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CASE NO.:

Appeal (civil) 1532-1533 of 1993

PETITIONER:

The State of West Bengal

RESPONDENT:

Kesoram Industries Ltd. and Ors.

DATE OF JUDGMENT: 15/01/2004

BENCH:

CJI, R.C. LAHOTI, B.N. AGRAWAL & Dr. AR. LAKSHMANAN.

JUDGMENT:

JUDGMENT

C.A. Nos. 1532-1533 OF 1993

(With C.A. Nos.3518-3519 of 1992, 5149-54 of 1992, C.A. No.2350 of

1993, C.A.No.7614 of 1994, C.A. Nos......................................................of

2004 (Arising out of SLP (C) Nos.3986 of 1993, 11596 and 17549 of

1994).

W.P.(C) Nos. 262 of 1997

The Terai Indian Planters' Association & Anr. ...Appellants

Versus

The State of West Bengal & Ors. ...Respondents

(With W.P.(C) Nos.515, 641,642 of 1997, W.P.(C) Nos.347,360

of 1999, W.P.(C) Nos.50, 553 of 2000, W.P.(C) Nos.207,288,389

of 2001 and W.P.(C) No.81 of 2003)

W.P.(C) No.247/1995

Bengal Brickfield Owners' Assn. & Anr. ... Appellants

Versus

State of West Bengal & Ors. ....Respondents

(With W.P.(C) No.412/1995)

Civil Appeal No.5027/2000

Anil Kumar Singh ... Appellant

Versus

Collector, Sonbhadra District & Ors. ....Respondents

(With C.A.Nos.6643 to 6650 of 2000, 6894 of 2000 and

C.A.No.1077 of 2001)

R.C. Lahoti, J.

This batch of matters, some appeals by special leave under

Article 136 of the Constitution and some writ petitions filed in

this Court, raise a few questions of constitutional significance

centering around Entries 52, 54 and 97 in List I and Entries 23,

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49, 50 and 66 in List II of the Seventh Schedule to the

Constitution of India as also the extent and purport of the

residuary power of legislation vested in the Union of India.

Cesses on coal bearing land, levied in exercise of the power

conferred by State Legislation, have been struck down by a

Division Bench of the Calcutta High Court. In exercise of the

same power conferred by State legislation whereunder cesses

were levied on coal bearing land, cesses have also been levied

on tea plantation land which are the subject-matter of writ

petitions filed in this Court. The Bengal Brickfield Owners'

Association have also come up to this Court by filing a writ

petition under Article 32 of the Constitution, laying challenge to

the same cesses levied on the removal of brick earth. These

three sets of matters arise from West Bengal. The High Court of

Allahabad has upheld the constitutional validity of cess levied in

the State of U.P. on minor minerals which decisions are the

subject-matter of civil appeals filed under Article 136 of the

Constitution. For the sake of convenience, we would call these

matters, respectively as (A) 'Coal Matters', (B) 'Tea Matters', (C)

'Brick Earth Matters', and (D) 'Minor Mineral Matters'. Inasmuch

as the basic constitutional questions arising for decision in all

these matters are the same, all the matters have been heard

analogously.

We would first set out the facts in brief and so far as

relevant for appreciating the issues arising for decision and

thereafter deal with the same.

(A) Coal Matters

A Division Bench of the Calcutta High Court has, vide its

judgment dated 25.11.92 reported as Kesoram Industries Ltd.

(Textiles Division) Vs. Coal India Ltd., AIR 1993 Calcutta 78,

struck down certain levies by way of cess on coal as

unconstitutional for want of legislative competence in the State

Legislature. Feeling aggrieved, the State of West Bengal has

come up in appeal by special leave.

The levies which are the subject matter of challenge are

as under:

The Cess Act, 1980

"S.5 All immovable property to be

liable to a road cess and public works

cess. From and after the commencement of

this Act in any district or part of a district, all

immovable property situate therein except as

otherwise in (Section 2) provided, shall be

liable to the payment of a road cess and a

public works cess."

"S.6 Cesses how to be assessed.

The road cess and the public works cess

[shall be assessed___

(a) in respect of lands on the annual

value thereof,

(b) in respect of all mines and quarries,

on the annual dispatches therefrom, and,

(c) in respect of tramways, railways and

other immovable property, on the annual net

profit thereof, ascertained respectively as in

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this Act prescribed]

and the rates at which such cesses

respectively shall be levied for each year shall

be determined for such year in the manner in

this Act prescribed:

Provided that___

(1) the rates of such road cess and

public works cess shall not exceed six paise

and twenty-five paise respectively on each

rupee of such annual value,

(2) the rates of each of such road cess

and public works cess shall not exceed___

(i) fifty paise on each tonne of coal,

minerals or sand of such annual dispatches,

and

(ii) six paise on each rupee of such

annual net profits,

Explanation. ___ For the purposes of this

proviso, one tonne of coke shall be counted as

one and a quarter tonne of coal."

2. West Bengal Primary Education

Act, 1973

"78. Education cess. ___ (1) All

immovable properties on which road and public

works cesses are assessed, [or all such

properties which are liable to such assessment]

according to the provisions of the Cess Act,

1880, shall be liable to the payment of

education cess.

(2) The rate of the education cess shall

be determined by the state Government by

notification and shall not exceed___

(a)[in respect of lands, other than a tea

estate] ten paise on each rupee of the annual

value thereof;

(aa) xxx xxx xxx

(b) in respect of coal mines [five per

centum of the value of coal] on the dispatches

therefrom;

(c) in respect of quarries and mines

other than coal mines, [one rupee on each

tonne of materials or minerals other than coal

on the annual dispatches therefrom]

Explanation. ___ For the purpose of clause

(b) the expression 'value of coal' shall mean___

(i) in the case of dispatches of coal as a

result of sale thereof, the prices charged by

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the owner of a coal mine for such coal, but

excluding any sum separately charged as tax,

cess, duty, fee or royalty for payment of such

sum to Government to a local body, or any

other sum as may be prescribed or

(ii) in the case of dispatches other than

those referred to in item(i), the prices

chargeable by the owner of a coal mine for

such coal if they were dispatched as a result of

sale thereof, but excluding any sum separately

chargeable as tax, cess, duty, fee or ___ royalty

for payment of such sum to Government or a

local body or any other sum as may be

prescribed:

Provided that if more than one price is

chargeable for the same variety of coal, the

maximum price chargeable for that variety of

coal shall be taken as the basis of valuation for

the purpose of this item."

3. West Bengal Rural Employment

and Production Act, 1976.

"S.4. Rural employment cess. ___ (1)

On and from the commencement of this Act, all

immovable properties on which road and public

work cesses [are assessed or liable to be

assessed] according to the provisions of the

Cess Act, 1880, shall be liable to the payment

of rural employment cess;

Provided that on raiyat who is exempted

from paying revenue in respect of his holding

under clause (a) of sub-sec.(1) of S.23B of the

West Bengal Land Reforms Act, 1955 shall be

liable to pay rural employment cess.

(2) The rural employment cess shall be

levied annually___

(a) [in respect of lands, other than a tea

estate,] at the rate of six paise on each rupee

of development value thereof;

(aa) xxx xxx xxx

(b) in respect of coal mines, at the

rate of [thirty-five paise per centum] on each

tonne of coal on the xxx dispatches therefrom;

(c) in respect of mines other than coal

mines and quarries, [at the rate of fifty paise

on each tonne of materials other than coal on

the annual dispatches therefrom]

Explanation. ___ For the purpose of clause

(b) the expression 'value of coal' shall mean___

(i) in the case of dispatches of coal as a

result of sale thereof, the prices charged by

the owner of a coal mine for such coal but

excluding any sum separately charged as tax,

cess, duty, fee or royalty for payment of such

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sum to Government or a local body, or any

other sum as may be prescribed, or

(ii) in the case of dispatches, other

than those referred to in item (i), the prices

chargeable by the owner of a coal mine for

such coal if they were dispatched as a result of

sale thereof, but excluding any sum separately

chargeable as tax, cess, duty, fee or royalty for

payment of such sum to Government or a local

body, or any other sum as may be prescribed:

Provided that if more than one price is

chargeable for the same variety of coal, the

maximum price chargeable for that variety of

coal shall be taken as the basis of valuation for

the purpose of this item."

All the three legislations above-referred to are State

enactments. The provisions of the West Bengal Primary

Education Act, 1973 and the West Bengal Rural Employment and

Production Act, 1976, which levied cess were amended by the

West Bengal Taxation Laws (Amendment) Act, 1992 with effect

from 1-4-1992. The text of the said Amendment Act is as

follows:

"West Bengal Act II of 1992

THE WEST BENGAL TAXATION LAWS

(AMENDMENT) ACT, 1992.

[Passed by the West Bengal Legislature]

[Assent of the Governor was first published in

the Calcutta Gazette, Extraordinary, of the 27th

March, 1992.]

An Act to amend the West Bengal Primary

Education Act, 1973 and the West Bengal Rural

Employment and Production Act, 1976.

WHERAS it is expedient to amend the

West Bengal Primary Education Act, 1973 and

the West Bengal Rural Employment and

Production Act, 1976, for the purposes and in

the manner hereinafter appearing:

It is hereby enacted in the Forty-third

Year of the Republic of India, by the

Legislature of West Bengal, as follows:-

1. (1) This Act may be called the West

Bengal Taxation Laws (Amendment) Act, 1992.

(2) It shall come into force on the 1st

day of April, 1992.

(Section 2.)

2. In the West Bengal Primary Education Act,

1973,___

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(1) in section 78 for sub-section (2), the

following sub-section shall be substituted:___

'(2) The education cess shall be levied

annually___

(a) in respect of land, except when a

cess is leviable and payable under clause

(b) or clause (c) of sub-section (2A), at

the rate of ten paise on each rupee of

annual value thereof as assessed under

the Cess Act, 1880;

(b) in respect of a coal-bearing land, at

the rate of five per centum of the annual

value of the coal-bearing land as defined

in clause (1) of Section 2 of the West

Bengal Rural Employment and Production

Act, 1976;

(c) in respect of a mineral-bearing land

(other than coal-bearing land) or quarry,

at the rate of one rupee on each tonne of

minerals (other than coal) or materials

despatched within the meaning of clause

(1b) of Section 2 of the West Bengal

Rural Employment and Production Act,

1976, from such mineral bearing land or

quarry;

Provided that when in the coal-

bearing land referred to in clause (b)

there is no production of coal for more

than two consecutive years, such land

shall be liable for levy of cess in respect

of any year immediately succeeding the

said two consecutive years in accordance

with clause (a):

Provided further that where no

despatch of minerals or materials is

made during a period of more than two

consecutive years from the mineral-

bearing land or quarry as referred to in

clause (c), such land or quarry shall be

liable for levy of cess in respect of any

year immediately succeeding the said

two consecutive years in accordance with

clause (a).

Explanation. ___ For the purposes of this

chapter, 'coal-bearing land' shall have the

same meaning as in clause (1a) of Section 2 of

the West Bengal Rural Employment and

Production Act, 1976.'.

(2) in section 78A,___

(a) for clause (a), the following clause

shall be substituted:-

"(a) the education cess payable for a

year under sub-section (1) of section 78

in respect of coal-bearing land referred

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to in clause (b) of sub-section (2) of that

section shall be paid by the owner of

such coal-bearing land in such manner,

at such intervals and by such dates as

may be prescribed;";

(b) for clause (b), the following clause

shall be substituted:-

"(b) every owner of a coal-bearing land

shall furnish a declaration relating to a

year showing the amount of education

cess payable by him under clause (a) in

such form and by such date as may be

prescribed and to such authority as may

be notified by the State Government in

this behalf in the Official Gazette

(hereinafter referred to as the notified

authority);";

(c) in clause (c),__

(i) for the words "coal mine",

wherever they occur, the words

"coal-bearing land" shall be

substituted;

(ii) for the word "return", wherever

it occurs, the word "declaration"

shall be substituted;

(iii)for the word "period", wherever

it occurs, the word "year" shall be

substituted;

(d) for clause (d), the following clause

shall be substituted:-

"(d) the education cess under

clause (b) of sub-section (2) of

section 78 shall be assessed by the

notified authority in the manner

prescribed, and if the declaration

under clause (b) is not accepted,

the owner of the coal-bearing land

shall be given a reasonable

opportunity of being heard before

making such assessment;";

(e) in clause (g), for the words "coal mine" in

the two places where they occur, the words

"coal-bearing land" shall be substituted;

(f) for clause (ga), the following clause shall

be substituted:-

"(ga) where an owner of a coal-bearing

land furnishes a declaration referred to in

clause (b) in respect of any year by the

prescribed date or thereafter, but fails to

make full payment of education cess

payable in respect of such period by such

date, as may be prescribed under clause

(a), he shall pay a simple interest at the

rate of two per centum for each English

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calendar month of default in payment

under clause (a) from the first day of

such month next following the prescribed

date up to the month preceding the

month of full payment of such cess or up

to the month prior to the month of

assessment under clause (d) in respect

of such period, whichever is earlier, upon

so much of the amount of education cess

payable by him according to clause (a)

as remains unpaid at the end of each

such month of default;"

(g) for clause (gb), the following clause shall

be substituted:-

"(gb) where an owner of a coal-bearing

land fails to furnish a declaration referred

to in clause (b) in respect of any year by

the prescribed date or thereafter before

the assessment under clause (d) in

respect of such year and, on such

assessment, full amount of education

cess payable for such year is found not

to have been paid in the manner and by

the date prescribed under clause (a), he

shall pay a simple interest at the rate of

two per centum for each English calendar

month of default in payment under

clause (a) from the first day of the

month next following the prescribed date

for such payment up to the month

preceding the month of full payment of

education cess under clause (a) or up to

the month prior to the month of such

assessment under clause (d), whichever

is earlier, upon so much of the amount of

education cess payable by him according

to clause (a) as remains unpaid at the

end of each such month of default:

Provided that where the education

cess payable under clause (a) is not paid

in the manner prescribed under that

clause by the owner of a coal-bearing

land, the notified authority shall, while

making the assessment under clause (d)

in respect of a year, apportion on the

basis of such assessment the education

cess payable in accordance with clause

(a);";

(h) in clause (gc), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

(i) in clause (ge), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

(j) for clause (gf), the following clause shall be

substituted:-

"(gf) interest under clause (ga) or

clause (gb) shall be payable in respect of

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payment of education cess which falls

due on any day after the 30th day of

April, 1992, and interest under clause

(gc) shall be payable in respect of

assessment for which notices of demand

of education cess under clause (d) are

issued on or after the date of

commencement of the West Bengal

Taxation Laws (Amendment) Act, 1992:

Provided that interest under clause

(ga) or clause (gb) in respect of any

period ended on or before the 31st day of

March, 1992, or interest under clause

(gc) in respect of assessment, for which

notices of demand of education cess

under clause (d) are issued before the

date of commencement of the West

Bengal Taxation Laws (Amendment) Act,

1992, shall continue to be payable in

accordance with the provisions of this Act

as they stood immediately before the

coming into force of the aforesaid Act as

if the aforesaid Act had not come into

force;";

(k) in clause (gh), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

(l) in clause (gi), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

(m) in clause (gj), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

"3. In the West Bengal Rural Employment and

Production Act, 1976, ___

(1) in Section 2, ___

(a) for clause (1), the following clauses

shall be substituted___

(1) "annual value of coal-bearing

land", in relation to a financial year, means

one-half of the value of coal, produced from

such coal-bearing land during the two years

immediately preceding that financial year, the

value of coal being that as could have been

fetched by the entire production of coal during

the said two immediately preceding years, had

the owner of such coal-bearing land sold such

coal at the price or prices excluding the

amount of tax, cess, fee, duty, royalty,

crushing charge, washing charge, transport

charge or any other amount as may be

prescribed, that prevailed on the date

immediately preceding the first day of that

financial year.

Explanation. ___ Where different prices

are prevailing on the date immediately

preceding the first date of that financial year

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for different grades or qualities of coal, the

value of coal of each grade or quality produced

during the two years immediately preceding

that financial year shall be determined

accordingly;

(1a) "coal-bearing land" means holding

or holdings of land having one or more seams

of coal comprising the area of a coal mine;

(1b) 'despatched', for a financial year,

shall, in relation to a mineral-bearing land

(other than coal-bearing land) or a quarry,

mean one-half the quantity of minerals, or

minerals, despatched during two years

immediately preceding that financial year from

such mineral-bearing land or quarry;

(1c) 'development value' means a sum

equivalent to five times the annual value of

land as assessed under the Cess Act, 1880;';

(b) after clause (3), the following

clause shall be added and shall be deemed

always to have been added:-

'(4) 'year' means a financial year as

defined in clause (15) of Section 3 of the

Bengal General Clauses Act, 1899;';

(2) in section 4, for sub-section (2), the

following sub-section shall be substituted:-

"(2) The rural employment cess shall be

levied annually___

(a) in respect of land, except when a

cess is leviable and payable under clause

(b) or clause (c) or sub-section (2A), at

the rate of six paise on each rupee of

development value thereof;

(b) in respect of a coal-bearing land, at

the rate of thirty-five per centum of the

annual value of coal-bearing land as

defined in clause (1) of Section 2;

(c) in respect of a mineral-bearing land

(other than coal-bearing land) or quarry,

at the rate of fifty paise on each tonne of

minerals (other than coal) or materials

despatched therefrom:

(g) for clause (gb), the following clause shall

be substituted:-

"(gb) where an owner of a coal-bearing

land fails to furnish a declaration referred

to in clause (b) in respect of any year by

the prescribed date or thereafter before

the assessment under clause (d) in

respect of such year and, on such

assessment, full amount of rural

employment cess payable for such year

is found not to have been paid in the

manner and by the date prescribed

under clause (a), he shall pay a simple

interest at the rate of two per centum for

each English calendar month of default in

payment under clause (a) from the first

day of the month next following the

prescribed date for such payment up to

the month preceding the month of full

payment of rural employment cess under

clause (a) or up to the month prior to the

month of such assessment under clause

(d), whichever is earlier, upon so much

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of the amount of rural employment cess

payable by him according to clause (a)

as remains unpaid at the end of each

such month of default:

Provided that where the rural

employment cess payable under clause

(a) is not paid in the manner prescribed

under that clause by the owner of a coal-

bearing land, the notified authority shall,

while making the assessment under

clause (d) in respect of a year, apportion

on the basis of such assessment the rural

employment cess payable in accordance

with clause (a);";

(h) in clause (gc), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

(i) in clause (ge), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

(j) for clause (gf), the following clause shall be

substituted:-

"(gf) interest under clause (ga) or

clause (gb) shall be payable in respect of

payment of rural employment cess which

falls due on any day after the 30th day of

April, 1992, and interest under clause

(gc) shall be payable in respect of

assessments for which notices of demand

of rural employment cess under clause

(d) are issued on or after the date of

commencement of the West Bengal

Taxation Laws (Amendment) Act, 1992:

Provided that interest under clause

(ga) or clause (gb) in respect of any

period ended on or before the 31st day of

March, 1992, or interest under clause

(gc) in respect of assessments for which

notices of demand of rural employment

cess under clause (d) are issued before

the date of commencement of the West

Bengal Taxation Laws (Amendment) Act,

1992, shall continue to be payable in

accordance with the provisions of this Act

as they stood before the coming into

force of the said Act as if the said Act

had not come into force;";

(k) in clause (gh), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

(l) in clause (gi), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

(m) in clause (gj), for the words "coal mine",

the words "coal-bearing land" shall be

substituted;

_____

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By order of the Governor

R. BHATTACHARYYA,

Secy. to the Govt. of West Bengal."

It is the constitutional validity of the amendment in the

two legislations, given effect to from 1.4.92, which was

successfully impugned in the High Court and is sought to be

restored in these appeals.

The High Court has placed reliance mainly on two decisions

of this Court, namely India Cement Ltd. & Ors. Vs. State of

Tamil Nadu & Ors., (1990) 1 SCC 12 (Seven-Judges Bench

decision) and Orissa Cement Ltd. Vs. State of Orissa & Ors.,

1991 Supp.(1) SCC 430 (Three-Judges Bench decision). In both

these decisions the levy of cess impugned therein was struck

down as unconstitutional. The High Court of Calcutta has held

that the levy impugned herein is similar to the one held ultra

vires the legislative competence of the State twice by the

Supreme Court, and hence the same was liable to be struck

down.

In the opinion of the High Court, the cess is assessed and

computed on the basis of value of coal produced from the coal

bearing land, and coal bearing land has been defined to mean

land having one or more seams of coal comprising the area of a

coal mine. Therefore, it is the production of coal from a coal

mine which is the basic event for the levies and the cess is to be

levied at 35 per centum of the 'annual value of the coal bearing

land', which, as per definition, is directly related to the value of

coal produced from the coal mines. The value of the coal has

been related to the price. Explanation to Clause (1) of sub-

Section (2) of the 1922 Act, as amended by the 1976 Act, makes

the real nature of the levy clearer by providing that where

different prices are prevailing on the relevant date for different

grades or qualities of coal, the value of coal of each grade or

quality shall be relevant. The High Court has concluded that the

cess cannot be said to be on land so as to be covered by Entry

49 in Schedule II. On behalf of the writ petitioner__ respondents,

the judgment of the High Court has been supported on similar

grounds as were successfully urged before the High Court and

which we shall presently deal with. On the other hand, the

learned counsel for the appellant-State of West Bengal has

submitted that having regard to the real nature of the levy, it

clearly falls within the legislative field of Entry 49 in List II.

(B) Tea matters

The writ petitions in which the validity of the levy of cesses

relatable to tea estates is involved has an interesting legislative

history behind it. By virtue of the West Bengal Taxation Laws

(Amendment) Act, 1981, amendments were effected in the

provisions of the West Bengal Primary Education Act, 1973, and

the West Bengal Rural Employment And Production Act, 1976.

Cesses were sought to be levied upon certain lands and buildings

in the State for raising funds for the purpose of providing

primary education throughout the State and to provide for

employment in rural areas. Different rates in respect of lands,

coal mines and other mines on annual basis were provided. Tea

estates were carved out as a separate category and a separate

rate was prescribed therefor as under.

"Section 4(2) : The rural employment cess shall be levied

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annually -

(a) in respect of lands, other than a tea

estate, at the rate of six paise on each rupee of

development value thereof;

(aa) in respect of a tea estate at such rate,

not exceeding ruppes six on each kilogram of

tea on the despatches from such tea estate of

tea grown therein, as the State Government

may, by notification in the Official Gazette, fix

in this behalf :

Provided that in calculating the

despatches of tea for the purpose of levy of

rural employment cess, such despatches for

sale made at such tea auction centers as may

be recognized by the State Government by

notification in the Official Gazette shall be

excluded:

Provided further that the State

Government, may fix different rates on

despatches of different classes of tea.

Explanation. - For the purpose of this

section, 'tea' means the plant Camelia Sinensis

(L) O. Kuntze as well as all varities of the

product known commercially as tea made from

the leaves of the plant Camelia Sinensis (L) O.

Kuntze, including green tea and green tea

leaves, processed or unprocessed."

Sub-section (4) was introduced in Section 4 which empowered

the State Government to exempt "such categories of dispatches

or such percentage of dispatches from the liability to pay the

whole or any part of the rural employment cess or reduce the

rate..." . By another amendment effected in 1982, the first

proviso to clause (aa) in Section 4(2) was omitted. Several

notifications were issued by the Government from time to time

as contemplated by Section 4(2).

The constitutional validity of the abovesaid amendment

was challenged successfully in Buxa Dooars Tea Company

Ltd. and Ors. Vs. State of West Bengal and Ors. - (1989) 3

SCC 211. The decision is by a Bench of two learned Judges.

The levy of cess having been struck down, the State became

liable to refund the cess already collected and the relevant

schemes which were financed by the cessess so collected came

under jeopardy. The West Bengal Taxation Laws (Second

Amendment) Act, 1989 was enacted, which is under challenge

herein.

Section 2 of the impugned Act contains amendments to

West Bengal Primary Education Act while Section 3 sets out the

amendments to West Bengal Rural Employment and Production

Act, 1976. As mentioned hereinbefore, it would be enough to

notice the gist of the amendments made in one of the two Acts

of 1976 since the amendments in both are identical.

Clause (aa) in sub-section (2) of Section 4 was omitted

with effect from 1.4.1981. After sub-section (2), sub-section (2-

A) was introduced with retrospective effect from 1.4.1981. Sub-

section (2-A) reads :

(2-A) The rural employment cess shall be

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levied annually on a tea estate at the rate of

twelve paise for each kilogram of green tea

leaves produced in such estate.

Explanation. - For the purposes of this

sub-section, sub-section (3) and Section 4-B-

(i) 'green tea leaves' shall mean the

plucked and unprocessed green leaves of the

plant Camelia Sinensis (L) O. Kuntze;

(ii) 'tea estate' shall mean any land

used or intended to be used for growing plant

Camelia Sinensis (L) O.Kuntze and producing

green tea leaves from such plant, and shall

include land comprised in a factory or

workshop for producing any variety of the

product known commercially as 'tea' made

from the leaves of such plant and for housing

the persons employed in the tea estate and

other lands for purposes ancillary to the

growing of such plant and producing green tea

leaves from such plant."

Clause (a) in sub-section (3) was also substituted which

had the effect of making the owner of the tea estate liable for

the said cess. The other provisions require the owner of the tea

estate to maintain a true and correct account of green tea leaves

produced in the tea estate. Sub-section (4) was also

substituted. The substituted sub-section (4) empowered the

State Government to exempt from the cess such categories of

tea estates producing green tea leaves not exceeding two lakh

fifty thousand kilograms and located in such area as may be

specified in such notification. Section 4-B contains the validation

clause. It says that any cess collected for the period prior to the

said Amendment Act shall be deemed to have been validly levied

by it and collected under the Amended Act. Any assessment

made or other proceedings taken in that behalf for assessing

and collecting the said tax were also to be deemed to have been

taken under the Amended Act.

Goodricke Group Ltd. & ors. filed a writ petition under

Article 32 of the Constitution of India in this Court. The levy of

cesses under both the State enactments as amended by the

West Bengal Taxation Laws (Second Amendment) Act, 1989 was

impugned. A few matters raising a similar challenge and

pending in various High Courts were also withdrawn to this

Court. All the matters were heard and decided by a three-

Judges Bench of this Court, vide judgment dated November 25,

1994, reported as Goodricke Group Ltd. and Ors. Vs. State

of West Bengal and Ors. - (1995) Supp. 1 SCC 707. The

decision of this Court in India Cement Ltd. and Ors. Vs.

State of Tamil Nadu & Ors. (1990) 1 SCC 12 (seven-judges

Bench) and Orissa Cement Limited Vs. State of Orissa &

Ors. (1991) Suppl.1 SCC 430 (three-judges Bench) were cited

before the three-judges Bench in Goodricke. Both the decisions

were distinguished and the constitutional validity of the 1989

amendments was upheld. The writ petitions were dismissed.

It appears that a similar cess was levied by a pari materia

provision enacted by the State Legislature of Orissa as the

Orissa Rural Employment, Education and Production Act, 1982.

The cess was on land bearing coal and minerals. Challenge to

the constitutional validity of such cess was successfully laid

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before this Court, and the Orissa Legislation was struck down as

unconstitutional and ultra vires the competence of the State

Legislature in State of Orissa Vs. Mahanadi Coal Fields

Limited (1995) Suppl.2 SCC 686 decided on April 21, 1995.

On 30.3.1996 a writ petition under Article 32 of the

Constitution of India has been filed in this Court laying challenge

to the constitutional validity of the very same amendments

which were unsuccessfully impugned in the Goodricke's case.

The writ petitioners in the Tea Matters have in their

petition stated a few grounds in support of the relief sought for.

However, a perusal of the grounds reveals that in substance the

challenges is only one, i.e., the decision in Goodricke runs

counter to the view of the law taken by Seven-Judges Bench in

India Cement and three-Judges Bench in Orissa Cement;

Goodricke was rightly not followed in Mahanadi Coal Fields;

rather Mahanadi Coal Fields has whittled down the authority of

Goodricke and that being the position of law the impugned cess

is ultra vires the power of the State Legislature and deserves to

be pronounced so. In short, the same challenge as was laid and

turned down in Goodricke, is reiterated drawing support from

the decisions of this Court previous and subsequent to

Goodricke, and seeks the overruling of Goodricke.

(C) Brick-Earth Matters

The Bengal Brickfield Owners' Association, being a

representative body of the persons engaged in the activity of

brick manufacturing and owning brickfields as also one of the

brickfield owners, have joined in filing a writ petition before this

Court wherein the constitutional validity of the very same

provisions as contained in the Cess Act, 1880, the West Bengal

Primary Education Act, 1973 and the West Bengal Rural

Employment and Production Act, 1976 ( both as amended by the

Bengal Taxation Laws Amendment Act, 1992) has been put in

issue, as has been subjected to challenge by the coal mine

owners and the tea estate owners disputing the levy of cess

allegedly on coal and tea. The grounds of challenge, briefly

stated, are three in number: firstly, that brick-earth is a minor

mineral to which the Mines and Minerals Development and

Regulation Act, 1957, applies and by virtue of the declaration

made by Section 2 of the Act by reference to Entry 54 in

Schedule I of the Constitution, the field relating to such minor

minerals is entirely covered by the Central Legislation and hence

the State Legislations are not competent to levy the impugned

cess; secondly, that the levy is on the dispatch of minor minerals

for sale while the process of manufacturing bricks does not

involve any dispatch of the brick-earth inasmuch as the brick-

earth is consumed then and there, on the brickfield itself, in the

process of manufacturing of bricks, and there being no dispatch

of brick-earth, the cess is not leviable; and thirdly, that the State

Government is not empowered to levy any cess on either the

extraction of brick-earth or on the dispatch of brick-earth. In

support of these three grounds, it is further submitted that the

same quantity of brick-earth is subjected by Central Legislation

to payment of royalty which is a tax, and the same quantity of

brick-earth is sought to be levied with cess which is incompetent

so far as the State Legislature is concerned. The writ petition

places reliance on the decisions of this Court in India Cement

Ltd. & Ors (supra), Orissa Cement Ltd. (supra) and Buxa

Dooars Tea Company Ltd. and Ors.(supra). Some of the

members of the petitioner association were served with demand

notices. The relief sought for in the petition is striking down of

the relevant provisions of the three State Legislations as ultra

vires the Constitution and quashing of the demand notices. The

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reason for filing the petition in this Court, as stated in the writ

petition, is that the provisions sought to be impugned herein

have already been declared ultra vires by the High Court of

Calcutta in relation to 'tea', an appeal against which decision has

been filed in this Court and by an interim order the operation of

the judgment of the High Court was stayed.

According to the respondents, the cess sought to be levied

by the impugned State Legislation is in the nature of fee and not

tax. The purpose of levying fee, as stated in the Preamble to the

relevant legislation, is rendering different services to the society

and for public benefit. The cesses have been levied by the State

Government for securing of welfare to the people by the State as

is enshrined in Part IV of the Constitution of India by providing

communication facilities, removal of illiteracy and rural

employment to the poor living below the poverty line. The

impugned legislations levying the cess, do not encroach upon the

field covered by the Central legislation. The brick-klin owners

extract the brick-earth as an item of trade. From every 100 cft

of brick-earth which weighs 5 metric tones, 1382 bricks are

manufactured. The dispatch of 1382 bricks means the dispatch

of 100 cft or 5 metric tones of brick-earth. A brickfield owner

performs dual functions: firstly, he extracts a quantum of brick-

earth from the quarry, and secondly, he dispatches the same for

manufacture of bricks in the same quarry-field. The brickfield

owner is an extractor of brick-earth and also a manufacturer of

bricks. The element of dispatch is kept hidden. That is why the

cess is now assessed on annual dispatches. Dispatch, in the

context of brick-earth, means removal of brick-earth from one

place to another which may be within the same complex and for

domestic or captive use or consumption. In any case, the

removal of brick-earth involved in the process cannot escape

assessment.

(D) Minor Mineral Matters

This batch of appeals puts in issue the judgment dated

1.3.2000 delivered by a Division Bench of the Allahabad High

Court (reported as Ram Dhani Singh Vs. Collector,

Sonbhadra and Ors. - AIR 2001 Allahabad 5), upholding the

constitutional validity of a cess on mineral rights levied under

Section 35 of the U.P. Special Area Development Authorities Act,

1986, read with Rule 3 of the Shakti Nagar Special Area

Development Authority (Cess on Mineral Rights) Rules, 1997

(herein referred to briefly as 'SADA Act' and 'SADA Cess Rules'

respectively). There was a bunch of 73 writ petitions filed in the

High Court which have all been dismissed. The challenge is

being pursued in this Court by ten writ petitioners through these

appeals by special leave.

The Governor of Uttar Pradesh promulgated U.P.

Ordinance No.15 of 1985, which was repealed by U.P. Special

Area Development Authorities Act, 1986 (U.P. Act No.9 of 1986),

containing identical provisions as were contained in the

preceding Ordinance. The said Act received the assent of the

President of India on 19.3.1986 and was published in U.P.

Gazette of that day. Section 35 of the Act provides as under :

"35. Cess on mineral rights.-

(1) Subject to any limitations imposed by

Parliament by law relating to mineral

development, the Authority may impose a

cess on mineral rights at such rate as may

be prescribed.

(2) Any Cess imposed under this section shall

be subject to confirmation by the State

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Government and shall be leviable with

effect from such date as may be appointed

by the State Government in this behalf."

On 24.2.1997, in exercise of the power conferred by

Section 35 of the Act, the Governor made the Shakti Nagar

Special Area Development Authority (Cess on Mineral Rights)

Rules, 1997, which were published on the same day in the U.P.

Gazette and came into force. Rule 2(b) and Rule 3(1) and (2),

relevant for our purpose, are extracted and reproduced

hereunder :

"2. In these rules, unless there is anything

repugnant in the subject or context__

(a) xxx xxx xxx

(b) "Mineral Rights" means rights conferred on

a lessee under a mining lease granted or

renewed for mining operations in relation

to Minerals (providing operation for

raising, winning or extracting coal) as

defined in the Mines and Minerals

(Regulation and Development) Act, 1957

(Act No.67 of 1957"

"3.(1) The Authority may, subject to sub-rules

(2) and (3) impose a cess on mineral

rights on such minerals and minor

minerals and at such rates are specified

below :

MINERAL/MINOR

MINERAL

MINIMUM

RATE

MAXIMUM

RATE

(1) Cess on Coal

Rs.5.00

(per ton)

Rs.10.00

(per ton)

(2) Cess on Stone,

Coarse Sind/Sand

Rs.2.00

(Per Cubic

metre)

Rs.5.00

(Per Cubic

metre)

(2) The rates shall not be less than the

minimum rates or more than the maximum

rates specified in sub-rule (1) and shall be

determined by the Authority by a special

resolution which shall be subject to

confirmation by the State Government."

In exercise of the power conferred by the Act and the Rules, the

State Government proceeded to levy cess and take steps for

recovery thereof by serving notices and issuing citations on the

several stone crushers (which the appellants are), who extract

stone as mineral and convert the same into metal by a process

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of crushing. They filed the writ petitions disputing the levy and

the demand by the State Government.

On behalf of the writ-petitioners, the SADA Cess Rules as

also the legislative competence of the State Legislature to enact

Section 35 of the SADA Act were challenged on the ground that

the MMDR Act, 1957, having been enacted containing a

declaration under Section 2 as contemplated by Entry 54 of List-

I and the Act being applicable to Sonbhadra falling within the

State of U.P. as well, the State Legislature was denuded of its

power to enact the impugned law and levy the impugned cess.

It was also submitted that the impugned cess would have the

effect of adding to the royalty already being paid and thereby

increasing the same, which was ultra vires the power of the

State Government as that power was exercisable only by the

Central Government.

The High Court has held the SADA Act, the SADA Cess

Rules and the levy of cess thereunder within the competence of

State Legislature by reference to Entry 5 in List II.

Reference to Constitution Bench

Since the appeals referable to coal matters and the writ

petition referable to tea matters raised common issues, the

cases were taken up for hearing together. On 12.10.1999, the

conflict amongst several decisions of this Court was brought to

the notice of the three-judges Bench hearing the matter which

passed the following order :

"Great emphasis has been placed by

learned counsel for the State of West Bengal

upon the judgment of a Bench of three learned

Judges in Goodricke Group Ltd. & Ors. Vs.

State of West Bengal & Ors. [1995 Suppl. (1)

SCC 707]. Quite apart from the fact that

there are pending proceedings in this Court

seeking to reconcile the judgment in Goodricke

with that in State of Orissa & Ors. V. Mahanadi

Coalfields Ltd. & Ors. [1995 Suppl.(2) SCC

686], we find some difficulty in accepting as

correct the view taken by Goodricke,

particularly having regard to the earlier

decision (of a Bench of two learned Judges) in

Buxa Dooars Tea Co.Ltd. Vs. State of West

Bengal [(1989) 3 SCC 211]. We think,

therefore, that these matters should be heard

by a Constitution bench.

The papers and proceedings may,

accordingly, be placed before the Hon'ble Chief

Justice for appropriate directions."

The brick-earth matters were also clubbed with the

abovesaid matters for hearing.

The impugned judgment of the High Court of Allahabad in

Minor Mineral Matters has placed reliance on the decision of this

Court in Goodricke Group Ltd. and Ors. Vs. State of West

Bengal and Ors. - (1995) Supp. 1 SCC 707. The correctness

of the said decision was in issue in Civil Appeal Nos.1532-33 of

1993 and batch matters and hence these appeals were also

directed to be placed before the Constitution Bench for hearing.

This is how the four sets of matters have been listed

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before and heard by the Constitution Bench.

Relevant Entries and principles of interpretation

Before we proceed to examine the merits of the

submissions and counter submissions made on behalf the

parties, it will be useful to recapitulate and summarise a few

principles relevant for interpreting entries classified and grouped

into the three Lists of the Seventh Schedule of the Constitution.

The law is legion on the point and the principles which are being

briefly stated hereinafter are more than settled. These principles

are referred to in the several decisions which we shall be

referring to hereinafter. So far as the principles are concerned

they have been followed invariably in all the decisions, however

diverse results have followed based on facts of individual cases

and manner of application of such principles to the facts of those

cases.

The relevant entries to which reference would be required

to be made during the course of this judgment are extracted and

reproduced herein:-

"SEVENTH SCHEDULE

(Article 246)

List I - Union List

52. Industries, the control of which by the

Union is declared by Parliament by law to

be expedient in the public interest.

54. Regulation of mines and mineral

development to the extent to which such

regulation and development under the

control of the Union is declared by

Parliament by law to be expedient in the

public interest.

96. Fees in respect of any of the matters in

this List, but not including fees taken in

any court.

97. Any other matter not enumerated in List

II or List III including any tax not

mentioned in either of those Lists.

List II - State List

23. Regulation of mines and mineral

development subject to the provisions of

List I with respect to regulation and

development under the control of the

Union.

49. Taxes on lands and buildings.

50. Taxes on mineral rights subject to any

limitations imposed by Parliament by law

relating to mineral development.

66. Fees in respect of any of the matter in

this List, but not including fees taken in

any court."

Article 245 of the Constitution is the fountain source of

legislative power. It provides - subject to the provisions of this

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Constitution, Parliament may make laws for the whole or any

part of the territory of India, and the Legislature of a State may

make laws for the whole or any part of the State. The legislative

field between the Parliament and the Legislature of any State is

divided by Article 246 of the Constitution. Parliament has

exclusive power to make laws with respect to any of the matters

enumerated in List I in Seventh Schedule, called the 'Union List'.

Subject to the said power of the Parliament, the Legislature of

any State has power to make laws with respect to any of the

matters enumerated in List III, called the 'Concurrent List'.

Subject to the abovesaid two, the Legislature of any State has

exclusive power to make laws with respect to any of the matters

enumerated in List II, called the 'State List'. Under Article 248

the exclusive power of Parliament to make laws extends to any

matter not enumerated in the Concurrent List or State List. The

power of making any law imposing a tax not mentioned in the

Concurrent List or State List vests in Parliament. This is what is

called the residuary power vesting in Parliament. The principles

have been succinctly summarized and restated by a Bench of

three learned Judges of this Court on a review of the available

decisions in M/s. Hoechst Pharmaceuticals Ltd. & Ors. Vs.

State of Bihar & Ors., - (1983) 4 SCC 45. They are-

(1) the various entries in the three Lists are not 'powers' of

legislation but 'fields' of legislation. The Constitution

effects a complete separation of the taxing power of the

Union and of the States under Article 246. There is no

overlapping anywhere in the taxing power and the

Constitution gives independent sources of taxation to the

Union and the States.

(2) In spite of the fields of legislation having been demarcated,

the question of repugnancy between law made by

Parliament and a law made by the State Legislature may

arise only in cases when both the legislations occupy the

same field with respect to one of the matters enumerated

in the Concurrent List and a direct conflict is seen. If there

is a repugnancy due to overlapping found between List II

on the one hand and List I and List III on the other, the

State law will be ultra vires and shall have to give way to

the Union law.

(3) Taxation is considered to be a distinct matter for purposes

of legislative competence. There is a distinction made

between general subjects of legislation and taxation. The

general subjects of legislation are dealt with in one group

of entries and power of taxation in a separate group. The

power to tax cannot be deduced from a general legislative

entry as an ancillary power.

(4) The entries in the List being merely topics or fields of

legislation, they must receive a liberal construction

inspired by a broad and generous spirit and not in a

narrow pedantic sense. The words and expressions

employed in drafting the entries must be given the widest

possible interpretation. This is because, to quote

V.Ramaswami, J., the allocation of the subjects to the lists

is not by way of scientific or logical definition but by way of

a mere simplex enumeratio of broad categories. A power

to legislate as to the principal matter specifically

mentioned in the entry shall also include within its expanse

the legislations touching incidental and ancillary matters.

(5) Where the legislative competence of a Legislature of any

State is questioned on the ground that it encroaches upon

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the legislative competence of Parliament to enact a law,

the question one has to ask is whether the legislation

relates to any of the entries in Lists I or III. If it does, no

further question need be asked and Parliament's legislative

competence must be upheld. Where there are three Lists

containing a large number of entries, there is bound to be

some overlapping among them. In such a situation the

doctrine of pith and substance has to be applied to

determine as to which entry does a given piece of

legislation relate. Once it is so determined, any incidental

trenching on the field reserved to the other Legislature is

of no consequence. The Court has to look at the substance

of the matter. The doctrine of pith and substance is

sometimes expressed in terms of ascertaining the true

character of legislation. The name given by the Legislature

to the legislation is immaterial. Regard must be had to the

enactment as a whole, to its main objects and to the scope

and effect of its provisions. Incidental and superficial

encroachments are to be disregarded.

(6) The doctrine of occupied field applies only when there is a

clash between the Union and the State Lists within an area

common to both. There the doctrine of pith and substance

is to be applied and if the impugned legislation

substantially falls within the power expressly conferred

upon the Legislature which enacted it, an incidental

encroaching in the field assigned to another Legislature is

to be ignored. While reading the three Lists, List I has

priority over Lists III and II, and List III has priority over

List II. However, still, the predominance of the Union List

would not prevent the State Legislature from dealing with

any matter within List II though it may incidentally affect

any item in List I.

(emphasis supplied)

Tax Legislation

The abovestated are general principles. Legislations in the

field of taxation and economic activities need special

consideration and are to be viewed with larger flexibility in

approach. Observations of the Constitution Bench in R.K. Garg

Vs. Union of India & Ors., (1981) 4 SCC 676, are apposite,

wherein this Court has emphasized a greater latitude - like play

in the joints - being allowed to the Legislature because it has to

deal with complex problems which do not admit of solution

through any doctrinaire or straitjacket formula. In this field the

Court should feel more inclined to give judicial deference to

legislative judgment. Their Lordships quoted with approval the

following statement of Frankfurter, J. in Morey Vs. Doud,

(1957) 354 US 457:-

"In the utilities, tax and economic

regulation cases, there are good reasons for

judicial self-restraint if not judicial deference to

legislative judgment. The legislature after all

has the affirmative responsibility. The Courts

have only the power to destroy, not to

reconstruct. When these are added to the

complexity of economic regulation, the

uncertainty, the liability to error, the

bewildering conflict of the experts, and the

number of times the judges have been

overruled by events, self-limitation can be

seen to be the path to judicial wisdom and

institutional prestige and stability".

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Their Lordships further observed that the Courts ought to adopt

a pragmatic approach in solving problems rather than measuring

the propositions by abstract symmetry. The exact wisdom and

nice adaptations of remedies may not be possible. Even

crudities and inequities have to be accommodated in complicated

tax and economic legislations.

We now proceed to enter a deeper dimension in the field of

tax legislation by considering the problem of devising the

measure of taxation. This aspect has been dealt with in detail in

Union of India & Ors. Vs. Bombay Tyre International Ltd.,

(1983) 4 SCC 210. Tracing the principles from the leading

authority of Re.: a reference under the Government of

Ireland Act 1920 and Section 3 of the Finance Act

(Northern Ireland) 1934, (1936) A.C. 352, passing through

Ralla Ram Vs. Province of East Punjab, 1948 FCR 207, and

treading through the law as it has developed through judicial

pronouncements one after the other, this Court has made subtle

observations therein. It has been long recognized that the

measure employed for assessing a tax must not be confused

with the nature of the tax. A tax has two elements: first, the

person, thing or activity on which the tax is imposed, and

secondly, the amount of tax. The amount may be measured in

many ways; but a distinction between the subject matter of a

tax and the standard by which the amount of tax is measured

must not be lost sight of. These are described respectively as

the subject of a tax and the measure of a tax. It is true that the

standard adopted as a measure of the levy may be indicative of

the nature of the tax, but it does not necessarily determine it.

The nature of the mechanism by which the tax is to be assessed

is not decisive of the essential characteristic of the particular tax

charged, though it may throw light on the general character of

the tax.

Here we may refer to certain illustrative cases of well

settled authority - the authority which has not been shaken so

far and has rather withstood the test of times.

Taxation - measure of levy not suggestive of nature of tax

- illustrative cases

In Ralla Ram (supra) the Federal Court held that a tax on

buildings under Section 3 of the Punjab Urban Immovable

Property Tax Act, 1940, measured by a percentage of the annual

value of such building, remained a tax on buildings even though

the measure of annual value of a building was also adopted as a

standard for determining income from property under the

Income Tax Act. The same standard was adopted as a measure

for the two levies, yet the levies remained separate imposts by

virtue of their distinctive nature. The measure adopted, it was

held, could not be identified with the nature of the tax levied.

In M/s. Sainik Motors, Jodhpur Vs. State of

Rajasthan, (1962) 1 SCR 517, a tax on passengers and goods

was assessed as a rate on the fares and freights payable by the

owners of the motor vehicles. The contention that the levy was

a tax upon income and not upon passengers and goods was

repelled by this Court. The Court pointed out that though the

measure of the tax is furnished by the fares and freights it does

not cease to be a tax on passengers and goods.

In D.G. Gouse & Co. Vs. State of Kerala, (1980) 2 SCC

410, the Court examined the different modes available to the

Legislature for measuring the levy of tax on buildings. The Court

upheld the provision made by the Legislature linking the levy

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with the annual value of the building and prescribing a uniformed

formula for determining its capital value and for calculating the

tax.

In The Hingir-Rampur Coal Co. Ltd. Vs. State of

Orissa, (1961) 2 SCR 537, the form in which the levy was

imposed was held to be an impermissible test for defining in

itself the character of the levy. It was argued that the method

of determining the rate of levy was by reference to the minerals

produced by the mines and, therefore, it was levy in the nature

of a duty of excise. This Court held that the method thus

adopted may be relevant in considering the character of the

impost but its effect must be weighed alongwith and in the light

of the other relevant circumstances. Referring to Bombay

Tyre International Ltd. (supra), the Court further held that it

is clear that when enacting a measure to serve as a standard for

assessing the levy, the Legislature need not contour it along

lines which spell out the character of the levy itself. A broader

based standard of reference is permissible to be adopted for the

purpose of determining the measure of the levy. Any standard

which maintains a nexus with the essential character of the levy

can be regarded as a valid basis for assessing the measure of

the levy.

Meaning of 'Lands' - as used in Entry 49 in List II

The word 'land' __ as used in Entry 49 in List II, came up

for the consideration of this Court in Anant Mills Vs. State of

Gujarat, (1975) 2 SCC 175. It was held that the word 'land'

cannot be assigned a narrow meaning so as to confine it to the

surface of the earth. It includes all strata above or below. In

other words, the word 'land' includes not only the surface of the

earth but everything under or over it, and has in its legal

significance an indefinite extent upward and downward. The

four-Judges' Bench upheld the validity of the law levying tax in

respect of area occupied by underground lines by reference to

Entry 49 in List II, holding it to be a tax on land only.

Ample authority is available for the concept that under

Entry 49 in List II the land remains a land without regard to the

use to which it is being subjected. It is open for the Legislature

to ignore the nature of the user and tax the land. At the same

time it is also permissible to identify, for the purpose of

classification, the land by reference to its user. While taxing the

land it is open for the Legislature to consider the land which

produces a particular growth or is useful for a particular utility

and to classify it separately and tax the same. Different pieces

of land identically situated otherwise, but being subjected to

different uses, or having different potential, are capable of being

classified separately without incurring the wrath of Article 14 of

the Constitution. The Constitution Bench in Kunnathat

Thathunni Moopil Nair etc. Vs. State of Kerala & Anr.

(1961) 3 SCR 77, held that the land on which a forest stands is

not to be excluded necessarily from Entry 49. The erstwhile

Entry 19 of Schedule II applied to 'forest'. Their Lordships held

that the use of the word 'forest' in Entry 19 could not be pressed

into service to cut down the plain meaning of the word 'land' in

Entry 49. It was permissible to tax the land on which a forest

stands by reference to Entry 49. In Ajoy Kumar Mukherjee

Vs. Local Board of Barpeta, (1965) 3 SCR 47, the appellant, a

land holder, held a hatt (or market) on his land. The Local Board

asked the appellant to take out a licence and pay Rs.600/-, later

Rs.700/-, by way of licence fee for holding the market. It was

urged that the impost was unconstitutional, inter alia, on the

ground that the tax was actually imposed on the market, which

infringed Article 14 of the Constitution, and also because the

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State Legislature had no legislative competence to tax a market.

The Local Board relied on Entry 49 in List II. The appellant

urged that Entries 45 to 63 which deal with taxes do not

contemplate a tax on markets. Repelling the plea, the

Constitution Bench held that the tax was on the land though the

charges arise only when the land is used for a market. The tax

remained a tax on land in spite of the imposition being

dependant upon the user of the land as a market. The tax was

an annual tax as contrasted to a tax for each day on which the

market was held. The owner or occupier of the land was

responsible for payment of tax on an annual basis. The amount

of tax depended upon the area of the land on which the market

was held and the importance of the market. Thus, the tax was

held to be a tax on land, though the incidence depended upon

the use of the land as a market.

In Vivian Joseph Ferreira & Anr. Vs. The Municipal

Corporation of Greater Bombay & Ors., (1972) 1 SCC 70, the

tax was confined to the residential tenanted buildings. The

classification was held to be valid. In The Government of

Andhra Pradesh & Anr. Vs. Hindustan Machine Tools Ltd.,

(1975) 2 SCC 274, house tax was levied on the buildings. The

new definition of 'house' included 'a factory'. However, the

house tax was levied only on the building occupied by the factory

and not on the machinery and furniture. The State Legislature

claimed competence to do so under Entry 49, List II. The power

to tax a building, exercisable without reference to the use to

which the building is put, was held to be valid. In the opinion of

the Court, it was irrelevant that the building was occupied by a

factory which could not conduct its activities without the

machinery and furniture.

Once it is held that the land or building is available to be

taxed, it does not matter to what use the land is being subjected

though the nature of the user may enable land of one particular

user being classified separately from the land being subjected to

another kind of user. The tax would remain a tax on land. It

cannot be urged that what is being taxed is not the land but the

nature of its user. So also it is permissible to adopt myriad

forms and methods of valuation for the purpose of quantifying

the tax.

In Ralla Ram Vs. The Province of East Punjabu -

1948 FCR 207, the Federal Court made it clear that every effort

should be made as far as possible to reconcile the seeming

conflict between the provisions of the Provincial Legislation and

the Federal Legislation. Unless the court forms an opinion that

the extent of the alleged invasion by a Provincial Legislature into

the field of the Federal Legislature is so great as would justify

the view that in pith and substance the impugned tax is a tax

within the domain of the Federal Legislature, the levy of tax

would not be liable to be struck down. The test laid down in Sir

Byramjee Jeejeebhoy's case (AIR 1940 Bom 65) by the Full

Bench of Bombay High Court was approved.

In Assistant Commissioner of Urban Land Tax Madras

and Ors. etc. Vs. Buckingham and Carnatic Co. Ltd. etc. -

(1969) 2 SCC 55, for the purpose of attracting the applicability

of Entry 49 in List II, so as to cover the impugned levy of tax on

lands and buildings, the Constitution Bench laid down twin tests,

namely, (i) that such tax is directly imposed on lands and

buildings, and (ii) that it bears a definite relation to it. Once

these tests were satisfied, it was open for the State Legislature,

for the purpose of levying tax, to adopt the annual value or the

capital value of the lands and buildings for determining the

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incidence of tax. Merely, on account of such methodology

having been adopted, the State Legislature cannot be accused of

having encroached upon Entries 86, 87 or 88 of List I. Entry 86

in List I proceeds on the Principle of Aggregation and tax is

imposed on the totality of the value of all the assets. It is quite

permissible to separate lands and buildings for the purpose of

taxation under Entry 49 in List II. There is no reason for

restricting the amplitude of the language used in the Entry 49 in

List II. The levy of tax, calculated at the rate of a certain per

centum of the market value of the urban land was held to be

intra vires the powers of the State Legislature and not trenching

upon Entry 86 in List I. So is the view taken by another

Constitution Bench in Shri Prithvi Cotton Mills Ltd., etc. Vs.

Broach Borough Municipality and Ors., (1969) 2 SCC 283,

where the submission that the levy was not a rate on lands and

buildings as appropriately understood, but rather a tax on capital

value was discarded.

M/s. R.R. Engineering Co., etc. Vs. Zila Parishad,

Bareilly and Anr. etc. - (1980) 3 SCC 330, is a case of

circumstance and properties tax levied on the basis of income

which the assessee receives from his profession, trade, calling or

property. The plea that the tax was a tax on income was

discarded. The test propounded by the Constitution Bench is

that an excessive levy on circumstance may tend to blur the

distinction between a tax on income and a tax on circumstances.

Income will then cease to be a measure or yardstick of the tax

and will become the very subject-matter of the tax. Restraint in

this behalf is a prudent prescription for the local authorities to

follow. The Constitution Bench observed that it was only a

matter of convenience that income was adopted as a yardstick or

measure for assessing the tax and the evolvement of such

mechanism was not conclusive on the nature of tax.

We are inclined to make a reference to a few selected Full

Bench decisions of different High Courts which have been cited

with approval before this Court in many of the decisions to which

we are making reference during the course of this judgment.

In Sir Byramjee Jeejeebhoy Vs. Province of Bombay

and Ors. - A.I.R. 1940 Bombay 65 (F.B.) the Provincial

Government levied a tax at the rate of 5% of the annual letting

value in the City of Bombay on the buildings and lands. The

buildings were classified by reference to their annual letting

value, and exception from payment of tax was also carved out in

favour of such buildings as remained vacant and unproductive of

rent for the specified period. It was urged that the impugned

tax purported or desired to tax the value. Placing reliance on

the Federal Court's decision in 'In Re: C. P. Motor Spirit Act ,

1939' (1939 FCR 18) Chief Justice Beaumont held that the

impugned tax was a tax on lands and buildings. Three

submissions were made in support of the challenge: (i) that the

tax is graded by reference to the annual value of the property

charged, (ii) that an allowance was available to be made in

respect of vacant properties, and (iii) that the basis of the tax

was the same as the basis on which tax on income from property

was imposed by Sections 6 and 9 of Income Tax Act and,

therefore in reality the rate was a tax on income. Beaumont,

C.J. held that regard must be had to the pith and substance of

the impugned tax and not merely to the form. All the items in

the Provincial List must be so construed as to exclude taxes on

income. The tax is charged on lands and buildings and it is

based on the estimated rent which the property would fetch.

Such a value may bear very little relation to the actual income of

the property. It is imposed without any relation to the capital

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value except insofar as such value can be ascertained by

reference to the rateable value. It did not make any difference if

the arbitrary basis which was adopted for the purpose of the rate

might as well be applied for ascertaining the capital value as for

ascertaining income. The fact that some concession is allowed

to the small owner, a concession which may be based as much

on political as on economic considerations and that an allowance

may be made where the property is shown to produce no

income, a fact which may be taken to show that the estimated

value was found to be erroneous, cannot alter the nature of the

tax. The concept that in case of conflict between the Federal List

and Provincial List, an entry in the Federal List may be given a

more restricted meaning, was endorsed. The legality of the levy

was upheld.

In District Board of Farrukhabad Vs. Prag Dutt and

Ors. - AIR 1948 Allahabad 382 (F.B.), a tax on 'circumstances

and property' was under challenge. It was urged that it was a

tax on income. Chief Justice Malik held that the fundamental

difference between the tax on 'income' and a tax on

'circumstances and property' is that income tax can only be

levied if there is income and if there is no income, no tax is

payable. But in the case of 'circumstances and property' tax,

where a man's status has to be determined, his total business

turnover may be considered for purposes of taxation, though he

may not have earned any taxable income.

The State of Punjab Vs. The Union of India through

the Secrtary to Government Finance Department,

Government of India, New Delhi - AIR 1971 Punjab &

Haryana 155 (F.B.), is a Five-Judges Bench decision delivered by

Chief Justice Harbans Singh. Conflict was noticed between List I,

Entry 86 and List II, Entry 49. Dealing with the scope of Entry

49 in List II, it was held that it empowers the State Legislatures

to directly tax lands and buildings, and for determining the basis

of the tax the State Legislature may take either the area, annual

rental value, market value or the capital value of the land as a

basis for calculating and quantifying the tax on land. Merely

because tax was calculated on the basis of annual rental value, it

will not turn it into a tax on income, and if it is based on capital

value, it will not turn it into a tax on capital value.

Yet another angle which the Constitutional Courts would

advisedly do better to keep in view while dealing with a tax

legislation, in the light of the purported conflict between the

powers of the Union and the State to legislate, which was stated

forcefully and which was logically based on an analytical

examination of constitutional scheme by Jeevan Reddy, J. in

S.R. Bomai and Ors. Vs. Union of India, (1994) 3 SCC 1,

may be touched. Our Constitution has a federal structure.

Several provisions of the Constitution unmistakably show that

the Founding Fathers intended to create a strong centre. The

historical background relevant at the time of the framing of the

Constitution warranted a strong centre naturally and necessarily.

This bias of the framers towards the centre is found reflected in

the distribution of legislative heads between the Centre and the

States. More important heads of legislation are placed in List I.

In the Concurrent List the parliamentary enactment is given

primacy, irrespective of the fact whether such enactment is

earlier or later in point of time to a State enactment on the same

subject matter. The residuary power to legislate is with the

Centre. By the Forty-second Amendment a few of the entries in

List II were omitted or transferred to other lists. Articles 249 to

252 further demonstrate the primacy of Parliament, allowing it

liberty to encroach on the field meant exclusively for the State

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legislation though subject to certain conditions being satisfied.

In the matter of finances, the States appear to have been placed

in a less favourable position. True, the Centre has been given

more powers but the same is accompanied by certain additional

responsibilities as well. The Constitution is an organic living

document. Its outlook and expression as perceived and

expressed by the interpreters of the Constitution must be

dynamic and keep pace with the changing times. Though the

basics and fundamentals of the Constitution remain unalterable,

the interpretation of the flexible provisions of the Constitution

can be accompanied by dynamism and lean, in case of conflict,

in favour of the weaker or the one who is more needy. Several

taxes are collected by the Centre and allocation of revenue is

made to States from time to time. The Centre consuming the

lion's share of revenue has attracted good amount of criticism at

the hands of the States and financial experts. The interpretation

of Entries can afford to strike a balance, or at least try to remove

imbalance, so far as it can. Any conscious whittling down of the

powers of the State can be guarded against by the Courts. "Let it

be said that the federalism in the Indian Constitution is not a

matter of administrative convenience, but one of principle - the

outcome of our own historical process and a recognition of the

ground realities." Quoting from M.C. Setalvad, Tagore Law

Lectures "Union and State relations under the Indian

Constitution" ( Eastern Law House, Calcutta, 1974), Jeevan

Reddy, J. observed - "It is enough to note that our Constitution

has certainly a bias towards the Centre vis-`-vis the States.......It

is equally necessary to emphasise that Courts should be careful

not to upset the delicately-crafted constitutional scheme by a

process of interpretation."

The Conflict - a cautious evaluation of "India Cement"

We will now refer to and deal with those cases which have

led to the three learned Judges of this Court, placing the matter

for consideration by a Constitution Bench. We would refer to the

cases mentioned in the order of reference and also to those

cases which were heavily relied upon on behalf of the

respondents, disputing the validity of the impugned tax.

Immediately, we take up India Cement.

In India Cement Ltd. and Ors. Vs. State of Tamil

Nadu and Ors. - (1990) 1 SCC 12, what was impugned was a

levy of cess on royalty and the question was, whether such cess

on royalty is within the competence of the State Legislature.

The appellant was required to pay, by the Madras Panchayats

Act, 1958, local cess at the rate of 45 paise per rupee of the

royalty already being paid. The question formulated by the

Court, as arising for decision was : is cess on royalty a demand

of land revenue or additional royalty? The Court found that the

royalty was payable by the appellant as prescribed under the

lease deed. The rates of the royalty were fixed under the Mines

and Minerals (Development and Regulation) Act, 1957, which is

a Central Act, passed under Entry 54 in List I, by which the

control of mines and minerals has been taken over by the

Central Government. The State Legislature sought to justify

and sustain the levy by reference to Entry 49, 50 or 45 in List II.

Cess is a tax and is generally used when the levy is for some

special administrative expense, suggested by the name of the

cess, such as health cess, education cess, road cess etc. This is

a well-settled position of law. The levy was sought to be

justified under Entry 45 in List II by including it within the

meaning of land revenue, and in the alternative under Entry 49

in List II as tax on lands. The challenge to the constitutional

validity of the levy was upheld. We would briefly state the

reasoning which prevailed with the learned Judges.

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G.L. Oza, J. delivered a separate concurring opinion. The

majority opinion expressed through Sabyasachi Mukharji, J. (as

his Lordship then was), first clarified the distinction between

'royalty' and 'land revenue'. 'Land revenue' is connotative of the

share in the produce of land which the king or the Government is

entitled to receive. 'Royalty' is a charge payable on the

extraction of minerals from the land. A cess on royalty cannot,

therefore, be called additional land revenue and as such the

State was disabled from imposing tax on royalty. There is a

clear distinction between 'tax directly on land' and 'tax on

income arising from land'. Royalty is indirectly connected with

land and a cess on royalty cannot be called a tax directly on land

as a unit. The levy could also not be sustained under Entry 50 in

List II which deals with taxes on mineral rights subject to

limitation imposed by Parliament relating to mineral

development. Assuming that the tax in pith and substance fell

to Entry 50 in List II, it would be controlled by a legislation under

Entry 54 in List I.

A Division Bench decision of Mysore High Court in M/s

Laxminarayana Mining Co., Bangalore and Anr. Vs. Taluk

Development Board and Anr. - AIR 1972 Mysore 299 was

cited with approval in India Cement. The Mysore High Court

struck down as violative of MMDR Act, 1957 a licence fee on

mining manganese or iron ore etc. imposed by a State

Legislation. A perusal of the judgment of the Mysore High Court

shows that the impost was by way of licence fee on the mining

of certain minerals. Regulation and development of mines and

minerals was undertaken by the Central Legislation and

therefore the power of the State Legislature under Entries 23

and 52 in List-II got denuded in the field of regulation and

development covered by the Central Legislation. The Division

Bench vide para 6 held "it is therefore clear that to the extent

the Central Act makes provision regarding the regulation and

development of minerals, the powers of the State Legislatures

under Entry 23 of List II stand curtailed". The State Government

had sought to defend the licence fee on the ground that it was in

the nature of a tax and not a licence fee. This plea has been

specifically noted by the High Court and dealt with. However,

what is significant to note is the revelation, made by careful

reading of the judgment, that provision for licence fee was made

in the Central Legislation and licence fee was sought to be

imposed by the State too. In fact, the licence fee was a step

trenching upon the field of regulation and therefore was liable to

be struck down on this ground alone. Yet, another reasoning

which prevailed with the High Court was that Section 143 of the

State Act, which was not inconsistent with the Central Act, was

relied on by the State Government as conferring power on it to

levy the impugned licence fee. On that plea the High Court

formed an opinion that on the framing of Section 143 of the

State Act it did not in express terms authorize a levy of fee or

tax. The High Court observed - "It (Section 143) cannot also

be construed as conferring such a power on the respondents to

levy a tax or fee on mining, in view of the well-settled and

statutory construction that a Court construing a provision of law

must presume that the intention of the authority in making it

was not to exceed its power but to enact it validly". The ratio of

the decision of the Mysore High Court is that provision for

licenses and license fees, operating in the field of regulation of

mines and minerals is not available to be made by State

legislation - in view of the declaration in terms of Entry 54 in List

I.

In our view, the decision by Mysore High Court cannot be

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read so widely as laying down the law that Union's power to

regulate and control results in depriving the States of their

power to levy tax or fee within their legislative competence

without trenching upon the field of regulation and control. There

is a distinction between power to regulate and control and power

to tax, the two being distinct and that difference has not been

kept in view by the Mysore High Court.

(A diversion from main issue) Royalty, if tax?

We would like to avail this opportunity for pointing out an

error, attributable either to a stenographer's devil or to sheer

inadvertence, having crept into the majority judgment in India

Cement Ltd.'s case (supra). The error is apparent and only

needs a careful reading to detect. We feel constrained - rather

duty-bound - to say so, lest a reading of the judgment

containing such an error - just an error of one word - should

continue to cause the likely embarrassment and have adverse

effect on the subsequent judicial pronouncements which would

follow India Cement Ltd.'s case, feeling bound and rightly, by

the said judgment having the force of pronouncement by seven-

Judges Bench. Para 34 of the report reads as under :

"In the aforesaid view of the matter, we are of

the opinion that royalty is a tax, and as such a

cess on 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 II. 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 on land. Royalty on

mineral rights is not a tax on land but a

payment for the user of land."

(underlining by us)

In the first sentence the word 'royalty' occurring in the

expression - 'royalty is a tax', is clearly an error. What the

majority wished to say, and has in fact said, is - 'cess on royalty

is a tax'. The correct words to be printed in the judgment should

have been 'cess on royalty' in place of 'royalty' only. The words

'cess on' appear to have been inadvertently or erroneously

omitted while typing the text of judgment. This is clear from

reading the judgment in its entirety. Vide para 22 and 31, which

precede para 34 above said, their Lordships have held that

'royalty' is not a tax. Even the last line of para 34 records

'royalty on mineral rights is not a tax on land but a payment for

the user of land'. The very first sentence of the para records in

quick succession '......as such a cess on royalty being a tax on

royalty, is beyond the competence of the State legislature....'.

What their Lordships have intended to record is '......that cess on

royalty is a tax, and as such a cess on royalty being a tax on

royalty is beyond the competence of the State Legislature.....'.

That makes correct and sensible reading. A doubtful expression

occurring in a judgment, apparently by mistake or inadvertence,

ought to be read by assuming that the Court had intended to say

only that which is correct according to the settled position of law,

and the apparent error should be ignored, far from making any

capital out of it, giving way to the correct expression which

ought to be implied or necessarily read in the context, also

having regard to what has been said a little before and a little

after. No learned Judge would consciously author a judgment

which is self-inconsistent or incorporates passages repugnant to

each other. Vide para 22, their Lordships have clearly held that

there is no entry in Schedule II which enables the State to

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impose a tax on royalty and, therefore, the State was

incompetent to impose such a tax (cess). The cess which has an

incidence of an additional charge on royalty and not a tax on

land, cannot apparently be justified as falling under Entry 49 in

List II.

It is of significance for the issue before us, to determine

the nature of royalty and whether it is a tax, and if not, then,

what it is. Until the pronouncement of this Court in India

Cement (supra), it has been the uniform and unanimous judicial

opinion that royalty is not a tax.

First we will refer to certain dictionaries oft-cited in courts

of law.

Words and Phrases, Permanent Edition (Vol.37A, page

597)-

""Royalty" is the share of the produce reserved

to owner for permitting another to exploit and

use property. The word "royalty" means

compensation paid to landlord by occupier of

land for species of occupation allowed by

contract between them. "Royalty" is a share of

the product or profit (as of a mine, forest, etc.)

reserved by the owner for permitting another

to use his property."

Stroud's Judicial Dictionary of Words and Phrases

(Sixth Edition, 2000, Vol.3, page 2341) -

"the word "royalties" signifies, in mining

leases, that part of the reddendum which is

variable, and depends upon the quantity of

minerals gotten or the agreed payment to a

patentee on every article made according to

the patent. Rights or privileges for which

remuneration is payable in the form of a

royalty"

Words and Phrases, Legally Defined (Third Edition,

1990, Vol.4, page 112) -

"A royalty, in the sense in which the word is

used in connection with mining leases, is a

payment to the lessor proportionate to the

amount of the demised mineral worked within

a specified period"

Wharton's Law Lexicon (Fourteenth Edition, page 893) -

"Royalty, 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."

Mozley & Whiteley's Law Dictionary (Eleventh Edition,

1993, page 243) -

"A pro rata payment to a grantor or lessor, on

the working of the property leased, or

otherwise on the profits of the grant of lease.

The word is especially used in reference to

mines, patents and copyrights."

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Prem's Judicial Dictionary (1992, Vol.2, page 1458) -

"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."

Black's Law Dictionary (Seventh Edition, p.1330) -

"Royalty - A share of the product or profit from

real property, reserved by the grantor of a

mineral lease, in exchange for the lessee's

right to mine or drill on the land.

Mineral Royalty : A right to a share of income

from mineral production."

In D.K. Trivedi & Sons. & Ors. Vs. State of Gujarat &

Ors., 1986 (Supp) SCC 20, a Bench of two learned Judges of

this Court dealt with "rent", "royalty" and "dead rent" and held

as follows. Rent is an integral part of the concept of a lease. It

is the consideration from the lessee to the lessor for the demise

of the property to him. In a mining lease the consideration

usually moving from the lessee to the lessor is the rent of 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". It may,

however, be that the mine is not worked properly so as not to

yield enough return to the lessor in the shape of royalty. In

order to ensure for the lessor a regular income, regardless of

whether the mine is worked or not, a fixed amount is provided to

be paid to him by the lessee. This is called "dead rent". "Dead

rent" is calculated on the basis of the area leased while "royalty"

is calculated on the quantity of minerals extracted or removed.

Thus, while dead rent is a fixed return to the lessor, royalty is a

return which varies with the quantity of minerals extracted or

removed. Since dead rent and royalty are both a return to the

lessor in respect of the area leased, looked at from one point of

view dead rent can be described as the minimum guaranteed

amount of royalty payable to the lessor but calculated on the

basis of the area leased, and not on the quantity of minerals

extracted or removed. In H.R.S. Murthy Vs. Collector of

Chittor, (1964) 6 SCR 666, too the Constitution Bench of this

Court had defined Royalty to mean 'the payment made for the

materials or minerals won from the land'.

The judicial opinion as prevailing amongst the High Courts

may be noticed. A Full Bench of the High Court of Orissa held in

Laxmi Narayan Agarwalla & Ors. Vs. State of Orissa &

Ors., AIR 1983 Orissa 210, 'Royalty is the payment made for the

minerals extracted; it is not tax'. In Surajdin Laxmanlal Vs.

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State of M.P., Nagpur and Ors. - AIR 1960 M.P. 129, a

Division Bench of the High Court of Madhya Pradesh referred to

the Wharton's Law Lexicon and Mozley & Whiteley's Law

Dictionary and said - "royalties are payments which the

Government may demand for the appropriation of minerals,

timber or other property belonging to the Government." The

High Court opined that there are two important features of

royalty: (i) the payment is in proportion to the quantity

removed; and (ii) the basis of the payment is an agreement.

Drawing a distinction between 'royalty' and 'tax', a Division

Bench of the High Court of Punjab and Haryana High Court held

in Dr. Shanti Saroop Sharma and Anr. Vs. State of Punjab

and Ors. - AIR 1969 Punjab & Haryana 79 as under -

"if a person is merely in occupation of land

which contains minor 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 minor minerals that he is called

upon to pay royalty to the Government where

the lease is in respect of the land in which

minor minerals vest in the Government.

Royalty thus has its basis in the contract. For

payment to the owner of the minerals for the

privilege of extracting the minor minerals

computed on the basis of the quantity actually

extracted and removed from the leased area.

It is more akin to rent or compensation

payable to an owner by the occupier or lessee

of land for its use or exploitation of the

resources contained therein. Merely because

the provision with regard to royalty is made by

virtue of the rules relating to the regulation of

the mining leases and a uniform rate is

prescribed, it does not follow that it is a

compulsory exaction in the nature of tax or

impost."

A Division Bench of Gujarat High Court in Saurashtra

Cement & Chemical Industries Ltd., Ranavav Vs. Union of

India and Anr. - AIR 1979 Gujarat 180, emphatically said -

"royalty may not be a fee but it is not a tax. It

is a payment for the mineral which is removed

or consumed by the holder of the mining lease.

The minerals themselves, - the property

beneath the soil - belong to the Union. When

the holder of a mining lease removes these

minerals or consumes them, he can do so only

on payment of its price or value. Therefore,

royalty is a share which the Union claims in the

minerals which have been won from the soil by

the lessee and which otherwise belong to it.

Royalty is a share in such minerals and not a

tax in the form of a compulsory exaction. It is

not compulsory because anyone who applies

for a mining lease to win minerals for being

removed or consumed must pay its price. If

he does not want to pay the price, he may not

apply for a mining lease. Royalty which is a

share of the owner of the minerals - the Union

- won by the lessee from the soil with the

authority of the Union can never be said to be

an imposition on the holder of a mining lease.

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We need not further multiply the authorities. Suffice it to

say that until the pronouncement in India Cement, nobody

doubted the correctness of 'royalty' not being a tax.

Such has been the position even subsequent to the

pronouncement in India Cement.

In Inderjeet Singh Sial & Anr. Vs. Karam Chand

Thapar & Ors. - (1995) 6 SCC 166, a Bench of two learned

judges held that -

"In its primary and natural sense 'royalty', in

the legal world, is known as the equivalent or

translation of jura regalia or jura regia. Royal

rights and prerogatives of a sovereign are

covered thereunder. In its secondary sense

the word 'royalty' would signify, as in mining

leases, that part of the reddendum, variable

though, payable in cash or kind, for rights and

privileges obtained. It is found in the clause of

the deed by which the grantor reserves

something to himself out of that which he

grants. It may even be a clause reserving rent

in a lease, whereby the lessor reserves

something for himself out of that which he

grants."

In Ajit Singh Vs. Union of India & Ors. - 1995 Supp.

(4) SCC 224, another Bench of two learned Judges held that the

grant of mining lease involves grant of a privilege by the State.

In both these decisions India Cement's is not noticed.

In Quarry Owners' Association Vs. State of Bihar &

Ors. - (2000) 8 SCC 655, a Bench of two learned Judges was

faced with a submission, based on India Cement and

subsequent decisions following it, that royalty is a tax. The

learned Judges found it difficult to accept the concept but tried

to wriggle out of the situation by observing -

"royalty includes the price for the consideration

of parting with the right and privilege of the

owner, namely, the State Government who

owns the mineral. In other words, the

royalty/dead rent, which a lessee or licensee

pays, includes the price of the minerals which

are the property of the State. Both royalty and

dead rent are integral parts of a lease. Thus, it

does not constitute usual tax as commonly

understood but includes return for the

consideration for parting with its property."

In India Cement (vide para 31, SCC) decisions of four

High Courts holding 'Royalty is not tax' have been noted without

any adverse comment. Rather, the view seems to have been

noted with tacit approval. Earlier (vide para 21, SCC) the

connotative meaning of royalty being 'share in the produce of

land' has been noted. But for the first sentence (in para 34,

SCC) which we find to be an apparent error, no where else has

the majority judgment held royalty to be a tax.

How the abovenoted inadvertent error in India Cement

has resulted into throwing on the loop line the movement of later

case law on this point may be noticed. In State of M.P. Vs.

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Mahalaxmi Fabric Mills Ltd. and Ors. - 1995 Supp. (1) SCC

642 (decision by a Bench of three learned Judges) and

Saurashtra Cement and Chemicals Industries and Anr.

etc.etc. Vs. Union of India and Ors. - (2001) 1 SCC 91

(decision by a Bench of two learned Judges) para 34 (from SCC)

in India Cement has been quoted verbatim and dealt with. In

Mahalaxmi Fabric Mills Ltd. and Ors.'s case (supra), the

Court noticed several dictionaries defining royalty and also the

decisions of High Courts available and stated 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 quality

of minerals extracted. But then (vide para 12), the Court felt

bound by the view taken in India Cement, reiterated in Orissa

Cement, to hold that royalty is a tax. The point that there was

apparently a 'typographical error' in para 34 in India Cement

was specifically raised but was rejected. In Saurashtra

Cement and Chemicals Industries and Anr.(supra) too the

Court felt itself bound by the decision in Mahalaxmi Fabric

Mills Ltd. and Ors (supra), backed by India Cement, and

therefore held royalty to be tax.

We have clearly pointed out the said error, as we are fully

convinced in that regard and feel ourselves obliged

constitutionally, legally and morally to do so, lest the said error

should cause any further harm to the trend of jurisprudential

thought centering around the meaning of 'royalty'. We hold

that royalty is not tax. Royalty is paid to the owner of land who

may be a private person and may not necessarily be State. A

private person owning the land is entitled to charge royalty but

not tax. The lessor receives royalty as his income and for the

lessee the royalty paid is an expenditure incurred. Royalty

cannot be tax. We declare that even in India Cement it was

not the finding of the Court that royalty is a tax. A statement

caused by an apparent typographical or inadvertent error in a

judgment of the Court should not be misunderstood as

declaration of such law by the Court. We also record our

express dissent with that part of the judgment in Mahalaxmi

Fabric Mills Ltd. and Ors. which says (vide para 12 of SSC

report) that there was no 'typographical error' in India Cement

and that the said conclusion that royalty is a tax logically flew

from the earlier paragraphs of the judgment.

Inter-relationship of Schedule I Entry 54 and Schedule II

Entry 23

With the abovesaid reflection of ours on clarifying India

Cement, clarification now we proceed to examine the the inter-

relationship of Schedule I Entry 54 and Schedule II Entry 23

which have been quoted and reproduced in the earlier part of

this judgment.

Conflict in Entries (in the three Lists in Seventh Schedule)

The analysis of decided cases as made by eminent

constitutional jurist H.M. Seervai in his work on Constitutional

Law of India (Fourth/Silver Jubilee Edition, Vol.3) is apposite.

Vide para 22.168, he states __ "In Gov.-Gen. in Council Vs.

Madras, 1945 FCR 179, the Privy Council laid down important

principles for interpreting apparently conflicting legislative

entries in general, and apparently conflicting tax entries in

particular. The Privy Council held, first, that though a tax in List

I (e.g. a duty of excise) and a tax in List II (e.g. a tax on the

sale of goods) of the Government of India Act, 1935, may

overlap, in fact there would be no overlapping in law, if the

taxes were separate and distinct imposts; secondly, that the

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machinery of tax collection did not affect the real nature of a tax.

Another principle for reconciling apparently conflicting tax entries

follows from the fact that a tax has two elements : the person,

thing or activity on which the tax is imposed, and the amount of

the tax. The amount may be measured in many ways; but

decided cases establish a clear distinction between the subject

matter of a tax and the standard by which the amount of tax is

measured. These two elements are described as the subject of a

tax and the measure of a tax. In D.G. Gouse Vs. Kerala -

(1980) 2 SCC 410, which is considered later, the above passage

was quoted with approval by the Supreme Court as stating

precisely the two elements involved in almost all tax cases,

namely, the subject of a tax and the measure of a tax."

It is necessary to examine the scheme underlying the

Seventh Schedule of the Constitution. We are relieved of the

need of embarking upon any maiden voyage in this direction in

view of the availability of a Constitution Bench decision in M.P.V.

Sundararamier & Co. Vs. The State of Andhra Pradesh &

Anr., (1958) SCR 1422. Venkatarama Aiyar, J., speaking for the

Constitution Bench, traced the history of legislations preceding

the Constitution, analysed the scheme underlying the division of

legislative powers between the Centre and the States and then

succinctly summed up the quintessence of the analysis. It was

held, inter alia:

1. In List I, Entries 1 to 81 mention the

several matters over which Parliament has

authority to legislate. Entries 82 to 92

enumerate the taxes which could be imposed

by a law of Parliament. An examination of

these two groups of Entries shows that while

the main subject of legislation figures in the

first group; a tax in relation thereto is

separately mentioned in the second.

2. In List II, Entries 1 to 44 form one

group mentioning the subjects on which the

States could legislate. Entries 45 to 63 in that

List form another group, and they deal with

taxes.

3. Taxation is not intended to be comprised

in the main subject in which it might on an

extended construction be regarded as included,

but is treated as a distinct matter for purposes

of legislative competence. And this distinction

is also manifest in the language of Art.248,

Cls.(1) and (2) and of Entry 97 in List I of the

Constitution. Under the scheme of the Entries

in the Lists, taxation is regarded as a distinct

matter and is separately set out.

4. The entries in the Legislative Lists must

be construed broadly and not narrowly or in a

pedantic manner.

5. The entries in the two Lists - List I and II

- must be construed, if possible, so as to avoid

conflict. Faced with a suggested conflict

between entries in List I and List II, what has

first to be decided is whether there is any

conflict. If there is none, the question of

application of the non-obstante clause 'subject

to' does not arise. And, if there be conflict, the

correct approach to the question is to see

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whether it was possible to effect a

reconciliation between the two Entries so as to

avoid a conflict and overlapping.

Illustration

If it is possible to construe Entry 42 in

List I as not including tax on inter-state sales it

should be so construed and the power to levy

such tax must be held to be included in Entry

54 in List II (Entries as they existed pre-Forty

Second Amendment, 1976) (See: Governor

General in Council Vs. Province of Madras

- AIR 1945 PC 98, and Province of Madras

Vs. Bodder Paidenna & Sons - AIR 1942 FC

33)

6. In the event of a dispute arising it should

be determined by applying the doctrine of pith

and substance to find out whether between

two Entries assigned to two different

legislatures the particular subject of the

legislation falls within the ambit of the one or

the other. Where there is a clear and

irreconcilable conflict of jurisdiction between

the Centre and a provincial legislature it is the

law of the Centre that must prevail.

[underlining by us]

Referring to M.P.V. Sundararamier & Co. (supra)

Sabyasachi Mukharji, J. (as his Lordship then was) speaking for

six out of the seven Judges constituting the Bench in Synthetics

and Chemicals Ltd. & Ors. Vs. State of U.P. & Ors. -

(1990) 1 SCC 109 held that under the constitutional scheme of

division of powers in the Seventh Schedule, there are separate

entries pertaining to taxation and other laws. A tax cannot be

levied under a general entry.

The abovesaid principles continue to hold the field and

have been followed in cases after cases.

General power of 'Regulation and Control' does not

include power of taxation

One thing, which too is well settled by a series of decisions

is that the power of "regulation and control" is separate and

distinct from the power of taxation. How this principle has been

applied in myriad situations may be illustratively noticed.

The Constitution Bench in The Hingir-Rampur Coal

Co.Ltd. & Ors. Vs. The State of Orissa & Ors. etc. - (1961) 2

SCR 537, was faced with a challenge to the constitutional validity

of the Orissa Mining Areas Development Fund Act, 1952. The

petitioner-company was engaged in producing and selling coal

excavated from its collieries at Rampur in the State of Orissa.

The Act and the Rules framed and the notification issued

thereunder levied the payment of cess on the petitioner's

Rampur Colliery. The cause of action had arisen to the petitioner

therein on account of the communications made to the company

in March 1959 calling upon them to file monthly returns for the

assessment of the cess which was levied by issuance of a

notification dated June 24, 1958.

The challenge to the constitutional validity of the levy

imposed by the impugned Act came to be examined by reference

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to Entry 54 in List I read with the Mines and Minerals (Regulation

and Development) Act, 1948 (Act No. 53 of 1948) as also by

reference to Entry 52 in List I read with the Industries

(Development and Regulation) Act, 1951 (Act No.65 of 1951).

On behalf of the State of Orissa, the levy was defended as a fee

relatable to Entries 23 and 66 in List II. The Constitution Bench

entered into an enquiry as to what is the primary object of the

levy and the essential purpose which it is intended to achieve. It

was observed that its primary object and the essential purpose

must be distinguished from its ultimate or incidental results or

consequences, as that is the true test in determining the

character of the levy. The submission that the impugned levy

could be either duty of excise or tax, was dismissed. The

Constitution Bench held that the form in which the levy is

imposed and the extent of the levy, i.e., being too high, do not

alter the character of the levy from a fee into that of a duty of

excise. The Constitution Bench laid down the features which

would distinguish excise from a tax or fee and also the features

which distinguish a tax from a fee though there is no generic

difference in a tax and a fee, both being compulsory exactions of

money by public authorities.

The scheme of the impugned Orissa Act was examined in-

depth and their Lordships found that the cess levied by the

impugned Act was a fee. The Act was passed for the purpose of

the development of mining areas in the State. Orissa is a poor

State carrying in its womb a lot of mineral wealth of great

potential value, but the areas where its mineral wealth is located

lack infrastructure which would enable the exploitation of

minerals. The primary and the principal object of the Act was to

develop the mineral areas in the State and to assist more

efficient and extended exploitation of its mineral wealth. The

cess levied did not become a part of the consolidated fund and

was not subject to an appropriation in that behalf ; it went into

the special fund earmarked for carrying out the purpose of the

Act and thus its existence established a correlation between the

cess and the purpose for which it was levied, satisfying the

element of quid pro quo in the scheme. The scheme of the Act

showed that the cess was levied against the class of persons

owning mines in the notified area and to enable the State

Government to render specific services to the said class by

developing the notified mineral area. Its application was

regulated by a statute and was confined to its purposes. There

was a definite correlation between the impost and the purpose of

the Act which was to render services to the notified area. These

features of the Act impressed upon the levy the character of a

fee as distinct from a tax.

The inter-relationship of Entries 23 and 66 in List II qua

Entry 54 in List I was so stated by the Constitution Bench:-

"The effect of reading the two Entries

together is clear. The jurisdiction of the

State Legislature under Entry 23 is

subject to the limitation imposed by the

latter part of the said Entry. If

Parliament by its law has declared that

regulation and development of mines

should in public interest be under the

control of the Union, to the extent of

such declaration the jurisdiction of the

State Legislature is excluded. In other

words, if a Central Act has been passed

which contains a declaration by

Parliament as required by Entry 54, and

if the said declaration covers the field

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occupied by the impugned Act the

impugned Act would be ultra vires, not

because of any repugnance between the

two statutes but because the State

Legislature had no jurisdiction to pass

the law. The limitation imposed by the

latter part of Entry 23 is a limitation on

the legislative competence of the State

Legislature itself."

The Constitution Bench then proceeded to test the validity

of the cess by reference to two Central Acts, namely (A) the

Mines and Minerals (Regulation and Development) Act, 1948

(Act No.53 of 1948) and (B) The Industries (Development and

Regulation) Act, 1951 (Act No.65 of 1951).

(A) Act No.53 of 1948 is a pre-constitutional piece of

Central legislation. It was found that the applicability of the Act

which was initially attracted to mines as well as oil fields

remained confined to oil fields in view of the subsequent

parliamentary enactment, i.e., the MMDR Act, 1957 (Act No.67

of 1957). Therefore, the question which remained to be

examined was only for the year 1952 as at that time the Act

No.53 of 1948 applied to mines as well as oil fields. The factual

constitutional position was that Act No.53 of 1948 ceased to

apply to Orissa post-constitution and assuming it applied yet

there was no such declaration post-constitution made by

Parliament as is referred to in Entry 23 in List II read with Entry

54 in List I and therefore in either case the validity of the said

State Legislation was not impaired in spite of the finding

recorded by the Court that 'there can be no doubt that the field

covered by the impugned (State) Act is covered by the Central

Act 53 of 1948'.

(B) What is significant for our purpose is the law laid down

by the Constitution Bench as to the validity of the impugned

State legislation by reference to Act No. 65 of 1951, Section 2

whereof contained a declaration - "it is hereby declared that it is

expedient in the public interest that the Union should take under

its control the industries specified in the First Schedule" as

contemplated by Entry 52 in List I to which Entry 23 in List II is

subject. The first schedule included coal as an article as to

which the industry engaged in the manufacture or production

was brought within the purview of the Act. Section 9

empowered the Central Government to levy cess for the purpose

of the Act on all goods manufactured or produced in any

scheduled industries including coal. The Constitution Bench held

that the Central Act was passed to provide for the development

and regulation of certain industries one of which undoubtedly is

coal mining industry. The declaration made by Section 2 of the

Act covered the same field as is covered by the impugned State

Act. Then the Constitution Bench held :-

".........but in dealing with this question it

is important to bear in mind the doctrine

of pith and substance. We have already

noticed that in pith and substance the

impugned Act is concerned with the

development of the mining areas notified

under it. The Central Act, on the other

hand, deals more directly with the

control of all industries including of

course the industry of coal. Chapter II of

this Act provides for the constitution of

the Central Advisory Council and

Development Councils, Chapter III deals

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with the regulation of scheduled

industries, Chapter IIIA provides for the

direct management or control of

industrial undertakings by Central

Government in certain cases, and

Chapter IIIB is concerned with the topic

of control of supply, distribution, price,

etc. of certain articles. The last chapter

deals with miscellaneous incidental

matters. The functions of the

Development Councils constituted under

this Act prescribed by S.6(4) bring out

the real purpose and object of the Act.

It is to increase the efficiency or

productivity in the scheduled industry or

group of scheduled industries, to

improve or develop the service that such

industry or group of industries renders or

could render to the community, or to

enable such industry or group of

industries to render such service more

economically. Section 9 authorises the

imposition of cess on scheduled

industries in certain cases. Section 9(4)

provides that the Central Government

may hand over the proceeds of the cass

to the Development Council there

specified and that the Development

Council shall utilize the said proceeds to

achieve the objects mentioned in cls. (a)

to (d). These objects include the

promotion of scientific and industrial

research, of improvements in design and

quality, and the provision for the training

of technicians and labour in such

industry or group of industries. It would

thus be seen that the object of the Act is

to regulate the scheduled industries with

a view to improvement and development

of the service that they may render to

the society, and thus assist the solution

of the larger problem of national

economy. It is difficult to hold that the

field covered by the declaration made by

S.2 of this Act, considered in the light of

its several provisions, is the same as the

field covered by the impugned Act. That

being so, it cannot be said that as a

result of Entry 52 read with Act LXL of

1951 the vires of the impugned Act can

be successfully challenged.

Our conclusion, therefore, is that

the impugned Act is relatable to Entries

23 and 66 in List II of the Seventh

Schedule, and its validity is not impaired

or affected by Entries 52 and 54 in List I

read with the Act LXV of 1951 and Act

LIII of 1948 respectively. In view of this

conclusion it is unnecessary to consider

whether the impugned Act can be

justified under Entry 50 in List II, or

whether it is relatable to Entry 24 in List

III and as such suffers from the vice of

repugnancy with the Central Act XXXII of

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1947."

[Underlining by us]

In spite of having held that the Central Act of 1951 was

attracted to coal industries, their Lordships, by applying the

doctrine of pith and substance, refused to annul the levy of cess

under the impugned Orissa Act based on the following

distinction:-

Central Act, 1951

State Legislation of 1952

Deals more directly with the

control of all industries

including the industry of coal

with a view to improvement

and development of the service

that they may render to the

society and thus assist the

solution of the larger problem

of national economy.

Is concerned with the

development of the mining

areas notified under it.

Though both were cesses, one levied by the Central Act

and the other levied by the State Act, inasmuch as they had

different fields to operate, Entries 52 and 54 in List I were held

not to have any adverse or denuding effect on the legislative

competence of the State referable to Entries 23 and 66 in List II.

As a result, the writ petitions laying challenge to the

constitutional validity of Orissa Act of 1952 were directed to be

dismissed.

The distinction: Here we will pause for a moment with a

view to highlight a feature of singular significance in The Hingir-

Rampur Coal Co. as it would be the decisive factor for the

applicability of the ratio of the case ___ where it would apply and

where it would not. Section 6 of Act No.43 of 1948 which came

up for the consideration of the Constitution Bench, specifically

provides:-

"6. Power to make rules as respects minerals

development __ (1) The Central Government

may, by notification in the official Gazette,

make rules for the conservation and

development of minerals.

(2) In particular, and without prejudice to the

generality of the foregoing power, such rules

may provide for all or any of the following

matters, namely:-

xxx xxx xxx xxx

(i) the levy and collection of royalties,

fees or taxes in respect of minerals mined,

quarried, excavated or collected;

xxx xxx xxx xxx

10. Rules to be laid before the Legislature__

All rules made under any of the provisions of

this Act shall be laid before the Central

Legislature as soon as may be after they are

made."

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Thus, the power to levy and collect fees or taxes in respect of

minerals mined, quarried, excavated or collected was expressly

conferred on the Central Government by a specific provision

made in that regard by the Act itself. Because the power to levy

tax or fee was appropriated to itself by a Central Legislation it

was held that the impugned Orissa Act - a State Legislation,

could not have provided for the levy of a fee as by virtue of the

Central Legislation, the Union having exercised its power to

legislate, the field was covered and excepted from the legislative

competence of the State. Yet the recovery was held not liable to

be annulled inasmuch as the Central Act No.53 of 1948 was a

pre-Constitution Legislation and as to which a declaration in

terms of Entry 54 in List I was not made by the Parliament after

the coming into force of the Constitution.

As to the Central Act of 1951, though it contained a

declaration as contemplated by Entry 52 of List I, and though it

applied to several goods including coal, the doctrine of pith and

substance when correctly applied showed that the Central Act

was intended for improvement of service while the State Act of

1952 was intended to deal with development of mining areas

and the latter was valid.

The MMDR Act, 1957, which we are called upon to deal

with, stands on much better footing for the writ petitioners

herein as it does not contain any provision similar to Sections 6

and 10 of the Central Act No.53 of 1948 or Section 9 of the

Central Act No.65 of 1951.

Challenge to levy under the abovesaid Orissa Act 27 of

1952 did not come to an end with Hinger-Rampur Coal Co.. It

was once again raised in the High Court with success and the

State of Orissa came up in appeal which was heard and decided

by a Constitution Bench in State of Orissa & Anr. Vs. M/s

M.A. Tulloch and Co. - (1964) 4 SCR 461. The respondent

writ-petitioner was working a manganese mine in the State of

Orissa under a lease granted under the provisions of the MMRD

Act, 1948. The fee levied under the Orissa Act for the period of

six quarters from September 30, 1956, to March 31, 1958, was

under challenge. The MMDR Act 1957 came into force w.e.f.

June 1, 1958. The recovery impugned, therefore, related to the

period pre-MMDR Act 1957 i.e. for the period during which

Industries (Development and Regulation) Act 1951 was

applicable. The recovery was sought to be effected after the

enactment and coming into force of the Act No.67 of 1957,

though the recovery was referable to the period prior to it. It

was held that the demand was liable to be raised for the period

for which it was raised and the validity of the demand was an

issue concluded by Hingir-Rampur Coal Co.. The demand

having validly accrued prior to June 1, 1958, the recovery

thereof could be validly enforced, notwithstanding the repeal of

Act No.65 of 1951, on the general principles of interpretation of

statutes as also under Section 6 of the General Clauses Act.

Reiterating the findings in Hingir-Rampur Coal Co. the

Constitution Bench held that the impugned Act empowered the

State Government to levy a fee on a percentage of the value of

the mined ore at the pit's mouth, the collections being intended

for the development of the "mining areas" in the State. This

finding is very significant.

The Constitution Bench laid down the following principles

which are relevant for our purpose :-

(1) Entry 23 of the State List vests in the State Legislature

power to enact laws on the subject of 'regulation of mines

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and mineral development subject to the provisions of List I

with respect to regulation and development under the

control of the Union'. It would be seen that "subject to"

the provisions of List I the power of the State to enact

Legislation on the topic of "mines and mineral

development" is plenary. The relevant provision in List I

is, as already noticed, Entry 54 of the Union List.

(2) To the extent to which the Union Government had taken

under its control the regulation and development of

minerals that much (i.e. to that extent) was withdrawn

from the ambit of the power of the State Legislature under

Entry 23 and legislation of the State which had rested on

the existence of power under that entry would, to the

extent of that control, be superseded or rendered

ineffective, for here we have a case not of mere

repugnancy between the provisions of the two enactments

but of a denudation or deprivation of State legislative

power by the declaration which Parliament is empowered

to make, and has made.

(3) The States would lose legislative competence only to the

"extent to which regulation and development under the

control of the Union has been declared by Parliament to be

expedient in the public interest".

(4) It would be logical first to examine and analyse the State

Act and determine its purpose, width and scope and the

area of its operation and then consider to what "extent"

the Central Act cuts into it or trenches on it.

As to the MMDR Act, 1957, the Constitution Bench in M.A.

Tulloch observed by reference to Section 18 of the Act that the

intention of Parliament was to cover the entire field and thus to

leave no scope for the argument that until rules were framed

there was no inconsistency and no supersession of the State Act.

The following holding of the above Constitution Bench is

again worth noting :

"......that technically speaking the power

to levy a fee is under the entries in the

three lists treated as a subject-matter of

an independent grant of legislative

power, but whether it is an incidental

power related to a legislative head or an

independent legislative power it is

beyond dispute that in order that a fee

may validity be imposed the subject-

matter or the main head of legislation in

connection with which the fee is imposed

is within legislative power. The material

words of the Entries are : "Fees in

respect of any of the matters in this

List". It is, therefore, a prerequisite for

the valid imposition of a fee that it is in

respect of "a matter in the List". If by

reason of the declaration by Parliament

the entire subject-matter of

"conservation and development of

minerals" has been taken over, for being

dealt with by Parliament, thus depriving

the State of the power which it therefor

possessed, it would follow that the

"matter" in the State List is, to the

extent of the declaration, subtracted

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from the scope and ambit of Entry 23 of

the State List. There would, therefore,

after the Central Act of 1957, be "no

matter in the List" to which the fee could

be related in order to render it valid."

In the last but one para of M.A. Tulloch this sentence

occurs:- "If this were the true position about the effect of the

Central Act 67 of 1957 as the liability to pay the fee which was

the subject of the notices of the demand had accrued prior to

June 1, 1958, it would follow that these notices were valid and

the amounts due thereunder could be recovered notwithstanding

the disappearance of the Orissa Act by virtue of the superior

legislation by the Union Parliament". This observation, read out

of the context and facts of the case alongwith the Court having

referred to Sections 18 and 25 of the MMDR Act 1957, creates

an impression that the power to levy fee having been

appropriated by the Central Legislation to the Central

Government, the cess levied by the State would stand

obliterated or repealed, is the holding by the Court. But that is

not the ratio of the case and it could not have been because in

Hingir-Rampur Coal Co. the Constitution Bench has clearly

held to the contrary and the Constitution Bench in M.A. Tulloch

has squarely followed the holding in Hingir-Rampur Coal Co..

Nobody should act on an assumption that in M.A. Tulloch the

Constitution Bench has held - much less as a ratio of the

decision - that under Act No. 67 of 1957 the Central

Government has appropriated to itself the power to levy tax or

cess on minerals or mineral bearing land. All that the Court has

said is that the 1957 enactment covers the field of legislation as

to the regulation of mines and the development of minerals. As

Section 2 itself provides and indicates, the assumption of control

in public interest by the Central Government is on (i) the

regulation of mines, (ii) the development of minerals, and (iii) to

the extent hereinafter provided. The scope and extent of

declaration cannot and could not have been enlarged by the

Court nor has it been done. The effect is that no State

Legislature shall have power to enact any legislation touching (i)

the regulation of mines, (ii) the development of minerals, and

(iii) to the extent provided by Act No.67 of 1957. The Preamble

to the Central Act 67 of 1957 itself speaks ___ "An Act to provide

for the development and regulation of mines and minerals under

the control of the Union". Tax and fee is not a subject dealt with

by Act No.67 of 1957. Let us demonstrate the same from the

provisions of the Act and for that purpose relevant part of

Section 13, sub-Section (1) and relevant part of sub-Section (2)

of Section 18, sub-Section (3) of Section 18 and Section 25 are

extracted and reproduced as under :

"13. Power of Central Government to

make rules in respect of minerals. -

(1) The Central Government may, by

notification in the Official Gazette, make

rules for regulating the grant of

reconnaissance permits, prospecting

licences and mining leases in respect of

minerals and for purposes connected

therewith.

(2) In particular, and without

prejudice to the generality of the

foregoing power, such rules may provide

for all or any of the following matters,

namely:

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(a) to (h) *** ***

(i) the fixing and collection of fees

for reconnaissance permits, prospecting

licences or mining leases, surface rent,

security deposit, fines, other fees or

charges and the time within which and

the manner in which the dead rent or

royalty shall be payable;

18. Mineral development. - (1)

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 operations and for

such purposes the Central Government

may, by notification in the Official

Gazette, make such rules as it thinks fit.

(2) In particular, and without

prejudice to the generality of the

foregoing power such rules may provide

for all or any of the following matters,

namely:

(a) to (o) - (Not reproduced)

(p) the procedure for and the

manner of imposition of fines for the

contravention of any of the rules framed

under this section and the authority who

may impose such fines; and

(q) the authority to which, the

period within which, the form and the

manner in which applications for revision

of any order passed by any authority

under this Act and the rules made

thereunder may be made, the fee to be

paid and the documents which should

accompany such applications.

(3) All rules made under this

section shall be binding on the

Government.

25. Recovery of certain sums as

arrears of land revenue. - Any rent,

royalty, tax, fee or other sum due to the

Government under this Act or the rules

made thereunder or under the terms and

conditions of any reconnaissance permit,

prospecting licence or mining lease may,

on a certificate of such officer as may be

specified by the State Government in this

behalf by general or special order, be

recovered in the same manner as an

arrear of land revenue.

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We have three comments to offer on M.A. Tulloch. Firstly,

the provisions of the Act No.67 of 1957 did not directly come up

for the scrutiny of the Constitution Bench as there was no

demand raised after the commencement of this Act which was

put in issue before the Constitution Bench; the Constitution

Bench was only adjudicating upon the issue whether a liability to

pay cess incurred under the previous Act could be enforced

under Act No.67 of 1957 or in other words if Act No.67 of 1957

had any castigating effect on the demand validly raised under

the previous enactment. Secondly, the extent to which power to

legislate by the States was excluded by the Central Act No.65 of

1951 was not a question dealt with in-depth as it was done in

Hingir-Rampur Coal Co.. Thirdly, M.A. Tulloch, if not

correctly read, creates a wrong impression that Act No.67 of

1957 provides for levy of tax and fee, which in fact it does not.

Section 13(2)(i) cannot be read as empowering the Central

Government to levy any tax or fee. The expression "other fees

and charges" have to be interpreted ejusdem generis taking

colour from other words and phrases employed in the same

clause. The word "charges" cannot and does include within its

meaning any tax. The expression "other fees or charges" must

be assigned such meaning as to include therein only such fees

and charges as are meant for regulation or development.

We are clear in our minds that a power to levy tax or fee

cannot be spelled out from sections 13, 18 and 25 of the Act

No.67 of 1957. It is well-settled that power to tax cannot be

inferred by implication; there must be a charging section

specifically empowering the State to levy tax. Section 18 (2)(q)

speaks of fee to be paid on applications for revision and not on

minerals, mineral rights or mining land. Section 25 speaks of

'recovery of tax and fee' amongst others. Two observations are

spontaneous. Firstly, a provision for recovery, being a

machinery provision, cannot be read as empowering the levy of

tax or fee. Secondly, it speaks of tax or fee being due to the

Government without defining the same and without qualifying

the word 'Government' with Central or State. A perusal of

several provisions of the Act and in particular Sections 9-A, 15,

15 (1-A) (a) and (g), 15(3), 17(3), 21(5), 25 goes to show that

the power of recovery is invariably given to the State

Government and obviously the word 'Government' in Section 25

refers to the State Government, which only is empowered to

recover the sums due as arrears of land revenue.

The relevant principles of law laid down in M.A. Tulloch,

which we have extracted and reproduced hereinabove, do not

run contrary to the view we are taking in the present case. The

recovery of fee could have been held to be vitiated in that case

because the field of mining activity in manganese ore was fully

covered by the MMDR Act, 1957, and the levy under the

impugned State Act, as found by the two Constitution Benches in

Hingir-Rampur Coal Co. and M.A. Tulloch was being

collected for the development of the mining areas in the State.

The doctrine of pith and substance noted and applied in Hingir-

Rampur Coal Co. has been restated in M.A. Tulloch wherein

the Constitution Bench had said, as noted hereinabove, that the

Orissa Act was concerned with the development of the mining

areas notified under the Act while the Central Act on the other

hand dealt more directly with the control of all industries

including of course the industry of coal and the object of the

Central Act was to regulate the scheduled industry with a view to

make improvement and development of the service that they

may render to the society and thus assisting the solution of the

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larger problem of the national economy. In spite of the

declaration made by Section 2 of the Central Act of 1951

considered in the light of its several provisions it was found

difficult to hold that the field covered by the Central Act was the

same as the field covered by the impugned Orissa Act. None of

the two Constitution Benches have held that power to regulate

and develop with which the Central Act of 1951 was concerned

would include the power to levy tax and fee, which power shall

have to be traced to some other entry in List I. List I contains a

general entry i.e. Entry 96 for levy of fee in respect of matters in

List I but so far as levy of tax is concerned there are separate

and specific entries (see Entries 82 to 92B in List I and Entries

45 to 63 in List II). Further in view of Entry 50 of List II,

Parliament can by any law relating to mineral development limit

or place limitations on the power of the State Legislatures to

impose taxes on mineral rights.

Power to tax not a residuary power

Article 265 mandates - no tax shall be levied or collected

except by authority of law. The scheme of the Seventh Schedule

reveals an exhaustive enumeration of legislative subjects,

considerably enlarged over the predecessor Government of India

Act. Entry 97 in List I confers residuary powers on Parliament.

Article 248 of the Constitution which speaks of residuary powers

of legislation confers exclusive power on Parliament to make any

law with respect to any matter not enumerated in the

Concurrent List or the State List. At the same time, it provides

that such residuary power shall include the power of making any

law imposing a tax not mentioned in either of those Lists. It is,

thus, clear that if any power to tax is clearly mentioned in List -

II the same would not be available to be exercised by Parliament

based on the assumption of residuary power. The Seven-Judges

Bench in Union of India Vs. Harbhajan Singh Dhillon, (1971)

2 SCC 779, ruled, by a majority of 4:3, that the power to

legislate in respect of a matter does not carry with it a power to

impose a tax under our constitutional scheme. According to

Seervai (Constitutional Law of India, Fourth/Silver Jubilee

Edition, Vol.3, para 22.191):- "Although in Dhillon's case

conflicting views were expressed about the nature of the

residuary power, the nature of that power was stated

authoritatively in Kesvananda's Case, (1973) 4 SCC 225. Earlier,

in Golak Nath's case (AIR 1967 SC 1643), Subha Rao C.J. (for

himself, Shah, Sikri, Shelat and Vaidyalingam JJ) had held that

Art. 368 only provided the procedure for the amendment of the

Constitution, but that the power to amend the Constitution was

to be found in the residuary power conferred on Parliament by

Arts. 245 and 246(1) read with entry 97, List I and by Art. 248.

Seven out of the nine judges who overruled Golak Nath's Case

held, inter alia, that the power to amend the Constitution could

not be located in the residuary powers of Parliament. Hegde and

Mukherjea JJ held that -

"It is obvious that these Lists have

been very carefully prepared. They are

by and large exhaustive. Entry 97 in List

I was included to meet some unexpected

and unforeseen contingencies. It is

difficult to believe that our Constitution-

makers who were keenly conscious of

the importance of the provision relating

to the amendment of the Constitution

and debated that question for several

days, would have left the important

power hidden in entry 97 of List I leaving

to the off chance of the courts locating

that power in that entry. We are unable

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to agree with those learned judges when

they sought to place reliance on Arts.

245, 246 and 248 and entry 97 of List I

for the purpose of locating the power of

amendment in the residuary power

conferred on the Union." (italics

supplied)

Similar views were expressed by five other judges.

According to Seervai, "the law laid down in Kesavananda's Case

is that if a subject of legislation was prominently present to the

minds of the framer of our Constitution, they would not have left

it to be found by courts in the residuary power; a fortiori, if a

subject of legislative power was not only present to the minds of

the framers but was expressly denied to Parliament, it cannot be

located in the residuary power of Parliament."

Vide para 22.194 the eminent jurist poses a question:

"Does Art. 248 add anything to the exclusive residuary power of

Parliament under Art. 246 (1) read with Entry 97 List I to make

laws in respect of "any other matter" not mentioned in List II

and List III including any tax not mentioned in those Lists?" and

answers by saying __ "The answer is 'No'."

As to the riddle arising in the context of mines and

minerals development legislation by reference to the Entries in

List I and List II, Seervai states ____ "the regulation of mines and

mineral development is a subject of exclusive State legislation,

but for the limitation placed upon that power by making it

subject to the provisions in that behalf in List I. If Parliament

does not exercise its power under Entry 54, List I, the States'

power under Entry 23, List II would remain intact. If Parliament

exercised its power under Entry 54, List I, only on a part of the

field, as for example, major minerals, the States' legislative

power over minor minerals would remain intact." (para 22.195

at p. 2433)

Power to tax must be express, else no power to tax

There is nothing like an implied power to tax. The source

of power which does not specifically speak of taxation cannot be

so interpreted by expanding its width as to include therein the

power to tax by implication or by necessary inference. States

Cooley in Taxation (Vol.1, Fourth Edition) ___ "There is no such

thing as taxation by implication. The burden is always upon the

taxing authority to point to the act of assembly which authorizes

the imposition of the tax claimed." (para 122 at p.278).

Justice G.P. Singh in Principles of Statutory Interpretation

(Eighth Edition, 2001) while dealing with general principles of

strict construction of taxation statutes states __ "A taxing statute

is to be strictly construed. The well-established rule in the

familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury

and Lord Simonds, means : "The subject is not to be taxed

without clear words for that purpose; and also that every Act of

Parliament must be read according to the natural construction of

its words". In a classic passage Lord Cairns stated the principle

thus : "If the person sought to be taxed comes within the letter

of the law he must be taxed, however great the hardship may

appear to the judicial mind to be. On the other hand, if the

Crown seeking to recover the tax, cannot bring the subject

within the letter of the law, the subject is free, however

apparently within the spirit of law the case might otherwise

appear to be. In other words, if there is admissible in any

statute, what is called an equitable construction, certainly, such

a construction is not admissible in a taxing statute where you

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can simply adhere to the words of the statute. Viscount Simon

quoted with approval a passage from Rowlatt, J. expressing the

principle in the following words : "In a taxing Act one has to look

merely at what is clearly said. There is no room for any

intendment. There is no equity about a tax. There is no

presumption as to tax. Nothing is to be read in, nothing is to be

implied. One can only look fairly at the language used." (at

p.635)

The judicial opinion of binding authority flowing from

several pronouncements of this Court has settled these

principles: (i) in interpreting a taxing statute, equitable

considerations are entirely out of place. Taxing statutes cannot

be interpreted on any presumption or assumption. A taxing

statute has to be interpreted in the light of what is clearly

expressed; it cannot imply anything which is not expressed; it

cannot import provisions in the statute so as to supply any

deficiency; (ii) before taxing any person it must be shown that

he falls within the ambit of the charging section by clear words

used in the Section; and (iii) if the words are ambiguous and

open to two interpretations, the benefit of interpretation is given

to the subject. There is nothing unjust in the tax-payer escaping

if the letter of the law fails to catch him on account of

Legislature's failure to express itself clearly. (See, Justice G.P.

Singh, ibid, pp.638-639).

Power to tax is not an incidental power. According to

Seervai, although legislative power includes all incidental and

subsidiary power, the power to impose a tax is not such a power

under our Constitution. It is for this reason that it was held that

the power to legislate in respect of inter-state trade and

commerce (Entry 42, List I, Schedule 7) did not carry with it the

power to tax the sale of goods in inter-state trade and commerce

before the insertion of Entry 92A in List I and such power

belonged to the States under Entry 54 in List II. Entry 97 in List

I also militated against the contention that the power to tax is an

incidental power under our Constitution (See: Constitutional Law

of India, H.M. Seervai, Fourth/Silver Jubilee Edition, Vol.3, para

22.20).

Power to regulate and control and power to tax ___

determining the nature of legislation by reference to the

power exercised

It is of paramount significance to note the difference

between 'power to regulate and develop' and 'power to tax'.

The primary purpose of taxation is to collect revenue.

Power to tax may be exercised for the purpose of regulating an

industry, commerce or any other activity; the purpose of levying

such tax, an impost to be more correct, is the exercise of

sovereign power for the purpose of effectuating regulation

though incidentally the levy may contribute to the revenue.

Cooley in his work on Taxation (Vol.1, Fourth Edition) deals with

the subject in paragraphs 26 and 27. "There are some cases in

which levies are made and collected under the general

designation of taxes, or under some term employed in revenue

laws to indicate a particular class of taxes, where the imposition

of the burden may fairly be referred to some other authority

than to that branch of the sovereign power of the state under

which the public revenues are apportioned and collected. The

reason is that the imposition has not for its object the raising of

revenue but looks rather to the regulation of relative rights,

privileges and duties as between individuals, to the conservation

of order in the political society, to the encouragement of

industry, and the discouragement of pernicious employments.

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Legislation for these purposes it would seem proper to look upon

as being made in the exercise of that authority which is inherent

in every sovereignty, to make all such rules and regulations as

are needful to secure and preserve the public order, and to

protect each individual in the enjoyment of his own rights and

privileges by requiring the observance of rules of order, fairness

and good neighborhood, by all around him. This manifestation

of the sovereign authority is usually spoken of as the police

power. The power to tax must be distinguished from an exercise

of the police power. (State Vs. Tucker, 56 U.S. 516). The

political power 'is a very different one from the taxing power, in

its essential principles, though the taxing power, when properly

exercised, may indirectly tend to reach the end sought by the

other in some cases."(p.94) "The distinction between a demand

of money under the police power and one made under the power

to tax is not so much one of form as of substance." (p.95). The

distinction between a levy in exercise of police power to regulate

and the one which would be in nature of tax is illustrated by

Cooley by reference to a license. He says - "So-called license

taxes are of two kinds. The one is a tax for the purpose of

revenue. The other, which is, strictly speaking, not a tax at all

but merely an exercise of the police power, is a fee imposed for

the purpose of regulation." (p.97)

"Suppose a charge is imposed partly for revenue and

partly for regulation. Is it a tax or an exercise of the police

power? Other considerations than those which regard the

production of revenue are admissible in levying taxes, and

regulation may be kept in view when revenue is the main and

primary purpose. The right of any sovereignty to look beyond

the immediate purpose to the general effect neither is nor can be

disputed. The government has general authority to raise a

revenue and to choose the methods of doing so; it has also

general authority over the regulation of relative rights, privileges

and duties, and there is no rule of reason or policy in

government which can require the legislature, when making laws

with the one object in view, to exclude carefully from its

attention the other. Nevertheless cases of this nature are to be

regarded as cases of taxation. If revenue is the primary purpose,

the imposition is a tax. Only those cases where regulation is the

primary purpose can be specially referred to the police power.

If the primary purpose of the legislative body in imposing the

charge is to regulate, the charge is not a tax even if it produces

revenue for the public." (Cooley, ibid, pp.98-99)

This Court in seven-Judges Bench decision in Synthetics

and Chemicals Ltd. & Ors. Vs. State of U.P. & Ors. - (1990)

1 SCC 109, agreed that regulation is a necessary concomitant of

the police power of the State. However, it was an American

doctrine and in the opinion of the Court it was not perhaps

applicable as such in India. The Court endorsed recognizing the

power to regulate as a part of the sovereign power of the State

exercisable by the competent legislature. Brushing aside the

need for discussion on the question - whether under the

Constitution the States have police power or not, the Court

accepted the position that the State has the power to regulate.

However, in the garb of exercising the power to regulate, any

fee or levy which has no connection with the cost or expenses of

administering the regulation, cannot be imposed; only such levy

can be justified as can be treated as part of regulatory measure.

Thus, the State's power to regulate perhaps not as emanation of

police power but as an expression of the sovereign power of the

State has its limitations. In our opinion, these observations of

the Court lend support to the view which we have formed that a

power to regulate, develop or control would not include within its

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ken a power to levy tax or fee except when it is only regulatory.

Power to tax or levy for augmenting revenue shall continue to be

exercisable by the Legislature in whom it vests i.e. the State

Legislature in spite of regulation or control having been assumed

by another legislature i.e. the Union. State Legislation levying a

tax in such manner or of such magnitude as can be

demonstrated to be tampering or intermeddling with Center's

regulation and control of an industry can perhaps be the

exception to the rule just stated.

In Synthetics and Chemicals Ltd. & Ors. Vs. State of

U.P. & Ors. - (1990) 1 SCC 109 the question before the seven-

Judges Bench was as to the power of State to legislate on

industrial alcohol as a subject. Entry 8 in List II and Entry 33 in

List III came up for consideration. Their Lordships noticed the

provisions of Industries (Development and Regulation) Act, 1951

(as amended in 1956), especially Section 18-G thereof, and held

that the provisions evinced clear intention of the Union to occupy

the whole field relating to industrial alcohol and therefore the

State could not claim to regulate it. The power with regard to

the control of alcoholic industries was considered and their

Lordships concluded that in spite of the Central Legislation

operating in the field the State was left with the following powers

available to legislate in respect of alcohol -

"(a) It may pass any legislation in the nature

of prohibition of potable liquor referable

to Entry 6 of List II and regulating

powers.

(b) It may lay down regulations to ensure

that non-potable alcohol is not diverted

and misused as a substitute for potable

alcohol.

(c) The State may charge excise duty on

potable alcohol and sales tax under Entry

52 of List II. However, sales tax cannot

be charged on industrial alcohol in the

present case, because under the Ethyl

Alcohol (Price Control) Orders, sales tax

cannot be charged by the State on

industrial alcohol.

(d) However, in case State is rendering any

service, as distinct from its claim of so-

called grant of privilege, it may charge

fees based on quid pro quo. See in this

connection, the observation of Indian

Mica case, (1971) 2 SCC 236."

It may be seen that the power to levy sales tax on

industrial alcohol was available to the State but for the

provisions of the Ethyl Alcohol (Price Control) Orders on account

of which the State could not charge sales tax on industrial

alcohol. The State could levy any fee based on quid pro quo.

The seven-Judges Bench decision lends support to the view we

are taking that in the field occupied by the Centre for regulation

and control, power to levy tax and fee is available to the State

so long as it does not interfere with the regulation - the power

assumed and occupied by the Union.

Before a seven-Judges Bench in The Automobile

Transport (Rajasthan) Ltd. Vs. The State of Rajasthan &

Ors., (1963) 1 SCR 491, the question arose if State could make

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laws imposing regulatory restrictions on free trade, commerce

and intercourse guaranteed by Article 301 of Constitution and

whether a State tax could be treated as impeding freedom under

Article 301 of Constitution. The following statement of law by

majority speaking through S.K. Das, J. (at pp.524-525) is very

much in point for our purpose:-

"Such an interpretation would, in our

opinion, seriously affect the legislative power

of the State Legislatures which power has been

held to be plenary with regard to subjects in

list II. The States must also have revenue to

carry out their administration and there are

several items relating to the imposition of

taxes in list II. The Constitution-makers must

have intended that under those items the

States will be entitled to raise revenue for their

own purposes. If the widest view is accepted,

then there would be for all practical purposes,

an end of State autonomy even within the

fields allotted to them under the distribution of

powers envisaged by our Constitution. An

examination of the entries in the lists of the

Seventh Schedule to the Constitution would

show that there are a large number of entries

in the State list (list II) and the Concurrent list

(list III) under which a State Legislature has

power to make laws. Under some of these

entries the State Legislature may impose

different kinds of taxes and duties, such as

property tax, sales tax, excise duty etc., and

legislation in respect of any one of these items

may have an indirect effect on trade and

commerce. Even laws other than taxation

laws, made under different entries in the lists

referred to above, may indirectly or remotely

affect trade and commerce. If it be held that

every law made by the Legislature of a State

which has repercussion on tariffs, licensing,

marketing regulations, price-control etc., must

have the previous sanction of the President,

then the Constitution in so far as it gives

plenary power to the States and State

Legislatures in the fields allocated to them

would be meaningless."

Their Lordships also observed (at p.526-527) that the freedom

guaranteed by Article 301 does not mean freedom from taxation.

The power of levying tax is essentially for the very existence of

Government, though its exercise may be controlled by

constitutional provisions made in that behalf. Power to tax is not

outside constitutional limitations. It is for Parliament to exercise

power in the field made available to it by Entry 52 and 54 in List

I. It is also for Parliament to state by law the limitations - and

the sweep thereof - which it may choose to impose on field

available to State for taxation by reference to Entry 50 in List II.

It may not be for Courts to venture into enquiry in just an

individual case to find and hold what tax would hamper mineral

development if Parliament has chosen to observe silence by not

legislating or failed to say something explicit.

A reasonable tax or fee levied by State legislation cannot,

in our opinion, be construed as trenching upon Union's power

and freedom to regulate and control mines and minerals.

India Cement and decisions post India Cement, based

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thereon :

India Cement is clearly distinguishable so far as the

present cases are concerned. As we have already pointed out it

was a case of cess levied by Sate Legislature on royalty and not

on mineral rights or land and buildings. That is why the levy

was held ultra vires. Seervai's comment and objective criticism

on India Cement is noteworthy (See - ibid, para 22.257 C).

Royalty is income and State Legislatures are not competent to

tax an income. This single ground was enough to strike down

the levy of cess impugned in India Cement. Nothing more was

needed. The Orissa Cement Ltd. (supra) also, as the very

opening part of the report shows, dealt with the levy of a cess by

the State based on the royalty derived from mining lands which

was held to be directly and squarely governed by India Cement

and, therefore, struck down.

In State of Orissa & Ors. Vs. Mahanadi Coalfields Ltd.

and Ors., 1995 Supp. (2) SCC 686, the impugned levy by the

State Legislature was a tax of Rs.32 per thousand acre on coal

bearing lands. It was sought to be defended as falling under

Entry 49 or in the alternative under Entry 23 or Entry 50 in List

II. The attack was that the legislation being one on mineral

lands and mineral rights and the Parliament having enacted the

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

field was entirely covered and the State Legislature was

incompetent to levy the tax. Reliance was placed on India

Cement, Orissa Cement and Buxa Dooars Tea Co.Ltd.

(supra). Only mineral bearing land and coal bearing land were

the subject of the levy of tax. The three-Judges Bench speaking

through K.S. Paripoornan, J., concluded that the charging

section of the impugned Act imposed a tax on the minerals also,

and was not confined to a levy on land or surface characteristic

of the land. All non-mineral bearing lands and non-coal bearing

lands were left out of the levy. The levy was struck down as

levying a tax not on land (related to surface characteristic of the

land) but on minerals and mineral rights. Goodricke's case

(supra) was cited before their Lordships and it was observed that

in Goodricke's case the impugned levy was held to be a tax on

land and that makes all the difference.

We find it difficult to subscribe to the reasoning adopted in

Mahanadi Coalfields Ltd..

Buxa Dooars Tea Co. Ltd. and Ors. Vs. State of West

Bengal and Ors. - (1989) 3 SCC 211 is a two-Judges Bench

decision. Rural employment cess was levied at the rate of Rs.5

per kg. on all dispatches of tea. The rate was changed from

time to time but that is not very material. A careful reading of

the report shows that the primary challenge was on the ground

of the impugned cess being violative of Article 14 and 301 of the

Constitution as it had the direct and immediate effect of

impeding the movement of goods throughout the territory of

India. The challenge was sustained. Incidentally, and very

briefly, their Lordships have in one paragraph also dealt with the

question of legislative competence of the State Government by

reference to Entry 49 in List II. Their Lordships have observed,

"if the legislation is in substance legislation in respect of

dispatches of tea, legislative authority must be found for it with

reference to some other entry. No Entry in Lists II and III is

pertinent. Moreover, the Union had, in public interest, assumed

control over the tea industry including the tea trade and control

of tea prices." Therefore, the Court concluded that the

impugned legislation was also void for want of legislative

competence as it pertained to a covered field. Suffice it to

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observe that to the extent the learned Judges have dealt with

the challenge by reference to legislative competence of the State

Legislature under Entry 49 in List II, there is not much of

discussion and is just incidental and the observations are too

wide to be countenanced. Another distinguishing feature

common to these decisions is that the distinction and

demarcation of fields of operation between Central and State

Acts by reference to the doctrine of pith and substance seems to

have been not adverted to.

From Baijnath Kadio to Eastern Coalfields

Before we proceed to deal with Goodricke, it will be

necessary to complete the chain of thought by referring to four

decisions and the law which developed therewith between the

years 1970 and 1982 which can be termed a period by itself on

the issues at hand.

In Baijnath Kadio Vs. The State of Bihar and Ors.-

(1969) 3 SCC 838, the writ-petitioners were holding mining

leases for minor minerals. The State of Bihar amended the Bihar

Minor Mineral Concession Rules, 1964, whereby with effect from

27.1.1964 the rates of dead rent, royalty and surface rent were

revised. Additional demands were raised. It was submitted that

in view of the provisions contained in the MMDR Act, 1957

incorporating (vide, Section 2 thereof) a declaration within the

meaning of Entry 54 in List I, it was not competent for the State

Legislature to revise the rates as abovesaid. This Court held

that the whole of the legislative field relating to minor minerals

was covered by the Central Legislation by virtue of the

declaration made by Section 2 and the enactment of Section 15

in the Act, thereby leaving no scope for the enactment of the

second proviso to Section 10 of the Bihar Land Reforms Act

whereunder the powers to increase the royalty, dead rent and

surface rent were sought to be exercised. There were pre-

existing old leases which could have been modified only by a

legislative enactment made by the Parliament on the lines of

Section 16 of Act No.67 of 1957. Any attempt to regulate such

old mining leases will fall not in Entry 18 but in Entry 23 of List II

even though the regulation incidentally touches them. The pith

and substance of the amendment of Section 10 of the Bihar Land

Reforms Act falls within Entry 23 although it incidentally touches

land and not vice versa. Entry 18 did not come to the rescue of

the State Government and Entry 23 was subject to the

provisions of List I. The impugned provision and the action

taken thereunder were held ultra vires the Constitution. The

decisions of this Court in The Hingir-Rampur Coal Co.Ltd. &

Ors. and M/s M.A. Tulloch and Co. were referred to.

However, the law laid down by the Constitution Bench (vide para

13) is significant. It held :-

"..........It is open to Parliament to declare that it

is expedient in the public interest that the

control should rest 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 Legislature."

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[underlining by us]

H.R.S. Murthy Vs. The Collector of Chittoor and Anr. -

(1964) 6 SCR 666 was a writ petition filed under Article 32 of the

Constitution laying challenge to the validity of notices of demand

for the payment of land cess under the Madras District Boards

Act, 1920. The mining lease dated September 15, 1953,

authorised the lessee to work and win iron ore in a tract of land

in Chittoor; dead rent, royalty and surface rent were payable

under the mining lease. The District Board levied land cess on

the annual rental value of all occupied lands. The challenge to

the constitutional validity of the land cess was dismissed. The

Court held:-

(1) It is therefore not possible to accept the contention, that

the fact that the lessee or licensee pays a royalty on the

mineral won, which is in excess of what he would pay if his

right over the land extended only to the mere use of the

surface land, places it in a category different from other

types where the lessee uses the surface of the land alone.

In each case the rent which a lessee or licensee actually

pays for the land being the test, it is manifest that the land

cess is nothing else except a land tax.

(2) When a question arises as to the precise head of legislative

power under which a taxing statute has been passed, the

subject for enquiry is what in truth and substance is the

nature of the tax. No doubt, in a sense but in a very

remote sense, it has relationship to mining as also to the

mineral won from the mine under a contract by which

royalty is payable on the quantity of mineral extracted.

But that, does not stamp it as a tax on either the

extraction of the mineral or on the mineral right. It is

unnecessary for the purpose of this case to examine the

question as to what exactly is a tax on mineral rights

seeing that such a tax is not leviable by Parliament but

only by the State and the sole limitation on the State's

power to levy the tax is that it must not interfere with a

law made by Parliament as regards mineral development.

Our attention was not invited to the provision of any such

law enacted by Parliament. In the context of Ss.78 and 79

and the scheme of those provisions it is clear that the land

cess is in truth a "tax on lands" within Entry 49 of the

State List.

The only decisions referred to in H.R.S. Murthy were

Hingir-Rampur Coal Co.Ltd. & Ors. and M.A. Tulloch.

In State of Haryana and Anr. Vs. Chanan Mal - (1977)

1 SCC 340, referring to the provisions of the MMDR Act, 1957

and a State enactment of Haryana, (the constitutional validity

whereof was under challenge) the Constitution Bench held that

subject to the overall supervision of the Central Government, the

State Government has a sphere of its own power and can take

legally specified action under the Central Act and rules made

thereunder. Thus, the whole field of control and regulation

under the provisions of the Central Act 67 of 1957 cannot be

said to be reserved for the Central Government.

Western Coalfields Ltd. Vs. Special Area

Development Authority, Korba and Anr. - (1982) 1 SCC 125

is a Division Bench decision. The M.P. Municipality Act, a State

enactment, levied property tax payable by the owner of the land

or buildings and could also be recovered from the occupier of the

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land or the building in certain contingencies. The validity of the

property tax was upheld by reference to Entry 5 (Local

Government) read with Entry 49 (Taxes on lands and buildings)

in List II. The availability of the MMDR Act, 1957, and the

declaration incorporated in Section 2 thereof did not come in the

way of the validity of the property tax inasmuch as the property

tax levied by the State Government through municipalities had

nothing to do with the development of mines. The Court opined

that the functions, powers and duties of municipalities did not

become part of the occupied field by virtue of declaration under

Section 2 of the Act No.67 of 1957 and the competence of the

State to enact laws for municipal administration will remain

unaffected by that declaration. Baijnath Kadio was

distinguished.

Goodricke's case

Now, we come to Goodricke's case. The impugned

provisions were incorporated by the West Bengal Taxation Laws

(Second Amendment) Act 1989 into the West Bengal Primary

Education Act, 1973 and the West Bengal Rural Employment and

Production Act, 1976. Both the amendments were identical and

have been set out in the earlier part of this judgment.

While the State sought to justify the levy of impugned cess

by reference to Entry 49 of List II, the writ petitioner laid

challenge to the validity of levy on very many grounds. It was

submitted, firstly, that to bring the levy within the field of Entry

49 of List II it must be directly upon the land whereas the levy in

question is really a tax on production of tea, a subject covered

by Entry 84 of List I; secondly, that a tax on land must be a

constant figure whereas the impugned levy varies from year to

year based as it is on the quantity of tea produced in a tea

estate in a given year and where there is no production of tea

leaves at all in a particular year, no cess would be payable by

tea estate in that year; thirdly, that the definition of 'tea estate'

further establishes the absence of any nexus between 'cess' and

the 'land'; land covered by the factory and building and even

fallow land, is included within the meaning of 'tea estate' and if

no tea leaves are produced and plucked, there would not be levy

on the estate at all; and fourthly, that the levy is clearly invalid

in view of the seven-Judges Bench decision of this Court in

India Cement and the three-Judges Bench decision in Orissa

Cement. It was urged that the impugned amendment was

brought to remove the defect in the levy pointed out in Buxa

Dooars, but the flaw was persisting. Jeevan Reddy, J., spoke

for the three-Judges Bench, placing on record their unanimous

opinion. The Court noticed, vide para 10, the real factual

situation as generally obtains about the tea estate. The

definition of 'tea estate' as incorporated by the amendment is a

well-understood entity and hence is legitimately and reasonably

capable of being classified as a separate category for the

purpose of taxation and the rate of tax. The Court, on a near -

exhaustive review of the available decisions on the point, arrived

at a few conclusions which, so far as relevant for our purposes,

are summed up as under:

(i) a financial levy must have a mode of

assessment but the mode of assessment does

not determine the character of a tax. The

nature of machinery for assessment is often

complicated and is not of much assistance

except insofar as it may throw light on the

general character of the tax. The annual value

is not necessarily an actual income but only a

standard by which income may be measured.

Merely because the same standard or

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mechanism of assessment has been adopted in

a legislation covered by an entry under the

Union List and also by a legislation covered by

an entry in the State List, the latter legislation

cannot be said to have encroached upon the

field meant for the former;

(ii) the subject of tax is different from the

measure of the levy;

(iii) merely because a tax on land or building is

imposed by reference to its income or yield, it

does not cease to be a tax on land or building.

The income or yield of the land/building is

taken merely as a measure of the tax; it does

not alter the nature or character of the levy. It

still remains a tax on land or building. No one

can say that a tax under a particular entry

must be levied only in a particular manner.

The legislature is free to adopt such method of

levy as it chooses. So long as the essential

character of levy is not departed from within

the four corners of the particular entry, the

manner of levying the tax would not have any

vitiating effect;

(iv) ample authority is available to hold that a

tax on land within the meaning of Entry 49 of

List II can be levied with reference to the yield

or income. Whether an agricultural land or an

orchard or a tea estate, they do require some

capital and labour to make them yield or to

produce income which yield or income can

without difficulty be taken as measure for

quantifying the tax which would undoubtedly

be a levy on the land;

(v) it is not an essence of a tax, nor a

condition of its validity, that the tax must be

constant and uniform for all the years or for a

particular number of years. The tax on land or

building can be levied and assessed by

reference to previous year's income or yield.

In short, it is open to the State Legislature to

adopt such formula as it thinks appropriate for

levying the tax and so long as the character of

the tax remains the same as contemplated by

the entry, it does not matter how the tax is

calculated, measured or assessed;

(vi) it is permissible to classify land by

reference to its user as a separate unit for the

purpose of levy of cess. Tea estate, as a

separate category of land, is a valid

classification;

(vii) the fact that the Tea Act empowers the

Central Government to levy a duty or cess

upon tea or tea leaves for the purposes of that

Act, can in no manner deprive the State

Legislature of its power to tax the land

comprised in a tea estate. By levying the cess

the State Legislature is not seeking to control

the cultivation of tea but only to levy the tax

on land comprised in a tea estate. The fact

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that ultimately the tax may have to be borne

by the tea industry is no ground for holding

that the said levy is upon the tea industry.

The State Legislature is not denuded of its

power to levy a tax upon the land or upon a

building merely because such land or building

is held or owned by an industry which is

governed by a central legislation.

On applying the abovesaid principles the Court concluded

that taking the quantum of yield of a tea estate for measuring

the amount of tax is perfectly valid and cannot be equated to the

situation in India Cement. We may observe that the reasoning

adopted in Goodricke accords with the reasoning in Hingir-

Rampur.

Having made an independent review of several judicial

decisions and the several settled legal principles, as dealt with

hereinabove, we are satisfied that the Goodricke's case (supra)

was correctly decided and the law laid down therein is correct

and supported by authority in abundance. The distinguishing

features which exclude the applicability of law laid down in India

Cement and Orissa Cement to the fact situations like the ones

we are called upon to deal with, were rightly pointed out in

Goodricke and those very reasons additionally explained by us

do not permit the cases on hand being ruled by India Cement

and Orissa Cement.

In a nutshell

The relevant principles culled out from the preceding

discussion are summarized as under:-

(1) In the scheme of the Lists in the Seventh Schedule, there

exists a clear distinction between the general subjects of

legislation and heads of taxation. They are separately

enumerated.

(2) Power of 'regulation and control' is separate and distinct

from the power of taxation and so are the two fields for purposes

of legislation. Taxation may be capable of being comprised in

the main subject of general legislative head by placing an

extended construction, but that is not the rule for deciding the

appropriate legislative field for taxation between List I and List

II. As the fields of taxation are to be found clearly enumerated

in Lists I and II, there can be no overlapping. There may be

overlapping in fact but there would be no overlapping in law. The

subject matter of two taxes by reference to two Lists being

different simply because the methodology or mechanism

adopted for assessment and quantification is similar, the two

taxes cannot be said to be overlapping. This is the distinction

between the subject of a tax and the measure of a tax.

(3) The nature of tax levied is different from the measure of

tax. While the subject of tax is clear and well defined, the

amount of tax is capable of being measured in many ways for

the purpose of quantification. Defining the subject of tax is a

simple task; devising the measure of taxation is a far more

complex exercise and therefore the legislature has to be given

much more flexibility in the latter field. The mechanism and

method chosen by Legislature for quantification of tax is not

decisive of the measure of tax though it may constitute one

relevant factor out of many for throwing light on determining the

general character of the tax.

(4) Entries 52, 53 and 54 in List I are not heads of taxation.

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They are general entries. Fields of taxation covered by Entries

49 and 50 in List II continue to remain with State Legislatures in

spite of Union having enacted laws by reference to Entries 52,

53, 54 in List I. It is for the Union to legislate and impose

limitations on States otherwise plenary power to levy taxes on

mineral rights or taxes on lands (including mineral bearing

lands) by reference to Entry 50 and 49 in List II and lay down

the limitations on State's power, if it chooses to do so, and also

to define the extent and sweep of such limitations.

(5) The Entries in List I and List II must be so construed as to

avoid any conflict. If there is no conflict, an occasion for

deriving assistance from non-obstante clause "subject to" does

not arise. If there is conflict, the correct approach is to find an

answer to three questions step by step as under:

One - Is it still possible to effect reconciliation between

two Entries so as to avoid conflict and

overlapping?

Two - In which Entry the impugned legislation falls by

finding out the pith and substance of the

legislation?

and

Three - Having determined the field of legislation wherein

the impugned legislation falls by applying doctrine

of pith and substance, can an incidental

trenching upon another field of legislation be

ignored?

(6) 'Land', the term as occurring in Entry 49 of List II, has a

wide connotation. Land remains land though it may be

subjected to different user. The nature of user of the land would

not enable a piece of land being taken out of the meaning of

land itself. Different uses to which the land is subjected or is

capable of being subjected provide basis for classifying land into

different identifiable groups for the purpose of taxation. The

nature of user of one piece of land would enable that piece of

land being classified separately from another piece of land which

is being subjected to another kind of user, though the two pieces

of land are identically situated except for the difference in nature

of user. The tax would remain a tax on land and would not

become a tax on the nature of its user.

(7) To be a tax on land, the levy must have some direct and

definite relationship with the land. So long as the tax is a tax

on land by bearing such relationship with the land, it is open for

the legislature for the purpose of levying tax to adopt any one of

the well known modes of determining the value of the land such

as annual or capital value of the land or its productivity. The

methodology adopted, having an indirect relationship with the

land, would not alter the nature of the tax as being one on land.

(8) The primary object and the essential purpose of legislation

must be distinguished from its ultimate or incidental results or

consequences, for determining the character of the levy. A levy

essentially in the nature of a tax and within the power of State

Legislature cannot be annulled as unconstitutional merely

because it may have an affect on the price of the commodity. A

State legislation, which makes provisions for levying a cess,

whether by way of tax to augment the revenue resources of the

State or by way of fee to render services as quid pro quo but

without any intention of regulating and controlling the subject of

the levy, cannot be said to have encroached upon the field of

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'regulation and control' belonging to the Central Government by

reason of the incidence of levy being permissible to be passed on

to the buyer or consumer, and thereby affecting the price of the

commodity or goods. Entry 23 in List II speaks of regulation of

mines and mineral development subject to the provisions of List

I with respect to regulation and development under the control

of the Union. Entries 52 and 54 of List I are both qualified by

the expression "declared by Parliament by law to be expedient in

the public interest". A reading in juxtaposition shows that the

declaration by Parliament must be for the 'control of industries'

in Entry 52 and 'for regulation of mines or for mineral

development' in Entry 54. Such control, regulation or

development must be 'expedient in the public interest'.

Legislation by the Union in the field covered by Entries 52 and

54 would not like a magic touch or a taboo denude the entire

field forming subject matter of declaration to the State

Legislatures. Denial to the State would extend only to the

extent of the declaration so made by Parliament. In spite of

declaration made by reference to Entry 52 or 54, the State

would be free to act in the field left out from the declaration.

The legislative power to tax by reference to Entries in List II is

plenary unless the entry itself makes the field 'subject to' any

other entry or abstracts the field by any limitations imposable

and permissible. A tax or fee levied by State with the object of

augmenting its finances and in reasonable limits does not ipso

facto trench upon regulation, development or control of the

subject. It is different if the tax or fee sought to be levied by

State can itself be called regulatory, the primary purpose

whereof is to regulate or control and augmentation of revenue or

rendering service is only secondary or incidental.

(9) The heads of taxation are clearly enumerated in Entries 83

to 92B in List I and Entries 45 to 63 in List II. List III, the

Concurrent List, does not provide for any head of taxation.

Entry 96 in List I, Entry 66 in List II and Entry 47 in List III deal

with fees. The residuary power of legislation in the field of

taxation spelled out by Article 248 (2) and Entry 97 in List I can

be applied only to such subjects as are not included in Entries 45

to 63 of List II. It follows that taxes on lands and buildings in

Entry 49 of List II cannot be levied by the Union. Taxes on

mineral rights, a subject in Entry 50 of List II can also not be

levied by the Union though as stated in Entry 50 itself the Union

may impose limitations on the power of the State and such

limitations, if any, imposed by the Parliament by law relating to

mineral development and to that extent shall circumscribe the

States' power to legislate. Power to tax mineral rights is with

the States; the power to lay down limitations on exercise of such

power, in the interest of regulation, development or control, as

the case may be, is with the Union. This is the result achieved

by homogeneous reading of Entry 50 in List II and Entries 52

and 54 in List I. So long as a tax or fee on mineral rights

remains in pith and substance a tax for augmenting the revenue

resources of the State or a fee for rendering services by the

State and it does not impinge upon regulation of mines and

mineral development or upon control of industry by the Central

Government, it is not unconstitutional.

The Result - individual cases

(A) Coal Matters

The amendments incorporated by the West Bengal

Taxation Laws (Amendment) Act 1992 w.e.f. 1.4.1992 into the

provisions of the West Bengal Primary Education Act 1973 and

the West Bengal Rural Employment and Production Act 1976

classify the land into three categories: (i) coal-bearing land, (ii)

mineral bearing land (other than coal-bearing land) or quarry

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and (iii) land other than the preceding two categories. These

three are well-defined classifications by reference to the user or

quality and the nature of product which it is capable of yielding.

The cess is levied on the land. The method of quantifying the

tax is by reference to the annual value thereof. It is well-known

that one of the major factors contributing to the value of the

land is what it produces or is capable of producing. Merely

because the quantum of coal produced and dispatched or the

quantum of mineral produced and dispatched from the land is

the factor taken into consideration for determining the value of

the land, it does not become a tax on coal or minerals. Being a

tax on land it is fully covered by Entry 49 in List II. Assuming it

to be a tax on mineral rights it would be covered by Entry 50 in

List II. Taxes on mineral rights lie within the legislative

competence of the State Legislature "subject to" any limitation

imposed by Parliament by law relating to mineral development.

The Central legislation has not placed any limitation on the

power of the States to legislate in the field of taxation on mineral

rights. The challenge to constitutional validity of State

legislation is founded on non-availability of legislative field to

State; it has not been the case of any of the writ petitioners that

there are limitations enacted by Central legislation and the State

of West Bengal has breached or crossed those limits. Simply

because incidence of tax is capable of being passed on to buyers

or consumers by the mine owners with an escalating affect on

the price of the coal, it cannot be inferred that the tax has an

adverse effect on mineral development. Entry 23 in List II

speaks of regulation of mines and mineral developments, subject

to the provisions of List I with respect to regulation and

development under the control of the Union. The Central

Legislation has taken over regulation and development of mines

and mineral development in public interest. By reference to

Entry 50 of List II and Entry 54 in List I, the Central legislation

has not cast any limitations on the State Legislature's power to

tax mineral rights, or land for the matter of that. The impugned

cess is a tax on coal-bearing and mineral-bearing land. It can at

the most be construed to be a tax on mineral rights. In either

case, the impugned cess is covered by Entries 49 and 50 of List

II. The West Bengal Taxation Laws (Amendment) Act 1992 must

be and is held to be intra vires the Constitution.

We also hold that Mahanadi Coalfields was not correctly

decided in as much as India Cement Ltd. and Orissa Cement

Ltd. were applied to the levy of a cess to which they did not

apply. The learned Judges, deciding Mahanadi Coalfields Ltd.

were, with respect, not right in forming the opinion that the cess

was levied on minerals and mineral rights and not on land and

hence the conclusion reached therein that the State Legislature

did not have the legislative competence and that the State

legislation trenched upon a field already occupied by Mines and

Minerals (Regulation and Development) Act 1957, a Central

Legislation is incorrect. State of Orissa & Ors. Vs. Mahanadi

Coalfields Ltd. and Ors., 1995 Supp. (2) SCC 686, is

overruled.

(B) Tea Matters

Inasmuch as we have held Goodricke Group Ltd. and

Ors. Vs. State of West Bengal and Ors. - (1995) Supp. 1 SCC

707 to have been correctly decided the impugned levy on tea

estates as levied by the West Bengal Taxation Laws (Second

Amendment) Act 1989, is held to be intra vires the Constitution.

However, in brief, we may state that the impugned levy is of

cesses on tea estates i.e. the land forming part of tea estates as

defined in the impugned Act. The land forming part of the tea

estates is a well-defined classification. Simply because the

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method for quantifying the tax is by reference to the yield of the

land determinable by taking into account the quantum of tea

produced and dispatched, it does not become a cess on tea or a

tax on production of tea or a tax on income of land. The Tea Act

of 1953 contains a declaration vide Section 2 thereof that it is

expedient in the public interest that the Union should take under

its control the tea industry. The declaration is in terms of Entry

52 in List I. Union's assumption of control of tea as industry and

as being expedient in the public interest, does not amount to

vesting the power to tax or levy fee in the Central Government

by reference to tea or on tea estates. Section 25 of Tea Act

empowers the Central Government to levy and collect excise

duty on tea produces, which on collection shall be credited to the

Consolidated Fund of India. There is no other provision in Tea

Act empowering levy of any tax or fee on tea or tea bearing

land. The impugned cess is a tax on tea-bearing land, a well-

defined classification and is covered by Entry 49 in List II. We

uphold the logic and reasoning assigned and conclusions drawn

by this Court in Goodricke on all the counts.

(C) Brick Earth Matters

Brick earth is a minor mineral. What we have stated about

the impugned cess by reference to coal applies to brick earth as

well. The field as to taxation cannot be said to have been

covered by Central Legislation by reference to Entry 54 in

Schedule I. Quantification of levy by reference to quantity of

brick earth dispatched is a methodology adopted for the purpose

of finding out the quantity of brick earth removed from the land.

It has a definite and direct co-relation with the land. There is no

particular charm about the challenge developed by the writ

petitioners laying emphasis on the meaning of the word

"dispatched". The gist and substance of what the legislature is

taking into account is the brick earth actually removed.

"Dispatched" has the effect of taking into account the brick earth

"removed" and not simply "moved" and left behind. The average

quantity of brick earth utilized in making bricks whether on the

brick field itself or on a place nearby, does involve removal - and

consequently dispatch __ of the brick earth from the place where

it was to the place where it is captively consumed in making

bricks. The fact that methodology for working out the royalty

payable and the cess payable is the same, does not have any

detrimental effect on the constitutional validity of the cess

whether it be treated as one on the land - classified by reference

to its production, i.e., the brick earth or as one on mineral rights

in brick earth. In either case it would be covered by Entries 49 or

50 in List II. None of the pleas raised has any merit.

(D) Minor Mineral Matters

While narrating the facts, we have quoted in the earlier

part of the judgment Section 35 of the U.P. Special Area

Development Authorities Act, 1986 (SADA Act, for short) which

is the charging section and the Rules framed under the Act. We

refer to other relevant provisions of the Act in brief.

Section 3 of the SADA Act authorizes the State

Government to declare by notification an area to be a special

development area upon its forming an opinion that any area of

special importance in the State needs to be developed in a

planned manner. The authority is empowered to prepare a

master plan for the special development area, to provide for the

development of lands in the area, to compulsorily acquire land

and so on. The powers are drastic and all-oriented with the

object of effecting a planned intensive and extensive

development of an area as to which the State Government may

have formed an opinion that it was an area of special

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importance. Declaring an area as a special development area in

view of its special importance and constituting an authority for

the administration and management of the area entrusted with

the obligation of its development is not a matter of empty

formality. The empowerment of the authority is accompanied by

an obligation cast on it by the State Government through the

special legislation of fulfilling the object behind the declaration of

special area and constitution of the authority. The Act has been

given an over-riding effect by virtue of Section 52 thereof. Not

only the area is taken out of the administration by the other

bodies of local self-government such as municipality or

panchayat, but any other master plan or development plan

formulated by any other authority ceases to apply to such area.

It was contended on behalf of the writ petitioners-

appellants that whether a major or a minor mineral, by virtue of

the provisions contained in the MMDR Act, 1957 and U.P. Mine &

Minerals Concession Rules 1963, framed in exercise of the power

conferred by Section 15 of the MMDR Act, the mineral rights in

any land are subject to payment of royalty which is fixed.

Sections 8 and 9 of the MMDR Act confer the power to enhance

or reduce the rate at which royalty or dead rent shall be

payable in respect of any mineral. Any cess levied by the State

Government would have the effect of increasing the royalty.

Section 2 of the MMDR Act makes the requisite declaration to the

effect that it is expedient in the public interest that the Union

should take under its control the regulation of mines and the

development of minerals 'to the extent hereinafter provided'.

Such declaration is in the terms contemplated by Entry 54 of List

I. It was submitted that the levy of cess by the State

Government would be clearly repugnant to the power reserved

by the Constitution and the MMDR Act to be exercised only by

the Central Government and hence the impugned levy of cess is

repugnant to the central legislation. To test the validity of the

submission we have to examine the real nature of the levy and

find out if such levy encroaches upon the field reserved for

central legislation.

All the minerals form part of the land. Minerals are

conceived by the mother earth by the process of nature and

nurtured over innumerable number of years and delivered on

their assuming value and utility for the earthlings. Generally and

broadly speaking - and that would suffice for our purpose, a

mine is an excavation in the earth which yields minerals.

Mineral is something which grows in a mine and is capable of

being won or extracted so as to be subjected to a better or

precious use. Until extracted, the mineral forms part of the crust

of the earth. A mineral right, according to Black's Law Dictionary

(Seventh Edition) is the right to search for, develop, and remove

materials from the land. It also means the right to receive a

royalty based on the production of minerals which right is usually

granted by a mineral lease. In both the senses, the right vests

in the owner of the land and is capable of being parted with.

It is well settled that it is for the legislature to draft a piece

of legislation by making the choicest selection of words so as to

give expression to its intention. The ordinary rule of

interpretation is that the words used by the legislature shall be

given such meaning as legislature has chosen to assign them by

coining definitions contained in the interpretation clause and in

absence thereof the words would be given such meaning as they

are susceptible of in the ordinary parlance, may be by having

recourse to dictionaries. However still, the interpretation is the

exclusive privilege of the Constitutional Courts and the Court

embarking upon the task of interpretation would place such

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meaning on the words as would effectuate the purpose of

legislation avoiding absurdity, unreasonableness, incongruity and

conflict. As is with the words used so is with the language

employed in drafting a piece of legislation. That interpretation

would be preferred which would avoid conflict between two fields

of legislation and would rather import homogeneity. It follows

as a corollary of the abovesaid statement that while interpreting

tax laws the Courts would be guided by the gist of the legislation

instead of by the apparent meaning of the words used and the

language employed. The Courts shall have regard to the object

and the scheme of the tax law under consideration and the

purpose for which the cess is levied, collected and intended to be

used. The Courts shall make endavour to search where the

impact of the cess falls. The subject matter of levy is not to be

confused with the method and manner of assessment or

realisation.

It is true that once a central legislation declares regulation

of mines and mineral development by law to be expedient in the

public interest, the legislation relating to regulation of mines and

development of minerals shall fall within the sweep of Entry 54

of List I. The entry has to be liberally and widely interpreted.

Yet it cannot be lost sight of that the entry itself employs an

expression "to the extent to which such regulation and

development under the control of the Union is declared by

Parliament by law" as qualifying the preceding expression stating

the subject __ "regulation of mines and minerals development".

Section 2 of MMDR Act too qualifies the relevant declaration by

suffixing to it the expression "to the extent hereinafter

provided". Section 15 of the Act has excepted and preserved the

power of State Governments to make rules in respect of minor

minerals. The qualifying words used in Entry 54 of List I and in

Section 2 of the MMDR Act contain an in-built indication that in

spite of an inclination on the part of the Courts to be liberal in

assigning a wide meaning to the scope of the said provisions, the

boundaries of limitation are there and the expanse of these

provisions cannot be so stretched as to strike at the State

Legislations which are adequately accommodated within the field

of an Entry in List II which too shall have to be meaningfully and

liberally construed.

The MMDR Act enables control over the regulation of mines

and the development of minerals being exercised by the Central

Government through legislation. The High Court has upheld the

validity of the SADA Act by relating it to Entry 5 in List II which

is 'local government'. Any local government exercising the

power of governance over a local area shall have to administer,

manage and develop the area lying within its territory which

cannot be done without raising funds. It is usual for every piece

of legislation giving birth to an institution of local government to

feed it by incorporating provisions conferring power of

generating funds for meeting the expenses of governance. The

SADA Act intends to achieve a level of local governance which

the usual models of local government such as boards and

municipalities are not considered capable of achieving and that is

why a special development area and a Special Area Development

Authority. The fund established under the Act meets expenses

of administration needed to be incurred by the authority. The

funds cannot be utilized for any purpose other than the

administration of the Act. There are pieces of land which though

containing a mine yet fall within the territory of special

development area. It was pointed out by the respondents before

the High Court that in spite of the Act having been enacted in

the year 1986 the successive State Governments, which had

preceded, did not take care of the legislation and it was only the

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then government which became conscious of its obligations

under the SADA Act and commenced identifying special areas

requiring development such as Sonbhadra. The imposition of

cess envisaged through the SADA Act and the Rules was a step

towards developing the special area. It is a matter of common

knowledge, and does not need any evidence to demonstrate,

that mining activity carried on the land within the special area

involves extraction, removal, loading-unloading, and

transportation of the minerals accompanied by its natural

consequences entailed on the environment and the infrastructure

such as roads, water and power supply etc. within the special

area. The impugned cess can, therefore, be justified as a fee for

rendering such services as would improve the infrastructure and

general development of the area the benefits whereof would be

availed even by the stone crushers. Entry 66 in List II is

available to provide protective constitutional coverage to the

impugned levy as fee.

As held in Goodricke Group Ltd., 1995 Supp.(1) SCC

707, which we have held as correctly decided, this Court has

noted the principle of law well established by several decisions

that the measure of tax is not determinative of its essential

character. The same transaction may involve two or more

taxable events in its different aspects. Merely because the

aspects overlap, such overlapping does not detract from the

distinctiveness of the aspects. In our opinion, there is no

question of conflict solely on account of two aspects of the same

transaction being utilized by two legislatures for two levies both

of which may be taxes or fees or one of which may be a tax and

other a fee falling within two fields of legislation respectively

available to the two.

As we have pointed out earlier, a cess may be tax or fee.

So far as the present case is concerned, this distinction does not

need any further enquiry by reference to the facts of the case

inasmuch as the impugned cess is constitutionally valid

considered whether a tax or a fee. We do not propose to

continue dealing therewith any more inasmuch as it would be an

exercise in futility. We would only place on record briefly our

reasons for upholding the validity of the impugned levy whether

a tax or a fee.

As a tax the impugned levy of cess is clearly covered by

Entry 5 of List II (as the High Court has held, and we add) read

with Entries 49, 50 and 66 of List II. There is no challenge to

the declaration of the area as a special development area and

the constitution of Special Area Development Authority for the

administration thereof. In other words, the constitutional

validity of the enactment as a whole and the rules framed

thereunder is not put in issue. What is under challenge is only

the levy of cess. There is nothing wrong in the state legislation

levying cess by way of tax so as to generate its funds. Although

it is termed as a 'cess on mineral right', the impact thereof falls

on the land delivering the minerals. Thus, the levy of cess also

falls within the scope of Entry 49 of List II. Inasmuch as the

levy on mineral rights does not contravene any of the limitations

imposed by the Parliament by law relating to mineral

development, it is also covered by Entry 50 of List II. The power

to levy any tax or fee lying within the legislative competence of

the State Legislature can be delegated to any institution of local

government constituted by law within the meaning of Entry 5 in

List II. The Entries 5, 23, 49, 50 and 66 of List II provide

adequate constitutional coverage to the impugned levy of cess.

True it is that the method of quantifying the cess is by reference

to the quantum of mineral produced. This would not alter the

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character of the levy. There are myriad methods of calculating

the value of the land for the purpose of quantifying the tax

reference whereto has already been made by us in the other part

of this judgment. Validity of cess upon the land quantified by

reference to the quantity of its produce was held to be a levy on

the land and hence constitutional in Ralla Ram, AIR 1949 FC

81, Moopil Nair, AIR 1961 SC 552 and Ajoy Kumar

Mukherjee, AIR 1965 SC 1561. It does not become excise duty

on manufacture and production of goods merely on account of

having relation with the quantity of product yielded of the land.

Rather it is a safe, sound and scientific method of determining

the value of the land to which the product relates. The levy of

cess considered as a tax is constitutionally valid.

In Western Coalfields Ltd. Vs. Special Area

Development Authority, Korba & Anr., (1982) 1 SCC 125,

the levy of a cess almost similar to the one in issue in the

present case, came up for the consideration of this Court. The

levy was for the purpose of enabling the municipal

administration to exercise its power and discharge its functions

under the Act. It was held that the declaration contained in

Section 2 of the MMDR Act does not have the effect of bringing

the powers, duties and functions of the local authority within the

purview of occupied field. The power to levy tax on lands and

buildings within their jurisdiction by the local authority was

upheld by this Court.

The following observations of Constitution Bench in

Hingir-Rampur Coal Co. squarely apply to SADA Act and SADA

Rules for upholding their constitutional validity -

"............in pith and substance the impugned Act

is concerned with the development of the

mining areas notified under it. The Central

Act, on the other hand, deals more directly

with the control of all industries including of

course the industry of coal."

"The functions of the Development Councils

constituted under this Act prescribed by

Section 6(4) bring out the real purpose and

object of the Act. It is to increase the

efficiency of productivity in the scheduled

industry or group of scheduled industries, to

improve or develop the service that such

industry or group of industries renders or could

render to the community, or to enable such

industry or group of industries to render such

service more economically."

"........the object of the (Central) Act is to

regulate the scheduled industries with a view

to improvement and development of the

service that they may render to the society,

and thus assist the solution of the larger

problem of national economy. It is difficult to

hold that the field covered by the declaration

made by Section 2 of this Act, considered in

the light of its several provisions, is the same

as the field covered by the impugned Act.

That being so, it cannot be said that as a result

of Entry 52 read with Act LXV of 1951 the vires

of the impugned Act can be successfully

challenged."

"Our conclusion, therefore, is that the

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impugned Act is relatable to Entries 234 and

66 in List II of the Seventh Schedule, and its

validity is not impaired or affected by Entries

52 and 54 in List I read with Act LXV of 1951

and Act LIII of 1948 respectively."

As stated earlier also, the impugned cess can be justified

as fee as well. The term cess is commonly employed to connote

a tax with a purpose or a tax allocated to a particular thing.

However, it also means an assessment or levy. Depending on

the context and purpose of levy, cess may not be a tax; it may

be a fee or fee as well. It is not necessary that the services

rendered from out of the fee collected should be directly in

proportion with the amount of fee collected. It is equally not

necessary that the services rendered by the fee collected should

remain confined to the persons from whom the fee has been

collected. Availability of indirect benefit and a general nexus

between the persons bearing the burden of levy of fee and the

services rendered out of the fee collected is enough to uphold

the validity of the fee charged. The levy of the impugned cess

can equally be upheld by reference to Entry 66 read with Entry 5

of Schedule II.

Royalty is not a tax. The impugned cess by no stretch of

imagination can be called a tax on tax. The impugned levy also

does not have the effect of increasing the royalty. Simply

because the royalty is levied by reference to the quantity of the

minerals produced and the impugned cess too is quantified by

taking into consideration the same quantity of the mineral

produced, the latter does not become royalty. The former is the

rent of the land on which the mine is situated or the price of the

privilege of winning the minerals from the land parted by the

government in favour of the mining lessee. The cess is a levy on

mineral rights with impact on the land and quantified by

reference to the quantum of minerals produced. The distinction,

though fine, yet exists and is perceptible.

In our opinion Ram Dhani Singh Vs. Collector,

Sonbhadra & Ors. - AIR 2001 All. 5 has been correctly

decided. We uphold and affirm the same.

End Result

C.A. Nos.1532-33 of 1993 (Coal Matters) are allowed. The

decision by Calcutta High Court [Kesoram Industries Ltd. (Textile

Division) Vs. Coal India Ltd. - AIR 1993 Calcutta 78] is set aside.

The writ petitions filed in the High Court of Calcutta shall stand

dismissed.

Leave granted in SLP (C) Nos.3986 of 1993, 11596 and

17549 of 1994.

C.A. Nos...............................of 2004 (Ambuja Cement Ltd.

& Anr. Vs. State of West Bengal & Ors.) and C.A. Nos.3518-

3519, 5149-54 of 1992, C.A. No.2350 of 1993, C.A. No.7614 of

1994 (Coal Matters) are directed to be dismissed.

W.P.(C) Nos.262 of 1997 (Tea matters) W.P.(C) Nos.515,

641, 642 of 1997, W.P.(C) Nos.347, 360 of 2000, W.P.(C)

Nos.50, 553 of 2000, W.P.(C) Nos.207,288,389 of 2001 and

W.P.(C) No.81 of 2003 are directed to be dismissed.

W.P.(C) No.247 of 1995 and W.P.(C) No.412 of 1995

(Brick Earth Matters) are directed to be dismissed.

C.A.Nos.5027 of 2000, C.A.Nos.6643, 6644, 6645, 6646,

6647, 6648, 6649, 6650, 6894 of 2000 and C.A.No.1077 of 2001

(Minor Mineral Matters) are dismissed. The decision by the

Allahabad High Court (Ram Dhani Singh Vs. Collector,

Sonbhadra & Ors. - AIR 2001 Allahabad 5) is affirmed.

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It would be useful to notice a few other relevant provisions

of the SADA Act. The Act provides for the establishment of

Special Area Development Authorities for the planned

development of certain areas of Uttar Pardesh and for matters

ancillary thereto. The State Government, when it is of the

opinion that any area of special importance in the State needs to

be developed in a planned manner, may, under Section 3 by

issuing a notification, declare such area to be a special

development area. On such declaration the area is to be

administered by the Special Area Development Authority. The

functions and the powers of the Authority have been enumerated

under Sections 6 and 7 as under :

"6. Functions of the Authority : - The

functions of the Special Area Development

Authority shall be -

(i) to promote and secure development in

a planned manner of the special

development area for which it has

been constituted;

(ii) to prepare development plan for the

special development area;

(iii) to implement the development plan

after its approval by the State

Government;

(iv) for the purpose of implementation of

the plan, to acquire, hold, develop,

manage and dispose of land and other

property;

(v) to carry out building, engineering,

mining operations and other

operations and other construction

activity;

(vi) to execute works in connection with

the supply of water and electricity and

to provide such utilities and amenities

as water, electricity, drainage and the

like;

(vii) to dispose of sewage and to provide

and maintain other services and

amenities;

(vii) to provide for the municipal

management of the special

development area in the same

manner as is done by Nagar

Mahapalika under the Uttar Pradesh

Nagar Mahapalika Adhiniyam, 1959;

(ix) to otherwise perform all such

functions as are necessary or

expedient for the purpose of the

planned development of the special

development area and for purposes

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incidental thereto;

Provided that the functions specified

in Clauses (viii) and (ix) shall not be

performed unless so required by the

State Government."

"7. Powers of the Authority.- The Special

Area Development Authority shall. -

(a) for the purpose of municipal

administration have the powers which

a Nagar Mahapalika has under the

Uttar Pradesh Nagar, Mahapalika

Adhiniyam, 1959;

(b) for the purpose of taxation have the

powers which a Nagar Mahapalika has

in relation to a city under the Uttar

Pradesh Nagar Mahapalika Adhiniyam,

1959."

Under Section 18, all the money received by the Authority

by way of cess have to be deposited in a fund which fund shall

be applied towards meeting the expenses to be incurred by the

Authority in the administration of the Act and for no other

purpose.

On behalf of the petitioners reliance was placed on Entries

53 and 54 of List I (Union List) of the Seventh Schedule to the

Constitution for the purpose of submitting that the regulation

and development of mines and minerals was within the

legislative competence of the Parliament which reads as under :

"List I - Union List.

Entry No.53. Regulation and development of

oilfields and mineral oil resources; petroleum

and petroleum products; other liquids and

substances declared by Parliament by law to

be dangerously inflammable.

Entry No.54. Regulation of mines and minerals

development to the extent to which such

regulation and development under the control

of the Union is declared by Parliament by law

to be expedient in the public interest."

On behalf of the State Government reliance was placed on

Entries 5, 49, 50 and 66 of List II (State List) of the Seventh

Schedule to the Constitution which reads as under :

"List II - State List

Entry No.5. Local government, that is to say,

the Constitution and powers of municipal

corporations, improvement trust district

boards, mining settlement authorities and

other local authorities for the purpose of local

self-government or village administration.

Entry No.49. Taxes on lands and buildings.

Entry No.50. Taxes on mineral rights subject to

any limitations imposed by Parliament by law

relating to mineral development.

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Entry No.66. Fees in respect of any of the

matters in this List, but not including fees

taken in any Court."

Having noticed the relevant entries and the statutory

provisions as contained in the Act and the Rules, we may

proceed to examine what the term 'cess' means. Straightway

we refer to the decision of this Court in Kunwar Ram Nath and

Ors. Vs. The Municipal Board, Pilibhit - (1983) 3 SCC 357,

wherein placing reliance on the Constitution Bench in The

Hingir-Rampur Coal Co., Ltd. and Ors. Vs. The State of

Orissa and others - AIR 1961 SC 459, it was held that a 'cess'

may either be a tax or fee. Where a 'cess' in a given context is a

tax or a fee depends upon the purpose for which it is levied. The

primary object and the essential purposes of the levy must be

distinguished from its ultimate or incidental results or

consequences. Between a tax and a fee there is not generate

difference as both are compulsory exertion of money by public

authorities. However, a tax is imposed for public purposes and

is not, and need not be supported by any consideration of

service rendered in return; on the other hand, a fee is levied

essentially for purposes rendered and as such there is an

element of quid pro quo between the person who pays the fee

and the public authority which imposes it. The tax recovered

goes into the consolidated fund which is utilize for all public

purposes whereas a cess levied by way of fee does not become a

part of the consolidated fund; it is earmarked and set apart for

the purposes of services for which it is levied. This conceptual

distinction between the tax and the fee is to be kept in view but

the fact remains that the scheme of the several entries in the

three Lists empowers the appropriate legislatures to levy taxes

and also empowers specifically the same legislature to levy fees

in respect of the matters covered in the said Lists. It is the fees

taken in any court which only has been treated as a distinct

Head. Once we find the impugned cess within the legislative

competence of the State Legislature, it would not be of much

consequence whether it is in the nature of tax or fee. By a

separate judgment pronounced today in ............... we have set

out and dealt with in framing details several principles of

interpretation of entries contained in the three Lists of the

Seventh Schedule to the Constitution and the powers exercisable

by the Union and the States particularly in relation with the laws

dealing with taxes. Those principles may be kept in view and we

do not propose to repeat and restate those principles here.

tagged with the said C.A. Nos.1532-33/93 and others. These

appeals were heard along with the said appeals, as directed and

listed. However, we are disposing of the present appeals by a

separate judgment as the facts of the case are little different

though the principles of law governing the decision would almost

be the same. A reference to the said decision delivered by us is,

therefore, necessary.

Para as deleted by HL in the draft

(kept for safe side for the time-being)

Provided that when in the coal-bearing

land referred to in clause (b), there is no

production of coal for more than two

consecutive years, such land shall be

liable for levy of cess in respect of any

year immediately succeeding the said

two consecutive years in accordance with

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clause (a):

Provided further that where no dispatch

of minerals or materials is made during a

period of more than two consecutive

years from the mineral-bearing land or

quarry as referred to in clause (c), such

land or quarry shall be liable for levy of

cess in respect of any year immediately

succeeding the said two consecutive

years in accordance with clause(a)."

How the abovesaid error has resulted into shaping the

development of case law needs to be noted and dealt with. In

State of M.P. Vs. Mahalaxmi Fabric Mills Ltd. and Ors. -

1995 Suppl. (1) SCC 642 what was put in issue was the

enhancement of royalty by the Central Government in exercise

of the power conferred by Section 9(3) of the MMRD Act. Based

on the decision of India Cement cess on coal levied by State

legislation was struck down by this Curt in the case of Orissa

cement. The State Governments were starved for revenue and

therefore the Central Government stepped in to revise upwards

the rates of royalty to augment the revenue of the States. In

exercise of its power under Section 9(3) the Central Government

increased the rates of royalty. The cealing for enhancement of

rates of royalty was removed by amending Section 9(3). The

vires of the provision were put in issue. A bench of three

learned Judges of this Court decided Mahalaxmi Fabric Mills

Ltd. and Ors.'s case (supra).

P. Kannadasan Vs. TISCO

Our dealing with the available decisions may not be

complete unless we make a reference to P. Kannadasan & Ors.

Vs. State of T.N. & Ors., (1996) 5 SCC 670 and District

Mining Officer & Ors. Vs. Tata Iron and Steel Co. & Anr.,

(2001) 7 SCC 358, the latter being a three-Judge Bench decision

which has over-ruled the former being a decision by two-Judge

Bench. At the very outset we make it clear that the question

which arose for decision in the said two decisions does not

directly arise for decision in the cases before us. However, it

becomes necessary to deal with a few principles of constitutional

significance dealt with therein by the two Benches in so far as

relevant for our purpose. We are not making any detailed

statement of facts and the contentions advanced as it is not

necessary and if necessary the reference can be had to the law

reports of the two decisions.

Levy of a local cess at the rate of 45 p. on every rupee of

land revenue payable to the government in respect of any land

levied by Section 115 of the Tamil Nadu Panchayat Act 1958 was

declared ultra vires the constitution in India Cement. Following

the said decision Orissa Cement declared incompetent the

identical levies imposed by the States of Orissa, Bihar and

Madhya Pradesh through State legislations. These two decisions

had a serious impact on the revenue of several State

governments. The Parliament stepped in coming to the rescue

of the State governments. Initially the President of India

promulgated Cess and Other Taxes on Minerals (Validation)

Ordinance 1992 on 15.2.1992, which was recognized by Act

No.16 of 1992 w.e.f. 4.4.1992. The ordinance and the Central

Act both are brief legislations consisting of three sections merely

the purpose whereof has been to provide constitutionally valid

base for the sustainability of the cess for the period for which the

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State legislations had remained in operation until struck down by

India Cement and Orissa Cement. In substance, the two

decisions referred to hereinabove which led to the promulgation

of the ordinance and the enactment of the central legislation had

struck down the State legislations by forming an opinion that the

field of legislation having been appropriated to the Union of

India, the States were not competent to enact the laws. The

ordinance and the Act removed the infirmity and altered the

bases of legislations. India Cement and Orissa Cement both

have held that the State legislations would have been

constitutionally valid if the subject matter thereof would have

been enacted by the Parliament and that ________ was made

good by promulgation of ordinance and the Act. Thus, it is not

correct to say that the ordinance and the Act had the effect of

nullifying the judgments of the Courts; rather they adopted the

devise of curing the defect as pointed out by this Court by

removing the flawed foundation and substituting the

constitutionally valid bases for the validity of the same

legislation. The other constitutionally valid devise of legislation

by incorporation was adopted by the Parliament. The Central

Act did not re-enact of the contents of the struck down State

legislations in the Central Act and instead couched the Central

Act in such language which has effect of all the relevant

provisions of the scheduled State legislations being individually

and specifically enacted by Parliament as being necessarily read

forming part of the contents thereof and having been enacted

with retrospective effect by the Parliament. the existence of

constitutional power vesting in the Parliament to enact tax laws

having retrospective operation cannot be denied and was not

denied. The submission that the Central Act was only a piece of

temporary legislation having a limited life to live was rejected

and it was held that the Act, ever since the date of its

enactment, became operative and would continue to remain in

force until the Parliament chose to repeal it.

The constitutional validity of the same Cess Validation Act

came to be examined once again in TISCO case wherein the

Bench of three learned Judges examined the issue from the point

of view of its applicability in the State of Bihar. A perusal of the

judgment of this Court in TISCO case shows that the Court has

proceeded on certain premises which, with respect, we find

difficult to sustain. The Court held that the Parliament never re-

enacted the eleven Acts mentioned in the Schedule, but merely

provided the legislative competence for those provisions in those

Acts which related to cesses or taxes on minerals; that the

Validation Act merely had the effect of validating the collections

already made so that the States shall not be burdened with the

liability of refunding the amount already collected under void law

but the Validation Act cannot be construed to have conferred a

right to make levy and collection of cesses or taxes on minerals

which were collectable upto 4.4.1991; and that the Validation

Act was a piece of temporary legislation which did not expressly

conferred a right to levy and collect the cess for any period

subsequent to 4.4.1991. Suffice it to say that all the three

reasonings, in our humble opinion and with respect to the

learned Judges deciding the case, suffer from in-built fallacy.

Firstly, it is not necessary to examine whether the Central Act is

a temporary or permanent legislation. The correct approach

should have been to examine the impact and effect of the

validating Act. Does it give rise to any substantive rights and

obligations? If yes, the rights and obligations created thereby

would continue to survive till satisfied. The language of the

validating Act did not create any distinction between the right of

the States to retain the amount of cesses already realised and

the right of the States to collect the cesses which having been

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validated were yet to be collected. The text of the validating Act

has been reproduced in P. Kannadasan case. It is significant

to note that TISCO has not struck down the Validation Act as

constitutionally invalid; in spite of upholding the constitutional

validity of the Act as was done by Patna High Court in the

judgment impugned before this Court; all that this Court has

done is to construe the effect of the Validation Act by expressing

an opinion that the amount collected by the States was not liable

to be refunded though fresh notices for collection and levy of

dues in respect of liability accrued till 4.4.1991 could not be

countenanced upon an interpretation of provisions of the

Validation Act. We find it difficult to countenance the view

taken. Once the Validation Act has been held to be

constitutionally valid not only the action already taken

thereunder but also the action subsequently taken for enforcing

the rights and obligations incurred prior to the coming into force

of the Act by operation of those laws which were validated would

be constitutionally valid on the language of the Validation Act.

The States were enforcing the liabilities validly incurred by the

persons liable to cesses on behalf of the central government as

the scheme of the MMDR Act 1957 is. There is nothing like

deliberate and conscience omission of the saving clause by the

Parliament in the Validation Act. The authority of law in the

States to raise demand and make collection of cess and tax on

minerals under the validated provisions of the State laws clearly

and necessarily follows. In our opinion, P. Kannadasan was

correctly decided. Tata Iron and Steel Co. does not lay down

the correct law.

The upshot of the above discussion is that levy of cess is held to

be valid. The West Bengal Primary Education Act, 1973 and West

Bengal Rural Employment and Production Act, 1976, as amended by

the West Bengal Taxation Laws (Amendment) Act, 1992, with effect

from 1.4.1992 are held intra vires the Constitution. 'Land' has

been classified into three categories, i.e. coal bearing land,

mineral bearing land (other than coal bearing land) or quarry, and

land other than the said two. The classification into three

categories is by reference to the character, quality and

productivity of the land, i.e. what the land is capable of

delivering. The three categories of land are well defined

classifications. The classification serves the purpose sought to

be achieved, that is, by levying cess at different rates

consistently with the value of the land, determinable by the

quality and nature of productivity offered by the land. What is

won from the land and what it delivers, is capable of being

assessed, in terms of money, by finding out the quantity of coal

or mineral or material extracted and dispatched. The period of

non-production qualifies for concession. The mechanism for

assessment of value of land cannot be determinative or decisive of

the nature and character of tax which essentially remains a cess

on land. The impugned cess successfully withstands the test of

constitutional validity on the principles laid down in Goodricke.

India Cement and Orissa Cement do not apply.

C.A. Nos.1532-33 of 1993 - The State of West Bengal

Vs. Kesoram Industries Ltd. and Ors., are allowed. The

impugned judgment of the High Court is set aside. The writ

petitions filed in the High Court by the respondents are directed

to be dismissed.

W.P.(C) No.262 of 1997 - The Terai Indian Planters'

Association & Anr. Vs. The State of West Bengal and

Ors., is devoid of any merit. The challenge, led to the

constitutional validity of levy of cess on tea estates, must be

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repelled in the light of the decision of this Court in Goodricke's

case (supra) which we have held as laying down the correct

position of law. The abovesaid writ petition is dismissed.