Full Judgment Text
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PETITIONER:
ORISSA CEMENT LTD AND ORS. ETC. ETC.
Vs.
RESPONDENT:
STATE OF ORISSA AND ORS. ETC. ETC.
DATE OF JUDGMENT04/04/1991
BENCH:
RANGNATHAN, S.
BENCH:
RANGNATHAN, S.
KASLIWAL, N.M. (J)
AGRAWAL, S.C. (J)
CITATION:
1991 AIR 1617 1991 SCR (2) 105
1991 SCC Supl. (1) 430 JT 1991 (2) 439
1991 SCALE (1)617
ACT:
Orissa Cess Act, 1962: Sections 5-7--Constitutional
validity of.
Orissa Cess Rules, 1963: Rule 6A.
Bengal Cess Act (Act IX of 1880) (As applicable to
State of Bihar): Sections 4,5,6 and 9-- Constitutional
validity of.
Madhya Pradesh Upkar Adhiniyam, 1981: Part IV--Section
11--Constitutional validity of.
Madhya Pradesh Karadhan Adhiniyam 1982: Part IV--
Section 9-Constitutional validity of.
Madhya Pradesh Mineral Areas Development Cess Rules,
1982: Rule 3 and 10.
Land Cess-Levy of cess based on royalty derived from
mining lands-Nature, character and validity of-State
Legislatures-Legislative competence of-Whether denuded by
enactment of Mines and Minerals (Regulation and Development)
Act. 1957.
‘Royalty’--Whether tax.
‘Land Revenue’--Connotation of.
Constitution of India, 1950: Seventh Schedule- List 1
Entries 52 and 54- List II Entries 5, 18, 23, 45, 49. 50 and
66-State Law-Central law-Doctrine of occupied field-State
Act encrouching field occupied by Central Act-Effect of.
Articles 142, 246 and 265-Cess -Constitutional
invalidity-Consequences of -Refund of cess whether automatic
and inevitable consequence-Declaration of invalidity and
determination of relief in consequence whether two different
things-Relief whether discretion of Court-Power of Court to
would or restrict the relief-Doctrine of prospective
overruling and doctrine of unjust enrichment-Applicability
of.
Article 277-Essential requirements of the Article-
Discussed.
Practice and procedure: Undertaking given by the
parties
106
directions given by Supreme Court- Effect of.
HEADNOTE:
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The States of Orissa, Bihar and Madhya Pradesh levied a
cess which was based on the royalty derived from mining
lands. The cess was levied by these States under their
respective statutes viz. Orissa Cess Act, 1962, Bengal Cess
Act, 1880 (as applicable to the State of Bihar), Madhya
Pradesh Upkar Adhiniyam 1981 and Madhya Pradesh Karadhan
Adhiniyam, 1982.
The assesses challenged the constitutional validity of
the cess by filing various petitions in the High Courts of
Orissa declared the cess unconstitutional on the ground that
it was beyond the legislative competence of the State
Legislatures, but rejected the prayer of the assessees for a
direction to the State to grant refund of the cess collected
from the assessees. Against the decision of the Orissa High
Court the assessees have filed appeal in this Court whereas
the State of Orissa has filed a cross-appeal. The High Court
of Madhya Pradesh also declared the levy of cess
unconstitutional on the ground that it was beyond the
legislative competence of the State legislature. Against
the decision of the Madhya Pradesh High Court the State of
Madhya Pradesh has filed an appeal in this Court. On the
other hand the High Court of Patna dismissed the writ
petition of the assessee. Against the decision of the Patna
High Court the assessee has filed an appeal in this court.
In appeal to this court, it was contended on behalf of
the State of Orissa; that (i) the levy of cess being
referable to Entries 45, 49 and 50 of the State List of the
Seventh Schedule of the Constitution the impugned
legislation was within the legislative competence of the
State legislature; (ii) the limitations imposed in the
statute on the modes of utilisation of cess supports a view
that the cess is fee on which the State legislature is
competent to legislate under Entry 23 read with Entry 66 of
the State List; (iii) since the impugned Act was concerned
with the raising of funds to enable panchayats and Samithis
to discharge their responsibilities of local administration
and take steps for proper development of the area under
their jurisdiction, the impugned legislation was referable
to Entry 5 of State List; and (iv) the enactment of the
Central Legislation viz. Mines and Minerals (Regulation and
Development) Act, 1957 has not denuded the State legislation
of its competence to enact the impugned legislation since
the scope and subject matter of the two legislations are
entirely different and the impugned State Legislation does
not encroach upon the field covered by the Central
Legislation i.e. 1957 Act.
107
On behalf of the assessees it was contended inter alia
that (i) all the State levies were ultra vires for the
reasons given by this Court in the India Cement case; (ii)
the State cannot seek to sustain the levy under the Bengal
Cess Act 1880 by relying on Article 277 of the Constitution;
and (iii) the levy being unconstitutional the Court should
direct the States to refund the cess collected from the
assessees because (a) a refund is the automatic and
inevitable consequence of the declaration of invalidity of
tax and (b) the States have given undertakings before this
Court that they would refund the amount collected in case
the levy is declared invalid by this Court.
Disposing of the appeals, this Court,
HELD: 1. The levy of cess under sections 5 to 7 of the
Orissa Cess Act, 1962 is beyond the competence of the State
Legislature. [169B]
1.1. A royalty or the tax thereon cannot be equated to
land revenue. Therefore the cess cannot be brought under
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Entry 45 of List II. [142D]
India Cement & Ors. v. State of Tamil Nadu & Ors.,
[1990] 1 S.C.C. 12, followed.
1.2 A tax on royalties cannot be a tax on minerals and
is outside the purview of Entry 50 of List II. Even
otherwise, the competence of the State Legislature under the
said Entry is circumscribed by "any limitations imposed by
Parliament by law relating to mineral development". The
Mines and Minerals (Regulation and Development) Act, 1957 is
a law of Parliament relating to mineral development and
Section 9 of the said Act empowers the Central Government to
fix, alter, enhance or reduce the rates of royalty payable
in respect of minerals removed from the land or consumed by
the lessee, Sub-Section (3) of Section 9 in terms States
that the royalties payable under the Second Schedule to that
Act shall not be enhanced more than once during a period of
three years. This is a clear bar on the State legislature
taxing royalty so as, in effect, to amend the Second
Schedule to the Central Act. This is exactly what the
impugned Act does. Therefore the validity of the impugned
Act cannot be upheld by reference to Entry 50 of List II.
And if the cess is taken as a tax falling under Entry 50 it
will be ultra vires in view of the provisions of the Central
ACt. [144B, 153B-D, 168D]
India Cement & Ors. v. State of Tamil Nadu & Ors.,
[1990] 1 S.C.C.12, followed.
108
Hingir Rampur Coal Co. Ltd. & Ors. v. State of Orissa &
Ors., [1961] 2 S.C.R.537, Justice Wanchoo’s dissent
explained.
1.3 There is a difference in principle between a tax on
royalties derived from land and a tax on land measured by
reference to the income derived therefrom. A tax on
buildings does not cease to be such merely because it is
quantified on the basis of the income it fetches. But in the
impugned legislation the levy is not measured by the income
derived by the assessee from the land, as is the case with
lands other than mineral lands. The measure of the levy is
the royalty paid, in respect of the land, by the assessee to
his lessor which is quite a different thing. The impugned
statute only purports to levy a cess on the annual value of
all land. There is a clear distinction between tax on land
and tax on income arising from land. The former must be one
directly imposed on land, levied on land as a unit and
bearing a direct relationship to it. A tax on royalty
cannot be said to be a tax directly on land as a unit.
Hence the cess is outside the purview of Entry 49 List II.
[148H, 149A-D]
Ajay Kumar Mukherjea v. Local Board of Barpeta, [1965]
3 Ss.C.R. 47; Ralla Ram v. The province of East Punjab,
[1948] F.C.R.207; Buxa Dooars Tea Co. v. State, [1989] 3
S.C.R.211; Bhagwan Dass Jain v. Union of India, [1981] 2
S.C.R. 808 and R.R. Emgomeeromg Co. v. Zila Parishad, [1980]
3 S.C.R. 1, referred to.
Union of India v. Bomnbay Tyre International, [1984] 1
S.C.R.347; Re: A reference under the Government of Ireland
Act, 1920 and Section 3 of the Finance Act (Northern
Ireland), 1934, (1963) 2 All E.R.III, cited.
2. If the levy in question cannot be described as a tax
on land, it cannot be described as fee with regard to land
either. [169A]
2.1 Section 10 of the Orissa Cess Act, 1962 earmarks
the purposes of utilisation of only fifty per cent of the
proceeds of the cess and that, too, is limited to the cess
collected in respect of "lands other than lands held for
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carrying on mining operations". Therefore the levy cannot
be correlated to any services rendered or to be rendered by
the State to the class of persons from whom the levy is
collected. Accordingly the levy cannot be treated as a fee
which the State legislature is competent to legislate for
under entry 66 of the State List. [153E-F]
2.2 Even assuming that the levy is a fee, the State
legislature can impose a fee only in respect of any of the
matters in the State List. The
109
entry relied upon for this purpose i.e. Entry 23 is itself
"subject to the provisions of List I with respect to
regulation and development" of mines and minerals under the
control of the Union. Under Entry 54 of List I, regulation
of mines and mineral development is in the field of
parliamentary legislation "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". Such a declaration is contained in Section 2 of
the Mines and Minerals (Regulation and Development) Act,
1957. The validity of the impugned Act cannot be upheld by
reference to Entry 23 List II. [153G-H, 154A, 168D]
3. There is a difference between the ’object’ of the
Act and its ’subject’. The object of the levy may be to
strengthen the finances of local bodies but the Act has
nothing to do with municipal or local administration.
Accordingly State’s reliance on Entry 5 of List II is
plainly too tenuous. [164D]
4. The answer to the question whether the State
Legislature was denuded of its competence to enact the
impugned legislation because of the Parliament having
enacted the Mines and Minerals (Regulation and Development)
Act, 1957 depends on a proper understanding of the scope of
the Act and an assessment of the encroachment made by the
impugned State legislation into the field covered by it.
[161D]
4.1 The mere declaration of a law of Parliament that it
is expedient for an industry or the regulation and
development of miners and minerals to be under the control
of the Union under Entry 52 or entry 54 of List I does not
denude the State legislatures of their legislative powers
with respect to the fields covered by the several entries in
List II or List III. Particularly, in the case of a
declaration under Entry 54, this legislative power is eroded
only to the extent control is assumed by the Union pursuance
to such declaration as spelt out by the legislative
enactment which makes the declaration. The measure of
erosion turns upon the field of the enactment framed in
pursuance of the declaration. [161E-F]
4.2 In assessing the field covered by the Act of
Parliament in question, one should be guided not merely by
the actual provisions of the Central Act or the rules made
thereunder but should also take into account matters and
aspect which can legitimately be brought within the scope of
the said statute. Viewed in this light and in the Light of
the provisions of the Bihar Cess Act the conclusion seems
irresistible that the State Act has trespassed into the
field covered by the Central Act
110
viz. Mines and Minerals (Regulation and Development)Act,
1957.[163F]
4.3 The impugned legislation which stands impaired by
the Parliamentary declaration under Entry 54, can hardly be
equated to the law for land acquistion or municipal
adminstration which are traceable to different specific
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entries in List II or List III [163G-H]
Hingir Rampur Coal Co. Ltd. & Ors. v. State of Orissa &
Ors. [1961] 2. S.C.R. 537; State of Orissa v. M.A. Tulloch &
Co., [1964] 4 S.C.R., 461 and Indian Cement & Ors v. State
of Tamil Nadu & Ors., [1990]1 S.C.C. 12 followed.
State of Haryana v. Chanan Mal, [1976] 3 S.C.R. 688;
Ishwari Khatan Sugar Mills (P) Ltd v. State of U.P. [1980] 3
S.C.R. 331 and Western Coalfields Ltd. v. Special Area
Development Authority., [1982] 2 S.C.R.1,distinguished.
Indian tobacco Co. Ltd. v. Union, [1985] Supp. 1 S.C.R.
145; State of West Bengal v. Union [1964] 1. S.C.R. 371;
Central Coalfields v. State of M.P., A.I.R. (1986) M.P.33;
M. Karunanidhi v. Union of India, [1979] 3 S.C.R. 254; State
of Tamil Nadu v. Hind Stone etc., [1981] 2. S.C.R. 742;
I.T.C. v. State of Karnataka, [1985] Suppl S.C.R. 145;
Bharat Coking Coal v. State of Bihar, [1990] 2 Scale 256;
Kannan Dewan Hills Co. v. State of Kerala, [1973] 1. S.C.R.
356; Baijnath Kedia v. State of Bihar [1970] 2 S.C.R. 100;
H.R.S. Murthy v. Collection of Chittoor & Ors. [1964] 6
S.C.R.; Ch. Tika Ramji & Ors. v. State of U.P.,[1956] S.C.R.
393; Laxmi Narayan Agarwala v. State, A.I.R. 919830 Ori.210;
Bherulal v. State, A.I.R. (1965) Raj. 161; Sharma v. State
A.I.R. (1969) P&H 79 and Saurashtra Cement & Chemical
Industries Ltd. v. Union A.I.R. (1979) Guj. 180, referred
to.
Trivedi & Sons v. State of Gujarat. [1986] Suppl.
S.C.C. 20, cited.
5. Section 6 of the Bengal Cess Act, 1880 specifically
enacts that the cess will be on royalty from mines and
quarries and on the annual net profit of railways and
tramways. The further amendments to Section 6 have not
changed this basic position. Though the Section referees
also to the value of the mineral-bearing land, that
furnishes only the maximum upto which the cess, based on
royalty, could go. Therefore, the cess is levied directly
on royalties from mines and quarries. The different
notifications issued by the State of Bihar under section 6
111
of the Act determining the rate of cess on the amount of
rayalty of all minerals of the State place the matter beyond
all doubt. The levy is a percentage or multiple of the
royalty depending upon the kind of mineral and in the case
of iron ore-the method of extraction and nature of the
process employed. There are no clear indications in the
statute that the amounts are collected by way of fee and not
tax. Section 9 indicates that only a small percentage goes
to the district fund and the remaining forms part of the
consolidated fund of the State " for the constrution and
maintenance of other works of public utility". However, the
proviso does require at least ten percent to be spent for
purposes relating to mineral development. Even the
assumption that the levy can be treated, in part, as a fee
and, in part, as a tax will not advance the case of the
respondents. Therefore, the levy of cess sunder the Bengal
Cess Act, 1880 is declared invalid. [169C-F,H,170A]
Indian Cement & Ors. v. State of Tamil Nadu & Ors.,
[1990] 1 S.C.C. 12 followed.
Central Coalfields Ltd. v. State (CWJC 2085/89 decided
on 6.11.90 by Patna High Court, referred to.
5.1 The attempt to sustain the tax under the Bengal
Cess Act 1880 on the basis of Article 277 cannot also
succeed.[171C]
Ramkrishna Ramanath v. Janpad Sabha, [1962]Suppl.
3.S.C.R. 70; Town Municipal Committee v. Ramachandra [1964]
6 S.C.R. 947, referred to.
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6. The levy of cess under section 11 of the Madhya
Pradesh Upkar Adhiniyam, 1981 is not covered by Entry 49 or
Entry 50 of List II and is therefore, ultra vires., [172B]
M.P. Lime Manufacturers’ Association v. State, A.I.R.
(1989) M.P. 264 referred to.
6.1 Under Section 9 of Madhya Pradesh Karadhan
Adhiniyam, 1982 the proceeds of the cess are to be utilised
only towards the general development of mineral-bearing
areas. Although there is no provision for the constitution
of a separate fund for this purpose as is found in relation
to the cesses levied under Part II or Part III of the Act
yet this consideration alone does not preclude the levy from
being considered as a fee. The clear ear-marking of the
levy for purposes connected with development of mineral
areas was rightly considered by
112
the High Court, as sufficient to treat it as a fee. The
High Court was also right in holding that such a fee would
be referable to item 23 but out of bounds for the State
Legislature, after the enactment of the Mines and Minerals
(Regulation and Development) Act, 1957. [171F-H]
Srinivasa Traders v. State, [1983] 3 S.C.R. 843,
referred to.
7. The grant of refund is not an automatic consequence
of a declaration of illegality i.e. where the levy of taxes
is found to be unconstitutional, the Court is not obliged to
grant an order of refund. Therefore a finding regarding the
invalidity of a levy need not automatically result in
direction for a refund of all collections thereof made made
earlier. The declaration regarding the invalidity of a
provision and the determination of the relief that should be
granted in consequence thereof are two deferent things and,
in the latter sphere, the Court has, and must be held to
have, a certain amount of discretion. Once the principle
that the Court has a discretion to grant or decline refund
is recognised, the ground on which such discretion should be
exercised is a matter of consideration for the Court having
regard to all the circumstances of the case. The Court can
grant, would or restrict the relief in a manner most
appropriate to the situation before it is such a way as to
advance the interests of justice. The Court is entitled to
refuse the prayer for good and valid reasons. Laches or
undue delay or intervention of third party rights would
clearly be one of those reasons. Unjust enrichment of the
refundee may or may not be another. Also there is no reason
why the vital interest of the State should not be a relevant
criterion for deciding that a refund should not be granted.
[185H, 186A-C, D & E 181D-E]
7.1 In the instant case though the levy of the cess is
unconstitutional, yet there shall be no direction to refund
to the assessees of any amounts of cess collected until the
date on which the levy in question has been declared
unconstitutional. This, in regard to the Bihar cases, will
be the date of this judgment i.e. 4.4.1991. In respect of
Orissa and Madhya Pradesh cases the relevant date will be
the date on which the concerned High Court has declared the
levy unconstitutional i.e.22.12.1989 in case of Orissa and
28.3.1986 in case of Madhya Pradesh. The dates of the
judgments of the appropriate High Court, may not constitute
a declaration of law within the scope of Article 141 of the
Constitution, but it cannot be gainsaid that the State
cannot, on any ground of equity, be permitted to retain the
cess collected on and after the date of the High Court’s
judgment. Accordingly the State should refund the amounts
of cess collected after the relevant dates to assesses
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directly or in the Coalfields from whom they were collected,
with
113
interest at the rate directed by this Court or mentioned in
the undertaking from the date of the relevant judgment to
the actual date of repayment. The Coalfields, when they
get the refunds, should pass on the same to their customers,
the assessees. [186F-G, 187B-C]
India Cement & Ors. v.State of Tamil Nadu & Ors, [1990]
1 S.C.C.12, followed.
Linkletter, 14 L-Ed. (2d) 601; Sunburst. 77 L.Ed.310;
Mahabir Kishore & Ors. v. Stte of Madhya Pradesh, [1989] 4
S.C.C. 1; Chhotabhai Jethabhai Patel & Co. v. Union of
India, [1962] 2 Suppl. S.C.R. 1; State of Madhya Pradesh v.
Bhailal Bhai & Ors., [1964] 6 S.C.R. 261; Tilok Chand
Motichand v. Munshi, [1969] 2 S.C.R> 824; Ramchandra Shankar
Deodhar v. State of Maharashtra, [1974] 2 S.C.R. 216; Shri
Vallabh Glass Works Ltd. v. Union of India, [1984] 3 S.C.R>
180; State of M.P. v. Nandlal Jaiswal, [1986] 4 S.C.C.566’
D. Cawasji & Co. v. State of Mysore, [1975] 2 S.C.R.511;
Salonah Tea Co. Ltd. v. Superintendent of Taxes, [1988] 1
S.C.C. 401 and Lakshmi Narain Agarwala v. State, A.I.R.
(1983_ Orissa 210, referred to.
Behram Khursheed Pesikaka v. State of Bombay, [1955] 1
S.C.R.613; R.M.D. Chamarbaugwala v. Union of India, [1957]
S.C.R. 930; M.P.V. Sundararamier & Co. v. State of Andhra
Pradesh & Anr., [1958] S.C.R. 1422; West Ramnad Electric
Distribution Co. v. State of Madras, [1963] 2 S.C.R. 747;
M.L.Jain v. State of U.P., [1963] suppl. 1 S.C.C.R. 912;
K.T. Moopil Nayar v. State of Kerala & Anr., [1961] 3
S.C.R.77; Balaji v. I.T.O. Special Investigation Circle,
[1962] 2 S.C.R. 983; Raja Jagannath Bakshi Singh v. State of
U.P., [1963] 1 S.C.R. 220; Prem Chand Garg v. Excise
Commissioner, U.P. Allahabad, [1963] Suppl. 1 S.C.R. 885 and
I.C. Golaknath & Ors.v. State of Punjab & Ors.,[1967] 2
S.C.R. 762, cited.
8. The undertaking given by the parties or interim
directions given by the Court cannot be understood in such a
manner as to conflict with the Court’s final decision.
[187]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.4353-54
of 1983 etc. etc.
From the Judgment and Order dated 7.3.1983 of the
Orissa High Court in O.J.C. No. 1517 of 1978.
A.K. Ganguli, G. Ramaswamy, T.S. Krishnamurthy Iyer,
Dr.
114
L.M. Singhvi, Shanti Bhushan, P. Chidambram, R.B. Datar,
T.V. S.K. Iyer, V.A. Bobde B.Sen, M.S. Gujral, R.F.
Narinan, P.H. Parekh Ms. Shalini, Soni, K.K. Lahiri,
J.B.Dadachanji, S.Sukumaran, P.N.Gupta, R.K. Mehta,
A.K.Panda, Sakes Kumar, Ashok Singh, Satish Agnihotri, D.
Goburdhan, D.N. Mishra, Shri Narain, Abhey Sapra, Sandep
Narain, Mrs. Kirti Misra, Harish N.Salve, S.R. Grover,
K.J.John, M.P. Sharma, Ms. Deepa Dixit, Sanjay Parekh,
Praveen Kumar, Darshan Singh, K.V. Srekumar, T.G.N.Nair,
B.R.Agrawal, S.K. Bagga, Mrs. S.K.Bagga, Rameshwar Nath and
A.M. Dittia for the appearing parties.
The Judgment of the Court was delivered by
RANGANATHAN, J. These are connected batches of Civil
Appeals and Special Leave Petitions. We grant special leave
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to appeal in all the petitions (condoning the delay in the
filing of the unnumbered one referred to below) and proceed
to dispose of all the appeals by this common judgment. The
details of the appeals and petition are, for sake of
convenient reference, tabulated below:
-----------------------------------------------------------------
High Court Date of Civil Appeal/ Name of
Judgment SLP Nos. Appellant
------------------------------------------------------------------
1. Orissa 17.4.1980 C.A.2053-2080/80 Tata Iron & Steel
Co. Ltd.
7.3.1983 C.A.4353-4354/83 Orissa Cement Ltd.
22.12.1989 S.L.P. 1479/90 State of Orissa
22.12.1989 S.L.P. ----/90 Orient Paper &
Industries Ltd.
& Anr.
13.7.1990 S.L.P.11939/90 -do-
2. Bihar 10.2.1986 C.A. 592/86 Tata Iron & Steel
Co. Ltd.
3. Madhya 28.3.1986 C.A. 1641-1662/86 State of M.P.
Pradesh
We shall discuss later the manner in which these
appeals and petitions have arisen.
115
THE ISSUE
The validity of the levy of a "cess", based on the
royalty derived from mining lands, by the States of Bihar,
Orissa and Madhya Pradesh is challenged in these petitions
and appeals. A seven-Judge Bench of this Court in India
Cement, [1990] 1 S.C.C. 12 struck down a similar levy under
a Tamil Nadu Act as beyond the legislative competence of the
State Legislature. The assessees, in the matters now before
us, claim that the issue here is directly and squarely
governed by the above decision. The State, on the other
hand, claim that the nature and character of the levies
imposed by them is totally different from that of the Tamil
Nadu levy and that they are entirely within the scope of the
States’ Legislative powers under the Constitution. This is
the issue to be decided in these matters. As the impugned
enactments of Bihar, Orissa and Madhya Pradesh mutually
differ from one another in some respects, they will need
separate consideration. However, the basic issue being the
same, all these matters have been heard together and it is
found convenient to dispose of them all by this common
judgment. We may mention in passing that, initially, these
matters were listed before a Bench of two Judges of this
court. It referred the matters on 17.8.1990 to the learned
Chief Justice for the constitution of a larger Bench. The
matters have come up before us in pursuance of the
directions of the Hon’ble Chief Justice.
THE LEGISLATIVE ENTRIES
It will be convenient, at the outset, to refer to the
various entries of the Union and the State Lists in the
Seventh Schedule to the constitution which have a bearing on
the issues to be discussed. These are:
List I-(Union List)
Entry 52:
Industries, the control of which by the Union declared
by Parliament by law to be expedient in the public interest.
Entry 54:
Regulation of mines and mineral development to the
extent to which such regulation and development under the
control of Union is declared by Parliament by law to be
expedient in the public interest.
116
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List II-(State List)
Entry 18:
Land, that is to say, rights in or over land, land
tenures including the relation of landlord and tenant, and
the collection of rents; transfer and alienation of
agricultural land; improvement and agricultural land;
colonization.
Entry 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.
Entry 45:
Land revenue, including the assessment and collection
of revenue, the maintenance of land records, survey for
revenue purposes and records of rights, and alienation of
revenues.
Entry 49:
Taxes on lands and buildings.
Entry 50:
Taxes on mineral rights subject to nay limitations
imposed by Parliament by law relating to mineral
development.
Entry 66:
Fees in respect of any of the matters in this List, but
not including fees taken in any court.
EARLIER HISTORY
Before proceeding to consider the provisions of the
enactments impugned, and the issues debated, before us, it
is necessary to set out certain earlier controversies that
led to India Cement.
Hingir Rampur Case [1961-2 S.C.R. 537]
As early as in 1960, this Court had to consider the
constitutional validity of the Orissa Mining Areas
Development Fund Act, 1952 (Orissa Act XXVII of 1952). S. 3
of the Act empowered the State Government to constitute
mining areas whenever it appeared to the Government that it
was necessary and expedient to provide amenities
117
life communications, water supply and electricity for the
better development of such areas or to provide for the
welfare of the residents or workers in areas within which
persons employed in a mine or a group of mines reside or
work. S.4 empowered the State Government to impose and
collect a cess or fee on the minerals extracted the rate of
which was not to exceed 5% of the valuation of the minerals
at the pit’smouth. S.5 provided for the constitution of the
Orissa Mining Areas Development Fund. The proceeds of the
cess recovered in pursuance of S.4 along with other
subsidies from Government, local authorities and other
public subscriptions were credited to the fund and the
expenses for such collection debited thereto. The fund has
to be utilised to meet expenditure incurred in connection
with such development measures as the State Government might
draw up for the purposes above mentioned as well as for the
purposes specified in clauses (a) to (e) of S.5(5). The
validity of this levy of cess was challenged by the
petitioner coal company in the Hingir Rampur case as ultra
vires the powers of the State Legislature because (a) the
cess was not a fee but a duty of excise on coal which was a
field covered by Entry 84 of List I in the Seventh Schedule
and repugnant to the Local Mines Labour Welfare Fund Act,
1947 (Central Act XXXII of 1947); and (b) even if it was
treated as a fee relatable to Entries 23 and 66 of List II
in the Seventh Schedule, it was hit by Entry 54 of List I
read with the Mines and Minerals (Development & Regulation)
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Act, (Central Act LIII of 1948) (‘the MMRD Act’ for short)
or by Entry 52 of List I read with the Industries
(Development and Regulation) Act (‘the IDR Act’ for short),
1951 (Central ACt LXV of 1951). The first of the above
arguments was based on the fact that the cess was fixed at a
percentage of the valuation of the mineral concerned at
pit’s mouth. This argument was based on two considerations.
The first related to the form and the second to the extent
of the levy. Repelling the argument, it was held that the
extent of levy of a fee would always depend upon the nature
of the services intended to be rendered and the financial
obligations incurred thereby and cannot by itself alter the
character of the levy from a fee into the of a duty of
excise except where the correlation between the levy and
services is not genuine or real or where the levy is
disproportionately higher than the requirements of the
services intended to be rendered. So far as the first
consideration was concerned, it was observed that the method
in which the fee is recovered is a matter of convenience and
by itself it cannot fix upon the levy the character of a
duty of excise. Though the method in which an impost is
levied may be relevant in determining its character its
significance and effect cannot be exaggerated. The court,
therefore, came to the conclusion that the cess levied by
the impugned act was
118
neither a tax nor a duty of excise but a fee.
The second argument turned on the impact of the MMRD
Act on the State’s power to levy a fee under Entry 66 read
with Entry 23 of List II as a consequence of the declaration
contained in S.2 of the Central Act. The Court agreed that
a declaration by Parliament in terms of Entry 54 of List I
operated as a limitation on the legislative competence of
the State Legislature itself and observed:
"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 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."
(underlining ours)
However, the answer to the argument was easily found by the
Court inasmuch as the declaration on the terms of Entry 54
of List I relied on for the coal company was founded on Act
LIII of 1948 which was an Act of the Dominion Legislature
and not an Act of Parliament. However, the Court did not
stop here. It proceeded to review the provisions of Central
ACt LIII of 1948 and concluded that, if this Act were held
to contain the declaration referred to in Entry 23, there
would be no difficulty in holding that the declaration
covered the field of conservation and development of
minerals, and that the said field was indistinguishable from
the field covered by the impugned Act. In coming to this
conclusion the Court pointed out that the rule-making powers
conferred on the Central Government under Section 6(2) of
the Act included the levy and collection of royalties, fees
and taxes in respect of minerals, mines, quarried excavated
or collected. The circumstance that no rules had in fact
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been framed by the Central Government in regard to the levy
and collection of any fees, it was held, would not make any
difference, The Court observed:
"What Entry 23 provides is that the legislative
competence of the State Legislature is subject to
the provisions of List I with respect to
regulation and development under the con-
119
trol of the Union, and Entry 54 in List I requires
a declaration by Parliament by law that regulation
and development of mines should be under the
control of the Union in public interest.
Therefore, if a Central Act has been passed for
the purpose of providing for the conservation and
development of minerals, and if it contains the
requisite declaration, then it would not be
competent to the State Legislature to pass an Act
in respect of the subject-matter covered by the
said declaration. In order that the declaration
should be effective it is not necessary that rules
should be made or enforced; all that this required
is a declaration by Parliament that it is
expedient in the public interest to take the
regulation and development of mines under the
control of the Union. In such a case the test
must be whether the legislative declaration covers
the field or not. Judged by this test there can
be no doubt that the field covered by the impugned
Act is covered by the Central Act LIII of 1948."
The Court then considered the argument based on Entry 52 of
List I and the provisions of the IDR Act but came to the
conclusion that the vires of the impugned Act could not be
successfully challenged on this ground.
Wanchoo J., delivered a separate dissenting judgment.
He held that the levy was not a fee or a land cess but a
duty of excise. He pointed out (at p-579-80) how taxes could
be turned into fees on the so-called basis of quantification
with the help of the device of creating a fund and attaching
certain services to be rendered out of monies in the fund.
In this view, he did not consider the question how far the
Central Acts of 1948 and 1951 impaired the State’s
competence to levy the fees in question. He negatived the
State’s attempt to bring the levy in question (treating it
as a tax) within the scope of Entry 50 of List II. He was
of opinion that the expressions "taxes on mineral rights"
referred to taxes on the right to extract minerals and not
taxes on the minerals actually extracted. He held that the
cess in the present case was not a tax on mineral rights but
a tax on the minerals actually produced. It was no
different in pith and substance from a a tax on goods
produced which comes under Item 84 of List I as duty of
excise.
Tulloch case [1964] 4 SCR 461.
The same issue regarding the competence of the Orissa
State Legislature to levy the very same cess came up for
consideration again
120
in the Tulloch case. The scenario had changed because the
levy now challenged was in respect of the period July 1957
to March, 1958 by which time the MMRD Act, 1957 (Central Act
(Central Act LIII of 1948). The 1948 Act, which had earlier
provided for the regulation of mines and oil fields and for
the development of minerals, was now limited only to oil
fields and the 1957 Act provided for the regulation of mines
and mineral development. S.2 of the 1957 Act, like the
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predecessor 1948 Act, contained the following declaration in
terms of Entry 54 of List I. It read:
"It is hereby declared 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".
but unlike the earlier one this was a declaration contained
in an Act of Parliament which had the effect of impairing
the legislative competence of the State under Entry 23 read
with Entry 66 of the State List. The hurdle which prevented
the Supreme Court from considering the provisions of the
1948 Act as a bar to the levy of the cess was therefore out
of the way. The Court analysed in detail the provisions of
the impugned State Act as well as the two Central Acts. It
referred to its conclusion in the Hingir-Rampur case that
the field covered by the impugned State Act was covered by
the 1948 Act and observed that this fully applied to the
State Act vis-a-vis the 1957 Act also, particularly as Ss.
18(1) and (2) of the 1957 Act were wider in scope and
amplitude and conferred larger powers on the Central
Government than the corresponding provisions of the 1948
Act. Counsel for the State attempted to distinguish the
ambit of the 1957 Act from that of the 1948 Act. But the
Court pointed out that the argument could not prevail. S. 13
of the 1957 Act contained an express provision for the levy
of a fee. S. 25-though not as categorically as s. 6 of the
1948 Act-clearly implied a power to levy "rent, royalty,
tax, fee and other sums" a nd, besides, S. 18 of the Central
Act of 1957 were wider in scope and amplitude and conferred
larger powers on the Central Government than the
corresponding provisions of the Act of 1948. It was
reiterated, referring to Hingir-Rampur and distinguishing
Ch. Tika Ramji & Ors. etc. v. The State of Uttar Pradesh &
Ors., [1956] S.C.R. 393 that it was incorrect to think that,
until rules were made under S. 13 or steps taken under S.25
to collect fees etc., the Central Act would not cover the
field. The Court observed, further:
121
"But even if the matter was res integra the
argument cannot be accepted. Repugnancy arises
when two enactments both within the competence of
the two Legislatures collide and when the
Constitution expressly or by necessary implication
provides that the enactment of one legislature has
superiority over the other then to the extent of
the repugnancy the one supersedes the other. But
two enactments may be repugnant to each other even
though obedience to each of them is possible
without disobeying the other. The test of two
legislations containing contradictory, for if a
competent legislature with a superior efficacy
expressly or impliedly evinces by its legislation
an intention to cover the whole field, the
enactments of the other legislature whether passed
before or after would be overborne on the ground
of repugnance. Where such is the position, the
inconsistency is demonstrated not by a detailed
comparison of provisions of the two statutes but
by the mere existence of the two pieces of
legislation. In the present case, having regard
to the terms of s. 18(1) it appears clear to us
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
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no inconsistency and no supersession of the State
Act".
Meeting the argument that the power to levy a fee was an
independent head of legislative power under each of the
three legislative lists and that the levy of tax undue the
State Act could be traced to this entry, the Court pointed
out the fallacy underlying the argument in the following
words:
"The materials 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 theretofore possessed, it would
follow that the "matter" in the State List is, to
the extent of the declaration, subtracted 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
122
could be related in order to render it valid."
The result was that Tulloch declared the levy of the
cess to be invalid and it was held that, as and from
1.6.1958, the date on which the 1957 Act came into force,
the Orissa Act should be deemed to be non-existent for
every purpose.
Murthy case [1964-6 S.C.R 666]
We now come to the third important case on the topic,
Murthy v. Collector of Chittoor, which seems to strike a
somewhat different note although in both Tulloch and Murthy
the judgments were delivered within a few month of each
other by Rajagopala Ayyangar J. on behalf of 5-Judge Benches
which were constituted differently.
The erstwhile Province of Madras (later State of Tamil
Nadu) had been levying, since long, a cess on land revenue
under the Madras District Boards Act (Madras Act XIV) of
1920. Under S.78 of the Act, a cess was levied on the
annual rent value of all occupied lands on whatever tenure
held. It was a tax at two annas in the rupee of the annual
rent value of all lands ins the district. The annual rent
value of the land was to be calculated in the manner
prescribed in S.79 of the Act. The appellant held certain
lands under a mining lease (for extraction of iron ore) from
the Government which stipulated for the payment of a
stipulated amount of dead rent, a royalty on the basis of
every ton of ore mined as well as a surface rent per acre of
the surface area occupied or used. In the case of such
lands, S.79(i) provided that "the lease amount, royalty or
other sum payable to the Government for the lands" shall be
taken to be the such lands, annual rent value. The
appellant was, therefore, called upon to pay a cess based on
the royalty paid by him to the State Government (of Andhra
Pradesh, which had succeeded to the State of Madras in
respect of the territories in question) and it was the
validity of this levy which was upheld by the High Court
that came up for the consideration of this Court.
It was contended, on behalf of the appellant, relying
on Hingir-Rampur and Tulloch, that the provision imposing
land cess quoad royalty must be held to be repealed by MMRD
Act of 1948 or, in any event, by the MMRD Act, 1957 (Central
Act LXVII of 1957) and that, after the date when these
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enactments came into force, the land cess that could be
levied must be exclusive of royalty under a mining lease.
Distinguishing the decisions cited, this Court rejected the
contention. It observed:
123
"It will be seen that there is no resemblance,
whatever, between the provision of the Orissa Act
considered in the two decisions and the provision
for the levy of the land cess under ss. 78 and 79
of the Act with which we are concerned. Sections
78 and 79 have nothing to do and are not concerned
with the development of mines and minerals or
their regulation. The proceeds of the land cess
are, under s.92 of the Act, to be credited to the
District fund, into which, under the terms of the
Finance Rules in s. V to the Act, the land-cess
as well as several other taxes, fees and receipts
are directed to be credited. This fund is to be
used under Ch. VII of the Act with which s.112
starts "for everything necessary for or conducive
to the safety, health, convenience or education of
the inhabitants or the amenities of the local area
concerned and everything incidental to the
administration" and include in particular the
several matters which are mentioned in those
sections. It will thus be seen that there is no
connection between the regulation and development
of mines and collection of land-cess for which
provision is made by ss.78 and 79 of the Act.
There is therefore no scope at all for the
argument that there is anything in common between
the Act and the Central Acts of 1948 and 1957 so
as to require any detailed examination of these
enactments for discovering whether there is any
over-lapping"
A second contention raised before the Court was that, as the
impugned land-cess was payable only in the event of the
lessee winning the mineral and not when no minerals were
extracted, it was in effect a tax on the minerals won and,
therefore, on mineral rights. Rejecting this contention,
the Court observed:
"We are unable to accept this argument. When a
question arises as to the precise head of
legislative power under which a taxing statue 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
royally 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
124
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
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is in truth a "tax on land" within Entry 49 of the
State List".
(emphasis added)
The Court proceeded to explain why the land cess before it
was nothing else except a land tax falling within Entry 49.
"Under s. 78 of the Act the cess is levied on
occupied land on whatever tenure held. The basis
of the levy is the "annual rent value" i.e., the
value of the beneficial enjoyment of the property.
This being the basis of the Tax and disclosing its
true nature, s.79 provides for the manner in which
the "annual rent value" is determined i.e., what
is the amount for which the land could reasonably
be let, the benefit to the lessor representing the
rateable value "or the annual rent value". In the
case of ryotwari lands it is the assessment which
is payable to the Government that is taken as the
rental value being the benefit that accrues to the
Government. Where the land is held under lease it
is the lease amount that forms the basis. Where
land is held under a mining lease, that which the
occupier is willing to pay is accordingly treated
as the "annual rent value" of the property. Such
a rent value would, therefore, necessarily include
not merely the surface rent, but the dead rent, as
well as the royalty payable by the licensee,
lessee or occupier for the user of the property.
The position then is that the rent which a tenant
might be expected to pay for the property is, in
the case of lease-hold interests, treated as the
statutory "annual rent value". 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 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
125
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."
The judgment of the Supreme Court in the Murthy case
(supra) held the field from 1964 to 1990.
Murthy followed:
The above type of levy was not peculiar to the State of
Tamil Nadu. In fact, a cess on royalty was bound to be very
remunerative to States having a wealth of mineral resources.
We are informed that similar cess is being levied in several
States. We have already referred to the cess levied in
Orissa which came to be considered by this Court as early as
1961 and 1964 in the Hingir-Rampur and Tulloch cases.
Further cases came up for consideration, on the same lines;
in Bihar, Associated Cement Co. Ltd. vState of Bihar, [1979]
27 B.L.J.R. 64 and Tata Iron & Steel Co. v. State, (C.W.J.C.
30/1978 decided on 15.5.84 , the subject matter of C.A.
592/86 before us); in Orissa, Laxmi Narayan Agarwala v.
State, A.I.R. 1983 Ori. 210; in Rajasthan, Bherulal v.
State, A.I.R. 1965 Raj. 161; in Punjab, Sharma v. State,
A.I.R, 1969 P & H 79; in Gujarat, Saurashtra Cement &
Chemical Industries Ltd. v. Union, A.I.R. 1979 Guj. 180; and
Madhya Pradesh, Hiralal Rameshwar Prasad v. State, (m.P.
410/83 decided on 28.3.1986) and M.P. Lime Manufactures’
Association v. State of M.P., A.I.R. 1989 M.P. 264 F.B. and,
except for the last two cases from Madhya Pradesh, the
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others upheld the levy of a cess which depended on
royalties, following Murthy.
India Cement case [1990] 1 S.C.C. 12
The correctness of the above line of decisions came to
be tested in India Cement Ltd. v. State. The Government of
Tamil Nadu and granted a mining lease on 19.7.1963 to the
appellant for extraction of limestone and kankar for a
period of twenty years. The lease deed, which was in
accordance with the Mineral Concession Rules, stipulated for
the payment of royalty, dead rent and surface rent and also
provided that the lessee was bound to pay all Central and
State Government dues except land revenue. At the time the
lease was obtained, S.115(1) of the Madras Panchayats Act.
1958 provided for the levy, in each panchayat development
block, of a local cess at the rate of 45 paise on every
ruupee of land revenue payable to the Government in respect
of any land for every fasli. S. 115(2) provided that the
126
local cess will be deemed to be public revenue and all the
lands and buildings thereon shall be regarded as security
therefore. S 115(3) and (4) set out the various purposes for
which the cess levied and collected under S. 115 could be
utilised. S116 provided for the levy of a local cess
surcharge. The maximum amount of such surcharge was
originally left to be prescribed by the Government and was
in 1970 limited to Rs.1.50 on every rupee of land revenue
and in 1972 to Rs.2.50 on every rupee of land revenue.
Apparently inspired by the decision in Murthy, the Tamil
Nadu Panchayats (Amendment and Miscellaneous Provisions) Act
(Tamil Nadu Act 18 of 1964) added, with full retrospective
effect, the following Explanation to S.115(1):
"Explanation: In this section and in Section 116,
‘land revenue’ means public revenue due on land
and includes water cess payable to the government
for water supplied or used for the irrigation of
land, royalty, lease amount or other sums payable
to the government in respect of land held direct
from the government on lease or licence, but does
not include any other cess or the surcharge
payable under Section 116, provided that lands
revenue remitted shall not be deemed to be land
revenue payable for the purpose of this section".
The appellants’ challenge in the High Court to this levy-
which was consequent on the 1964 amendment-was unsuccessful.
The High Court upheld it as a "tax on land" measured with
reference to land revenue, royalty or lease or other amount
as mentioned in the Explanation. The challenge based on
Entry 54 of List I read with Entry 23 of List II and the
provisions of the MMRD Act, 1957 was also repelled, applying
the decision in Murthy. The appeal to this Court was
referred to a Bench of seven Judges who came to the
conclusion that Murthy dity of the levy of the cess. It may
be necessary to refer, in greater detail, to some passages
in the judgment later but it will be convenient,. for the
present, to summarise the salient conclusions of the Court.
These were:
1. The levy could not be supported under:
(a) Entry 45 of List II: as it is not a tax on land
revenue, an expression which has a well defined
connotation. ‘Land revenue’ is separate and distinct
from ‘royalty. The Explanation to S.115(1) itself
proceeds on the basis that royalty cannot be land
revenue
127
properly so called or conventionally so known.
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(b) Entry 49 of List II: as it is not a tax on
land. A tax on land can only be levied on tax as a
unit, must be imposed directly on land and must bear a
definite relationship to it. There is a clear
distinction between a tax directly on land and a tax on
income arising from land. The cess is not a tax
directly on land as a unit but only a tax on royalty
which is indirectly connected with land. In the words
of Oza. J. it is a tax not only on land but on labour
and capital as well. It could have been treated as a
tax on land if it had been confined to ‘surface rent’
instead of ‘royalty.
(c) Entry 50 of List II: as a tax on royalty as
it is not a tax on mineral rights and so is outside the
purview of Entry 50. Even otherwise, Entry 50 is
subject to the provisions of List I and is, therefore,
subject to the declaration contained in, and the
purview of, the MMRD Act 1957.
2. Even if the cess is regarded as a fee, the State’s
competence to levy the same can, if at all, only be
justified with reference to Entry 23 and Entry 50 of List II
but this recourse is not available as the field is already
covered by Central Legislation referable to Entry 54 of List
I.
3. Murthy was not rightly decided. The view of the
Rajasthan, Punjab, Gujarat and Orissa decisions was
overruled. In the view taken by the Court, i.e. Madhya
Pradesh ruling was not examined n detail, particularly as it
was said to be pending in appeal before the Supreme Court.
In issue before us now are the levies of cesses based
on royalty from lands containing minerals by the States of
Orissa, Bihar and Madhya Pradesh. Since the relevant
statutes vary in detail and the parties concerned have also
taken different stands, emphasising different aspects, the
arguments have to be considered and dealt with separately,
We may, however, mention that the appeals before us include
those in the cases of Laxmi Narayan Agarwalla (Orissa). land
Harilal Rameshwar Prasad (Madhya Pradesh) noticed earlier.
THE VARIOUS ENACTMENTS
ORISSA
The invalidation in 1961 of Orissa Act XXVII of 1952 in
Hingir Rampur apparently rendered it necessary for the State
to bring in fresh
128
legislation. The Orissa enactment with which we are now
concerned is the Orissa Cess Act (Orissa Act IIof 1962) as
amended by Act 42 of 1976. According to the Statement of
Objects and Reasons accompanying the bill, the primary
objective of the legislation is to condense and simplify the
existing law on the subject by consolidating the different
enactments, customs and usages relating to the levy of cess
in the State, to cure defects and deficiencies therein and
to introduce uniformity in the levy of cess throughout the
State. The Act proposed to adopt a uniform rate of 25 paise
in the rupee of the annual rental value and distribute the
entire gross collection among the zilla parishads, panchayat
samithis (referred to as ‘samithis’ in the Act) and grama
panchayats in the ratio 5:8:12 respectively thus providing
them with enhanced revenues to enable them to discharge
their statutory responsibilities more efficiently by taking
up development works and providing better amenities to the
people of the State. Its principal provisions are as
follows:
(i) Under Section 4, from and after the commencement of
the Act, all lands (other than lands which were not liable
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to payment of rent or revenue before 1.4.77 and lands which
were subject to a tax on land holdings sunder a 1950
Municipal Act) are made liable to the payment of cess (in
addition to any land revenue, tax, cess rate or fee
otherwise payable in respect thereof) determined and payable
"as herein provided". A 1976 amendment makes it clear that
‘lands held for carrying on mining operations" ar not exempt
from the cess.
(ii) The "rate of cess, assessment [and] fixation of
cess year" are dealt with by S.5 which originally read thus:
"5.(1) The cess shall be assessed on the annual
value of all lands on whatever tenure held
calculated in the manner hereinafter appearing.
(2) The rate per year at which such cess shall be
levied shall be twenty five percentum of the
annual value of the land.
(3) x x x"
Sub-section(2) was amended by Act 13 of 1970 by substituting
of 50% in place of 25% but a 1982 amendment inserted S.5A to
provide that for a period 1.4.1977 to 31.3.1980, the cess
would be levied at 25% of the annual value in respect of
lands held for carrying on mining
129
operations. S. 5 was again amended by Act 15 of 1988 w.e.f.
26.10.1988 to read thus:
"(2) The rate at which such cess shall be levied
shall be.
a) in case of lands held for carrying on mining
operations in relation to any mineral, on such
percentum of the annual value of the said lands as
specified against that mineral in Schedule II; and
b) in case of other lands fifty percentum of the
annual value.
Clause (a) was again amended by Act 17 of 1989 to read thus:
"(a) in the case of land held for carrying on
mining operations in relation to any mineral, such
percentum of the annual value as the State
Government may, by notification, specify from time
to time in relation to such mineral".
It will thus be seen that, in place of a fixed rate, an
elasticity was provided for, initially, by requiring the
rates to be specified in the Schedule differently for
different minerals. Schedule II prescribed the percentage
which the cess was to bear to the annual value; the
percentages varied from 650% in the case of sand, to 300% in
the case of coal, 200% in respect of certain minerals such
as iron ore, limestone, manganese ore (except those meant
for export or cement manufacture), 150% in the case of
certain other minerals and 100% in respect of the rest.
Further elasticity was provided for in 1989 by leaving it to
the Government to vary the rates by a simple notification.
In consequence of this amendment, Schedule has been omitted
and a notification has been issued prescribing the
percentage of the royalty or the dead rent (as the case may
be) that is to be levied as the cess in respect of various
items of specified minerals. The rates specified are 650%,
400%, 300%, 200% and 150%. In respect of all minerals not
specified in the notification, the rate of cess is to be
100% of the royalty or dead rent.
(iii) S.6 specifies the person by whom the cess is
payable. In so far as is material for our present purposes,
it directs that the cess is payable "(c) by a person for the
lands he holds for carrying on mining operations and shall
be paid by him to the Government". This clause was inserted
in S.6 simultaneously with the amendment of S.5 by Act 42 of
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1976.
130
(iv) "Annual value" is defined in S.7 thus:
"7. Annual Value-(1) The annual value of lands
held by a raiyat shall be the rent payable by such
raiyat to the land-lord immediately under whom he
holds the land:
x x x x x x
(2) In the case of lands held as an estate the
annual value shall be the aggregate of -
(a) the amount which the intermediary is entitled
to receive on account of revenue or rent less the
amount payable by such intermediary as revenue to
the intermediary immediately superior to him or to
the Government, as the case may be; and
(b) the rent, if any, payable held for carrying on
mining operations, the annual value shall be the
royalty or, as the case may be, the dead rent
payable by the person carrying or mining
operations(s) to the Government."
The Explanation to the section defines "dead rent" and
"royalty" in terms of their definitions in the MMRD
Act,1957. It also states the "royalty" would include "any
payments made or likely to be make to the Government for the
right of raising minerals from the land which shall be
calculated on every tone of such minerals despatched from
the land at the same rate as prescribed under the said Act
or such other rate as may be fixed by the Government but not
exceeding the amount which would have been otherwise payable
as royalty under the said Act". Act 17 of 1989 also amended
S.7(3) to red thus:
"(3) In the case of lands held for carrying on
mining operations, the annual value shall be the
royalty or, as the case may be, the dead rent
payable by the person carrying on mining
operations(s) to the Government or the pit’s mouth
value wherever it has determined".
This was apparently intended to regulate the cess on coal in
respect of which the pit’s mouth value had been determined.
So a notification
131
dated 14.8.89 was issued to provide that the cess in
respect of coal bearing lands would be 30% of the pit’s
mouth value of the said mineral.
(v) Sections 8 to 9B provide for the assessment of the
cess in respect of various cases. S.9B, inserted by the 1976
amendment, provided:
"9B- Assessment of cess on lands held for mining
operations:
(1) The cess payable in respect of lands held for
carrying on mining operations shall be assessed in
the prescribed manner.
(2) Nothing contained in Sections 8,9 and 9A shall
apply in relation to the assessment of cess in
respect of the aforesaid lands:
The prescribed manner of such assessment had been already
set out in the Orissa Cess Rules, 1963. Rule 6A, inserted
in 1977, deals with this but it is unnecessary for us to
consider the details except to mention that it is assessed
and collected, along with the amount of royalty or dead
rent, by the Mining Officer concerned.
(vi) S.10 also needs to be referred to. It originally
read thus:
"10. Application of proceeds of the cess: (1)
Notwithstanding anything contained in any other
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law the amount collected as cess shall be credited
to the Consolidated Fund of the State and shall be
utilised in the following manner, namely:
(a) amounts collected in respect of lands within
the local limits of any Municipality or Notified
Area constituted under the Orissa. Municipal Act,
1950 shall be paid to the concerned Municipal
Council or Notified Area Council, as the case may
be; and
(b) amounts other than those referred to in clause
(a) shall be distributed in the prescribed manner
among the Grama Panchayats, Samitis and Parishads
in the ratio of twelve is to eight is to five.
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Explanation- In this section "Grama Panchayat"
mean a Grama panchayat constituted under the
Orissa Grama Panchayats Act, 1948 and "Samiti"
and "Parishad" respectively mean the Samiti and
Parishad constituted under the Orissa Panchayat
Samiti and Zila Parishad Act, 1964 and "Samiti"
means a panchayat samiti constituted under the
Orissa Panchayat Samitis Act 1959.
Orissa Act 13 of 1970 substituted the following section for
the above:
"10 Application of proceeds of the cess. (1)
Notwithstanding anything contained in any other
law, the amount collected as cess shall be
credited to the Consolidated Fund of the State and
shell be utilised for the following purposes,
namely:
(a) primary education;
(b) contribution to Grama-Panchayats; and
(c) contribution to Samitis.
Explanation-In this section"Grama Panchayat" means &
Grama Panchayat constituted under the Orissa Panchayat
Samitis Act, 1959.
(2) The proportion in which the amount collected
as cess is to be allotted for the said purpose
shall be as may be prescribed.
As substituted by Act 42 of 1976, it reads:
"10. Application of proceeds of the cess: (1)
Notwithstanding anything contained in any other
law, all amounts collected as cess shall be
credited fifty percentum of those which represent
cess collected in respect of lands, other than
lands held by carrying on mining operations, shall
be utilised for the following purposes, namely:-
(a) primary education;
(b) contribution to Grama Panchayats: and
(c) contribution to Samitis.
(2) The allotment of amounts to be utilised for
the pur-
133
poses mentioned in clause (a) , (b) and (c) of
sub-section(1) shall be made in such proportion as
may be prescribed"
BIHAR
We shall now turn to the relevant provisions of the
Bihar Act. Bihar is governed in this respect by the
provisions of the Bengal Cess Act (Act IX of 1880). It is
sufficient to refer to the provisions of Sections 4 to 6,9
and to certain notifications.
(i) A definition of ‘royalty’ was introduced in S.4 of
the Act by an ordinance of 1975. It was amended by the
Bihar Finance Act, 1981 and then by the Bihar Finance Act,
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1982. The definition as amended, w.e.f. 1.4.1982, by the
latter reads as follows:
"royalty for the purpose of this Act in respect of
mines and quarries means payment (which includes
dead rent) made or likely to be made to the owner
of mines and minerals for the right of working the
same on the quantity or value of such produce by a
lessee if the land had been under a lease granted
under MMRD Act, 1957, and rules made thereunder
and includes any amount which Government may
demand from the appropriation of mines and
minerals belonging to the Government and any
amount that may be paid as or in lieu of royalty
for the right of working mines and quarries in
areas held or acquired under any Act or
agreement".
At the end of the section it added the following
‘interpretation clause’:
"Valuation of mineral bearing land" means
with reference to assessment of local cess in any
year on land held for working mines and quarries
the value at pit’s mouth of all the mineral
extracted form the land in that year
and the Explanation, which defines the value at pit’s mouth
of a mineral;
(ii) S.5 provided that, from and after the commencement
of this Act, in any district or part of a district, all
immovable property situate therein except otherwise in
Section2 provided shall be liable to the payment of a local
cess.
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(iii) Section 6, again, is a much amended section, As
substituted by Ordinance No.209 of 1975 dated 2.12.75, it
read:
"6. Cess has to be assessed: The local cess shall
be assessed on the annual value of lands and until
provision to the contrary is made by the
Parliament on the royalty of mines and quarries,
sale value of the other immovable properties
including forest produce and annual net profits
from tramways and railways as contained
respectively as prescribed in this Act and the
rate at which the local cess shall be levied for
each other shall be-
(a) in the case of royalty, the rate will be
determined by the government from time to time but
it will not exceed the amount of royalty;
(b) in the case such annual net profits, fifteen
paise on each rupee of such profits;
(c) in the case of annual value of lands, twenty
paise per rupee of the annual value; and
(d) in the case of sale value of immovable
properties including first produce, the rate will
not exceed 10% and the State Government may, by
notification, prescribe from time to time the
commodities on the sale of which cess would be
levied along with the rate at which it would be
levied".
It was amended by a series of Bihar Cess (Amendment)
ordinances between 1975 and 1982 . It was further amended
by the Finance Act, 1982 (w.e.f. 1.4.82), the Finance Act,
1984, the Finance Act, 1985 (w.e.f. 1.8.1985) and the Bihar
Cess (Amendment) Ordinance, 1985, After the last of these
amendments, the section stood thus:
"S.6. Cess how to be assessed: The local cess
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shall be assessed on the annual value of the lands
and, until provision to the contrary is made by
the Parliament, on the royalty of mines and
quarries or on value of mineral bearing land as
the case may be, sale value of other immovable
properties including forest produce and annual net
profits from tramways and railways ascertained
respectively as prescribed in the Act and the rate
at which the local cess
135
shall be levied for each year shall be-
(a) in the case of royalty, the rate will be
determined by the Government from time to time but
it will not exceed five times the amount of
royalty, provided that the local cess payable in
any one year shall not be less than the amount
arrived at by multiplying the dead rent with the
rate of cess determined undo clause (a);
(aa) in the case of value of mineral bearing land,
where the local cess payable in any year in
respect of any mineral bearing land as assessed in
clause (a) is less than 30 per cent of the value
of mineral bearing land in that year, then,
notwithstanding anything hereinbefore contained,
the State Government may assess the local cess at
such percentage of the value of the mineral
bearing land, not exceeding [of] 30 per cent, as
may be notified in the Official Gazette from time
to time although the cess so assessed may exceed
five times the amounts of royalty;
(b) in the case of annual net profit, fifteen
paise on each rupee of such profits;
(c) in the case of annual value of land, twenty
five paise per rupee of the annual value; and
(d) in the case of sale value of immovable
properties including first produce, the rate will
not exceed 30 per cent and the State Government
may , be notification prescribe from time to time
the commodities on the sale of which cess would be
levied along with the rates at which it would be
levied".
The Bihar Cess (Amendment) Ordinance, 1987 (replaced by Act
3 of 1988) substituted 40% for 30% in clause (aa).
(iv) S.9 of the Act deals with the application of the
proceeds of cess. It has been amended from time to time,
inter alia in 1976, 1977, 1978, 1979, 1980, 1981 and 1982.
After all these amendments, the section stood thus:
"9. Application of the proceeds of cess: The
proceeds of local cess and all sums levied or
recovered as interest or
136
otherwise shall in each district be paid in the
district fund-
(i) at such rate as may, from time to time, be
determined by the State Government in the case of
local cess on annual value of land; and
(ii) at such rate as may, from time to time, be
determined by the State Government, subject to a
maximum of twenty per cent in case of local cess
on royalty of mines and quarries, or value of
mineral bearing land, sale value of other
immovable properties, forest produce and annual
net profit from tramways and railways and the
remaining amount shall be deposited in the
consolidated fund of the State for the
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construction and maintenance of other works of
public utility;
xxx xxx xxx xxx xxx
Provided further that out of the remaining amount
not less than ten percent of the amount of the
local cess collected under clause (a) or clause
(aa) of Section 6 shall be spent for purposes
relating to mineral development’’.
(v) In exercise of the powers conferred by S. 6 above,
the State Government issued a notification on 20.11.80
determining the rate of cess on the amount of royalty of all
minerals of the State at 100% w.e.f. 1.2.1980. Our attention
has also been drawn to, and some print made of, a
notification dated 20.4.85 by which the State Government,
modifying the earlier notification of 1.10.1981, determined
the rate of cess ‘‘on the amount of royalty of iron ore
which is extracted from manually operated iron ore mines’’
at 100% w.e.f. 1.10.84 which was followed up by a
notification dated 20.11.85 enhancing the rate at 300% on
the amount of royalty of iron ore w.e.f.21.6.85 in respect
of mines other than those in which the ore is extracted
manually. Other notifications were also issued determining
the rate of cess in respect of other minerals as indicated
below :
Date of Effective Mineral Rate
Notification Date
20.11.85 21.6.85 Bauxite Ore, sand 500%
for stowing
20.11.85 21.6.85 Copper Ore and 300%
uranium
20.11.85 21.6.85 Lime stone and
kynite 200%
20.11.85 21.6.85 Coal 30% of pit’s
mouth value or
500% on the
amount of
royalty
whichever is
greater
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Madhya Pradesh:
In Madhya Pradesh, two statutes have to be considered:
The first is the Madhya Pradesh Upkar Adhiniyam, 1981
(Act 1 of 1982). It provides for the levy of an energy
development cess (Part I), an urban development cess (Part
II), a cess on transfer of vacant land (Part III), and a
cess on storage of coal (Part IV). The Act provided that the
cesses levied under Parts I and IV should first be credited
to the Consolidated Fund of the State but subsequently
withdrawn and credited to a separate Electrical Development
Fund [Ss.3(2)] and Coal bearing Area Development Fund [s.
12(1)] and that the amounts to the credit of the funds as
well as the cesses collected under Parts II and III should
be utilised for special purposes connected respectively with
energy development [S.3(3)] development of coal bearing
areas [S.12(2)] urban development [S. 7(2)] and rural
development [S. 9(5)]. Act 21 of 1987 changed Part IV into a
part dealing with ‘‘cess on land held in connection with
mineral rights’’ with full retrospective effect. Part IV, as
now substituted, deals only with ‘‘land situate in the State
and held under a mining lease for undertaking mining
operations in relation to major mineral including operations
for raising, winning or extracting coal’’. Section 11 and 12
read thus:
‘‘Section 11: There shall be levied and collected
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a cess on land held in connection with mineral
rights at such rate as may be notified by the
State Government per ton of major mineral raised
and the rate of cess prevailing in respect of coal
during the period commencing from the date of
commencement of the Principal Act and ending on
the date of commencement of the Madhya Pradesh
Upkar (Sanshodhan) Adhiniyam, 1987, shall be
deemed to be the rate of cess notified under this
sub-section in respect of coal:
Provided the subject to the limitation mentioned
above the State Government may, by notification,
increase or
138
reduce the rate of cess at an interval of not less
than one year, where the rate is increased it
shall not be in excess of fifty per cent of the
rate for the time being in force;
Provided further that every notification under the
above proviso shall be laid on the table of the
Legislative Assembly and the provisions of Section
24-A of the Madhya Pradesh General Clauses Act,
1957 (No. 3 of 1958) shall apply thereto as they
apply to rule.
(2) The rate of cess to be notified for the first
time in exercise of the powers conferred by Sub-
section (1) shall be effective from the [first of]
April, 1987.
(3) The cess levied under sub-section (1) shall,
subject to and in accordance with the rules made
in this behalf, be assessed and collected by such
agencies and in such manner as may be prescribed.
(4) The agencies prescribed under sub-section (3)
shall for the purpose of assessment, collection
and recovery of cess and all matters connected
therewith, exercise such of the powers conferred
upon the authorities specified in section 3 of the
Madhya Pradesh General Sales Tax Act, 1958 (No. 2
of 1959) for the purpose aforesaid in respect of
sales tax under said Act and the rules made
thereunder, as may be prescribed as if such
agencies were the authorities specified in the
section 3 and the cess on land held in connection
with mineral rights were the tax levied under the
said Act.
Section 12 : The proceeds of the cess on land held
in connection with the mineral rights may be
utilised by the State Government for the general
development of the mineral bearing areas.’’
Section 12 has, however been omitted by an Amending Act
of 1989, again, with full retrospective effect i.e. from
1.10.1982.
It appears, however, that there was in force in Madhya
Pradesh w.e.f. 1.11.1982 another statute levying mineral
development cess. It was the M.P. Karadhan Adhiniyam, 1982
(Act 15 of 1982) as amended by M.P. Acts 1983 and 13 of 1985
which was challenged before the
139
M.P. High Court in Hiralal Rameshwar Prasad v. State and
other connected cases. The Madhya Pradesh Karadhan
Adhiniyam, 1982, was enacted by State Legislature ‘‘to
provide for levy of school building cess, forest development
cess and mineral areas development cess and matters
incidental thereto’’. Part II of the Act deals with the
school building cess. Section 5 therein requires the holder
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of every holding of six hectares and above to pay the school
building cess as provided therein. The proceeds of the
school building cess are required by S.4 to be credited to a
separate Fund supplemented by a State contribution equal to
50% thereof and utilised for construction and furnishing of
primary school buildings in non-urban areas. Part III of the
Act deals with the forest development cess. Section 7
imposes forest development cess on every sale or supply for
forest produce by the Forest Department. The proceeds
thereof are to be credited to a separate Fund and utilised
for social forestry, afforestation, reforestation, forest
rehabilitation and other purposes connected with forest
development. Then comes Part IV dealing with the mineral
areas development cess, the provisions of which are relevant
for the purpose of these appeals and it is the charging
provision therefor contained in Section 9 which has been
attacked as constitutionally invalid. The Section read thus:
‘‘9. Levy of mineral areas development cess on
land under mining lease’’.
(1) There shall be levied and collected on the
land held under a mining lease for undertaking
mining operation a mineral areas development cess
at the rate of twenty five percent of the rental
value thereof.
(2) For the purpose of sub-section (1), rental
value shall be equal to the royalty or dead rent,
as the case may be, whichever is higher.
(3) The mineral areas development cess shall be
payable by person to whom the mining lease is
granted.
(4) The mineral areas development cess shall,
subject to and in accordance with the rules made
in this behalf, be collected by such agencies and
in such manner as may be prescribed and shall be
applied towards development of mineral bearing
areas’’.
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The 1983 amendment substituted the following sub-section (1)
in Section 9:
‘‘(1) There shall be levied and collected on the
land held under a mining lease for undertaking
minor operations for a major mineral, a mineral
areas development cess at the rate of one hundred
percentum o the rental value thereof’’.
The 1985 amendment substituted the following sub-section in
place of the above w.e.f. 1.8.1985:
‘‘(1) There shall be levied and collected-
(a) on the land held under mining lease for
undertaking mining operations for a major mineral
other than coal a mineral areas development cess
at the rate of one hundred percentum of the rental
value thereof;
(b) on the land held under mining lease for
undertaking mining operations for coal, a mineral
area development cess at the rate of the hundred
twenty five percentum of the rental value
thereof’’.
and also made a provision for payment of interest on arrears
of cess. Rules have been framed under this Act called ‘‘The
Madhya Pradesh Mineral Areas Development Cess Rules, 1982’’.
Rule 3 provided for the collection of the cess every month
along with the royalty or dividend. Rule 10 thereof is alone
relevant for the purpose of these partitions and read as
under:
‘‘10. Application of cess: The State Government
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shall decide from time to time the manner in which
the amount collected from cess shall be utilized
for the development of mining lease areas’’.
In 1985, an amendment substituted the words ‘‘mineral
bearing’’ for the words ‘‘mining lease’’ in this rule. It
will be seen that, unlike the cesses referred to in Part I
and III, the Act did not provide for the creation of a
separate Fund for the mineral areas development cess. The
manner of utilisation thereof was also left to the
discretion of the State Government though it had to be spent
for development of mineral bearing areas.
141
THE CONTENTIONS
ORISSA
In the historical and statutory context set out above,
the attempt of Sri T.S. Krishnamurthy Iyer, learned counsel
for the State of Orissa to save the impugned legislation of
the State is two fold. First, he points out that in India
Cement the statute, by Ss. 115 and 116, imposed a cess and
surcharge on ‘land revenue’ and the explanation to s. 115
defined ‘land revenue’ to mean ‘royalties’. In other words
that was a clear case of direct cess or Tax on royalties.
Here, on the other hand, s.5 makes it clear that what the
legislature has provided for is a tax assessed on the annual
value of all lands, on whatever tenure held, calculated at a
percentage of the annual value of the land. S. 7, which
defines ‘annual value’, provides for different measures for
determining the annual value in respect of lands held under
different kinds of tenures; and, in the case of lands held
for mining operations, the measure of such annual value is
the royalty or dead rent paid to the Government. On a proper
construction of the statute, he submits, the cess levied is
a cess or tax on land and the ‘royalty’ is only taken as a
measure for determining the quantum of tax. He contends that
India Cement only forbids a cess or tax on royalty as such
and not a cess or tax on land, which may be measured by
reference to the royalty derived from it. He presses in aid
of his argument the well-marked distinction between the
subject matter of a tax and its measure outlined, amongst
others, in Ralla Ram’s case [1948] F.C.R.207 at pp. 218, 224
and Bombay Tyre International v Union, [1984] 1 S.C.C.487 at
pp. 481-4. This argument, Sri Iyer contended, is based on
the statutory language used in the Orissa Cess Act, 1962 and
should prevail independently of the correctness or otherwise
of Murthy, Secondly, he submitted that ‘royalty’ is not a
tax and the cess on royalty is also not a tax but only a
fee. This view is supported, he said, by the limitations
imposed in the statute on the modes of its utilisation.
Being a fee, the State Legislature’s competence to impose it
has to be determined with reference to Entry 23 read with
Entry 66 of the State List. So doing, the validity of the
levy has to be upheld as, in counsel’s submission, the
declaration contained in, and the provisions of, the MMRD
Act, 1957 do not, in any way whittle down or impair this
competence.
Basically, it will seen, two questions arise-
(1) Can the cess be considered as ‘‘land revenue’’
under Entry 45 or as a ‘‘tax on land’’ under Entry
49 or as a ‘‘tax
142
on mineral rights’’ under Entry 50 of the State
List?
(2) If the answer to question (1) is in the
negative, can the cess be considered to be a fee
pertaining to the field covered by Entry 23 of the
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State List or has the State been denuded of the
legislative competence under this Entry because of
Parliament having enacted the MMRD Act, 1957?
Taking up the first question, the attempt to bring the
levy under Entry 45 of the State List proceeds in two steps.
First, land revenue is the sovereign’s share of the proceeds
of the land belonging to the sovereign and is represented,
in the case of land containing minerals, by the payment of
royalty to the Government. Second, the cess, being an
accretion to royalty, partakes of the same character. This
argument, however, must fail in view of the categorical
observations of the Supreme Court in india Cement, (vide
paras 20 and 21) as to the connection of the expression
‘land revenues’. At least, in India Cement, the statute
sought to include royalty within the meaning of ‘land
revenue’ but there is no such provision in the Orissa Act
and, this being so, royalty or the tax thereon cannot be
equated to land revenue. The cess here cannot be, therefore,
brought under Entry 45.
Turning next to Entry 50, though Murthy left open the
question how far a levy of this nature can be considered to
be a tax on mineral rights (vide page 676), India Cement has
chosen to approve the contrary view of Wanchoo J. in his
dissenting judgment in Hingir Rampur (para 30). Actually, it
appears that the observations of Wanchoo J. have not been
fully examined. The learned Judge held that the tax in the
case before him was not a tax on mineral rights because it
was levied on the value of the minerals extracted. If his
observations in this context are read as a whole, it would
seem that he also was of opinion that a tax on royalty would
be a tax on mineral rights, for he observed (at pp. 582-3):
‘The next contention on behalf of the State of
Orissa is that if the cess is not justified as a
fee, it is a tax under item 50 of List II of the
Seventy Schedule. Item 50 provides for taxes on
mineral rights subject to any limitations imposed
by Parliament by law relating to mineral
development. This raises a question as to what are
taxes on mineral rights. Obviously, taxes on
mineral rights must be different from taxes on
goods produced in the nature of duties of excise.
If
143
taxes on mineral rights also include taxes on
minerals produced, there would be no difference
between taxes on mineral rights and duties of
excise under item 84 of List I. A comparison of
List I and II of the Seventh Schedule shows that
the same tax is not put in both the Lists. There
fore, taxes on minerals rights must be different
from duties of excise which are taxes on minerals
produced. The difference can be understood if one
sees that before minerals are extracted and become
liable to duties of excise somebody has got to
work the mines. The usual method of working them
is for the owner of the mine to grant mining
leases to those who have got the capital to work
the mines. There should therefore be no difficulty
in holding that taxes on mineral rights are taxes
on the right to extract minerals and not taxes on
the minerals actually extracted. Thus tax on
mineral rights would be confined, for example, to
taxes on leases of mineral rights and on premium
or royalty for that. Taxes on such premium and
royalty would be taxes on mineral rights while
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taxes on the minerals actually extracted would be
duties of excise. It is said that there may be
cases where the owner himself extracts minerals
and does not give any right of extraction to
somebody else and that in such cases in the
absence of mining leases or sub-leases there would
be no way of leaving tax on mineral rights. It is
enough to say that these cases also, rare though
they are, present no difficulty. Take the case of
taxes on annual value of buildings. Where there is
a lease of the building, the annual value is
determined by the lease-money; but there are many
cases where owners themselves live in buildings.
In such cases also taxes on buildings are levied
on the annual value worked out according to
certain rules. There would be no difficulty where
an owner himself works the mine to value the
mineral rights on the same principles on which
leases of mineral rights are made and then to tax
the royalty which, for example, the owner might
have got if instead of working the mine himself he
had leased it out to somebody else. there can be
no doubt therefore that taxes on mineral rights
are taxes of this nature and not taxes on minerals
actually produced. Therefore the present cess is
not a tax on mineral rights; it is a tax on the
minerals actually produced. Therefore the present
cess is not a tax on mineral rights; it is a tax
on the minerals actually produced and can be no
different in pith and substance from a
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tax on goods produced which comes under Item 84 of
List I, as duty of excise. The present levy
therefore under s. 4 of the Act cannot be
justified as a tax on mineral rights.
However, the conclusion of India Cement is clear that a tax
on royalties cannot be a tax on minerals and we are bound
thereby. This apart, we shall also advert, while discussing
the second question, to another hurdle in the way of the
State’s attempt to have recourse to Entry 50, which has also
been touched upon by India Cement.
Can, then, the cess be described as a tax on land’’?
The Status considered in India Cement, as Sri Iyer correctly
points out, was differently worded. It purported to levy a
cess on land revenue and ‘royalty’ was brought within the
definition of that expression. It was therefore, a case
where they levy had no reference to land at all but only to
the income from the land, in the case of Government lands,
got by way of land revenue or otherwise. Here the Statute is
different. The objective of the Cess Act as set out earlier,
is to levy a cess on all land. Indeed, originally the idea
was to levy a uniform cess at 25% of the annual value of all
land which was subsequently raised to 50%. It is argued that
the tax here is, therefore, a tax on land and it is
immaterial that this tax is quantified with reference to the
income yielded by the land. A tax on land may be levied,
inter alia with reference to its capital value or with
reference to its annual value. One realistic measure of such
capital or annual value will be the income that the land
will yield just as, for property tax purposes, the annual
value is based on the amount for which the property can
reasonably let from year to year. The income from the land
may be more or less due to a variety of reasons. In the case
of agricultural lands, it may depend on the fertility of the
soil, the sources of irrigation available, the nature of
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crops grown and other such factors. Likewise, where the land
is one containing minerals, naturally the value (whether
annual or capital value) will be more if it contains richer
minerals and can be legitimately measured by reference to
the royalties paid in respect thereof. the mere fact, it is
argued, that the annual value is measured with reference to
the royalty, dead rent or pit’s mouth value of the mineral
does not mean that it ceases to have the character of a tax
on land. In this context, Sri Iyer places strong reliance on
the decision of a Constitution Bench of this Court in Ajay
Kumar Mukherjea v. Local Board of Barpeta, [1965]3 S.C.R.
47. There a local Board was authorised to ‘‘grant....a
license for the use of any land as a market and impose an
annual tax thereon’’. The Court held, examining the Scheme
and the language of the provision in question, that the tax
imposed was a tax
145
on land under Entry 49. The Court indicated the following
approach to the issue before it:
‘‘The first question which falls for consideration
therefore is whether the impost in the present
case is a tax on land within the meaning of Entry
49 of List II of the Seventh Schedule to the
Constitution. It is well-settled that the entries
in the three legislative lists have to be
interpreted interpreted in their widest amplitude
and therefore if a tax can reasonably be held to
be a tax on land it will come within Entry 49.
Further it is equally well-settled that tax on
land may be based on the annual value of the land
and would still be a tax on land and would not be
beyond the competence of the State legislature on
the ground that it is a tax on income: see Ralla
Ram v. The Province of East Punjab, [1948]
F.C.R.207. it follows therefore that the use to
which the land is put can be taken into account in
imposing a tax on it within the meaning of entry
49 of List II, for the annual value of land which
can certainly be taken into account in imposing a
tax for the purpose of this entry would
necessarily depend upon the use to which the land
it put. It is in the light of this settled
proposition that we have to examine the scheme of
s. 62 of the Act which imposes a tax under
challenge.’’
On the other hand, it is contended for the respondents
that, whatever may have been the original intention, the
true and real impact of the cess is only on the royalties.
It is said that, at any rate, after the amendments of 1976,
when lands held for mining operations were segregated for
levy of separate and steep rates of cess based on royalty,
the ostensible appearance of levying a tax on all land with
reference to annual value has disappeared and a direct,
undisguised tax on royalties from mining lands has taken its
place. it is urged that, for deciding whether the tax is
really a tax on land as in Murthy or whether it is really a
tax on royalties which has been struck down in India Cement,
it is not the form or the statutory machinery that matters;
one has to look at the real substance and true impact of the
levy. If this is done, it is said, there can be no doubt
that the cess impugned here suffers from the same vice that
vitiated the levy in India Cement.
The decision of this Court in Buxa Dooars Tea Co. v.
State, [1989] 3 S.C.R. 211 was referred to by Sri
G.Ramaswamy, learned
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counsel for Orient Paper Mills, in support of this
contention. In that case, this Court was concerned with a
cess levied annually. Initially S. 4(2) of the relevant
statute levied the cess:
‘‘(a) in respect of lands, at the rate of six
paise on each rupee of development value thereof;
(b) in respect of coal mines, at the rate of fifty
paise on each tonne of coal on the annual
dispatches therefrom;
(c) in respect of mines other than coal mines and
quarries, at the rate of six paise on each rupee
of annual net profits thereof’’.
With effect from 1.4.1981, clause (a) above was amended and
clause (aa) inserted to provide for the levy of cess-
‘‘(a) in respect of land 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 rupees six on each kilogram of tea on
the dispatches 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 dispatches of tea
for the purpose of levy of rural employment cess,
such dispatches for sale made at such tea auction
centres as may be recognised by the State
Government by notification in the Official Gazette
shall be excluded:
Provided further that the State Government may fix
different rates on dispatches of different kinds
of tea’’.
Sub-section (4) was added in Section 4 to enable the State
Government, if it considers necessary so to do, by
notification in the Official Gazette, to exempt such
categories of dispatches or such percentage of despatches
from liability to pay the whole or any part of the rural
employment cess or reduce the rate of rural employment cess
payable thereon, under clause (aa) of sub-section (2), on
such terms and conditions as may be specified in the
notification. With effect from 1.10.1982, the first proviso
to clause (aa) was omitted. It was contended
147
for the tea estate, inter alia that the above levy violated
the provisions of Article 301 of the Constitution and was
also beyond the legislative competence of the State
Government. Upholding these contentions, the Court observed:
‘‘The question then is whether the impugned levy
impedes the free flow of trade and commerce
throughout the territory of India and, if it does,
whether it falls within the exception carved out
in article 304(b). If the levy imposes a cess in
respect of tea estate, it may will be said that
even though the free flow of trade is impeded in
its Government throughout the territory of India,
it is in consequence of an indirect or remote
effect of the levy and that it cannot be said that
article 301 is contravened. The contention of the
petitioners is, however, that it is ostensibly
only in respect of tea estate but in fact it is a
levy on despatches of tea. If that contention is
sound, there can be no doubt that it constitutes a
violation of article 301 unless the legislation is
brought within the scope of article 304(b). To
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determine whether the levy is in respect of tea
estates or is a levy on despatches of tea, the
substance of the legislation must be ascertained
from the relevant provisions of the statute. It
cannot be disputed that the subject of the levy,
the nature of which defines the quality of the
levy, must not be confused with the measure of
liability, that is to say, the quantum of the tax.
There is a plenitude of case law supporting that
principle, among the cases, being Union of India
v. Bombay Tyre International, [1984] 1 S.C.R.347.
10. But what is the position here?.........Now,
for determining the true nature of the
legislation, whether it is a legislation in
respect of tea estate and therefore of land, or in
respect of despatches of tea, we must, as we have
said take all relevant provisions into account
and ascertain the essential substance of it. It
seems to us that although the impugned provisions
speak of a levy of cess in respect of tea estates,
what is contemplated is a levy on despatches of
tea instead. The entire structure of the levy
points to that conclusion. If the levy is regarded
as one in respect of tea estates and the measure
of the liability is defined in terms of the weight
of tea dispatched, there must be a nexus between
the two indicating relationship between the levy,
on the tea estate and the criteria for determining
the
148
measure of liability. If there is no nexus at all
it can conceivably be inferred that the levy is
not what it purports to be. The statutory
provisions for measuring the liability on account
of the levy throws light on the general character
of the tax as observed by the Privy Council in Re:
A Reference under the Government of Ireland Act,
1920 and Section 3 of the Finance Act (Northern
Ireland), 1934 [1963] 2 A.E.R. III. In R.R.
Engineering Co. v. Zilla Parishad, Barielly,
[1980] 3 SCR 1 this Court observed that the method
of determining the rate of levy would be relevant
in considering the character of the levy. All
these cases were referred to in Bombay Tyer
International Ltd., [1984] 1 S.C.R. 347 where in
the discussion on this point at page 367 this
Court said:
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’’.
Applying the above tests to the case before it, the Court
reached the conclusion that, in substance the impugned levy
was a levy in respect of despatches of tea and not in
respect of tea estates. It was then pointed out that the
question of legislative competence also turned on this
issue:
‘‘If this impugned legislation were to be regarded
as a levy in respect of the estates, it would be
referable to entry 49 in List II of the Seventh
Schedule of the Constitution which speaks ‘‘taxes
on lands and buildings’’. But if the legislation
is in substance legislation in respect of
despatches of tea, legislative authority must be
found for it with reference to some other entry’’
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Pointing out that no such entry in List II or III had been
brought o its notice and further that, under S.2 of the Tea
Ct, 1953, control over the tea industry has been assumed by
Parliament within the meaning of Entry 54 of List I, the
Court upheld the challenge to the competence of the State
legislature to levy the impugned cess. it is submitted that,
likewise, here the levy is one in substance on royalties and
not one on land.
There is force in the contention urged by Sri T.S.K.
Iyer that there is a difference in principle between a tax
on royalties derived
149
from land and a tax on land measured by reference to the
income derived therefrom. That a tax on building does not
cease to be such merely because it is quantified on the
basis of the income it fetches is nowhere better illustrated
than by the form of the levy upheld in Ralla Ram, [1948]
F.C.R. 207 followed by Bhagwan Dass Jain, [1981] 2 SCR 808
which illustrates the converse situation. Mukherjea (supra)
also supports this line of reasoning. But here the levy is
not measured by the income derived by the assessee from the
land, as is the case with lands other than mineral lands.
The measure of the levy is the royalty paid, in respect of
the land, by the assessee to his lessor which is quite a
different thing. Moreover, interesting as the argument is,
we are constrained to observe that it is only a reiteration
of the ratio in Murthy which has been upset in India Cement.
We may point out that this is of significance because,
unlike in India Cement, the statute considered in Murthy, as
the one here, only purported to levy a cess on the annual
value of all land. India Cement draws a ‘‘clear distinction
between tax on land and tax on income arising from land’’.
The former must be one directly imposed on land, levied on
land as a unit and bearing a direct relationship to it. In
para 23 of the judgment, the Court has categorically stated
that a tax on royalty cannot be said to be a tax directly on
land as a unit.
Sri Iyer contended that all the observations and
propositions in India Cement stem from the basic conclusion
of the Court that the cess levied there was a cess on
royalty in view of the Explanation to S. 115. He also
submitted that the statue under consideration in India
Cement did not provide for any cess in the case of land
which did not yield any royalty; in other words, the Act did
not use dead rent as a basis on which land was to be valued.
He drew attention to the observations of Oza, J.In para 42
of India Cement that if the Explanation to S. 115 had used
the words ‘surface rent’ in place of ‘royalty’ the position
would have been different and that, if a cess on such
‘surface rent’ or ‘dead rent’ is charged, it could be
justified as a tax on land falling within the purview of
Entry 49, Here, however, the position is different and so,
he urged, the nature of the levy is also different. We may
have considered these points as furnishing some ground to
distinguish the present levy from that in india Cement but
for the Court’s specific disapproval of Murthy. We are
unable to accept the plea of Sri Iyer that, in spite of
Murthy, he can support the validity of the levy, as the
statute considered in Murthy contained exactly the same
features as are here emphasised by Shri Iyer and the
validity of such Levy cannot be upheld after India Cement.
As to the second contention based on the observations in the
judgment of Oza J., we may point out here the
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levy is not one confined to dead rent or surface rent as
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suggested by Oza J. but one on royalty which even according
to Oza J. cannot be described as a tax on land.
Sri Iyer contended that unless the case of the
assessees is that the statute is a piece of colourable
legislation, it is not possible to construe the levy on
mineral lands differently. He pointed out that S. 4 of the
Orissa Cess Act, 1962 levies a cess on all land and that, if
Sc. 7(1) and (2) measuring the cess by reference to the
income of other categories of land are valid, there is no
reason why S.7(3) alone should be treated differently and
objected to as imposing a tax on royalties particularly when
the levy also extends to dead rent.
The answer to this contention appears to be that the
plea of the assessee need not go to the extent of saying
that the levy is a colourable piece of legislation. it is
sufficient to restrict oneself to the issue of a proper
determination of the pith and substance of the legislation.
There is no doubt an apparent anomaly in considering S. 7(1)
and (2) as levying a tax on land but construing S. 7(3) as
imposing a tax on royalties and this anomaly has been
noticed in India Cement (vide para 42). But the question is,
what is it that is really being taxed by the Legislature? So
far as mineral-bearing lands are concerned, is the impact of
the tax on the land or on royalties? The change in the
scheme of taxation under S.7 in 1976; the importance and
magnitude of the revenue by way of royalties received by the
State; the charge of the cess as a percentage and, indeed,
as multiples of the amount of royalty; and the mode and
collection of the cess amount along with the royalties and
as part thereof are circumstances which go to show that the
legislation in this regard is with respect to royalty rather
than with respect to land.
Sri Iyer had invited our attention to the decision of
this Court in R.R. Engineering Co. v Zila Parishad, [1980] 3
S.C.R. 1 which upheld the validity of a ‘circumstances and
property tax’ levied by a Zila Parishad. The High Court had
held this levy could not be traced to any entry other than
the residuary Entry 97 of List I. This Court, on appeal,
pointed out the distinction between a tax of this type and a
tax on income. It held that the tax was a composite one
referable to Entry 49 (tax on lands and buildings), Entry 58
(taxes on animals and boats) and Entry 60 (tax as on
professions, trades, callings and employments) of List II.
While holding, therefore, that the ceiling of Rs.250 per
annum referred to in Entry 60 would not be applicable to the
tax, the Court uttered a ‘‘word of caution’’.
151
‘‘The fact that one of the components of the
impugned tax, namely, the component of
‘circumstances’ is referable to other entries in addition to
Entry 60, shall not be construed as conferring an unlimited
charter on the local authorities to impose
disproportionately excessive levies on the assessees who are
subject to their jurisdiction. An excessive levy on
circumstances will tend to blue the distinction between a
tax on income and a tax on circumstances. income will then
cease to be a mere measure or yardstick of the tax and will
become the very subject matter of the tax. Restraint in this
behalf will be a prudent prescription for the local
authorities to follow’’.
While Sri Iyer sought to use this decision in support of his
contention that a tax on property can be legitimately
measured on the basis of the income therefrom, we think the
observations extracted above are very apposite here. The
manner in which the levy, initially introduced a uniform
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cess on all land, was slowly converted, qua mining lands,
into a levy computed at multiples of the royalty amounts
paid by the lesses thereof seem to bear out the contention
that it is being availed of as a tax on the royalties rather
than one on the annual value of the land containing the
minerals. In the words of Chandrachud J. (as he then was)
one can legitimately conclude that royalty has ceased to be
a mere measure or yardstick of the tax and has become the
very subject matter thereof.
For the reasons discussed above, we repel the
contention of the State seeking to justify the levy under
Entry 45, 49 and 50 of List II of the Seventh Schedule.
There has been considerable discussion before us as to
whether ‘royalty’ itself is a tax or not. The controversy
before us centres round the discussion contained in paras 31
to 34 of the India Cement judgement. Counsel for the
assessees-respondents invite attention to the opening
sentence of para 34 which runs: ‘‘In the aforesaid view of
the matter, we are of the opinion that royalty is a tax’’
and argue that this clinches the issue. On the other hand,
Sri Iyer submits that this purported conclusion does not
follow from the earlier discussion and is also inconsistent
with what follows. He points out that though there is a
reference in para 27 to the conclusion of Venkataramiah J.
in a judgement of the Mysore High Court that royalty under
S.9 of the MMRD Act is really a tax, and a reference in para
31 to the Rajasthan, Punjab, Gujarat and Orissa decisions to
the effect that royalty is not a
152
tax, there is no discussion, criticism or approval of any of
the decision on this point and that, therefore, the first
sentence of para 34, relied upon for the respondents, is
non-sequitir. He submits that, perhaps, there is a
typographical error in the first sentence of para 34 and
that the sentence should really read thus:
‘‘In the aforesaid view of the matter, we are of
opinion that cess is a tax, and as such a cess on
royalty being a tax on royalty, is beyond the
competence of the State Legislature........’’
He also points out that the last sentence of para 34 reads
thus:
‘‘Royalty on mineral right is not a tax on land
but a payment for the use of land’’.
He submits, therefore, that this issue has not been decided
in India Cement. He submits that, before we express any
opinion on this issue, we should consider the matter afresh
and places before us extracts from various lexicons and
dictionaries to show that a royalty is nothing more than the
rent or lease amount paid to a lessor in consideration for
the grant of a lease to exploit minerals. Reference may also
be made to the discussion in this respect in paras 35-40 of
Trivedi & Sons v. State of Gujarat, [1986] Supp. S.C.C. 20.
It is therefore, neither a fee nor a tax but merely a price
paid for the use of mineral-bearing land.
We do not think that it is necessary for us to express
an opinion either way on this controversy for, it seems to
us, it is immaterial for the purposes of the present case.
If royalty itself were to be regarded as a tax, it can
perhaps be described properly as a tax on mineral rights and
has to conform to the requirements of S. 50 which are
discussed later. We are, however, here concerned with the
validity of the levy of not royalty but of cess. If the cess
is taken as a tax, then, unless it can be described as land
revenue or a tax on land or a tax on mining rights, it
cannot be upheld under Entry 45, 49 or 50. On the contrary,
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if it is treated to Entry 23, a proposition the effect of
which will be considered later. the question whether royalty
is a tax or not does not assist us much in furnishing an
answer to the two questions posed in the present case and
set out earlier. We shall, therefore, leave this question to
rest here.
This takes us to the second question posed by us
initially and this
153
turns on the effect of M.M.R.D. Act, 1957 and the
declaration contained in S.2 thereof which has been
extracted earlier. This will arise if we treat the levy as a
tax falling under Entry 50 of List II or, alternatively, as
a fee though it may not affect the State’s competence if it
can be attributed to Entry 49 of List II.
To take up Entry 50 first, a perusal of entry 50 world
show that the competence of the State Legislature with
respect thereto is circumscribed by ‘‘any limitations
imposed by Parliament by law relating to mineral
development’’. The M.M.R.D Act, 1957, is - there can be no
doubt about this a law of Parliament relating to mineral
development. S.9 of the said Act empowers the Central
Government to fix, alter, enhance or reduce the rates of
royalty payable in respect of minerals removed from the land
or consumed by the lessee. Sub-section (3) of Section 9 in
terms states that the royalties payable under the Second
Schedule to the Act shall not be enhanced more than once
during a period of three years. India Cement has held that
this is a clear bar on the State legislature taxing royalty
so as, in effect, to amend the Second Schedule to the
Central Act and that if the cess is taken as a tax falling
under Entry 50 it will be ultra vires in view of the
provisions of the Central Act.
It is possible, then, to treat the levy as a fee which
the State legislature is competent to legislate for under
Entry 66 of the State List? Sri Iyer contends for this
position particularly on the strength of S.10 of the Orissa
Cess Act, 1962. There is one great difficulty in accepting
this solution to the State’s problem. S.10 as it stands now
earmarks the purposes of utilisation of only fifty percent
of the proceeds of the cess and that, too, is limited to the
cess collected in respect of ‘‘lands other than lands held
for carrying on mining operations’’. In other words, the
levy cannot be correlated to any services rendered or to be
rendered by the State to the class of persons from whom the
levy is collected. Whether royalty is a tax or not, the cess
is only a tax and cannot be properly described as a fee.
This consideration apart, even assuming it is a fee,
the State legislature can impose a fee only in respect of
any of the matters in the State List. The entry in the State
List that is relied upon for this purpose is Entry 23. But
Entry 23, it will be seen, is ‘‘subject to the provisions of
List I with respect to regulation and development’’ of mines
and minerals under the control of the Union. Under Entry 54
of List I, regulation of mines and mineral development is in
the field of Parliamentary legislation ‘‘to the extent to
which such regulation and
154
development under the control of the Union is declared by
Parliament by law to be expedient in the public interest’’.
Such a declaration is contained in S. 2 of the M.M.R.D. Act,
1957, which has been set out earlier. It, therefore, follow
that any State legislation to the extent it encroaches on
the field covered by the M.M.R.D. Act, 1957, will be ultra
vires. The assessees contend, in this case, that the
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legislation in question is beyond the purview of the State
legislature by reason of the enactment of the M.M.R.D. Act.
It would appear, prima facie that the contention has to be
upheld on the basis of the trilogy of decisions referred to
at the outset viz. Hingir-Rampur, Tulloch and India Cement.
They seem to provide a complete answer to this question. The
argument is, however, discussed at some length, because it
has been put forward, mutatis mutandis, in support of the
levy of cess by the other State as well.
Before dealing with the contentions of the counsel for
the State in this behalf, a reference may be made to a
difference in wording between Entry 52 and Entry 54 of List
I. The languages of Entry 52 read with Entry 24 would
suggest that, once it is declared by Parliament by law that
the control of a particular industry by the Union is
expedient in the public interest, the State legislatures
completely lose all competence to legislate with respect to
such an industry in any respect whatever, indian Tobacoo Co.
Ltd. v. Union [1985] Supp. 1 S.C.R. 145. But, even here,
there are judicial decisions holding that such declaration
does not divest the State legislature of the competence to
make laws the pith and substance of which fall within the
entries in List II, (see for e.g. Kannan Dewan Hills Co. v.
State of Kerala, [1973] 1 S.C.R. 856 and Ishwari Khetan
Sugar Mills Ltd. v. State of U.P., [1980] 3 S.C.R. 331 to
which reference will also be made later, merely on the
ground that it has some effect on such industry. Compared to
that of Entry 52, the language of Entry 54 is very guarded.
It deprives the States of legislative competence only to the
extent to which the law of Parliament considers the control
of Union to be expedient in the matter of regulation of
mines and mineral development. Emphasising this difference,
learned counsel for the State of Orissa submits that the
intent, purpose and scope of the M.M.R.D. Act is totally
different and does not cross the field covered by the
impugned Act. It is a law to provide for the proper
exploitation and development of minerals and regulates the
persons to whom, the manner in which and procedure according
to which licenses for prospecting or leases for minerals
should be granted. The enactment is concerned with the need
for a proper exploitation of minerals from lands. The
impugned Act, on the other hand, concentrates on the need
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for development of mineral areas as such and provides for
the collection of cess to cater to these needs. The scope
of the subject matter of legislation under the two Acts are
entirely different and the M.M.R.D. Act cannot be considered
to exclude State legislation of the nature presently under
consideration.
Before considering the above contention, it will be
useful to refer to certain earlier decisions of this Court
which have a bearing on this issue. State of West Bengal v.
Union, [1964] 1 S.C.R. 371 concerned the validity of an Act
of Parliament proposing to acquire certain coal bearing
areas in the State qua certain areas vested in the State
itself. While upholding the general right of Parliament to
legislate for the acquisition of even property vested in a
State, the Court pointed out that this could be done only if
there is some provision in the Central Act, expressly or
necessarily implying that the property of the State is to be
acquired by the Union. However, the Court held, when the
requisite declaration under Entry 54 is made, the power to
legislate for regulation and development of mines and
minerals under the control of the Union, would, by necessary
implication, include the power to acquire mines and
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minerals.
Baijnath Kedia v. State of Bihar, [1970] 2 S.C.R. 100
was a case arising out of a 1964 amendment to the Bihar Land
Reforms Act, 1950. By section 10 of the 1950 Act, all the
rights of former landlords or lessors under mining leases
granted by them in their "estates" came to be vested in the
State; but the terms and conditions of those leases were
made binding upon the State Government. Under a second
proviso to this provision and a sub-rule added by virtue of
the 1964 amendment, additional demands were made to lessees,
the validity of which was challenged successfully before
this Court. The Court, applying Hingir Rampur and Tulloch
held that the whose whole of the legislative field in
respect of minor minerals was covered by Parliamentary
legislation and Entry 23 of List II was to the extent cut
down by Entry 54 of List I. The old leases could not be
modified except by a legislative enactment by Parliament on
the lines of S.16 of the M.M.R.D. Act, 1957.
In State of Haryana v. Chanan Mal, [1976] 3 S.C.R., 688
the State Government had declared saltpetre as a minor
mineral and auctioned saltpetre mines in the State under the
M.M.R.D. Act, 1957 read with the Punjab Minor Minerals
Concession Rules, 1964. In a writ petition filed by one of
the owners, the High Court held, unless the mineral deposits
were specifically mentioned in the wajib-ul-arz of the
village
156
as having vested in the State, their ownership would
continue to remain vested in the former proprietors
according to the record of rights. To meet this difficulty
and the difficulties that had been created by haphazard
leases created by the erstwhile proprietors, the State
legislature passed the Haryana Minerals (Vesting of Rights)
Act, 1973 and issued notifications thereunder again
acquiring the rights to the saltpetre in the lands putting
up certain saltpetre-bearing lands to auction. The High
Court upheld the challenge to the validity of the
notifications holding that, in view of the declaration
contained in S.2 of the M.M.R.D. Act, the field covered by
the impugned Act was already fully occupied by Central
legislation and that, therefore, the State Act was void and
imperative on grounds of repugnancy. This Court, however,
reversed the High Court’s decision. It held that though the
stated objects and reasons of the State Act showed that the
acquisition was to be made to protect the mineral
potentialities of the land and to ensure their proper
development and exploitation on scientific lines-and this
did not materially differ from that which could be said to
lie behind the Central Act- the character of the State Act
had to be judged by the substance and effect of its
provisions and not merely by the purpose given in the
Statement of Objects and Reasons. Analysing the provisions
of the Central Act, the Court pointed out that, subject to
the overall supervision of the Central Government, the State
Government had a sphere of its own powers and could take
legally specified actions under the Central Act and rules.
In particular S.16(1)(b) of the Central Act showed that
Parliament itself contemplated State legislation for vesting
of lands containing minerals deposits in the State
Government, a feature that could be explained only on the
assumption that Parliament did not intend to touch upon the
power of State legislatures under Entry 18 of List II read
with Entry 42 of List III.S.17 also showed that there was no
intention to interfere with vesting of lands in the States
by the provisions of the Central Act. The decision of Hingir
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Rampur, Tulloch and Baijnath Kedia were distinguished. In
Chanana Mal (Supra), the respondents relied upon certain
observation in Hingir-Rampur and State of West Bengal v.
Union, (supra). The Court, however, distinguished them
saying:
"In the two cases discussed above no provision of
the Central Act 67 of 1957 was under consideration
by this Court. Moreover, power to acquire for
purposes of development and regulation has not
been exercised by Act 67 of 1957. The existence
of power of Parliament to legislate on this topic
as an incident of exercise of legislative power on
another subject is one thing. Its actual exercise
is another.
157
It is difficult to see how the field of
acquisition could become occupied by a Central Act
in the same way as it had been in the West
Bengal’s case (supra) even before Parliament
legislate to acquire land ina State. At least
untill Parliament has so legislated as it was
shown to have done by the statute considered by
this Court in the case from West Bengal, the field
is free for State legislation falling under the
express provisions of entry 42 of List III".
Tulloch and Baijnath Kedia were also considered no longer
applicable as Ss.16 and 17 of the M.M.R.D. Act, 1957 had
been amended to get over the need for a parliamentary
legislation pointed out in Baijnath Kedia.
A similar question whether the State legislature was
competent to acquire certain sugar undertakings, when the
sugar industry had become a "declared: industry under the
provisions of Entry 52 of List I read with S.2 of the I.D.R.
Act, arose for consideration of Ishwari Khetan Sugar Mills
(P) Ltd. v. State of U.P.,[1980] 3. S.C.R. 331. Answering
this question in the affirmative, the Court observed :
"The argument that the State legislature lacked
competence to enact the impugned legislation is
without force. Legislative power of the State
under Entry 24, List II is eroded only to the
extent control is assumed by the Union pursuant to
a declaration made by the Parliament in respect of
a declared industry as spelt out by the
legislative enactment and the field occupied by
such enactment is measure of erosion. Subject to
such erosion, on the remainder the State
legislature will have power to legislate in
respect of a declared industry without in any way
trenching upon the occupied field. State
legislature, which is otherwise competent to deal
with industry under Entry 24, List II, can deal
with that industry in exercise of other powers
enabling it to legislate under different heads set
out in Lists II and III and this power cannot be
denied to the State.
The contention that the impugned Act is in
violation of section 20 of the Central Act had no
merit. The impugned legislation was no enacted
for taking over the management or control of nay
industrial undertaken by the State undertakings.
If an attempt was made to take over the manage-
158
ment or control of any industrial undertaking in a
declared industry the bar of section 20 would
inhibit exercise of such executive power. The
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inhibition of section 20 is on the executive power
which if as a sequel to an acquisition of an
industrial undertaking the management or control
of the industrial undertaking stands transferred
to the acquiring authority section 20 is not
attracted. It does not preclude or forbid a State
legislature exercising legislative power under an
entry other than Entry 24 of List II and if in
exercise of that legislative power the
consequential transfer of management or control
over the industry or undertaking follows as an
incident of acquisition such taking over of
management or control pursuant to an exercise of
legislative power is not within the inhibition of
section 20:.
The decisions in the above two case were, again, applied in
Western Coalfields Ltd. v. Special Area Development
Authority, [1982] 2 S.C.R. 1. Here the question was whether
the enactment of the Coal Mines Nationalisation Act, 1973
and the M.M.R.D. Act 1957 precluded the State legislature
from providing for the levy of a property tax by the
Special Area Development Authority, constituted under a 1973
Act of the State legislature, in respect of lands and
buildings used for the purposes of and covered by coal
mines. The plea on behalf of the appellant-coalfields was
that the State Act was invalid (a) as it encroached on the
field vested in the Centre by reason of the declaration of
S.2 of M.M.R.D. Act and (b) as it impeded the powers and
functions of the union under the Coal Mines Nationalosation
Act 1973 which had been enacted by Parliament "for
acquisition of coal mines with a view to reorganising and
restructuring such coal mines so to ensure the rational,
coordinated and scientific development and utilisation of
coal resources as best to subserve the common good".
Rejecting this contention the Court held :
" Apart from the fact that there is no data before
us showing that the property tax constitutes an
impediment in the achievement of the goals of the
Coal Mines Nationalisation Act, the provisions of
the M.P. Act of 1973, under which Special Areas
and Special Area Development Authorities are
constituted afford an effective answer to the
Attorney General’s contention. Entry 23 of List
II relates to "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". Entry 54 of List I
159
relates to "Regulation of mines and mineral
development to the extent to which such regulation
and development under control of the Union is
declared by Parliament by law to be expedient in
the public interest". It is true that on account
of declaration contained in S.2 of the Mines and
Minerals (Development & Regulation) Act. 1957, the
legislative field covered by Entry 23 of List II
will pass on to Parliament by virtue of Entry 54,
List I. But in order to judge whether, on that
account, the State legislature loses its
competence to pass the Act of 1973, it is
necessary to have regard to the object and purpose
of that Act and to the relevant provisions
thereof, under which Special Area development
Authorities are given the power to tax lands and
buildings within their jurisdiction. We have set
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out the objects of the Act at the commencement of
this judgement, one of which is to provide for the
development and administration of Special Areas
through Special Area Development Authorities.
Section 64 of the Act of 1973, which provides for
the constitution of the special areas, lays down
by sub-section (4) that: Notwithstanding anything
contained in the Madhya Pradesh Municipal
Corporation Act, 1956, the Madhya Pradesh
Panchayats Act, 1962 the Municipal Corporation,
Municipal Council, Notified Area Committee or a
Panchayat, as the case may be shall, in relation
to the special area and as from the date of the
Special Area Development Authority undertakes the
function under clause (v) of clause (vi) of
Section 68 ceases to exercise the powers and
perform the function and duties which the Special
Area Development Authority is competent to
exercise and perform under the Act of 1973.
Section 68 defines the function of the Special
Area Development Authority, one of which as
prescribed by clause (v), is to provide the
municipal services as specified in sections 123
and 124 of the Madhya Pradesh Municipalities Act,
1961. Section 69, which defines the powers of the
authority, shows that those powers are conferred,
inter alia for the purpose of municipal
adminstration. Surely, the functions, powers and
duties of Municipalities do not become an occupied
filed by reason of the declaration contained in
section 2 of the mines and Minerals (Development &
Regulation) Act, 1957. Though, therefore, on
account of that declaration, the legislative field
covered by Entry 23, List II may pass
160
on to the Parliament by virtue of Entry 54, List
I, the competence of the State Government to enact
laws for municipal adminstration will remain
unaffected by our declaration.
Entry 5 of List II related to "Local Government,
that is to say, the constitution and powers of
municipal corporation and other local authorities
for the purpose of local self-Government". It is
in pursuance of this power that the State
legislature enacted the Act of 1973. The power to
impose tax on lands and buildings is derived by
the State Legislature from Entry 49 of List II: "
Taxes on lands and buildings". The power of the
municipalities to levy tax on lands and buildings
has been conferred by the State Legislature on the
Sspecial Area Development Authorities. Those
authorities have the power to levy that tax in
order effectively to discharge the municipal
functions which are passed on them. Entry 54 of
List I does not contemplate the taking over of
municipal functions."
The Court pointed out that Murthy provided a complete answer
to the above contention. Chanan Mal and Ishwari Khetan, were
referred to and Baijnath Kedia distinguished. The decision
of the Madhya Pradesh High Court in Central Coalfields v.
State of M.P., A.I.R. 1986 M.P. 33 also arose out of similar
facts: The question for consideration was whether the
functions, powers and duties of Municipalities and Special
Area Development Authority (SADA) become an occupied field
by virtue of S.2 of the MMRD Act, 1957 and the powers vested
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in them to regulate construction activities relating to
mining areas was ultra vires. It was found that SADA had
become the local authority to discharge the functions of a
municipal adminstration under a State Act and that the
regulation of construction activities was one of the aspects
of municipal adminstration and management. In this
situation, the question posed was answered in the negative
following Ishwari Khetan, Western Coalfields and Chanan Mal.
Placing considerable reliance on the decisions in
Chanan Mal, Ishwari Khetan and Western Coalfields, Sri Iyer
contended that the State legislation in the present case is
not vitiated by reason of M.M.R.D. Act, 1957. He also
pointed out that India Cement also dies not consider in
detail the reasoning in Hingir-Rampur and Tulloch but only
reefers to certain observations in the dissenting judgement
of Wanchoo J ( as His Lordship then was) in the former case
and urged.
161
that the entire matter requires careful consideration. He
submitted that Tulloch and Western Coalfields represent two
lines of cases which need reconciliation and that this task
has not been attempted at all in India Cement.
On the other hand, learned counsel for the respondents
submitted that the authority of the Constitution Bench in
Western Coalfields-which endorsed Murthy-should be
considered weak after India Cement-which has overruled
Murthy. The present case, it is submitted, is closer to
Baijnath Kedia. It is submitted that the principles of
Tulloch have been referred to with approval in a number of
cases [ Karunanidhi, 1979-3SCR 254 at 277] Hind Stone,
[1981] 2 SCR 742 at 746m I.T.C., [1985] Suppl. SCR 145 at
168 and are too well settled to need any reconsideration.
It is clear from a perusal of the decisions referred to
above that the answer to the question before us depends on a
proper understanding of the scope of M.M.R.D. Act 1957, and
an assessment of the encroachment made by the impugned State
legislation into the field covered by it. Each of the cases
referred to above turned on such an appreciation of the
respective spheres of the two legislations. As pointed out
in Ishwari Khetan, the mere declaration of a law of
Parliament that it is expedient for an industry of the
regulation and development of mines and minerals to be under
the control of the Union under Entry 52 or entry 54 does not
denude the State legislatures of their legislative powers
with respect to the fields covered by the several entries in
List II or List III. Particularly, in the case of a
declaration under Entry 54, this Legislature Power is
extended to the extent control is assumed by the Union
pursuant to such declaration as spelt out by the legislative
enactment which makes the declaration. The measure of
erosion turns upon the field of the enactment framed in
pursuance of the declaration. While the legislation in
Hingir-Rampur and Tulloch was found to fall within the pale
of the prohibition, those in Chanan Mal, Ishwari Khetan and
Western Coalfields were general in nature and traceable to
specific entries in the State List and did not encroach on
the field of the Central enactment except by way of
incidental impact. The Central Act, considered in Chanan
Mal, seemed to envisage and indeed permit State legislation
of the nature in question.
To turn to the respective spheres of the two
legislations we are here concerned with, the Central Act
(M.M.R.D. Act, 1957) demarcates the sphere of Union control
in the matter of mines and mineral development. While
concerning itself generally with the requirements
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162
regarding grants of licenses and leases for prospecting and
exploitation of minerals, it contains certain provisions
which are of direct relevance to the issue before us. S.9,
which deals with the topic of royalties and specifies not
only the quantum by also the limitations on the enhancement
thereof, has already been noticed. S.9A enacts a like
provision in respect of dead rent. Reference may also be
made to S.13 and S.18, which to the extent relevant, are
extracted here.
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 prospecting licenses 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 :-
(i) the fixing and collection of fees for
prospecting licenses 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;*
XXX XXX XXX XXX XXX
(m) the construction, maintenance and use of
roads, power transmission lines, tramways,
railways, aerial rope ways, pipe lines and the
making of passages for water for mining purposes
on any land comprised in the mining lease;
XXX XXX XXX XXX XXX
(qq) The manner in which rehabilitation of flora
and other vegetation such as trees and the like
destroyed by reason of any prospecting a mining
operation shall be made in the
______________________________________________________________
*Substituted by Act 37 of 1986 for the original clause (i)
which read:
(i) the fixing and collection of dead rent, fines, fees
or other charges and their collection of royalties in
respect of-
(i) prospecting licenses,
(ii) mining leases,
(iii) minerals, mines, quarried, excavated or
collected".
163
same area or in any other area selected by the
Central Government (whether by way of
reimbursement of the cost of rehabilitation or
otherwise) by the person holding the prospecting
license or mining lease"*
S.18, which originally laid a duty on the Central Government
to take all such steps as may be necessary "for the
conservation and development of minerals in India" has been
amended by Act 37 of 1986 to cover steps "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 the scope of the rule-making power
under S.18(2) has likewise been enlarged. S.25(1) read thus:
"25(1) Any rent, royalty, tax fee or other sum due
to the Government under this Act or the rules made
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thereunder or under the terms and conditions of
any prospecting licence or mining lease may, on a
certificate of such effect 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".
and sub-section (2) provides, further, that all such "rent,
royalty, tax, fee" etc. shall be a first charge of the
assets of the holder of the prospecting licence or mining
lease as the case may be.
If one looks at the above provisions and bears in mind
that, in assessing the field covered by the Act of
Parliament in question, one should be guided (as laid down
in Hingir-Rampur and Tulloch) not merely by the actual
provisions of the Central Act or the rules made thereunder
but should also take into account matters and aspects which
can legitimately be brought within the scope of the said
statute, the conclusion seems irresistible, particularly in
view of Hingir-Rampur and Tulloch, that the State Act has
trespassed into the field covered by the Central Act. The
nature of the incursion made into the fields of the Central
Act in the other cases were different. The present
legislation, traceable to the legislative power under Entry
23 or Entry 50 of the State List which stands impaired by
the Parliamentary declaration under Entry 54, can hardly be
equated to the law for land acquisition or municipal
administration which were considered in the cases cited and
which are traceable to different specific entries in List II
or List III.
___________________________________________________________
*Newly inserted by Act 37 of 1986
164
Sri Iyer contended that the object and purposes of the
Orissa Act and its provisions were quite distinct and
different from the object and purposes of the Central Act
with the result that the two enactments could validly
coexist since they do not cover the same field. It was
argued that the impugned Act was concerned with the raising
of funds to enable panchayats and Samitis to discharge their
responsibilities of local administration and take steps for
proper development of areas (including mining areas) under
their jurisdiction whereas the Central Act was concerned not
with any social purpose but merely with the development of
mineral resources of the country and as such the State
legislation in this regard may also be treated as referable
to Entry No.5 of the State List as the statute in Western
Coalfields (supra).
As to the reliance on Entry 5 of List II, it is plainly
to tenuous. As pointed out by Sri Bobde, there is a
difference between the ‘object’ of the ACt and its ‘subject.
The object of the levy of the fees may be to strengthen the
finances of local bodies but the Act has noting to do with
municipal or local administration. In this context, it may
be pointed out that while S.10 of the Orissa Act, as
originally enacted, provided for a distribution of the cess
collected among local bodies, an amendment of 1970
restricted the utilisation of the cess partly for primary
education and partly for the above purpose. Even this was
amended in 1976 whereafter there has been no restriction
regarding the cess collected in respect of mining areas
which form part of the consolidated fund of the State. The
levy has, therefore, ceased to be capable of being described
as a fee. Even if its purpose is only to levy a fee, the
fee can be described only as one with respect of ‘land’
(Entry 18) if considered generally or with respect to mines
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and minerals development (Entry23) if restricted to the
nature of the issue before us. We shall discuss the
relevance of Entry 18 later but, so far as Entry 23 is
concerned, the State’s legislative competence is subject to
the field covered by the Central Act. Turning therefore to
the distinction sought to be made between the respective
areas of operation of the two Acts the answer to this
contention is provided by Hingir Rampur. The Constitution
Bench first set out the scheme of the impugned Act thus :
"The scheme of this Act thus clearly shows that it
has been passed for the purpose of development of
mining areas in the State. The basis for the
operation of the Act is the constitution of a
mining area, and it is in regard to mining areas
thus constituted that the provision of the Act
come
165
into play. It is not difficult to appreciate the
intention of the State Legislature evidenced by
this Act. Orissa is an under-developed State in
the Union of India though it has a lot of mineral
wealth of great potential value. Unfortunately its
mineral wealth is located generally in areas
sparsely populated with bad communication.
Inevitably the exploitation of the minerals is
handicapped by lack of communications, and the
difficulty experienced in keeping the labour force
sufficiently healthy and in congenial
surroundings. The mineral development of the
State, thereof, requires that provision should be
made for improving the communications by
constructing good roads and by providing means of
transport such as tramways, supply of water and
electricity would also help. It would also be
necessary to provide for amenities of sanitation
and education to the labour force in order to
attract workmen to the area. Before the Act wa
passed it appears that the mine owners tried to
put up small length roads and tramways for their
own individual purpose, but that obviously could
not be as effective as roads constructed by the
State and tramway service provided by it. It is
on a consideration of these facts that the State
Legislature decided to take an active part in a
systematic development of its mineral areas which
would held the mine owners in moving their
minerals quickly through the shortest route and
would attract labour to assist the excavation of
the minerals. Thus there can be no doubt that the
primary and the principal object of the Act is to
develop the mineral areas in the State and to
assist more efficient and extended exploitation of
its mineral wealth".
A little later, at pare 559, the provisions of Central Act
LIII of 1948 which were less far reaching that those of 1957
ACt as can be seen from the observations at page 476 of
Tulloch- were analysed and the Court concluded :
"Amongst the matters covered by S.6(2) is the levy
and collection of royalties, fees or taxes in
respect of minerals mined, quarried, excavated or
collected. It is true that no rules have in fact
been framed by the Central Government in regard to
the levy and collection of any fees; but, in our
opinion, that would not make any difference. If
it is held that this Act contains the declaration
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referred to in Entry
166
23 there would be no difficulty in holding that
the declaration covers the field of conservation
and development of minerals, and the said field is
indistinguishable from the field covered by the
impugned Act. What Entry 23 provides is that the
legislative competence of the State Legislature is
subject to the provisions of List 1 with respect
of regulation and development under the control of
the Union, the Entry 54 in List 1 requires a
declaration by Parliament by law that regulation
and development of mines should be under the
control of the Union in public interest.
Therefore, if a Central Act has been passed for
the purpose of providing for the conservation and
development of minerals, and if it contains the
requisite declaration, then it would not be
competent to State Legislature to pass an Act in
respect of the subject matter covered by the said
declaration. In order that the declaration should
be effective it is not necessary that rules should
be made or enforced; all that this required is a
declaration by Parliament that it is expedient in
the public interest to take the regulation and
development of mines under the control of the
Union. In such a case the test must be whether
the legislative declaration covers the field or
not. Judged by this test there can be no doubt
that the field covered by the impugned Act is
covered by the Central Act LIII of 1948".
The following observations in Tulloch are also apposite in
this context:
" On the other hand, Mr. Setalvad-learned counsel
for the respondent-urged that the Central ACt
covered the entire field of mineral development,
that being the "extent" to which Parliament had
declared by law and it was expedient that the
Union should assume control. In this connection
he relied most strongly on the terms of s.18(1)
which laid a duty upon the Central Government "to
take all such steps as may be necessary for the
conservation and development of minerals in India
and " for that propose the Central Government may,
by notification, make such rules as it deems fit".
If the entire field of mineral development was
taken over, that would include the provision of
amenities to workmen employed in the mines which
was necessary in order to stimulate or maintain
the working of mines. The test which he suggested
was whether, if under the power
167
conferred by s.18(1) of the Central Act, the
Central Government has made rules providing for
the amenities for which provision was made by the
Orissa Act and if the Central Government had
imposed a fee to defray the expenses of the
provision of these amenities, would such rules be
held to be ultra vires of the Central Government,
and this particularly when taken in conjunction
with the matters for which rules could be made
under s.13 to which reference has already been
made. We consider there is considerable force in
this submission of learned counsel for the
respondent, and thus would require very detailed
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and careful scrutiny. We are, however, relieved
from this task of detailed examination and
discussion of this matter because we consider that
it is concluded by a decision of the Court in the
Hingir-Rampur Coal Co. Ltd & Ors. v. The State of
Orissa & Ors., [1961] 2.S.C.R. 537
The above argument was accepted by the Court, vide page 476,
Reference may also be made here to the recent decision of
this Court in Bharat Coking Coal v. State of Bihar, [1990] 2
Scale 256. The question whether the State of Bihar had the
authority to grant a lease for lifting coal slurry coming
out of the appellants washeries and getting deposited on the
river bed or other lands was answered in the negative the
court came to the conclusion that the "slurry" was a
"mineral" and that its regulation was within the exclusive
jurisdiction of Parliament. The Court, in coming to the
conclusion, held that no rules had been framed under S.18(1)
or 18(2) (k)- disposal or discharge of waste, slime or
tailing arising from any mining or metallurgical operations
carried out but held that this was immaterial in view of the
principles laid down in Hingir Rampur, Tulloch and Baijnath
Kedia. These observations establish on the one hand that
the distinction sought to be made between mineral
development and mineral area development is not a real one
as the two types of development are inextricably and
integrally interconnected and, on the other, that, fees of
the nature we are concerned with squarely fall with the
scope of the provisions of Central Act. The object of S.9
of the Central Act cannot be ignored. The terms of S.13 of
the Central Act extracted earlier empower the Union to frame
rules in regard to matters concerning roads and environment.
S.18(1) empowers the Central Government to take all such
steps as may be necessary for the conservation and
development of minerals in India and for protection of
environment. These, in the very nature of things, cannot
mean such amenities only in the mines but take in also the
areas leading to and all
168
around the mines. The development of mineral areas is
implicit in them. S.25 implicitly authorises the levy of
rent, royalty, taxes and fees under the Act and the rules.
The scope of the powers thus conferred is very wide. Read
as a whole, the purpose of the Union control envisaged by
Entry 45 and the M.M.R.D. Act 1957, is to provide for proper
development of mines and mineral areas and also to bring
about a uniformity all over the country in regard to the
minerals specified in Schedule I in the matter of royalties
and, consequently prices. Sri Bobde, who appears for
certain Central Government undertakings, points out that the
prices of their exports are fixed and cannot be escalated
with the enhancement of the royalties and that, if different
royalties were to be charged in different States, their
working would become impossible. There appears to be force
in this submission. As pointed out in India Cement, the
Central Act bars an enhancement of the royalty directly or
indirectly, except by the Union and in the manner specified
by the 1957 Act, and this is exactly what the impugned Act
does. We have, therefore, come to the conclusion that the
validity of the impugned Act cannot be upheld by reference
to Entry 23 or Entry 50 of List II.
An attempt was made to rest the legislation of Entry 18
of List II viz. ‘land’. This attempt cannot succeed for the
reasons whichever have set out to negative the plea that it
falls under Entry 49. A similar pleas in Baijnath was
rejected by Hidayatullah C.J. in the following words :
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"Mr. L.N. Sinha argued that the topic of
legislation concerns land and therefore falls
under entry 18 of the State List and he drew our
attention to other provisions on the subject of
mines in the Land Reforms Act as originally
passed. The abolition of the rights of
intermediaries to the mines and vesting these
rights as lessors in the State Government was a
topic connected with land and land tenures. But
after the mining leases stood between the State
Government and the lessees, any attempt to
regulate those mining leases will fall not in
entry 18 but in entry 23 even though the
regulation incidentally touches land. The pith
and substance of the amendment to s.10 of the
Reforms Act falls within entry 23 although it
incidentally touches land and not vice versa.
Therefore this amendment was subject to the
overriding power of Parliament as declared in Act
67 of 1957 in S.15. Entry 18 of the State List,
therefore, is no help".
169
It will be seen that, if the levy in question cannot be
described as a tax on land, it cannot be described as fee
with regard to land either.
For the reasons above mentioned, we hold that the levy
of cess under S.5 to 7 of the Orissa Cess Act, 1962 is
beyond the competence of the State Legislature.
Bihar:
The relevant provisions of the Bihar statutes have been
set out earlier. While S.5 only lays down that all
immovable property shall be liable to a local cess and S.6
provides for the levy to be based on the annual value of
lands and sale value of other immovable properties, the
latter section specifically enacts that the cess will be on
royalty from mines and quarries and on the annual net profit
the railways and tramways. The further amendments of S.6
have not changed this basic position. Though the section
refers also to the value of the mineral-bearing land, that
furnishes only the maximum upto which the cess, based on
royalty, could go. In other words, the cess is levied
directly on royalties from mines and quarries. The case is,
therefore, indistinguishable from India Cement. The
notifications place the matter beyond all doubt. The levy
is a percentage or multiple of the royalty depending upon
the kind of mineral and - in the case of iron ore- the
method of extraction and nature of the process employed.
There are no clear indications in the stature that the
amounts are collected by way of fee and not tax. The
provisions of S.9 extracted earlier would indicate that only
a small percentage goes to the district fund and the
remaining forms parts of the consolidated fund of the State
"for the construction and maintenance of other works of
public utility". However, the proviso does require at least
ten percent to be spent for purposes relating to mineral
development. We shall, therefore assume that the levy can
be treated, in part, as a fee and, in part, as a tax. But
even this does not advance the case of the respondents for
the reasons already discussed.
Shri Chidambaram submits that, in the original counter
affidavit filed on behalf of the State, no case was sought
to be made out that it was a tax on land, the case was that
it was a "tax on mineral rights". He urged that, this being
out of question because of India Cement (para 23 and 30) a
belated attempt is made to bring it under Entry 49. we do
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not need to discuss the contentions here in detail because
this is a clearer case of levy on royalty than in Orissa;
and, for the reasons we have outlines in our discussion in
regard to the Orissa Acts, this levy
170
has also to be declared invalid.
Shri Chidambaram also contended that the State cannot
seek sustain the levy by relying of Art. 277 of the
Constitution , in view of the fact that the cess is being
levied since 1880. Article 277 is in these terms :
"Any taxes, duties, cesses or fees which,
immediately before the commencement of this
Constitution, were being lawfully levied by the
Government of any State or by an municipality or
other authority or body for the purposes of the
State, municipality, district or other local area
may, notwithstanding that those taxes, duties,
cesses or fees are mentioned in the Union List,
continue to be levied and to be applied to the
same purposes until provision to the contrary is
made by Parliament by law".
We think, as rightly contended by Sri Chidambaram that a
reliance on Art. 277 will be misplaced for three reasons :
(a) The levy that is challenged is under S.6, as
amended in 1975, i.e. a post-constitution levy;
(b) S.6 on its own language, is operative only "until
provision to the contrary is made by the Parliament"
and, as we have held that the field is covered by the
M.M.R.D. Act, is supersedes the effect of S.6
re:mineral lands; and
(c) Article 277 only saves taxes, duties, and cesses
mentioned therein if they continue to be applied for
the same purposes and until Parliament by law provides
to the contrary and with the enactment of the M.M.R.D.
Act, 1957, they cease to be valid. In this context,
the following observations of this Court in Ramakrishna
Ramanath v. Janpad Sabha,[1962] Supp 3 SCR 70 quoted in
Town Municipal Committee v. Ramachandra, [1964] 6 SCR
947 at 959 are quire apposite :
"Dealing next with the import of the words ‘may
continue to be levied’ the same was summarized in these
terms:
(1) The tax must be one which was lawfully levied
by a local authority for the purpose of a local
area,
171
(2) the identity of the body that collects the
tax, the area for whose benefit the tax is to be
utilised and the purposes for which the
utilization is to take place continue to be the
same, and
(3) the rate of the tax is not enhanced not its
incidence in any manner altered, so that it
continues to be the same tax".
It is obvious that if these tests were applied the attempt
to sustain the tax on the basis of Art. 277 cannot succeed.
Indeed, no such attempt was made before us.
We, therefore, hold that the levy of cess has to be
struck down. It has also been brought to our notice that a
Bench of two Judges of this Court has already allowed an
appeal by an assessee from a judgement of the Patna High
Court to the contrary viz. CA No.1521 of 1990. It has been
brought to our notice also that the Patna High Court has
recently invalidated the levy of the cess in Central
Coalfields Ltd. v. State, (CWJC 2085/89 and connected cases)
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in a judgement dated 6.11.90, following India Cement.
Madhya Pradesh :
We now turn to the provisions of Madhya Pradesh Act 15
of 1982. We are concerned only with Part IV which levies a
cess not on land in general which could be referred to Entry
18 or Entry 49 but only on land held in connection with
mineral rights which, in the State, are principally in
regard to coal and limestone. Under S.9 the proceeds are to
utilised only towards the general development of mineral-
bearing areas. Although there is no provision for the
constitution of a separate fund for this purpose as is found
in relation to the cesses levied under Part II or Part III
of the Act this considerations alone does not preclude the
levy from being considered as a fee:vide Srinivasa Traders
V. STate [1983] 3.SCR 843 at 873. The clear ear-marking of
the levy for purposes connected with development of mineral
areas was considered by the High Court, in our view rightly,
sufficient to treat it as a fee. However, the High Court
pointed out, such fee would be referable to item 23 and,
hence, out of bounds for the State Legislature, after the
enactment of M.M.R.D. Act, 1957. For the reasons which have
already been discussed in relation to the Orissa Statute, we
uphold this conclusion.
172
The other statute viz. the Madhya Pradesh Upkar
Adhiniyam (Act 1 of 1982) came up for consideration of a
Full Bench of the Madhya Pradesh High Court in M.P. Lime
Manufacturer’s Association v. State, (and connected cases)
in AIR 1989 M.P. 264. The Full Bench held that, in view of
s.12 of the Act having been deleted by the 1989 amendment,
the levy under s.11 of the Act ceased to be a fee and become
a tax. It held further that the levy was not covered by
Entry 49 or Entry 50 of List II and was, therefore, ultra
vires. It observed :
"It is significant to note that cess is not
imposed on all land and that it is not dependent
either on the extent of the land held in
connection with mineral rights or on the value
thereof. The subject-matter of tax, therefore, is
major mineral raised from the land held in
connection with mineral right. If no minerals are
raised, tax is not livable. The tax is not
dependent on the extent of the land held in
connection with mineral rights. It is not case
where all land is liable to payment of cess, that
the liability is assessed on the basis of the
value of the land and that the measure of the tax
in so far as land held under a mining lease is
concerned, is the value of the minerals produced.
Under the impugned Act, value of the land or of
the minerals produced does not play any part in
the levy of cess. The quantity of major minerals
produced from the land determines the liability to
pay tax. In these circumstances, the impugned levy
cannot be held to be a tax on land which is
covered by Entry 49 of the State List.
After distinguishing Ajay Kumar Mukherjea v. Local Board,
AIR 1965 SC 1561 and referring to Union v. Bombay
International Ltd. AIR 1984 SC 420 the Courted concluded :
" The character of impost in the instant case is
that though in form it appears to be a tax on
land, in substance, it is a tax on minerals
produced therefrom. The subject-matter of tax is,
therefore, not covered by Entry 49 of the State
List."
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As for Entry 50, after referring Hingir Rampur, the Court
observed :
"Now from a perusal of S.11 of the Act, it would
be clear that in the instant case by the charging
section, tax is not imposed on the mineral rights
of every holder of mining
173
lease. The tax is levied on minerals produced in
land held under mining lease. In these
circumstances, the tax levied by the Act cannot be
held to be a tax covered by Entry 50 of List II of
the Seventh Schedule to the Constitution. In our
opinion, therefore, it has not been shown that the
State Legislature is competent to levy the
impugned cess."
This conclusion is obviously correct in the light of our
earlier discussion. The court, however, expressed an
opinion, in paras 10 to 12 of the judgment, that in case the
levy could be treated as a tax imposable under Entry 49 or
50 of List II in the Second Schedule to the Constitution,
such power "has not been taken away by the provision of the
MMRD Act". We think, as already pointed out by us that
though the MMRD Act, 1957, unlike s.6(2) of the 1948 Act
does not contain a specific provision for the levy of taxes,
s.25 of the former does indicate the existence of such
power. The above observations of the High Court, therefore,
in our view, do not attach sufficient importance to s.25 of
the MMRD Act and the field covered thereby. This aspect,
however, is not of significance in view of the conclusion
that the tax is not referable to Entry 49 or Entry 50.
We may add that a Bench of this Court has already
dismissed the State’s petition for leave to appeal from the
judgment of the Full Bench (S.L.P. 10052/89, 12696/84 etc.
disposed of on 5.2.90) in limine as squarely covered by
India Cement. It is brought to our notice that the Madhya
Pradesh High Court, after India Cement, has reaffirment its
conclusions in Hiralal and M.P. Lime Manufacturers’
Association in Ankur Textiles and Another v. South Eastern
Coalfields, (M.P. No. 1547 of 1990) in the light of India
Cement.
THE REFUND ISSUE
Having thus concluded that the levy of cess under the
Orissa, Bihar and Madhya Pradesh enactments is invalid,, it
becomes necessary to consider the logical consequences of
such a conclusion. Prima facia it would seem that the levy
should be considered bad since its inception and that all
cess levied under the impugned provisions should be directed
to be refunded to the assessees, particularly in view of
Article 265 of the Constitution. For the States, however,
reliance is placed on the following observations in para 35
of the judgement in India Cement to contend to the contrary.
Towards the conclusion of his judgement, Sabyasachi
Mukherjee, C.J. dealt with this issue thus :
174
"Mr. Krishnamurthy Iyer, however, submitted that,
in any event, the decision in H.R.S. Murthy case
was the decision of the Constitution Bench of this
Court. Cess has been realised on that basis for
the organisation of village and town panchayats
and comprehensive programme of measures had been
framed under the National Extension of Service
Scheme to which our attention was drawn. Mr.
Krishnamurthy Iyer further submitted that the
Directive Principles of State Policy embodied in
the Constitution enjoined that the States should
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take steps to organise village panchayats and
endow them with power and authority as may be
necessary to enable them to function as units of
self-government and as the amounts have been
realised on that basis, it at all, we should
declare the said cess on reality to be ultra vires
prospective, In other words, the amounts that have
been collected by virtue of the said provision,s
should not be declared to be illegal
retrospectively and the State made liable to
refund the same. We see good deal of substance in
this submission. After all, there was a decision
of this Court in H.R.S. Murthy case and amounts
have been collected on the basis that the said
decision was the correct position. We are,
therefore, of the opinion that we will be
justified in declaring the levy of the said cess
to be ultra vires the power of the State
Legislature prospectively only".
Relying on the above, observations, it is submitted for
the States that they should not be directed to refund a cess
which they have been levying for several years in the past
on the basis of the law declared by the Supreme Court in
Murthy. Certain other circumstances have also been brought
to our notice in this connection :
(i) Several States have preceded on the basis that
they are entitled to levy a cess of the nature in
question. In addition to the States referred to earlier
in the judgement, Rajashtan and Andhra Pradesh have
also similar statues.
(ii) The levy accounts for a substantial part of
the States finances particularly in States which are
rich in minerals. For e.g. State of Madhya Pradesh
accounts for a good percentage of this country’s
mineral resource. It produces 26.53% of the country’s
production in limestone. 36% in dolomite, 28.14% in
coal, 21.5% in iron ore, 13% in bauxite, 21.38% in
Manganese ore,
175
14.43% in rock phosphate, 33% in copper ore and so on.
The amounts of cess run to several crores. A direction
to refund the cess collected thus far will result in
crying halt to all developmental activities initiated
and put through and cause irreparable loss to the
State.
(iii) As pointed out (for e.g. in pars 5 to 8 in
CMP Nos. 31187 to 31196 of 1984 in CA Nos. 1640 to
1643,1645,1649, 1654, 1655,1659, and 1662 of 1986) the
impact of the cess has already been passed on by the
assessees- which are leading industries that can easily
bear the brunt of the same- to their customers. A
refund granted to them will only result in their unjust
enrichment and this should be safeguarded against
applying the principles in U.P. State Electricity
Board, Lucknow & Ors. v. City Board, Mussoorie & Ors.,
[1985] 2 SCR 815 at page 824 and State of Madhya
Pradesh v. Vyankatlal & Anr., [1985] 3 SCR 561 at page
568.
The above request was vehemently opposed by the
assessees counsel. Presenting their case on this issue, Sri
Nariman (appear for the appellants in C.A. 4353-4 of 1983
and C.A. 2053-80 of 1980) contended that we should ignore
the dicta in para 35 of India Cement as per incuriam. He
submitted, first, that the Court there has acted on the
assumption that a doctrine of prospective overruling had
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been enunciated in Golaknath, [1967] 2 SCR 762. Analysing
the various judgments delivered in that case, he submitted
that, while Subba Rao C.J. and four other judges (pp 805-
813) approved of the applicability of this doctrine in
India, five other judges spoke against it (pp 890, 897, 899-
922, 921 and 952) and the eleventh judge was neutral
(p.408). He therefore, submitted that the judges who
decided Golaknath were equally divided on the issue and so
there is no reason disdained of the Court binding on us.
Second, he submitted that the doctrine of prospective
overruling was evolved by the Supreme Court of the United
States in the absence of any constitutional provision
militating against it, vide sunburst 77 L.Ed. 310 (at page
366) and Linkletter, 14 L.Ed (2d) 601 (at page 604-8). In
India, however, the application of the doctrine,
particularly in the context of an issue regarding the
validity of a tax levy, would run counter to specific
provisions contained Articles 246 and 265 of the
Constitution. Where the Court finds that a legislation is
beyond the competence of the concerned legislature, it
stands uprooted altogether because Articles 246 and 265 say
so. There is no scope for, and no room for the exercise of
any discretion by, the Court to say that, there articles of
the Constitution notwithstanding, they
176
would treat the legislation to be valid for a certain period
or for certain purposes. Third, he submitted that the above
objection cannot be "circumvented" by a resort to Article
142. Sri Nariman referred us in this context to the
observations in the following decisions of this Court:
Re: Article 246
Pesikaka 1955-1 SCR 613 at pp652,654,656
Chamarbaugwala 1857 SCR 930 at p. 940
Sundararamier & Co 1958 SCR 1422 at pp 1468-1474
West Ramnad 1963-2 SCR 747 at p.764
M.L. Jain 1963 Supp 1SCR 912 at pp 530-41
Re: Article 265
Moopil Nayar 1961-3 SCR 77 at p. 89
Balaji 1962-2 SCR 983 at p. 996
Chottachan 1962 Supp. 2 SCR 1 at pp. 29-30
Bakshi Singh 1963-1 SCR 220 at p. 233
Re: Article 142
Garg 1963 Suppl. 1 SCR at pp. 896-8
It is submitted , relying on Mahabir Kishore Ors. v. State
of Madhya Pradesh, [1989] 4 SCC 1 that a refund is the
automatic and inevitable consequence of the declaration of
invalidity and should be granted proved a suit within a
period of limitation or a writ for declaration and
consequential relief is filed.
Supplementing the above arguments, Sri G. Ramaswamy
appearing for some of the assessees, contended that there
can be no question of the Court exercising any discretion
under Article 142 so as to destroy a fundamental right of
the assessees. Learned counsel also submitted that
considerations of hardship of the States, in case they are
called upon to refund huge amounts, can be no relevant
consideration at all. He urged, that in some at least of
the cases here, there is no averment, much less evidence, of
any irreparable hardship that is likely to result if a
refund is ordered. He also pointed out that in the
177
converse situation where a retrospective levy is held to be
valid, assessees have been held entitled to no relief from
payment of back duty on grounds of hardship: vide Chhotabhai
Jethabhai Patel & Co.v. Union of India [1962] 2 Supp. at
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Pp12,13 and urged that there cannot be a different rule for
the State. Sri B. Sen submitted that the ruling in Murthy
could not be invoked to seek prospective invalidation as, at
least so far as Orissa was concerned, as the decision in
Tulloch had clearly defined the limitations of the State’s
power to make such levies.
In addition to the above general arguments, reliance
had also been placed by the assessees on certain specific
interim orders passed in these cases and it has been
contended that these orders should be given effect to, or at
least taken into account, in deciding the issue of the final
relief to be granted. It is therefore necessary to refer to
these orders :
(i) In C.A. Nos. 4353-4 of 1983, there is no interim
order staying recovery of the cess at all except of the
arrears for the period from 1.1.1983 to 31.3.1983 and even
this was made subject to the furnishing of a bank guarantee
by the assessee.
(ii) In C.A. 2053-80 of 1980 there was initially (on
2/2/1981) an order of stay of recovery of cess on the
furnishing of bank guarantees. But this was later
substituted by an order of 25.3.1983 by which the amounts of
cess were to be deposited in the High Court every quarter
and then withdrawn by the State but this was on the
undertaking buy the State’s Advocate General to refund the
amount "if deposited, in the event the appeal succeeds".
This continued till 30.1.90 when the Counsel of the State of
Orissa undertook, in view of the decision in India Cement,
that the levy of the cess for the quarter ending December,
1989 onwards will not be enforced until further orders.
Presumably, therefore, there has been no collection for cess
in Orissa since that period.
(iii) The position in the Orissa case of Orient Paper &
Industries Ltd. is somewhat different. It is pointed out
that when the levy of cess first came into force w.e.f.
1.4.1977, the Western Coalfields Ltd. who supplied coal to
the assessees had challenged the levy of cess by a writ
petition and obtained an interim injunction order but
eventually withdrew the writ petition. But simultaneously,
the said company wrote to the assessee that the amounts of
cess (which were collected from the assessee) would be kept
in a suspense account and that, after a deci-
178
sion is rendered by a court of law, it will be decided
whether they should be deposited with the State against cess
or be refunded to the assessees. It was made clear that, in
case the levy of cess is held invalid, "there will be no
hitch in refunding the amount". This arrangement went on
between 1977 and 1982.
On 21.9.1982, the assessee filed a writ petition
challenging the levy as it was enahanced from 25% to 100%
from 1.4.80. An interim stay was granted by the High Court
restricted to be enhanced demand but even this was vacated
by the High Court on 13.5.1983 in view of the decision in
Lakshmi Narain Agarwala v. State AIR 1983 Orissa 210 that
the levy was valid. Finally, the High Court by its
judgement dated 22.12.1989 followed India Cement and allowed
the writ but directed that the collections so far made shall
be allowed to be retained by the State as was directed by
the Supreme Court in the case of India Cement (supra). This
judgement is the subject matter of SLP 1479 of 1990 by the
State.
The assessee thereupon file a review petition in regard
to the above direction contending ; (a) that a High Court
had no jurisdiction to declare provision to the
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unconstitutional only "prospectively"; (b) that the cess in
the case had been collected only by Western Coalfields Ltd.
and had not been deposited in the State coffers; and (c)
that the principle of ‘unjust enrichment’ should equally
apply to the State which should not be permitted to enrich
itself by the levy of an illegal exaction. The application
for review was dismissed by the High Court on 13.7.90.
Thereupon the assessee has preferred the unnumbered SLP on
1990 and SLP 11939 on 1990 respectively against the original
judgement dated 22.12.1989 and the order on the review
petition dated 13.7.1990.
It is contended that the High Court, having regard to
the circumstances set out earlier, should have directed a
refund of the cess. collected. IT is stated that,
subsequently, Western Coalfields have paid over the amounts
of cess to the Government [vide orders of this Court referred
to in sub para (v) below]. It is also submitted that the
averments by the State now made that the amounts collected
have been utilized by the State on objects enumerated in
Part IV of the Constitution are the result of an
afterthought and are being put forward to defeat the
rightful entitlement of the assessee to the refund.
(iv) In the Bihar case, there was an interim order on
10.2.1986 to the following effect:
179
"On the stay application there will be no stay of
recovery of cess but in case appellants succeed in
appeal in this Court, the excess amount so
recovered will bepaid to the appellants with
interest at the rate of 12% from the date of
recovery"
This was modified on 30.1.90 in view of the judgement in
India Cement which had been delivered by this time, and it
was directed that the State of Bihar should not also enforce
any demand for cess for the quarters ending December, 1989
and thereafter until further orders. Presumably, therefore,
there has been no levy of cess in Bihar from the last
quarter of 1989 onwards. Counsel for the assessees from
Bihar-Sri Chidambaram and Sri Shanti Bhushan stated that
they seek compliance with the order dated 10.2.86 and would
not insist on refund of cess collected earlier to that date.
(v) Turning to the Madhya Pradesh matters, the position
is this, The High Court, by its judgement dated 28.3.1986
held the levy to be invalid. In C.A. 1640 to 1662 of 1986,
the initial order passed on 2.5.1986 was this :
" There will be stay of refund of the cess already
collected pending disposal of the appeals.
Learned counsel for the State states that, in the
event of the appeals being dismissed the State is
prepared to pay interest at 12% per annum. There
will, however, be no stay of operation of the
judgement."
As a result of the order, there should have been no
collection of cess by the State subsequent to the date of
the judgement and only issue could have been regarding the
refund of the cess already collected from 1982 to 28.3.1986.
However, the Western Coalfields Ltd. approached the
Court with an application in one of the appeals (viz. C.A.
1649/86) praying that, pending disposal of the appeals, it
should be permitted to collect the amount of cess and
deposit the same in a separate account in the Bank vis-a-vis
each of its customers. This application was ordered on
1.8.86. When this order was passed, the State Government
moved an application praying that, instead of the monies
being kept in deposit in bank account by Western Coalfields
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Ltd., it will be conducive to public interest if the State
is permitted to utilise the moneys "in mineral areas
development programs" and that the State would abide by such
180
terms as the Court may impose at the time of final decision.
It was, therefore, prayed that the Western Coal fields
should be directed to deposit the amounts collected by it to
the State Government. The Court found this request
reasonable and passed the following order on 15.10.86 :
"The order dated 1.8.86 passed in the above appeal
is modified as follows :
The amount deposited by the Western
Coalfields Ltd. in a separate account in the Bank
in accordance with the directions issued by this
Court on 1.8.1986 shall be paid to the State
Government of Madhya Pradesh. In the event, of
the State Government failing in this appeal, the
amount received by the Madhya Pradesh Government
under this order shall be refunded by that
Government within three months from the date of
the judgement to the Western Coalfields Ltd. with
interest at 12% per annum to disburse in favour of
those who had paid it, subject to such directions
which this court may give in its judgement. The
amount received by the Madhya Pradesh State
Government shall be spent in accordance with the
provisions contained in the impugned Act."
Fresh applications were filed by the State in a number of
the other appeals seeking similar direction as in C.A.
1649/86 but the request does not show that any such order
were passed in appeal other than C.A. 1649/86. However, it
seems that, in the case of coal, the cess is being collected
by Western Coalfields Ltd. and other like public sector
organisation (which are subsidiaries of Coal India Ltd.)
from all their customers and passed on to the State not
only in Madhya Pradesh but also in Orissa (as indicated in
sub-para (iii) above), apparently on the understanding that
it should be refunded by the concerned State Government with
interest in case the levy is ultimately held invalid. Sri
Bobde, appearing for the Western Coalfields , made it clear
that this company would abide by the direction of this
Court, in so far as the amounts of cess collected by it
remain with it or are directed to be refunded by the State
Government to it.
We have given our earned consideration to these
contentions and were are of opinion that the ruling in India
Cement concludes the issue. There the Court was
specifically called upon to consider an argument that, even
if the statutory levy should be found invalid, the
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Court may not give directions to refund amounts already
collected and the argument found favour with the bench of
seven judges. We are bound by their decision in this
regard. It is difficult to accept the plea that, in giving
these directions, the Court overlooked the provisions of
Article 246 and 265 of the Constitution. The Court was
fully aware of the position that the effect of the
legislation is question being found beyond the competence of
the State legislature was to render it void ab initio and
the collections made thereunder without the authority of
law. Yet the Court considered that a direction to refund
all the cesses collected since 1964 would work hardship and
injustice. The directions, now impugned, were given in the
interest of equity and justice after due consideration and
we cannot take a contrary view.
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In our view, we need enter into a discussion of the
principles of prospective validation enunciated by at lease
some of the Judges in Golaknath (supra) as the direction in
India Cement can be supported on another well settled
principle applicable in the area of the writ jurisdiction of
Courts. We are inclined to accept the view under on behalf
of the state that a finding regarding the invalidity of a
levy need not automatically result in a direction for refund
of all collections thereof made earlier. The declaration
regarding the invalidity of a provision and the
determination of the relief that should be granted in
consequence thereof are two different things and, in the
latter sphere, the Court has, and must be held to have,
certain amount of discretion. It is a well-settled
proportion that it is open to the Court to grant , could or
restrict the relief in a inner most appropriate to the
situation before it is insuch a way as to advance the
interests of justice. It will be appreciated that it is not
always possible in all situations to give a logical and
complete effect to a finding. Many situations of this arise
in actual practice . For instance , there are cases where a
comes to the conclusion that the termination of the services
of an employee is invalid, yet in refrains from giving him
benefits of "reinstatement" (i.e. continuity in service) on
"back wages". In such cases, the direction of the Court
does not result in a person being denied the benefits that
should flow to him as a logical consequence of a declaration
inhis favour. It may be said that, in such a case, the
Court’s direction does not violate any fundamental right as
happens in a case like this were an "illegal" exaction is
sought to be retained by the State. But even in the latter
type of cases relief has not been considered automatic. One
of the commonest issue that arose in the context of the
situation we are concerned with is where a person affected
by an illegal exaction files an application for refund under
the provisions of the relevant statute of files a suit to
recover the taxes as
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paid under a mistake of law. In such a case, the Court can
grant relief only to extent permissible under the relevant
rules of limitation. Even if he files an application for
refund or a suit for recovery of the taxes paid for several
years, the relief will be limited only to the period in
regard to which the application for refund or a suit for
recovery of the taxes paid for several years, the relief
will be limited only to the period in regard to which the
application or suit is not barred by limitation. If even
this instance is sought to be distinguished as a case where
the Court’s hands are tied by limitations inherent in the
form of forum in which the relief is sought, let us consider
a very case where a petitioner seeks relief against an
illegal exaction in a writ petition filed under Article 226.
In this situation, the question has often arisen whether the
petitioner’s prayer for refund of taxes collected over an
indefinite period of years should be granted once the levy
is found to be illegal. To answer the question in the
affirmative would result in discrimination between persons
based on their choice on the forum for relief, a
classification which, prima facie is too fragile to be
considered a relevant criterion for the resulting
discrimination. This is one of the reasons why there has
been an understandable hesitation on the part of Courts in
answering the above question in the affirmative.
The above aspect of the matter has been considered in
several decisions of this Court. In State of Madhya Pradesh
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v. Bhailal Bhai & ORs., [1964] 6 SCR 261 the respondents who
were dealers in tobacco in the State of Madhya Bharat filed
a writ petition under Article 226 of the Constitution for
the issue of writ of mandamus directing the refund of sales
tax collected from them on the ground that the impugned tax
was violative of Article 301 (a) of the Constitution and
that they had paid the same under a mistake of law. It was
contended on behalf of the State that even if the provision
violated the fundamental rights, the High Court should not
exercise its discretionary power of issuing a writ of
mandamus directing refund since there was unreasonable delay
in filing the petition. This contention of the State was
rejected by the High Court but on further appeal this Court
tool a different view. While agreeing that the Courts have
the power, for the purposes of enforcement of fundamental
rights and statutory rights, to give a consequential relief
by ordering repayment of any money realised by the
government without authority of law, the Court said:
"At the same time we cannot lose sight of the fact
that the special remedy provided under Article 226
is not intended to supersede completely the modes
of obtained relief by an action in a civil court
or to deny defends legitimately open in such
actions. It has been made clear more than once
that the power to give relief under Article 226 is
a discretionary
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power. This is specially true in the case of power
to issue writs in the nature of mandamus. Among
the several matters which the High Courts rightly
take into consideration in the exercise of that
discretion is the delay made by the aggrieved
party in seeking the special remedy and what
excuse there is for it. Another matter which can
be rightly taken into consideration is the nature
of the facts and law that may have to be decided
as regarded the availability of consequential
relief. Thus, where, as in these cases, a person
comes to the Court for relief under Article 226 on
the allegations that he has been assessed to tax
under a void legislation and having paid it under
a mistake is entitled to get it back, if it the
Court, finds that the assessment was void, being
made under a void provision of law, and the
payment was made by mistake, it is still not bound
to exercise its discretion directing repayment.
Whether repayment should be ordered in the
exercise of this discretion will depend in each
case of its own facts and circumstances. It is
not easy nor is it desirable to lay down any rules
of universal application it may however be stated
as a general rule that if there has been
unreasonable delay, the Court ought not ordinarily
to lend its aid to a party by this extraordinary
remedy of mandamus."
The Court further pointed out that the delay may be
considered unreasonable even if it is less than the period
of limitation prescribed for a civil action for the remedy
but where the delay is more than this period, it will almost
always be proper for the court to hold that it is
unreasonable. The relief given by the High Court was
modified on this basis. In Tilokchand Mothichand v. Munshi
[1969] 2 S.C.R., 824 the petitioners had collected sales tax
from their customers and paid it over to the State. The
Sales Tax Authorities directed a refund but on the condition
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that the amounts should be passed on to the customers.
Since the petitioner did not comply with the condition, the
sales tax officer forfeited the sum under S.21(4) of the
Bombay Sales Tax Act, 1953. A writ petition was filed by
the petitioner contending that S.21(4) infringed Articles
19[10(f)] and 365 of the Constitution and hence, they were
not liable to repay the amount. This was dismissed on the
ground that they had defrauded their customers and,
therefore, not entitled to any relief even if there was a
violation of fundamental rights. An appeal to a Division
Bench was also dismissed. Subsequently, when coercive
proceedings were taken for recovering the amounts as arrears
of land revenue, the petitioners paid the amounts
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in 1959-60. Much later, there was a decision of this Court
striking down the corresponding provision of the Bombay
Sales Tax Act 1946 as ultra vires. The petitioners
thereupon filed a writ petition under Article 32 of the
Constitution claiming a refund of the amounts paid by them
in consequence of the recovery proceedings. It was held by
four of the five learned Judges of this Court that the writ
petition should be dismissed on the ground of laches. Chief
Justice Hidayatullah held that though Article 32 gives the
right to move the Court by appropriate proceedings for
enforcement of fundamental rights and State cannot place any
hindrance in the way of an aggrieved person, once the matter
reached this court, the extent or manner of interference was
for the Court to decide. The learned Chief Justice pointed
out that this Court had put itself in restraint in the
matter of petitions under Article 32. For example, if a
party had already moved High Court under Article 226, this
court would refuse to interfere. Similarly, in inquiring
into belated and stale claims, this Court should take note
of evidence of neglect of the petitioner’s own rights for a
long time or of the rights of innocent parties which might
have merged by reason of the delay. It was possible for this
Court to lay down any specific period as the ultimate limit
of action and the case will have to be considered on its own
facts. On the facts of the case before it, the majority
found that the petitioner had by his own conduct abandoned
his litigation years ago and could not be permitted to
resume it several years later merely because some other
person had got the statue declared unconstitutional. While
Hidayatullah C.J. was of the view that the Court should not,
on the facts of the case apply for analogy of the article in
the Limitation Act in cases of mistake of law give relief,
Bachawat and Mitter JJ. felt that even for a writ petition
the limitation period fixed for a suit would be a reasonable
standard for measuring delay. Sikri J and Hegde J.
dissented. Sikri J. was of the view that on the facts of the
case there was no delay but that the period under the
Limitation Act should not be applied to such cases and that
a period of one year should be taken as a period beyond
which the claim would be considered a stale claim unless the
delay is explained. " Such a practice" the learned Judge
observed, "would not destroy the guarantee under Article 32
because the article nowhere lays down that a petition
however late, should be entertained. Only Hegde J. was
emphatic that laches or limitation should be no ground to
deny relief. The learned Judge observed (for brevity, we
quote from head note):
"Since the right given to the petitioners under
Article 32 is itself a fundamental right and does
not depend on the discretionary powers of this
Court, as in the case of Article
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226, it is inappropriate to equate the duty imposed
on this Court to the powers of Chancery Court in
England or the equitable jurisdiction of Courts in
the United States. The facts that the petitioner
have no equity in their favour is an irrelevant
circumstance in deciding the nature of the right
available to an aggrieved party under Article 32.
This Court is charged by the Constitution with the
special responsibility of protecting and enforcing
the fundamental rights, and hence laches on the
part of an aggrieved party cannot deprive him of
his right to get relief under Article 32. In fact,
law reports do not show a single instance of this
Court refusing to grant relief on the grounds of
delay. If this Court could refuse relief on the
ground of delay , the power of the Court under
Article 32 would be discretionary power and the
right would cease to be a fundamental right. The
provisions contained in the Limitation Act do not
apply to proceedings under Articles 226 and 32 and
if these provisions of the Limitation Act are
brought in indirectly to control the remedies
conferred by the Constitution, it would be a case
of Parliament indirectly abridging the fundamental
rights which this court, in Golaknath’s case.
[1967]2 S.C.R. 752 held that Parliament cannot do.
The fear that forgotten claims and discarded right
against Government may be sought to be enforced
after the lapse of a number of years if fundamental
rights are held to be enforceable without any time
limit, is an exaggerated one, for , after all, a
petitioner can only enforce an existing right."
The above principles have been applied in several subsequent
cases: Ramchandra Shankar Deodhar v. State of Maharastara,
[1974] 2 SCR 216; Shri Vallabh Glass works Ltd. v. union of
India [1984] 3 SCR 180; State of M.P. v. Nandlal Jaiswal,
[1986] 4 SCC 566; D. Cawasji & Co. v. State of Mysore,
[1975] 2 SCR 511 and Salonah Tea Co. Ltd. v. Superintendent
of Taxes.[1988] 1 SCC 401.
The above cases no doubt only list situations where
directions for refund have been refused, or considered to be
liable to be refused, on grounds of unreasonable delay or
laches on the part of the petitioners in approaching the
Court in the interests of justice and equity. The
importance of these cases, however, lies not in the grounds
on which refund has been held declinable but because they
lay down unequivocally that the grant of refund is not an
automatic consequence of a
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declaration of illegality. Once the principle that the
Court has a discretion to grant or decline refund is
recognised, the ground on which such discretion should be
exercised is a matter of consideration for the Court having
regard to all the circumstances of the case. It is possible
that a direction for refund may be opposed by the State on
grounds other than laches or limitation. To give an
instance, in recent years the question has often arisen
whether a refund could be refused on the ground that the
person who seeks the refund has already passed on the burden
of the illegal tax to others and that to grant a refund to
him would result in his "unjust enrichment". Some decisions
have suggested a solution of neither granting a refund nor
permitting the State to retain the illegal exaction. This
issue has been referred to a larger Bench of this Court and
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its is not necessary for us to enter into that question
here. so far as the present cases are concerned, it is
sufficient to point out that all the decided cases
unmistakably show that, even where the levy of taxes is
fount to be unconstitutional, the Court is not obliged to
grant an order of refund. It is entitled to refuse the
prayer for good and valid reasons. Laches and undue delay
or intervention of third party rights would clearly be one
of those reasons. Unjust enrichment of the refundee may or
may not be another. But we see no reason why the vital
interests of the State, taken note of by the learned judges
in India Cement should not be a relevant criterion for
deciding that a refund should not be granted. We are,
therefore, unable to agree with the learned counsel for the
petitioners that any different criterion should be adopted
and that the direction in paragraph 35 of India Cement
should not be followed in those cases.
For the reasons discussed above, we are of opinion
that, though the levy of the cess was unconstitutional,
there shall be no direction to refund the assessees of any
amounts of cess collected until the date on which the levy
in question has been declared unconstitutional. This in
regard to the Bihar cases, will be the date of this
judgement. In respect of Orissa, the relevant date will be
22.12.1989 on which date, the High Court, following India
Cement declared the levy by the State Legislature
unconstitutional. In respect of Madhya Pradesh, the
relevant date will be the date of the judgement in Hiralal
Ramswarup and connected cases (viz. M.P. 410/83 decided on
28.3.1986) in respect of the levy under State Act 15 th
1982. Though there are the dates of the Judgement of the
appropriate High Court, which may not constitute a
declaration of law within the scope of Article 141 of the
constitution, it cannot be gainsaid that the State cannot,
on any grounds of equity, be permitted to retain the cess
collected on and after the date of the High Court’s
judgement.
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Another point that was raised, was that in many of
these cases the State or a Coal field Companies had given an
undertaking that incase the levy is held to be invalid by
this Court, they would refund the amount collection with
interest. It is submitted that the condition imposed, or
undertakings given, to this effect and recorded at the time
of passing interim orders in the various cases should be
given implemented. The interim undertakings or directions
cannot be understood in such a manner as to conflict with
out final decision on the writ petitions set out above. But
we agree that, to the extend refunds of amounts of cess
collected after the relevant dates are permissible on the
basis indicated by us, the State should refund those amounts
to the assessees directly or to the Coalfields from whom
they were collected, with interest at the rate directed by
this Court or mentioned in the undertaking from the date of
the relevant judgment to the actual date of repayment. The
Coalfields, when hey get th refunds, should pass on the same
to their customers, the assessees.
The appeals are disposed of accordingly. There will be
no order as to costs.
T.N.A. Appeals disposed of.
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