corporation & Ors.,

Avtar Singh & Ors Namaskar Bus Service and Others V. State

of Haryana & Others, State of UP. & Others, (1981 (2) SCC

318) and State of Mysore & Others Vs. M/s D Cawasji &Co. &

Others, (1971 (2) SCR 799), and submitted that there is no

such entry regarding tax on royalty in the Union list; on

the contrary, tax on mineral rights is found in Entry 50 of

the State list. Therefore, Mr. Sanghi submitted that

legislative competence in connect-ion with tax on mineral

rights would be exclusively of State legislature and not of

the Parliament and, therefore, Section 9(3) is beyond the

legislature competence of the Parliament. The second leg of

challenge was that in any case by Section 9(3) the

Parliament has delegated its legislative power in favour of

the Central Government by way of excessive delegation and no

guidelines are found in the Section as to on what basis the

Central Government once in three years can revise the

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royalty rates and what would be the relevant criteria for

the said exercise.

As the Section is silent on these vital aspects, it has to

be held to be suffering from the vice of excessive

delegation of legislative power.

12. In our considered opinion there is no substance in

either of the twin contentions for challenging vires of

Section 9(3). So far as to competence to enact Section 9 is

concerned, the question is no longer res integral. It is

covered by the Constitution Bench decision of this Court in

the case India Cement Ltd. & Others Vs. State of Tamil Nadu

& Others, (1990 (1) SCC 12). In that decision the

Constitution Bench speaking through Sabyasachi Mukherji J.,

as he then was, expressly rules that royalty is a tax and

for imposing such royalty the State legislature will have no

power under Entry 50 of the Second list. Mr. Sanghi

contended that strictly royalty cannot -be said to be a tax

and to that extent the decision of the Constitution Bench

may appear to be erroneous. It is not possible to agree

with this contention. In paragraph 34 of the report the

Constitution Bench has made the following pertinent observa-

tions:-

34. "In the aforesaid view of the matter we

arc of the opinion that royalty is a tax, and

-as such a cess on the royalty being a tax on

royalty, is beyond the competence of the State

legislature because Section 9 of the Central

Act covers the field and the State legislature

is denuded of its competence under Entry 23 of

List H. In any event we are of the opinion

that cess on royalty cannot be sustained under

Entry 49 of List II as being a tax a tax on

land but a payment for the user of land."

13.It is true that in paragraph 13 of the report the

Constitution Bench noted the on land. Royalty on mineral

rights is not

104

judgments of Rajasthan, Punjab and Gujarath High Courts

which had taken the view that royalty was not a tax and it

is equally true that it is not expressly mentioned in the

judgment of the Constitution Bench that these judgments were

erroneous or were required to be over ruled. However on a

conjoint reading of paras 31 and 34 of the report, it

becomes obvious that the view that royalty is not a tax as

expressed by these High Courts did not find favour with the

Constitution Bench of this Court which took a contrary view.

Therefore, these judgments necessarily stood over ruled, on

this aspect. It is true that in the last line of paragraph

34 it is mentioned that royalty on mineral rights is not a

tax on land but a payment for use of land but these

observations are in connection with Entry 49 List II which

deals with a tax on land. But so far as nature of royalty

is concerned it is clearly rules to be a tax by the

Constitution Bench, and that is the reason why the

Constitution Bench reached the conclusion that any cess on

the royalty would be a tax. It would be beyond legislative

competence of the State legislature as Entry 50 in List II

would be of no avail once the Parliament has occupied the

field by enacting the Act, especially Section 9 thereof.

The view of the Constitution Bench that royalty is a tax as

found in paragraph 34 of the report can also be supported

from other paragraphs of the report. In paragraph 23 of the

report while agreeing with Mr. Nariman that royalty which is

indirectly connected with land cannot be said to be a tax

directly on land as a unit, it has been observed that no tax

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can be levied or leviable if no mining activities are

carried on. Hence it is manifest that it is not related to,

land as a unit which is the only method of valuation of land

under Entry 49 of List II but is relatable to minerals

extracted. Royalty is payable on a proportion of the min-

erals extracted. These observations in paragraph 23 clearly

indicates that in view of the Constitution Bench, royalty

was a tax which had a nexus with mining activities meaning

thereby it was a tax on mineral rights. Similarly in para

27 of the report, the Constitution Bench noted with approval

of the decision of the Division Bench of the High Court of

Mysore in Laxminarayana Mining Co. Bangalore v. Taluk Dev.

Board (AIR 1972 Mysore 299). In the case the Court was

concerned with the Mysore village Panchayats and Local

Boards Act, 1959. Under the said act the Board had sought

to levy tax on mining activities carried on by the persons

holding mineral concessions. The mysore Court had observed

that once the Parliament made a declaration by law that it

is expedient in the public interest to make regulation on

mines and minerals development under the control of the

Union to the extent to which such regulation and development

is undertaken by the law made by the Parliament. the' power

of the State legislature under entries 23 and 50 of List II

got denuded. It would, therefore, be not said that even

after passing of the Central Act, the State legislature by

enacting Section 143 of the Act could confer power on the

Taluk Board to levy tax on the mining activities carried on

by the persons holding mineral concessions. The

Constitution Bench then noted that at page 306 of the report

of Mysore case it was held that royalty fixed under Section

9 of the Mines and Minerals Act was really a tax. It must

be kept in view that this decision of the Mysore High Court

was noticed by the Constitution Bench and was not dissented

from. On the other hand it got approved by it. It must,

therefore, be

105

held that royalty imposed had to, be treated as tax as ruled

by the Constitution Bench of this Court in India Cement Case

(supra). It is no doubt true that in the late decision of

this Court in Orissa Cement Ltd. & Ors. etc. etc. v. State

of Orissa & Ors. etc. etc., (1991 (2) SCR 105), a threeJudge

Bench of this Court did not go into the question whether

there was any typegraphical error in the judgment of the

Constitution Bench as found in para 34 of its report when it

held that royalty is a tax. But in view of what we have

discussed have it becomes absolutely clear that there was no

typographical error but on the contrary the said conclusion

logically flew from' the earlier paragraphs of the judgment

referred to by us hereinabove.

14. Once the conclusion is reached that royalty is a tax,

the next question arises whether Entry 50 of the State list

can at all be resorted to for imposing such a tax by the

State legislature. Even that question is fully covered

against the writ petitioners by the very same Constitution

Bench judgment of India CementOrs. In para 24 of the report

it has been observed while repelling the contention of Mr.

Krishnamurthy Iyer for the State of Tamil Nadu that Entry 50

in List II of the Seventh Schedule can be of any avail, the

Constitution Bench noted that Entry 23 of List II deals with

regulation of mines and minerals development subject to the

provision of List I with respect to regulation and

development under the control of the Union and Entry 54 in

List I deals with regulation of mines and minerals under the

control of Union declared by the Parliament by law to be

expedient in public interest Thereafter it was observed that

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even if minerals are part of the State list they are treated

separately and, therefore, the principle that the specific

excludes the general must be applied. In this connection

reference was made to the case of H.R.S. Murthy v. Collector

of Chittor 1964(6) SCR 666), where it was held that cess on

minerals would be covered by Entry 49 of List II. The

Constitution Bench with regard to H.R.S. Murthy's case

observed in paragraphs 29 and 30 of India Cement Ltd. case

that attention of the Court was not invited to provisions of

Mines and Minerals (Development & Regulation) Act, 1957 and

Section 9(3) thereof Section 9(3) of the Act in terms states

that royalties payable under the IInd Schedule of the Act

shall not be enhanced more than once during a period of four

years. It is, therefore, a clear bar on the State

Legislature taxing royalty so as to in fact...amend IInd

Schedule of the Central Act. As seen earlier inparagraph 32

of the report in India Cement Case, it has been clearly

mentioned that in view of the express provisions of Mines &

Minerals Act, 1957, Entry 50 cannot be of any assistance to

sustain such legislation by the, State. Oza. J. in his

concurring judgment has highlighted one additional dimension

of the matter in para 40 of the report. It has been

observed by Oza J., that it is no doubt true that mineral is

extracted from the land and is available but it could only

be extracted if there art three things: (1) land from which

mineral could be extracted. (2) capital for providing

machinery, instruments and other requirements, and (3)

labour. It is, therefore, clear that unit of charge of

royalty is not only land but land + labour + capital. It is

also to clear that if royalty is a tax or an imposition or a

levy, it is not on land alone but it is a levy or a tax on

mineral, including land, labour and capital employed in

extraction of the mineral. It is therefore clear that

royalty if imposed by

106

the Parliament could only be a tax not only on land but also

on these three things stated above.

15.Inview of the decision of Constitution Bench it is no

longer open to the writ petitioners to submit that Entry 50

of -List II can still be available to State legislature. It

is easy to visualise that once the Parliament has, occupied

the field in connection with regulation of mines and

minerals development in the country and when the Parliament

declares that it is expedient in the public interest so to

do, Entry 23 of the State list regarding regulation of mines

and minerals development would be of no avail to the State

legislature as Entry 23 List II is subject to the provision

of List 1, nor will Entry 50 of the State list can be of any

assistance to the State authorities. In short, both the

entries will be out of way in enacting appropriate

legislation imposing the rates of royalty to be paid by

those who extract minerals in the country. Once, these

Entries are out of picture, it is Entry 54 in the Union list

which will operate and the imposition of tax on minerals ex-

tracted would be squarely got covered by Entry 54 of the

Union list. To recapitulate, as the entire Act has been

upheld by this Court in its earlier decisions to which we,

have made reference in the light of Entry 54 of the Union

list, Section 9 being part and parcel thereof cannot be out

of the sweep of Entry 54. However, even assuming that there

should be a specific taxing entry regarding taxing of

royalty on mineral rights which can sustain such legislation

under the said entry, being a topic of legislative power, we

find that there is no such specific entry in Union list nor

in State list or concurrent list which can be of any

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assistance in this connection. Entry 50 in the State list

is out of picture as we have seen earlier. In- these

circumstances the State legislature cannot rely on any entry

in the State list or concurrent list for imposing such a tax

once a valid legislation by Parliament under Entry 54 of the

Union list is holding the field. In the alternative

imposition of such hybrid tax on mines + capital + labour

would be covered by residuary Entry 97 of the Union list

which empowers the Parliament to enact laws on topics not

covered by others specific entries in List II or List III.

This conclusion squarely flows from the observations made by

Oza J., in his concurring judgment in India Cement Ors....

It must, therefore, be held that Section 9 of the Act is

within the legislative competence of the Parliament both

under Entry 54 of the Union list as well as Entry 97 thereof

The first ground of attack on Section 9 by Shri Sanghi is

thus devoid of substance and is, therefore, -rejected.

16. Mr. Sanghi next submitted that Section 9(3) is an

piece of 'delegated legislation and it should not suffer

from the vice of excessive delegation. No exception can be

taken to this submission of Shri Sanghi. Let us try to see

whether Section 9(3) suffers from any such vice. It must be

kept in view that Parliament itself has laid down the rates

of royalty in the IInd schedule of the Act. However, the

Parliament felt that with passage of time these rates of

royalty may have to be suitably modified. This is obvious

as the Act was enacted years back in 1957. The purchasing

power of rupee went on failing year after year and decade

after decade. Therefore, instead of Parliament itself every

time being required to increase the rates, it left to the

Central Government to do so but it imposed certain fetters

on the power of the Central Government. Firstly, the

proviso of Section

107

9(3) clearly lays down that such enhancement should not be

made before the end of four years and now after-amendment

before the end of three years. This itself indicates a

guideline laid down by the Parliament that the rate of

inflation and fall of money value of the rupee should be

considered once in three years and that the royalty should

be enhanced only once in three years. The second guideline

in Section 9(3) is pertaining to the very topic of

delegation of such legislative power. The Central

"Government has to keep in view the original rates mentioned

in End Schedule in connection with different types of

minerals and to suggest suitable enhancement once in the

three years depending upon the requirements of the States

concerned for whom the royalty is meant. It is to be paid

by holder of mining lease who extracts minerals. If a

person is merely in occupation of land which contains mines

and minerals, he is not liable to pay any royalty but it is

only when he holds a mining lease and by virtue of that

extracts one or more minerals then only he is called upon to

pay royalty to the State Government as the lease is in

respect of the land in which minerals vest in the State

Government. This exercise is to be carried out keeping in

view the very object and purpose of the Act, namely, regula-

tion of mines and development of minerals which are the

catch words of Entry 54 of List II under which the Act is

enacted. Therefore, fixation of royalty should have a

direct nexus with the minerals through out the country on

uniform pattern so that activity of winning the minerals for

the benefit of the lessees of such mining leases in the

first instance and ultimately for the economy as a whole

should not get in any way frustrated. There are sufficient

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guidelines from the Act to enable the Central Government to

exercise its delegated legislative function in a just and

proper manner keeping in view the uniform development of

minerals through out the country. In this connection it is

also necessary to keep in view Section 28 subsection (1)

which provides that every rule or notification made by the

Central Government be placed before each House of Parliament

for a total period of 30 days in one session or two more

successive session and if both Houses agree in making any

modification in the rule or Notification should not be made,

the rule or Notification shall thereafter have effect only

in such modified form or be of no effect, as the case may

be. When such a safety valve is provided it cannot be said

that the exercise of delegated legislative power by Central

Government in the first instance under Section 9(3) would

suffer from any excessive delegation of legislative power or

effacement of legislative power of the Parliament.

17. In our view the High Court correctly held that Section

9(3) does not suffer from any excessive delegation of

legislative power. Before parting with this discussion we

may deal with one more submission of Shri Sanghi. He

submitted that earlier the legislation had itself provided

in Section 9(3) a ceiling for enhancement of rates of

royalty and to that extent there was a safety valve or

guideline by Parliament. But after amendment this ceiling

is given a go bye and hence the Section has become

arbitrary. It is not possible to agree with this contention

for the obvious reason that whatever enhanced rate of roy-

alty is fixed by Notification by the Central Government

under Section 9(3), it has got to be filtered through the

process of Section 28(1) and if the Parliament finds the

proposed hike to be uncalled for it may

108

veto it out. There are sufficient guidelines as to for what

purpose the royalty can be enhanced as discussed

hereinabove, once in three years. In this connection we may

profitably refer to the decision of this Court in the Case

N.K. Papiah & Sons. v. The Exercise Commissioner and

another, (AIR 1975 SC 1007). In that case this Court was

concerned with the question of constitutional validity of

Section 22 of Karnataka Excise Act. Section 22 conferred

power on the Government to fix rates of excise duty. There

was no guideline in Section 22 about upper limit of the duty

which could be fixed. Repelling the contention that this

had resulted in excessive delegated power, Mathew J. speak-

ing for this Court held that power conferred on the

Government by Section 22 was valid. From the mere fact that

it is not certain whether the preamble of the Act gives any

guidance for fixing the rate of excise duty, it cannot be

said that the legislature has no control over delegate; that

requirement of laying of rules before the legislature is

control over delegated legislation. The legislature may

also retain its control over its delegate by exercising its

power of repeal.

18. In the case of Delhi Cloth and General Mills Co.Ltd.,

M/s. Arvind Mills Ltd. etc. etc. v. Union of India &

Ors,etc. etc. (AIR 1983 SC 937) another Bench of this Court

speaking through Desai J. held that the provision of

Sections 58A and 642 of the Companies Act requiring every

rule enacted in exercise of the power conferred by it must

be placed before each House of Parliament for a period of 30

days and both Houses have power to suggest modification in

the proposed rules to check any transgression of permissible

limits of delegated legislation by the delegate, made the

challenge on the, ground of excessive delegation

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unsustainable. In view of this settled legal position it

cannot be held that Section 9(3) suffers from any excessive

delegation of legislative power. 'Mere is full control of

Parliament under Section 28 for checking such exercise of

the delegate and for correcting the same, if found

necessary. The second ground canvassed by Shri Sanghi for

challenging the vires of Section 9(3) is also without any

substance and stands rejected. Therefore,, point no. 1 is

answered in the negative.

Point No.2

19. Sofaras this point is concerned, wehaveto see the,

background in which the impugned Notification dated 1.8.1991

saw the light of the day. After 1981 there was no

enhancement of royalty though a clear power was conferred on

the Central Government by Section 9(3) to enhance the rates

of royalty at the end of every four years and then amended

after every three years. Almost a decade had passed when

the impugned Notification was issued, on 1.8.1991. In the

meantime, at least on three occasions rates of royalty as

found in earlier Notification of 1981 of the Act could have

been enhanced by the Central Government in exercise of its

power under Section 9(3) but that was not done. That was

because the States themselves who were the owners of the

minerals and were entitled to receive the amounts of royalty

on extracted minerals by the concerned lessee tried to help

themselves by imposing various cesses on royalties by

different legislations. It is no doubt true that, that

would swell the exchequer of the States but the said

exercise was undertaken with a view to obtain appropriate

rates of royalty commensurate with the price of the

109

extracted minerals as charged from time to time by the

lessees. This imposition of cesses by the States on royalty

as originally fixed by the Central Government under Section

9(3) was frowned upon by this Court and held to be beyond

the legislative. competence of the State legislature. It is

under these circumstances that the States requested the

Centre to repair the damage or loss to the State exchequer

in the light of the decision of India Cement Case (supra)

and that is the reason why a study group to look into the

matter was formed by the Central Government in this

connection. The report of the study group clearly shows

that rates of royalty as earlier enhanced in 1981 had not

been, however, further enhanced for all these years and that

in the meantime attempts by the States to raise the rates of

royalty by way of imposed cesses on royalty were found to be

ultra vires the State legislature and in these circumstances

it was necessary in enhance the rates of royalty on various

types of coal. It is thereafter that the said Notification

was issued by the Central Government invoking its power

under Section 9(3). It was vehemently contended by Mr.

Sanghi, Mr. Sorabjee and Mr. Ramaswamy that the impugned

Notification is beyond the scope of Section 9 of the Act as

it has nothing to do with the development of minerals but it

was issued only for compensating the States who have

suffered loss because of striking down of cesses imposed on

royalty by this Court. Mr. Sorabjee invited our attention

to various decisions of High Courts and this Court for

submitting that royalty is levied on the minerals extracted

by the' holders of the mining leases. In the first instance

lie took us to decision of Punjab in case Dr. Shanti Saroop

Sharma and Another v. State of Punjab & Others (AIR 1969

Punjab & Haryana 79), Gurudev J. in paragraph 14 of the

report held that royalty is not defined either in the Act or

the Rules framed thereunder by the Central or the State Gov-

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ernment. Learned Judge has referred to what is stated at

page 893 of (Wharton's Law Lexicon (14th edition) in para 15

to the following effect:-

" royalty is payment to a patentee by

agreement on every article made according to

his patent; or to an author by a publisher on

every copy of his book sold; or to the owner

of minerals for the right of working the same

on every ton or other weight raised."

The learned Judge also referred to various dictionary

meanings of the term royalty. According to Stroud's

Judicial Dictionary of Words and Phrases (3rd Edition)

"In its secondary sense the word 'royalty'

signifies, in mining leases, that part, of the

reddendum, which is variable and depends upon

the quantity of minerals gotten (Att. Gen.

Ontario V. Mercer (18838AC 767) Sup: see

Hereon Greville Nugent V Mackenzie (1900) AC

83, cited RENT; Listowel v. Gibbings (1858-9

Ir CLR 223) Sup; or the agreed payment to a

patentee on every article made according to

the patent. "

According to Mozley and Whiteley's Law Dictionary (7th

Edition) page 328

"A pro rata payment to a granter or lessor on

the working of the property leased, or

otherwise on the profits of the grant or

lease. The word is specially used in ref-

erence to mines patents and copyrights."

According to Prem's Judicial Dictionary (Volume IV) 1964

Edition, page 1457:

110

"Royalty is inter alia, a charge by the owner

of minerals from those to when he gives the

concession to remove them, and the charge is o

n

production, the rate being fixed according to

weight: Behru Lal v. State of Rajasthan AIR

1956 Raj 161."

According to Wharton's Law Lexicon royalties are payments

which the Government may demand for the appropriation of

minerals, timber or other property belonging to the

Government. Two important features of royalty have to be

noticed, they are, that the payment made for the privilege

of removing the articles is in proportion to the quantity

removed and the basis of the payment is an agreement. In

para 22 learned Judge has concluded that the word Royalty

has a well recognised and defined meaning which means share

of produce or profit paid to the owner of the land for being

granted privilege of producing minerals therefrom and

excludes the concept of fee simple title to minerals in

place. The same meaning has been given to the term royalty

in the cases Saurashtra Cement & Chemical Industries Ltd.,

Ranavav v. Union of India (AIR 1979 Gujarat 180) Laxmi

Narayan Agarwalla & Others etc. v. State of Orissa & Others,

(AIR 1983 Orissa 21 0) and Surajdin Laxmanlal v.State of

M.P. Nagpur & others (AIR 1960 M.P. 129). Shri Sorabjee

also took us through the decision in case D.K. Trivedi and

Sons and Ors. etc. etc. v. State of Gujarat & 0rs. etc. etc.

(1986 (1) SCR 479), wherein at page 532 of the report the

dictionary meanings as found in various dictionaries were

noticed. Ultimately Madon J. speaking for the Court made

the following observations at page 534 of the report:-

"In a mining lease the consideration usually

moving from the lessee to the lessor is the

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rent for the area leased (often called surface

rent), dead rent and royalty. Since the

mining lease confers upon the lessee the right

not merely to enjoy the property as under an

ordinary lease but also to extract minerals

from the land and to appropriate them for his

own use or benefit, in addition to the usual

rent for the area demised, the lessee is

required to pay a certain amount in respect of

the minerals extracted proportionate to the

quantity so extracted. Such payment is called

'royalty'."

In the light of the aforesaid meaning of the term 'royalty',

it was submitted by Shri Sorabjee that the Central

Government under Section 9(3) can enhance the rates of

royalty payable on the extracted minerals by the lessee and

it is to be paid to the lessor, the State concerned in whose

territory/jurisdiction the mines are situated but the

impugned Notification was issued in exercise of that power

not for developing mines but it is solely issued for the

purpose of compensating the States exchequers for the loss

of revenue suffered by them and that such a Notification has

nothing to do with the development of minerals and

therefore, is beyond the scope and ambit of Section 9(3).

Same view was canvassed by learned counsel Shri Sanghi and

Shri Ramaswamy.

20. Having given our anxious consideration we find there is

no substance in this contention. The reasons are obvious.

The legislature has entrusted the Central Government with

the power to enhance the rates of royalty from time to time.

It is of course true that traditionally speaking royalty is

an amount which is paid under contract of lease by the

lessee to the lessor, namely, the State Governments

concerned and-it is commensurate with the quantity

111

of minerals extracted. But we cannot lose sight of the fact

that since 1981 such enhancement of royalty has not been

done by the Central Government. Rates of royalty fixed

before a decade, with the passage of time and fall in money

value and increase in inflation would naturally become

illusory. Therefore, the States would legitimately claim

for increasing the rates or royalty. They unsuccessfully

tried to do so themselves by imposing cesses on royalty. In

these circumstances, it was perfectly open to the Central

Government to exercise its power under Section 9(3) and

enhance the rates of royalty so that loss to the States

exchequer of the amounts which otherwise would have been

available to the States could be compensated. It is not

that the States were otherwise not entitled to the royalty

amounts; but because of the operation of Section 9, the

power of the States to enhance the royalty get vested in the

Central Government. But once the rates are enhanced by the

Central Government, the enhanced royalty was to be received

by the State and same is to recovered from concerned lessee

of minerals. In fact Mr. Sanghi was right when he contended

that there is no question of the royalty amounts being

distributed by the Centre to the States as per Articles 268

and 269 of the Constitution. That once royalty amounts are

fixed by the Central Government under Section 9(3), the

States automatically become entitled to receive the same

from lessees of minerals who are allowed to extract them on

payment of such amounts of royalty to the State which is the

owner-lessor of these minerals. Enhancement of rates of

royalty cannot be said to have no nexus with the development

of minerals as contended by learned counsel for the writ

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petitioners, only because the enhanced rates of royalty are

to go to swell the exchequers of concerned States. In the

case of Orissa Cement Limited (supra), while interpreting

Entry 50 in the light of Section 9 of the Act, Ranganathan

J. speaking for this Court has observed as under:-

"To take up Entry 50 first, a perusal of Entry

50 would show that the competence of the State

Legislature with respect thereto is

circumscribed by 'any limitations imposed by

Parliament by law relating to mineral

development'. The M.M.R.D. Act 1957 is -

there can be no doubt about this, a law of

Parliament relating to mineral development.

S. 9 of the said Act empowers the Central Gov-

ernment to fix, alter, enhance or reduce the

rates of royalty payable in respect of

minerals, removed from the land or consumed by

the lessee. Sub-Section (3) of Section 9 in

terms states that the royalties payable under

the Second Schedule to that Act shall not be

enhanced more than once during a period of

three years. India Cement has held that this

is a clear bar on the State Legislature taxing

royalty so as, in effect, to amend the Second

Schedule to the Central Act and that if the

cess is taken as a tax falling under Entry 50

it will be ultra vires in view of the provi-

sions of the Central Act."

At page 168 of the said report while dealing with the topic

of development of minerals, Ranganathan J. examined the con-

tention that imposition of such cesses had no nexus with the

development of mineral. Relying upon the observations found

in earlier judgment of this Court it was observed that these

observations establish on the one hand that the distinction

sought to be made between mineral development and mineral

area development is not a real one as the two types of

development are inextricably and integrally interconnected

and, on the other, that fees of the nature

112

we are concerned with, squarely fall within the scope of the

provisions of the Central Act. The object of Section 9 of

the Central Act cannot be ignored. The terms of Section 13

of the Central Act extracted earlier empower the Union to

frame rules in regard to matters concerning roads and

environment. Section 18(1) empowers the Central Government

to take all such steps may be necessary for the conservation

and development of minerals in India and for protection of

environment. These in the very nature of things cannot mean

such amenities only in the mines but take in also the areas

leading to and all around the mines. The development of

mineral areas is implicit in them. Section 25 implicitly

authorises the levy of rent, royalty, taxes and fees under

the Act and the rules. The scope of the powers thus

conferred is very wide. The purpose of the Union control

envisaged by Entry 54 and the M.M.R.D. Act, 1957, is to

provide for proper development of mines and mineral areas

and also to bring about a uniformity all over the country in

regard to the minerals specified in Schedule 1 in the matter

of royalties and, consequently, prices. Ranganathan J. agree

with Mr. Bobde who appeared for Central Government that

prices of minerals for exports were fixed and could not be

escalated with the enhancement of the royalties and that if

different royalties were to be charged by different States,

their working would become impossible. There appeared to be

force in this submission. As pointed out in India Cement

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Case, the Central Act bars an enhancement of the royalty

directly or indirectly, except by the Union and in the man-

ner specified by the 1957 Act.

21. It becomes, therefore, clear that enhancing

uniformlyrates of royalty for the entire country even though

minerals might be extracted from different State's territory

is necessary for having uniform pattern of price of minerals

and that has a direct linkage with the development of min-

erals. It is also to be kept in view that regulating the

rates of royalty on extraction of minerals has also an

important role to play in opening up new 1 mining areas for

winning minerals. In this connection we may refer to

Section 18 of the Act which deals with mineral development.

Sub-section (1) of Section 18 lays down that it shall be the

duty of the Central Government to take all such steps as may

be necessary for the conservation and systematic development

of minerals in India and for the protection of environment

by preventing or controlling any pollution which may be

caused by prospecting or mining operation and for such

purposes, the Central Government may by Notification in the

Official Gazette, make such rules as it thinks fit. Sub-

Section (2) thereof lays down that in particular and v.

without prejudice to the generality of the foregoing power

such rules may provide for all or any of the following

matters, namely, (a) the opening of new mines and the

regulation of mining operations in any area (b) the

regulation of the excavation or collection of minerals from

any mine. It is obvious that rules framed under Section 18

(2) have a direct nexus with the development of minerals.

In this connection we may refer to Minerals Conservation And

Development Rules, 1988 framed under Section 18 sub-section

(2) of the Act. It is true that these rules do not apply to

coal but as laid down by Section 18(1) read with Section 30

A even for mining leases for coal such rules in appropriate

cases may be made applicable. Rule 45 of these rules deals

with monthly, quarterly and an-

113

nual returns by owners of every mine. When we refer to

prescribed return from the owner of the mine we find from

Form 1-9 that Form 1-1 will govern the monthly return for

other mines and various information sought for iron ore in

Part 1 of the form. Item no.4 in that part deals with rent

and royalty paid. Thus royalty amount has to be mentioned

in the form. It becomes, thus, clear that fixation of

royalty rates is in the realm of development of minerals as

envisaged by Section 18 of the Act. It is, therefore, not

possible to agree with the learned counsel for the writ

petitioners that fixation of rates of royalty has nothing to

do with the development of minerals.

22.That takes to the contention that even if it were so the

impugned Notification is ultra vires Section 9(3) as it has

nothing to do with the development of minerals. As we have

already seen earlier, to have a uniform pattern of rates of

royalty to be charged for extracting different qualities and

quantities of minerals from different parts of the country

is a very vital aspect of the development of minerals. It

is true that one of the main objects of the Notification was

for recompensing the loss suffered by States, but the facts

remains that they suffered loss since the last hike in

royalty was done in 1981 by the Central Government. It

cannot be said that even as purchasing power of rupee had

fallen and inflation had risen including the prices of coal

in national and international market, there was no felt for

raising the rates of royalty to be charged for extraction of

minerals like coal from the lease holders when the mineral

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belonged to the State. If the amount of royalty is so

enhanced, it has to go to the coffers of the State concerned

which is the owner of the mineral.

This is a logical corollary of enhanced rates of royalty.

It cannot be said to be an irrelevant consideration as tried

to be suggested by the learned counsel for the petitioners.

On the contrary, it was a relevant consideration because the

States have to monitor the working of the mines and the

income generating from extraction of minerals within their

respective territories. If the Central Government exercised

its power under Section 9(3) of the Act though belatedly in

1991 for bringing out this result, it cannot be said that it

has done what is ultra vires or beyond the scope of Section

9(3) of the Act. In this connection we may keep in view the

basic fact that minerals as found in the bowels of the earth

or attached to earth surface by itself cannot develop. For

developing it, it has to be brought on the surface and

separated from the crust of the mother earth and that can be

done by mining operation for winning these minerals. In

this connection it is profitable to look at Section 3 of the

Act. It defines minerals to include all minerals except

mineral oils including natural gas and petroleum. Mining

lease is defined to mean a lease granted for the purpose of

undertaking mining operations and includes a sub-lease

granted for such purpose. Mining operation means any opera-

tions undertaken for the purpose of winning any mineral. It

is obvious that development of mineral as envisaged by Sec-

tion 18 of the Act and even by Entry 50 of List 11 of the

Seventh Schedule of the Constitution, necessarily would mean

extraction of mineral out of the bowels of earth or from

crust of earth by mining operations. Therefore, the term

development of minerals has a direct linkage with mining

operation. Without that minerals cannot develop by

themselves. In Words and Phrases, Permanent Edition, Volume

No.27

114

issued by West Publishing Company, St. Paul Minn., the term

mineral is defined at page 21 0 as follows:

"A mineral is a natural body destitute of

Organisation or life." It has also been shown

that a mineral is anything that grows in mines

and contains metals.- It is further mentioned

therein that the mineral as used in a deed

will be restricted to that given it by the

custom of the country in which the deed is to

operate. Mineral in ordinary and common

meaning is comprehensive term including every

description of stone and rock deposit whether

containing metallic or nonmetallic substance.

The word mineral in popular sense means those

inorganic constituents of the earth's crust

which are commonly obtained by mining or other

process for bringing them to the surface for

profit. Mineral hidden in the bowel of the

earth by themselves cannot yield profit to

anyone and they become minerals when they are

brought out on the surface of the earth buy

mining operations.

23.It must therefore be held that regulation of mines and

development of minerals are interconnected concepts.

Consequently, it is not possible to agree with the

contention of the learned counsel for the writ petitioners

that imposition of royalty has nothing to do with the

development of minerals or that enhancing the rates of the

royalty by the impugned Notification is extraneous to the

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purpose of developing mines but is solely for swelling the

coffers of the States. Once that conclusion is reached,

there would survive no question of Notification being issued

partly for legitimate purpose of enhancing royalty rates

after a decade from 1981 and partly for an irrelevant

purpose of swelling the State exchequer. In fact the entire

purpose of this exercise is for a legitimate relevant

purpose for developing the minerals and enabling the State

which are the owners thereof to properly manage the mining

leases so that minerals can develop on a uniform pattern

throughout the country. In that view of the matter the

submission made by Shri Ramaswamy relying on case S. Pratap

Singh v. The State of Punjab (1964 (4) SCR 733) that alien

purpose cannot be mixed with statutory purpose is of no

avail to him. The argument of Shri Sanghi relying upon the

decision of this Court in case Chanan Mal & Others, State of

Haryana & Others (1977 (1) SCC 340) in para 23 at page 350

that declaration, under Section has a limited coverage also

cannot be of any assistance to him for the simple reason

that whatever may be covered by Section 2 declaration, it

has definitely covered the imposition of royalty by the

Parliament as held in the Constitution Bench decision of

this Court in India Cement Case (supra). As a result of

this discussion it must be held that the impugned

Notification cannot be said to be ultra vires of Section

9(2) of the Act. The second point is, therefore, answered

in the negative.

Point No. 3

24. The question is whether the impugned Notification is a

piece of colourable exercise of power and, therefore, null

and void. It has to be kept in view that it is an exercise

of delegated legislative function entrusted to the Central

Government by Parliament under Section 9(3). The concept of

colourable legislation has a well defined connotation so far

as parent legislation is concerned. If the legislation

trespasses on a field not reserved for it under the relevant

entry of the. Seventh Schedule it can be said to be

115

a colourable legislation meaning thereby it purports to get

covered by an entry which does not give legislative

competence to the legislature concerned to enact such a law.

Adverting to the concept of colourable legislation a

Constitution Bench of this Court in case of Federation of

Hotel & Restaurant v. Union of India & Others (AIR 1990 SC

1637), made the following pertinent observations:-

"The constitutionality of the law becomes

essentially a question of power which in a

federal constitution, unlike a legally om-

nipotent legislature like the British Par-

liament, turns upon the construction of the

entries in the legislative lists. If a

legislature with limited or qualified juris-

diction transgressed its powers, such

transgression may be open direct and overt or

disguised indirect and covert. The latter

kind of trespass is figuratively referred to

as 'colourable legislation', connoting that

although apparently the legislature purports

to act within the limits of its own powers yet

,

in substance and in reality, it encroaches

upon a field prohibited to it, requiring an

examination, with some strictness, the

substance of the legislation for the purpose

of determining what is that the legislature

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was really doing. Wherever legislative powers

are distributed between the Union and the

States situations may arise where two

legislative fields might apparently overlap.

It is the duty of the Courts, however,

difficult it may be, to ascertain to what

degree and to what extent, the authority to

deal with matters failing within these classes

of subjects exists in each legislature and to

define in the particular case before them, the

limits of the respective powers."

5.It is obvious that this aspect of colourable legislation

would not strictly ply while judging the legality of the

exercise of the delegated legislative function.

In fact it could not be contended by learned counsel for the

writ petitioners that the Central Government had no power to

act under Section 9(3). Therefore, in the strict sense,

there is no question of the said Notification being a piece

of colourable legislation touching upon the power of some

other authority functioning under any other provision of

delegated legislation. However, it has also to be observed

that even in cases of delegated legislation, there are well

defined limitations beyond which if such an exercise

projects itself, it would become ultra vires the provision

permitting such an exercise. We may profitably refer to a

decision of this Court in case Indian Express Newspapers

(Bombay) Pvt. Ltd. and Others etc. etc. v. Union of India &

Others. (AIR 1986 SC 515). A Bench of three learned Judges

of this Court speaking through Venkataramaiah J., as he then

was, in connection with Notification issued under Section 25

of the Customs Act which was a piece of subordinate legisla-

tion has made the following observations:-

"A piece of subordinate legislation does not

carry the same degree of immunity which is

enjoyed by a Statute passed by a competent

legislature. Subordinate legislation may be

questioned on any of the grounds on which

plenary legislation is questioned. In

addition it may also be questioned in the

ground that it does not conform to the statute

under which it is made. It may further be

questioned on the ground that it is contrary

to some other statute. That is because

subordinate legislation must yield to plenary

legislation. It may also be questioned on the

ground that it is unreasonable not in the

sense of not being reasonable but in the sense

that it is manifestly arbitrary. "

Keeping in view this legal position, let us

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examine the challenge to the impugned Notification on the

ground that it is a colourable device. It was submitted by

the writ petitioners that though purporting to act under

Section 9(3) of the Act and by which an effort was made by

the Central Government to raise the rates of royalty, in

substance they wanted only augment the coffers of the State

Government and nothing more and in that manner it was a

colourable exercise of power on the part of the Central

Government. While discussing Point No.2, we have already

repelled this contention. For the reasons recorded therein

even this contention has to be rejected. Our attention was

invited by &fr. Sorabjee, learned counsel for the ap-

pellants, M/s. Birla Jute and Industries Limited, to the

counter filed by the Union of India and the State Government

in the High Court for justifying the impugned Notification.

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That counter is found at page 52 in SLP(C) No, 8190/94. A

combined counter was filed on behalf of the respondent nos.

1, 3 and 4 in Misc. Petition No.2907 of 1992 before the

High Court in the case of Ws. Saurashtra Cement & Chemicals

India Ltd. and Another and it was relied upon by the

concerned authorities in all the other cases. In the said

counter at paragraph 'Q' it has been averred that the State

Government tried various methods for increasing their rev-

enue from time to time a.-, stated in the petition. The

State Government enacted various Laws imposing Minerals Area

Development and other cesses. These have been struck down

by the Hon'ble Supreme Court and the State Governments,

therefore, were left with practical difficulties in making

necessary financial arrangement, The matter was examined in

details on the representation made by the various State

Governments and after considering all aspect of the matter,

a reasonable increase in the royalty was found justified

and, therefore, the Central Government has issued the said

Notification. That after revision of rates of royalty on

coal in February, 1981 the next revision was due in Feb-

ruary, 1985, Study group was appointed in 1984 to consider

all aspects in depth regarding revision of rates of royalty

on coal. The study group met representatives of the State

Government and ascertained their views. It also issued a

questionnaire to the State Governments, calling for data

relating to production of coal, rates of royalty, cesses, if

any levied by them and other relevant information. The

study group found that most of the coal producing States

were levying cesses and taxes on coal the incidence of which

was much higher than that or royalty. Some of these taxes

cesses were being levied as a percentage of the pit-head

value of coal by the State Governments. All the State Gov-

ernments representated to the study group that the rates of

royalty on coal should bear a close correlation with the

prices of coal. The coal producing States, particularly

West Bengal and Bihar pressed for fixation of royalty on ad

valorem basis instead of the existing specific rates. The

study group expressed its views that any levy of royalty on

ad valorem basis, without a commitment from the State

Governments to refrain from levying cesses, would not be

equitable as it would have a cascading effect on the prices

of coal paid by the consumers. Thereafter the counter re-

ferred to the striking down of cesses imposed by various

State legislatures by this Court and then at paragraph 'T'

it is stated that Governments whose cess Acts were declared

unconstitutional and collection of cesses was stopped were

suffering substantial losses of revenues, they approached

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the Central Government to revise the rate of royalty on coal

immediately to help the to get out of the financial crisis.

It is further averred in the counter that in order to

examine the requests of State Governments to increase the

rates of royalty Department of Coal appointed yet another

study group on 6th February, 1991 to examine the report of

the earlier study group and recommend appropriate increase

in royalty in the wake of the Supreme Court's Judgment in

India Cements Case and subsequent judgments of the High

Courts. The study group discussed the issues with the

representatives of the coal producing States Governments and

considered their views. Then follows paragraph 'U' which

states that after considering the report of the second study

group the rates of royalty on coal have been revised from an

average of Rs.5.30 per tonne to Rs.70/- per tonne w.e.f

1.3.1991. These rates have not been made applicable to the

States of Assam and West Bengal because these States are

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levying/collecting cesses on coal as their Cess Acts have

not been struck down by the Courts so far.

26.Placing reliance on these averments, of the concerned

authorities it was vehemently contended by Mr.Sorabjee and

Mr. Ramaswamy that the impugned Notification is issued not

for the purpose of development of mineral as contemplated by

Section 9(3) but entirely for a collateral purpose of

compensating the State Governments for the loss of cess

revenues and for welling their coffers. It is not possible

to agree with this contention. The aforesaid averments

clearly indicate that from 1981 rates of royalty were not

increased further and there was a demand from all States to

make suitable increase in rates of royalty be commensurate

with the rising prices of coal. That is why the first study

group was appointed in 1984 and that was followed by second

study group of 1991 Naturally the second study group came

the conclusion that the cesses impose were struck down by

this Court and, there fore, there was a need for properly

enhancing royalty rates. As Section 9(3) is the only

Section remaining in field which could permit such an

exercise and it only the Central Government which could do

so, accordingly the impugned Notification has been issued.

It tried to enhance the rates of royalty which earlier the

States unauthorisedly tried to bring about. If the original

writ petitioner's contentions are accepted, it could even be

contended that neither the Central Government under Section

9(3) nor the State Governments could increase the rates of

royalty and 1981 rates which have become illusory with the

passage of time would continue to hold the field ad

infinitum. It has to be kept in view that a fresh exercise

of delegated legislative function in all the facts and

circumstances did justify such enhancement at lease after 10

years of the earlier revision in 1981. The motive

underlying the said enhancement to compensate the States for

loss of revenue which they have suffered cannot be said to

be totally irrelevant or having any vitiating effect on the

exercise of power under Section 9(3) which is otherwise

required to be resorted to in the facts and -circumstances

of the case. The motive of legislature or for that matter

that of the delegate in exercising delegated legislative

function for enacting a provision within its competence

cannot be considered to be in any way having any relevant

nexus to the efficacy of the product of such an exercise.

As we have already discussed earlier, the mineral belongs to

the States, and so, if the Central Govern-

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ment has taken into consideration the fact that the States

revenues are required to be re-compensated on account of the

loss suffered by them in their abortive efforts to escalate

the royalty, it cannot be considered to be an irrelevant

consideration. It clearly appeared that after 10 years from

1981 during which the royalty rates remained static there

was a crying need of the day for the Central Government to

exercise its power under Section 9(3) and to revise upward

the royalty rates in conformity v. with the rising prices of

the minerals around as mentioned in the counter and for

which there was a strong representation by the various

States Governments to the Central Government. With respect

we are not in a position to endorse the view of the High

Court that the impugned Notification was a colourable devise

and was issued for extraneous purpose. Equally, we are not

in a position to agree with the contention of Shri Ramaswamy

that the said Notification was issued for an alien purpose.

The third point for our consideration is, therefore,

answered in the negative.

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Point No.4

27.So far as this point is concerned, it is true that even

the exercise of delegated power can be challenged on the

ground that it is highly arbitrary, irrational and con-

fiscatory in nature and would not stand the test of Article

14 and 19(1)(g). Learned counsel for the writ petitioners

submitted that as compared to the rates of royalty fixed in

198 1, the present rates have gone up by 200 to 400 per cent

and, therefore, they have become confiscatory in nature. It

is not possible to agree with this contention as the writ

petitioners have laid no evidence to show as to how this

escalation of rates for different types of coal extracted by

the lessee of mines had adversely affected their business or

that they are thrown out of business because of such heavy

burden of escalated royalty. It is not the case of any of

writ petitioners that their mining operations had to be

closed down because of such high rates of royalty as

enhanced by the impugned Notification. Also there is

nothing on record to show whether the burden of this

enhanced rates of royalty is borne only by the lessee of the

mines who have extracted the minerals and has not been

passed on to the customers by adding it to the price of

coal. As all these are questions of facts there should be

clear pleading and proof There is no such material on the

record from which on the basis of such arguments any

decision can be rendered. Only on this short ground, we

must hold that the original writ petitioners have failed to

show how the enhanced rates of royalty as per the impugned

Notification have become unreasonable or confiscatory in

nature. Point No.4 is, therefore, answered in the negative.

28.As all the points raised by the writ petitioners are

answered against them, the inevitable result is that the

orders passed by the High Court in their favour by partly

allowing the writ petitions will have to be quashed and set

aside and their writ petitions will have to stand dismissed.

In the result Civil Appeal Nos.275/94 and 276/ 94 are

allowed. The judgment and order of the High Court in

M.P.No. 10/93 dated 17.12.93 are quashed and set aside and

the writ petition is dismissed. Similarly, appeal No.

1994/95 from SLP(C) No. 3395 of 1994 moved by, the State of

Madhya Pradesh is also allowed. The judgment and order of

the High Court in Misc. Peti-

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tion No.7907/92 dated 17.12.93 are quashed and set aside and

the said petition is also dismissed. Civil Appeal

No.1995/95 arising out of SLP(C) No. 8190/94 moved by M/s.

Birla Jute and Industries Ltd. is dismissed. In the facts

and circumstances of the case, there will-be no order as to

costs in all these matters.

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