Full Judgment Text
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PETITIONER:
STATE OF ORISSA AND ORS.
Vs.
RESPONDENT:
MAHANADI COALFIELDS LTD. AND ORS.
DATE OF JUDGMENT24/04/1995
BENCH:
A.M. AHMADI, CJI..,S.P. BHARUCHA &K.S. PARIPOORNAN, JJ.
ACT:
HEADNOTE:
JUDGMENT:
PARIPOORNAN, J.:
1.The State of Orissa and the authorities in the Mines
Department of the State are the appellants in this batch of
appeals. M/s. Mahanadi Coalfields Ltd., a Government
company, in whom the lands in question vests in accordance
with section 11 of the Coal Bearing Areas (Acquisition and
Development) Act, 1957 (Central Act 20 of 1957), and Union
of India are the respondents in the main appeal. In the
other appeals, the consumers of coal who purchase coal from
Mahanadi Coalfields Ltd. for their own consumption as well
as some traders in coal are the respondents. The Mahanadi
Coalfields Ltd., the consumers of coal who purchase coal
from Mahanadi Coalfields Ltd. and some traders in coal
assailed the validity of the Orissa Rural Employment,
Education and Production Act, 1992 (Orissa Act 36 of 1992),
as amended, hereinafter referred to as ’the Act’, before the
High Court of Orissa in a series of writ petitions. The
main controversy in the cases was regarding the levy of tax
under the Act on "coal bearing lands". By a common Judgment
dated 26.4.1994 the Division Bench of the High Court held
that the State Legislature did not have the competence to
levy the tax on coal bearing lands and struck down section
3(2)(c) of the Act as well as the schedule attached to the
Act levying tax of Rs.32,000/- per acre on coal bearing
lands and also the consequential demand notices and
certificate proceedings. As a sequel thereto, the demands
raised by Mahanadi Coalfields Ltd. against the traders and
consumers on account of additional burden of tax on lands
were also quashed, The High Court also took the view that
the levy would be hit by section 9A of Mines and Minerals
(Regulation and Development) Act, 1957, (Act 67 of 1957)
hereinafter referred to as ’M.M.R.D. Act’ and the levy is
also discriminatory and hit by Article 14 of the
Constitution of India. The question of passing on the
burden by Mahanadi Coalfields Ltd. was left open, though the
High Court opened that if the tax is on lands, the burden
cannot be passed on to the consumer or the trader. A few
other pleas taken up by the petitioners were also negatived.
The High Court allowed the batch of writ applications. In
S.L.P.(C) Nos.12477-12751 of 1994, by an order dated 10. 1.
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1995, a three Member Bench of this Court granted leave to
appeal to the State of Orissa against the aforesaid Judgment
of the High Court dated 26.4.1994. Apart from the competence
of the Orissa Legislature to enact the law, M/s. Mahanadi
Coalfields Ltd. raised various other pleas to assail the
levy under Orissa
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Act 36/1992 as invalid. Important among such pleas,
involved interpretation of Article 285 of the Constitution
read with Sections 9, 10 and 11 of Coal Bearing Areas
(Acquisition and Development) Act, 1957 and the provisions
of Colliery Contract Order framed under Section 3 of the
Essential Commodities Act. The said pleas were negatived by
the High Court by the same common judgment of 26.4.1994 and
M/s. Mahanadi Coalfields Ltd. have come up in appeals
against that portion of the judgment, which repelled their
pleas aforesaid, amongst others. The appeals so filed are
C.A. Nos. 42-43/94, 605/95 and 26602932/95. Accordingly the
above Civil Appeals and special leave petitions have come up
before this bench for hearing.
2. We heard counsel for the appellants Sri B. Sen, Senior
Advocate and counsel who appeared for the respondents, the
learned Attorney General of India Sri M.K. Banerjee, Senior
counsel Sri Shanti Bhushan, Sri A.K. Ganguli & others. Sri
B. Sen, learned counsel who appeared for the appellants
contended in the main that the High Court was in error in
holding that Orissa Rural Employment, Education and
Production Act, 1992, is without legislative competence and
is also discriminatory and hit by Article 14 of the Consti-
tution of India. It was argued :
(a) That the levy of tax in the instant case would
squarely fall under Entry 49,List 11 of the Seventh
Schedule (Taxes on land and buildings). It was
alternatively contended that even if it is not so, the levy
of tax in the instant case will fall under Entry 23 or 50,
List II of the Seventh Schedule (Regulation of mines and
mineral development; taxes on mineral and mineral rights).
(b) That the High Court erred in holding that the levy is
discriminatory and so hit by Article 14 of the Constitution,
since there is no material much less a finding to the effect
that the levy is confiscatory. On the other hand, learned
Attorney General Sri M.K. Banerjee and the other counsel who
supported him, contended that in substance, the levy is on
minerals and mineral rights alone and not a tax on land
covered by Entry 49, List II of the Seventh Schedule. Since
substantially the levy is on minerals or on mineral rights,
even i the levy falls under Entry 23 or 50, List II of the
Seventh Schedule (Regulation of mines & mineral development
or Tax on mineral rights), it is subject to limitation
imposed by Parliament under the law relating to regulation
of mines and mineral development. Parliament has legislated
on the subject under Entry 54, List I of the Seventh
Schedule and has enacted the M.M.R.D. Act, which covers the
field. In this view, the Orissa Act 36 of 1992 is ultra
vires and beyond legislative competence. It was also
contended that in effect and substance the levy is only on
coal bearing lands without any basis, and so arbitrary and
hit by Article 14 of the Constitution. Various other pleas
taken up be fore the High Court to assail the levy were also
taken up before us.
3. In order to evaluate the merits of the rival pleas
urged before us, it is necessary to bear in mind the
relevant provisions of the Constitution of India, the Orissa
Rural Employment, Education an Production Act, 1992 (Orissa
Act 36 of 1992, as amended) and M.M.R.D. Act The relevant
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provisions of the Constitution of India are as follows:
"246. Subject-matter of laws made by
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Parliament and by the Legislatures of States.-
(1) Notwithstanding anything in clauses (2)
and (3), Parliament has exclusive power to
make laws with respect to any of the matters
enumerated in List I in the Seventh Schedule
(in this Constitution referred to as the
’Union List’).
(2) Notwithstanding anything in clause (3),
Parliament and, subject to clause (1) the
Legislature of any State also, have power to
make laws with respect to any of the matters
enumerated in List III in the Seventh Schedule
(in this Constitution referred to as the
’Concurrent List’).
(3) Subject to clauses (1) and (2), the
Legislature of any State has exclusive power
to make laws for such State or any part
thereof with respect to any of the matter
s
enumerated in List II in the Seventh Schedule
(in this Constitution referred to as the
’State List’)."
"SEVENTH SCHEDULE
(Article 246)
List I - Union List
xxx xxx xxx xxx xxx xxx
54. Regulation of mines and mineral de-
velopment 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.
xxx xxx xxx xxx xxx xxx
97. Any other matter not enumerated in List
II or List III including any tax not mentioned
in either of those Lists."
"List II - State List
xxx xxx xxx xxx xxx xxx
23. Regulation of mines and mineral de-
velopment subject to the provisions of List I
with respect to regulation and development
under the control of the Union.
xxx xxx xxx xxx xxx xxx
49. Taxes on lands and buildings.
50. Taxes on mineral rights subject to any
limitations imposed by Parliament by law
relating to mineral development."
The relevant provisions of the Orissa Rural Employment,
Education and Production Act, 1992 (Orissa Act 36 of 1992)
which came into force on 1.2.1993, are as follows:
ORISSA ACT 36 OF 1992
THE ORISSA RURAL EMPLOYMENT, EDUCATION AND
PRODUCTION ACT, 1992
AN ACT TO PROVIDE FOR ADDITIONAL RESOURCES FOR
PROMOTION OF EDUCATION AND EMPLOYMENT IN RURAL
AREAS AND FOR IMPLEMENTING RURAL EMPLOYMENT,
EDUCATION AND PRODUCTION PROGRAMMES.
Be it enacted by the Legislature of the State
of Orissa in the Forty-third Year of the
Republic of India as follows:-
2. In this Act, unless the context other-
wise requires,-
(a) "annual value" in relation to a finan-
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cial year means-
(i) in relation to land held by a raiyat,
the rent payable by such raiyat to the landlor
d
immediately under whom he holds the land:
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............................
(a-1) ’coal-bearing land’ means any land
acquired or declared from tune to time under
any law for the purpose of obtaining coal;
...................
(c) ’land’ means land of whatever descrip-
tion which is cultivated, uncultivated or
covered with water, and includes all benefits
to arise out of land and things attached to
the earth or permanently fastened to anything
which is attached to the earth, but does not
include crops of any kind, or houses, shops or
other buildings;
(d) ’mineral-bearing land’ means mineral
bearing land or quarry held for carrying on
mining operations,
(e) ’prescribed’ means prescribed by rules;"
"3.(1) On and from the commencement of this
Act, all lands shall be liable to payment of
rural employment, education and production tax
assessed in the prescribed manner subject to
provisions hereinafter contained.
Provided that any land which is liable to
payment of cess under the Orissa Cess Act,
1962 shall not be liable to payment of rural
employment, education and production tax.
(2) The rate per year at which such tax
shall be levied shall be-
(a) in the case of land other than mineral
bearing land, fifty per centum of the annual
value thereof,
(b) in the case of any mineral- bearing land
other than coal bearing land, the rate as may
be prescribed from time to time in respect
thereof,
(c) in the case of coal-bearing land, the
rate as specified in the Schedule, and
(3) The State Government may, by notifi-
cation, amend the Schedule from time to time
so as to enhance or reduce the rate of tax
specified therein;
Provided that every such notification shall,
as soon as it is published, be laid before the
State Legislature for a total period of
fourteen days which may be comprised in one or
more sessions.
(4) The rate of tax that may either be
prescribed in pursuance of clause (b) of sub-
section (2) or enhanced or reduced by
amendment of the Schedule under subsection
(3), shall be so prescribed or, as the case
may be, enhanced or reduced that the rate
fixed in the case of-
(i) any mineral bearing land other coal-
bearing land, does not exceed the average
annual income from all such mineral bearing
lands in the State during the two consecutive
years immediately preceding the year in which
the rate is so fixed; and
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(ii)coal bearing land, does not exceed, in
the aggregate, fifty per cent of the rate
specified in the Schedule on the date of
publication of this Act in the Gazette.
"SCHEDULE
Clause (c) of sub-section (2) of section 31
--------------------------------------------------------------
Description of mineral Rate of tax per
bearing land year per acre.
--------------------------------------------------------------
(1) (2)
-------------------------------------------------------------
1.Coal bearing land Rs. 32,000
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4. It may be noted at this juncture that Government of
Orissa constituted a Committee to recommend rates of taxes
on mineral bearing lands (other than coal bearing lands)
levied under section 3(2)(b) of the Act, as per Notification
dated 4.3.1993 and in pursuance to the report of that
Committee, the Government promulgated Notification dated
26,9.1994, No. 12372-VII(A)SM-23/94/SM, adding Schedule C
prescribing rates of taxes for various mineral bearing lands
(AnnexureB, page 270 of Paper Book). (This is subsequent to
the decision of the High Court). Schedule C is as follows:
"SCHEDULE-C
(See rule 2-A)
------------------------------------------------------------
Serial Description of mineral Rate of tax
No. bearing lands. per acre.
------------------------------------------------------------
1. Land bearing Asbestos Rs. 20.00
2. Land bearing Bauxite Rs. 4,965.00
3. Land bearing Chromite Rs.26,960.00
4. Land bearing Graphite Rs. 702.00
5. Land bearing Lead Ore Rs. 9,942.00
6. Land bearing Mica Rs. 710.00
7. Land bearing Quartz Rs. 217.00
and Quartzite
8. Land bearing
Sand(Stowing) Rs. 5,312.00
-----------------------------------------------------------------
The relevant provisions of the Mines an Minerals (Regulation
and Development
Act, 1957 (Act 67 of 1957) are as follows:
"An Act to provide for the regulation of mines
and development of minerals under the control
of the Union......
2. Declaration as to expediency of Union
control:- 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.
3. Definitions:- In this Act, unless the
context otherwise requires-
(a) ’minerals’ includes all minerals except mineral
oils; ....
(d) ’mining operation’ means any operations
undertaken for the purpose of winning any
mineral;"
"9. Royalties in respect of mining leases:-
(1) The holder of a mining lease granted
before the commencement of this Act shall,
notwithstanding anything contained in
instrument of lease or in any law in force at
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such commencement, pay royalty in respect of
any mineral removed or consumed by him or by
his agent, manager, employee, contractor or
sub-lessee from the leased area after such
commencement, at the rate for the time being
specified in the Second Schedule in respect of
that mineral.
(2) The holder of a mining lease granted on
or after the commencement of this Act shall
pay royalty in respect of any mineral removed
or consumed by him or by his agent, manager,
employee, contractor or sub-lessee from the
leased area at the rate for the time being
specified in the Second Schedule in respect of
that mineral.
669
(2-A) The holder of a mining lease, whether granted before
or after commencement of the Mines and Minerals (Regulation
and Development) Amendment Act, 1972, (56 of 1972), shall
not be liable to pay any royalty in respect of any coal
consumed by a workman engaged in a colliery provided that
such consumption by the workman does not exceed one third of
a tonne per month.
(3)The Central Government may, by notification in the
Official Gazette, amend the Second Schedule so as to enhance
or reduce the rate at which royalty shall be payable in
respect of any mineral with effect from such date as may be
specified in the notification;
Provided that the Central Government shall not enhance the
rate of royalty in respect of any mineral more than once
during any period of three years."
"9-A. Dead rent to be paid by the lessee:- (1) The holder
of a mining lease, whether granted before or after the
commencement of the Mines and Minerals (Regulation and
Development) Amendment Act, 1972, (56 of 1972), shall,
notwithstanding anything contained in the instrument of
lease or in any other law for the time being in force, pay
to the State Government, every year, dead rent at such rate
as may be specified for the time being, in the Third
Schedule, for all the areas included in the instrument of
lease.
Provided that where the holder of such mining lease becomes
liable, under Section 9, to pay royalty for any mineral
removed or consumed by him or by his agent, manager,
employee, contractor or sub-lessee from the leased area, he
shall be liable to pay either such royalty or the dead rent
in respect of that area, whichever is greater.
(2)The Central Government may, by notification in the
Official Gazette, amend the Third Schedule so as to enhance
or reduce the rate at which the dead rent shall be payable
in respect of any area covered by a mining lease and such
enhancement or reduction shall take effect from such date as
may be specified in the notification:
Provided that the Central Government shall not enhance the
rate of the dead rent in respect of any such area more than
once during any period of three years."
(emphasis supplied)
"THE SECOND SCHEDULE
(See Section 9)
RATES OF ROYALTY
1. Agate Fifty five rupees per tonne.
2. All precious and Twenty percent of the
Semiprecious sale price at the
stones (except pit’s mouth.
agate and diamond)
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670
3.Apatite and Rock
Phosphate:
(a) Ores with
more than 27% Forty five rupees per
P205 tonne.
(b)Ores with 20% Twenty five rupees
P205 to 27% P205 per tonne.
(c) Ores with less
than 20% P205 Ten rupees per tonne.
4. Asbestos:
(a) Chrysotile Two hundred and eighty five
rupees per tonne.
(b) amphibole Fifteen rupees per tonne
5. Barytes:
(a)White (including
snow white & super
snow white) Twenty rupees per tonne
(b) off-colour. Ten rupees per tonne.
6. Bauxite Ten rupees per tonne.
7. Cadmium Sixteen rupees per unit
percent of cadmium met
per tonne of ore and on
prorata basis.
8. Calcite Fifteen rupees per tonne.
9.China clay; also
called kaolin
(including ball clay)
and white shale;
(a) Crude Eight rupees per tonne.
671
(b) Processed Thirty five rupees
(including washed) per tonne.
10. Chromite (both
lumpy non-friable ore
and concentrates)
(a) containing Sixty rupees per tonne.
48% Cr2O3 and above.
(b)Containing
less than 48%
Cr2O3 and more Thirty rupees per tonne.
than 40% Cr2O3
(c)Containing 30%
to 40% Cr2O3
(d)Containing less
than 30% Cr2O3
11. Coal.
(i) Group I Coals:
(a) Coking Coal
Steel Grade I
Steel Grade II,
Washery Grade I Seven rupees per tonne
(b)Hand picked
Coal produced
in Assam,
Arunachal Pradesh,
Meghalaya and
Nagaland.
(ii) Group II Coal:
(a)Cooking Coal
Washery Grade II
Coking Coal
Washery Gradne III
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(b)Semi-Coking
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Coal Grade I
Semicoking Coal
Grade 11
(c) Non-coking Coal Six rupees and
Grade A non- Fifty Paise per
coking Coal tonne
Grade B
(d) ungraded R.O.M.
Coal produced in
Assam, Arunachal Pradesh,
Meghalaya
& Nagaland.
(iii)Group III Coals:
(a)Coking Coal Five rupees and fifty
Washery grade IV paise per tonne.
(b) Non-coking coal
Grade C
(iv) Group IV Coals:
Non-coking coal Four rupees and
Grade D Thirty paise per tonne
Non-coking coal
grade E
(v) Group V coals:
Non-coking coal Two rupees and fifty paise
Grade F per tonne
Non-coking coal
Grade G
(vi) Group VI Coals:
Coal produced Five rupees per tonne
in Andhra Pradesh
(Singareni
673
Collieries Company
Limited)"
"THE THIRD SCHEDULE
(See Section 9A)
Dead Rent
(1) The rates of dead rent applicable to the leases other
than those obtained for supply of raw material to the
industry owned by the concerned lessee:
(RATES OF DEAD RENT IN RUPEES PER HECTARE PER ANNUM)
---------------------------------------------------------
Category of 1st year 2nd to 6th to 11th year
the Mining of the 5th 10th of the
Lease lease year of year of leases &
the the onwards
lease lease
---------------------------------------------------------
1 2 3 4 5
---------------------------------------------------------
1.Lease area Nil 30 60 90
upto 50
hectares
2.Lease area Nil 40 80 120
[above 50
hectares but not
exceeding 100
hectares.]
3.Lease area Nil 60 100 150
above 100
hectares.
(2) In the case of lease obtained for the supply of raw
material for the industry owned by the concerned lessee,
the rates of dead rent would be applicable as given in
respect of item No. 1 above, irrespective of the lease
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area."
674
5.During the course of arguments, it was fairly agreed by
all parties that if the Orissa Rural Employment, Education
and Production Act, 1992 (Orissa Act 36 of 1992) as amended
is without legislative competence, it is unnecessary to
adjudicate upon the other points raised before the High
Court and reiterated before us. Therefore, we shall first
go into the question as to whether Orissa Act 36 of 1992 is
within the legislative competence. According to the
appellants the Act in question would fall under "Entry 49",
List II of the Seventh Schedule (Taxes on buildings), and
even if it is not so, it will fall under "Entry 23 or 50",
List II of the Seventh Schedule. The respondents em-
phatically contend that in reality and substance the levy is
on mineral lands and particularly on coal bearing lands and
mineral rights. The legislation has no nexus with land. It
concerns only minerals. The legislation purports to be one
on "lands" and the nomenclature states so; but it Is only a
colourable device. The legislation being one on mineral
lands and mineral rights and Parliament having enacted The
Mines and Mineral (Regulation and Development) Act, 1957,
the field is entirely covered and Orissa State Legislature
is incompetent to enact Orissa Act 36 of 1992. To
substantiate their respective pleas, emphasis was placed on
the following three decisions of this Court: (1) India
Cement Ltd. Vs. State of Tamil Nadu, 1989 Supp.(1) SCR 692
= 1990 (1) SCC 12 = AIR 1990 SC 85, (2) Orissa Cement Ltd.
vs. State of Orissa and Ors. 1991 (2) SCR 105 = AIR 1991 SC
1676 = 1991 Supp. (1) SCC 430, (3) Buxa Dooars Tea
Company Ltd. and others vs. State of West Bengal 1989
(3) SCR 793 = 1989 (3) SCC 211 = AIR 1989 SC 2015.
6. At this juncture, it will be useful to remember the
following well settled principles in Constitutional law. In
Harakchand Ratanchand Banthia and Ors. vs. Union of India
and Ors., AIR 1970 SC 1453, at page 1458, a Constitution
Bench of this Court stated thus:
"The power to legislate is given to the
appropriate legislatures by Article 246 of the
Constitution. The entries in the three lists
are only legislative heads or fields of
legislation; they demarcate the area over
which the appropriate legislatures can op-
erate. It is well established that the widest
amplitude should be given to the language of
the entries. But some of the entries in the
different lists or in the same list may
overlap or may appear to be in direct conflict
with each other. It is then the duty of this
Court to reconcile the entries and bring about
a harmonious construction. In in re The
Central Provinces and Berar Sales of Motor
Spirit and Lubricants Taxation Act, 1938, 1939
FCR 18 = (AIR 1939 FC 1), Sir Maurice Gwyer
proceeded to state:
‘Only in the Indian Constitution Act can the
particular problem arise which is now under
consideration; and an endeavour must be made
to solve it, as the Judicial Committee have
said by having recourse to the context and
scheme of the Act, and a reconciliation
attempted between two apparently conflicting
jurisdictions by the two entries together and
by interpreting, and, where necessary
modifying, the language of the one by that of
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the other. "
In K. C. Gajapati Narayan Deo and Ors. v. The State of
Orissa, 1954 SCR 1, the Constitution Bench of this Court
stated at page 11 thus:
"If the Constitution of a State distrib-
675
utes the legislative powers amongst different
bodies, which have to act within their
respective spheres marked out by specific
legislative entries, or if there are
limitations on the legislative authority in
the shape of fundamental rights, questions do
arise as to whether the legislature in a
particular case has or has not, in respect to
the subject- matter of the statute or in the
method of enacting it, transgressed the limits
of its constitutional powers. Such
transgression may be patent, manifest or
direct, but it may also be disguised, covert
and indirect and it is to this latter class of
cases that the expression ’colourable
legislation’ has been applied in certain
judicial pronouncements. The idea conveyed by
the expression is that although apparently a
legislature in passing a statute purported to
act within the limits of its powers, yet in
substance and in reality it transgressed these
powers, the transgression being veiled by what
appears, on proper examination, to be a mere
pretence or disguise. "
Again at page 12 the Court stated:
"...it is the substance of the Act that is
material and not merely the form or outward
appearance, and if the subject matter in
substance is something which is beyond the
powers of the legislature to legislate upon,
the form in which the law is clothed would not
save it from condemnation. The legislature
cannot violate the constitutional prohibitions
by employing an indirect method. In cases
like these the enquiry must always be as to
the true nature and character of the
challenged legislation and it is the result of
such investigation and not the form alone that
will determine as to whether or not it relates
to a subject which is within the power of the
legislative authority. For the purpose of
this investigation the Court could certainly
examine the effect of the legislation and take
into consideration its object, purpose or
design. But these are only relevant for the
purpose of ascertaining the true character and
substance of the enactment and the class of
subjects of legislation to which it really
belongs and not for finding out the motives
which induced the legislature to exercise its
powers.
(emphasis supplied)
Speaking for the Constitution Bench in A.S. Krishna and
others v. State of Madras, AIR 1957 SC 297, at page 303,
Venkatarama Ayyar, J., stated thus:
"When a- law is impugned on the ground that it
is ultra vires the powers of the legislatur
e
which enacted it, what has to be ascertained
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is the true character of the legislation. To
do that, one must have regard to the enactment
as a whole, to its objects and to the scope
and effect of its provisions. If on such
examination it is found that the legislation
is in substance one on a matter assigned to
the legislation, then it must be held to be
valid in its entirety, even though it might
incidentally trench on matters which are be-
yond its competence."
(emphasis supplied)
7. In Buxa Dooars Tea Company Ltd. and Ors. (supra) a
Bench of two Judges of this Court held that in order to
determine the true nature of a levy, the substance of the
legislation should be ascertained from the relevant
provisions of the statute.
8. In K. P. Varghese v. Income Tax Officer, Ernakulam and
Anr. AIR 1981 SC 1922, in explaining the extent to which
external aid can be resorted to in the interpretation of a
statute, this Court held at page 1930, thus:
676
"...the speech made by the Mover of the Bill
explaining the reason for the introduction of
the Bill can certainly be referred to for the
purpose of ascertaining the mischief sought to
be remedied by the legislation, and the object
and purpose for which the legislation is
enacted This is in accord with the recent
trend in juristic thought not only in Western
countries but also in India that
interpretation of a statute being an exercise
in the ascertainment of meaning, everything
which is logically relevant should be ad-
missible. "
(emphasis supplied)
9. In Diwan Brothers vs. Central Bank of India, Bombay
and others, AIR 1976 SC 1503, (pp. 1507 & 1508), the learned
Judges took the view that a perusal of the speech of the
Minister, who introduced the Bill in Parliament, will give a
clear in sight into the various objects of the Act and the
main purposes which the legislation sought to achieve. It
was further held that this will have an important bearing on
the interpretation of the provisions of the Act.
10. In Shashikant Laxman Kale and Anr. v. Union of India and
Anr., AIR 1990 SC 2114, Verma, J., speaking for a Three
Member Bench, stated at page 2119:
"For determining the purpose or object of the
legislation, it is permissible to look into
the circumstances which prevailed at
the time when the time when the law which
necessitated the passing of that law was
passed and For the limited purpose of
appreciating the background and the antecedent
factual matrix leading to the legislation, i
t
is permissible to look into the Statement of
Objects and Reasons of the Bill which actuated
the step to provide a remedy for the then
existing malady."
11. It is in the light of the above principles of law laid
down by this Court, we have to scan the provisions of the
Orissa Act 36 of 1992 and adjudicate as to whether it really
falls within "Entry 49" or "Entry 23 or 50" of List II of
the Seventh Schedule of the Constitution, as contended by
the appellant, and the legal effect flowing therefrom.
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12. Earlier similar legislations in the State of Orissa
and judicial decisions which adjudicated the validity or
otherwise of those legislations are relevant in order to
understand the historical background.
13. The legislations are Orissa Mining Areas Development
Fund Act, 1952 (Act 27 of 1952), and Orissa Cess Act, 1962
(Act 2 of 1962) as amended by Act 40 of 1966. Of the two,
the earlier legislation Act 27 of 1952 came up for
consideration before this Court on two occasions. On the
first occasion, Orissa Mining Areas Development Fund Act,
1952 (Act 27 of 1952) was considered in the light of the
Mines and Minerals (Regulation and Development) Act, 1948
(Central Act 53 of 1948). In Hingir Rampur Coal Company v.
State of Orissa & Ors., 1961 (2) SCR 537, the cess or fee on
minerals, levied by the Orissa Act was held to be neither a
tax nor a duty of excise but a fee. The question turned on
the impact of MMRD Act, on the States power to levy fee
under Entry 66 read with Entry 23 of List II as a
consequence of the declaration contained in section 2 of the
Central Act 53 of 1948. The Court held that the declaration
by Parliament in terms of Entry 54 of List I of the Seventh
Schedule operated as a limitation on the legislative
competence of the State Legislature itself. The
677
Court was inclined to the view that if Central Act 53 of
1948 contained the declaration referred to in Entry 23 of
the List II, there would be no difficulty in holding that
the declaration covered the field of conservation and
development of minerals and the said field was
indistinguishable from the field covered by the Orissa Act.
But it was found by the Court that the declaration made by
section 2 of the Central Act (Act 53 of 1948) did not
constitutionally amount to the requisite declaration by
"Parliament" and that the declaration did not cover the
field covered by the Orissa Act, and so the limitation im-
posed by Entry 54 of List I does not come into operation.
On the second occasion, when Orissa Act 27 of 1952 came up
for consideration of this Court in State Orissa v. MA.
Tulloch & Company, AIR 1964 SC 1284 = 1964 (4) SCR 461,
"MMRD Act " of 1957 (Central Act 67 of 1957) had been
enacted in place of the earlier 1948 Act. The validity of
the very same cess was considered in the light of the
declaration in section 2 of the M.M.R.D. Act of 1957
(Central Act 67 of 1957) and this Court held after a
detailed analysis of the State Act as well as the Central
Act, that the levy of cess under the Orissa Act was invalid
from 1.6.1958, on which date the MMRD Act of 1957 came into
force. This Court reached the conclusion that the Central
Act 67 of 1957 contained the requisite Parliamentary
declaration in section 2 of the Act to occupy the entire
field of legislation covered under Entry 54 of List I, and
since the aforesaid Central Act covered the same field as
the State Act of 1952 in regard to mines and mineral
development, the earlier decision in Hingir Rampur Coal
Company v. State of Orissa & Ors. AIR 1961 SC 549, con-
cluded the matter and the State legislature was denuded of
its powers to enact any law on the subject. It is
thereafter, Orissa Cess Act, (Act 2 of 1962), as amended,
was enacted, and it came up for consideration before this
Court in Orissa Cement Ltd. v. State of Orissa, AIR 1991 SC
1676 = 1991 Supp. (1) SCC 430. By then, the law on the
subject has been considered in detail by a 7-Judge Bench of
this Court in India Cement Ltd. & ors. v. State of Tamil
Nadu & ors. 1989 Supp. (1) SCR 692 = 1990 Suppl. (1) SCC 12.
The matter was also discussed in detail in Orissa Cement
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case (supra). Section 4 of the Orissa Act, (Act 2 of 1962),
as amended in 1976, imposed a cess on all lands (including
mineral lands) determined and payable as provided in the
Act. With regard to lands held for carrying on mining
operations, in relation to any mineral, the amendment of
section 5 (2) (a) of the Act read with the Notification
issued, prescribed a percentage of the royalty or the dead
rent, (as the case may be) as the cess in respect of various
items of specified minerals. The Court held that the
measure of the levy is the royalty paid in respect of the
land by the assessee to his lessor, and considering the
change in the scheme of taxation effected 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 the
royalty, and the mode and collection of the cess amount
along with the royalties and as part thereof, would point
out that the legislation in that regard is with respect to
royalty rather than with respect to land. It was held that
the levy could not be justified under Entries 45, 49 and 50
of List II of the Seventh Schedule. Even if the levy was
one which could fall under Entry 50 of List II, it was held
that the MMRD Act of 1957 covered
678
the entire field and so the State legislation to the extent
it encroached on the field covered by MMRD Act of 1957, will
be ultra vires. Sections 5, 6 & 7 of Orissa Act, (Act 2 of
1962) as amended in 1976, were held to be beyond the
competence of State legislature in view of the Parliamentary
declaration contained in MMRD Act of 1957 (Central Act 67 of
1957). It is only appropriate to notice in this connection
that under section 8 of the Orissa Cess Act 1962 read along
with sections 18 & 19 of the Orissa Surveys and Settlement
Act, lands, except those held for carrying on mining
operations, were subject to levy of cess depending upon the
"surface characteristics" of the land, whereas the levy on
lands held for carrying on "mining operations" was made on
the basis of "minerals extracted" in view of the amendment
of Orissa Cess Act, 1962 by Act 42 of 1976.
14. In order to meet the situation, the State of Orissa
enacted the instant legislation -- The Orissa Rural
Employment, Education and Production Act, 1992. The speech
made by the Minister in moving the Bill will throw light on
the objects of the Act and the main purposes which the
legislation sought to achieve. It is contained in the paper
book (vol. C) Annexure 1, pages 10-12. The relevant
portions of the same are as follows:-
"... this Bill has been brought to increase
the income of the State or to compensate the
loss that the State Exchequer has lost due to
Orissa Cement Case, a Judgment pronounced by
the Supreme Court. By virtue of that
judgment, the State lost nearly Rs. 150.00
crores and for a State like ours losing Rs.
150.00 crores is not a small thing. Even
though the Central Government later on revised
the rate of royalty on coal and thereby loss
could be compensated to the extent of Rs. 30
to Rs. 40 crores, still we are in short of Rs.
100.00crores. Because of that judgement,
Government has come out with this Bill for
imposing tax on all types of land,
agriculture, non-agriculture including mineral
bearing lands. You know under item 49 of the
State list of the Constitution of India, the
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State is empowered to impose tax on lands and
exercising power this Bill has been brought,
wherein Government once assume the power of
imposing tax on all lands. However, State
have taken all steps to safeguard the interest
of the cultivators and agriculturists.
Provision has been made in the Bill that under
the Orissa Cess Act, 1962 one who has paid
tax/cess will not be further liable to pay tax
under the present Bill. Therefore there should
be no apprehension in the mind of the Hon’ble
Members that either it will be double taxing
or the cultivators who have already over-
burdened with tax will be further liable to
pay any tax. Stress has been given on
imposing tax particularly on the mineral
bearing lands. You know, Sir, ours is a State
which is full of mineral resources. Even
though we are rich in that way we are unable
to exploit our minerals and increase the
income of the State because of several legal
hindrances, constitutional and statutory.
Therefore, we have to act within the purview
of the law which authorises the State
Government to impose tax and take resort to
that and keeping in view the Orissa Cement
Case and India Cement case, the two judgments
of the Supreme Court, this Bill has been
introduced. "
(emphasis supplied)
15. Let us examine the crucial provisions of Orissa Act 36
of 1992. The charging section provides that all lands shall
be liable to payment of rural employment
679
education and production tax assessed in the prescribed
manner subject to provisions thereafter contained. The
proviso to section 3(1) of the Act states thus:-
"Provided that any land which is liable to
payment of cess under the Orissa Cess Act, 196
2
shall not be liable to payment of rural
employment, education and production tax."
Though the charging section provides for a levy on all
lands, land which is liable to payment of tax under the
Orissa Cess Act, 1962 shall not be liable to payment of the
rural employment, education and production tax. Section 4
of the Orissa Cess Act, 1962, as it originally stood, is as
follows:
"4. All lands to be liable to payment of cess.
(1) From and after the commencement of this
Act all lands shall be liable to the payment
of cess determined and payable as herein
provided:
Provided that no such cess shall be payable in
respect of lands which were not liable to
payment of rent or revenue prior to the 1st
day of April, 1977 or lands in respect of
which a tax on holding is assessed under the
Orissa Municipal Act, 25 of 1950.
Provided further-that nothing in the preceding
proviso shall apply to lands held for carrying
on mining operations. "
The definition of ’land’ in section 3(vi) at the relevant
time stood as follows:
"3(vi) ’land’ means land of whatever
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description and includes land which is covered
with water, but does not include houses or
buildings."
Later the second proviso to section 4 was deleted and
simultaneous the definition of ’land’ in section 3(vi) was
substituted by Act 10 of 1994 thus:
"3(vi) ’land’ means land of whatever de-
scription and includes land which is covered
with water, but does not include-
(a) mineral bearing land as defined in the
Orissa Rural Employment, Education and
Production Act, 1992; and
(b) houses or buildings."
16. From the above, it will be seen that the combined
effect of section 3(1) of Orissa Act 36 of 1992 and the
Orissa Cess Act of 1962, as amended by Act 10 of 1994, is
that only mineral bearing land and coal bearing land will be
subject to the levy of tax under Orissa Rural Employment,
Education and Production Act, 1992 (Orissa Act 36 of 1992).
It is not all types of land that will be subject to the levy
but only the two types of land mentioned above which will be
caught by the taxing-net. This is in accord with what the
Hon. Minister stated in introducing the Bill to the effect
that "stress has been given on imposing tax particularly on
the mineral bearing lands." The earlier levy in that regard
was rendered futile by the decisions referred to by the Hon.
Minister himself in his speech and the main purpose of the
legislation was only to levy the tax on mineral bearing and
coal bearing lands. We may incidentally observe that it is
common ground that 85% of the coal bearing lands are in "F"
and "G" category in the State of Orissa.
17. The above aspect can be looked at from a different
angle also. The Orissa Rural Employment, Education and
Production Act, 1992 (Orissa Act 36 of 1992) provided that
all lands shall be liable to
680
the payment of tax under the Act. Land is defined in
section 2(c) of the Act to mean, "land of whatever
description.... and includes all benefits to arise out of
land". Lands held for carrying on mining operations would
be taken in by the said definition. It is patently clear
that "minerals", which are benefits to arise out of land,
will be roped in within the purview of the levy under
section 3(1) read with section 2(c) of the Act. So the
charging section of the impugned Act imposes a tax on the
"minerals" also and not confined to a levy on land or
surface characteristic of the land. Yet another aspect that
is self-evident is that for all lands, other than mineral
bearing land, the tax is levied at a percentage of the
"annual value of the land". So far as tax on mineral
bearing land is concerned, it is for the State Government to
prescribe the same and it has been so fixed in accordance
with section 3(4)(i) of the Act based on "average annual
income". As stated in paragraph 3 (supra), by adding
Schedule C as per Notification dated 26.9.1994 (Annexure-B,
page 270 of Paper Book), the rates of tax are fixed for
different kinds of minerals per acre, obviously based on
"average annual income". With regard to coal bearing land,
as per section 3(2)(c), the statute itself has specified the
rate of tax in the Schedule at Rs.32,000/- per acre. We
have already seen that lands other than mineral bearing
lands and coal bearing lands will fall outside the purview
of the impugned Act since they are dealt with under the
Orissa Cess Act,1962. it Is only the "coal bearing land" and
"mineral bearing land", as defined in section 2(a-1) and
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section 2(d), which have to bear the brunt of taxation. In
the light of the above, we have no doubt in our mind that
the substance of the levy under the Orissa Rural Employment,
Education and Production Act, 1992 is really on "mineral
bearing land" and "coal bearing land".
18. The main contention of the appellants’ counsel Mr. B.
Sen was that the levy of the tax under Orissa Act 36 of 1992
will come under Schedule 7, List II Entry 49 "Taxes on
lands and buildings". In the alternative, it was contended
that the levy will fall under List II Entry 23 or Entry 50
of the Seventh Schedule.
.LM15
List II. "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."
"50. Taxes on mineral rights subject to any limitations
imposed by Parliament by law relating to mineral
development. "
It appears to us that Entry 49 of List II is the general
entry which enables the State Legislature to impose taxes on
lands and buildings. A particular category or specie is
taken out of the general entry, and is provided by Entry 50
of List II. But the tax that can be levied under List II
Entry 50 is subject to limitations imposed by Parliament by
law relating to regulation of mines and mineral development.
Similarly, under List II Entry 23, though the State
Legislature can enact a law relating to regulation of mines
and mineral development, it is subject to the provisions of
List I (Legislation by Parliament) with respect to
regulation and development under the control of the Union.
In other words, if the impugned Orissa Act 36 of 1992 falls
either under List II Entry 50 of List II Entry 23, it is
subject to the lam made by Parliament relating to the regu-
681
lation of mines and mineral development. (List I Entry 54).
A perusal of the Mines and Minerals (Regulation &
Development) Act, 1957 (Central Act 67 of 1957), sections 2,
3(a), & 3(d), sections 9 and 9-A and Second and Third
Schedules to the Act, quoted in paragraph 3 (supra) will
clearly point out that taxation on mineral and mineral
rights, viz., any tax, royalty, fee or rent, are provided in
the said Act. In particular, section 9-A provides payment
of dead rent as provided therein by the holder of a mining
lease to the State Government at the rates specified in the
Third Schedule to the Act. And the proviso thereto states
that in cases where the holder of the mining lease is to pay
royalty under section 9, he shall be liable to pay either
royalty under section 9 or the dead rent, as provided under
section 9-A, whichever is greater. Section 9-A enables the
Central Government to enhance or reduce dead rent by
amending the Third Schedule. The Second and the Third
Schedules provide varying rates for different minerals
including coal. Since exhaustive provisions as also the
Parliamentary declaration, contemplated by List I Entry 54,
have been made in the Mines and Minerals (Regulation &
Development) Act, 1957, regarding all kinds of taxation on
mineral and mineral rights tax, royalty fee dead rent
etc., the State Legislature is denuded or deprived of the
power to enact any law or to impose any tax or other levy
with reference to List II Entry 23 or List II Entry 50. We
have already held that levy of tax under Orissa Act 36 of
1992 is in substance on minerals and mineral rights, which
has nothing to do with surface characteristic of the land.
In this view of the matter, the levy of tax, on mineral
bearing lands and coal bearing lands, under section 3 read
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with section 2(a)(1) and 2(d) of the Act is beyond the
competence of the State Legislature and is ultra vires.
19. In this connection reference may be made to a seven-
Member Bench decision of this Court in India Cement Ltd. v.
State of Tamil Nadu 1989 Supp. (1) SCR 692. In that case,
the Madras Legislature levied a cess on royalty. Royalty was
payable on extraction of minerals. Section 115(1) of the
Madras Panchayats Act, 1958 levied a local cess at the rate
of 45 paise on every rupee of land revenue payable to the
Government in respect of any land for every fasli. The
Explanation thereto stated that "land revenue" means public
revenue due on land and includes...... royalty, lease amount
or other sum payable to the Government...... The levy of
cess was sought to be sustained as a tax on lands under
Schedule VII List II Entry 49. Incidentally the scope and
impact of List I Entry 54, List II Entries 23, 49 & 50 and
in particular, the scope of section 9 of Mines and Minerals
(Regulation & Development) Act came up for consideration.
The Court held at page 710 of the report thus:
"In this connection learned
Attorney General appearing for the Union of
India submitted before us that in order to
sustain the levy, the power of the State
Legislature has to be found within one or more
of the entries of List II of the 7th Schedule.
The levy in question has to be either a tax or
a fee or an impost. If it, is neither a tax
nor a fee then it should be under one of the
general entries under List II. The expression
’land’ according to its legal significance has
an indefinite extent both upward and
downwards, the surface of the soil and would
include not only the face of the earth but
everything under it or over it. See the
observations in Anant Mills Co. Ltd. v. State
of Gujarat & Ors. (1975 3 SCR 220 at 249), The
minerals
682
which are under the earth, can in certain
circumstances fall under the expression ’land’
but as tax on mineral rights is expressly
covered by entry 50 of List II, if it is
brought under the head taxes under entry 49 of
List II, it would render entry 50 of List II
redundant. Learned Attorney General is right
in contending that entries should not be so
construed as to make any one entry redundant.
It was further argued that even in pith and
substance the tax fell to entry 50 of List II,
it would be controlled by a legislation under
entry 54 of List I.."
After referring to H.R.S. Murthy’s case (1964 (6) SCR 666),
at page 712 of the report the Court held thus:
"...attention of the Court was not invited to
the provisions of Mines and Minerals
(Development & Regulation) Act 1957 and s.9
thereof. S9(3) of the Act in terms states
that royalties payable under the 2nd Schedule
of the Act shall not be enhanced more than
once during a period of 4 years. It is,
therefore, a clear bar on the state
legislature taxing royalty so as to in effect
amend 2nd Schedule of the Central Act. In the
premises, it cannot be right to say that tax
on royalty can be a tax on land, and even if
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it is a tax, if it falls within entry 50 will
be ultra vires the State legislature power in
view of s. 9(3) of the Central Act."
"It was contended by Mr. Krishnamurthy Iyer
that the State has a right to tax minerals.
It was further contended that if tax is
levied, it will not be irrational to correlate
it to the value of the property and to make
some kind of annual value basis of tax without
intending to tax the income. In view of the
provisions of the Act, as noted hereinbefore
,
this submission cannot be accepted. Mr.
Krishnamurthy Iyer also further sought to urge
that in entry 50 of List II, there is no
limitation to the taxing power of the State.
In view of the principles mentioned
hereinbefore and the expressed provisions of
s. 9(2) of the Mines & Minerals (Regulation &
Development) Act, 1957, this submission cannot
be accepted. This field is _fully covered by
the Central legislation.
In any event, royalty is directly relatable
only to the minerals extracted and on the
principle that the general provision is ex-
cluded by the special one, royalty would be
relatable to entries 23 & 50 of list 11, and
not entry 49 of list II. But as the fee is
covered by the Central power under entry 23 or
entry 50 of list II, the impugned legislation
cannot be upheld."
20.In Federation of Mining Associations of Rajasthan v.
State of Rajasthan and Anr., 1992 Supp.(2) SCC 239, the
Rajasthan Land Tax Act of 1985 (Act 6 of 1985) by section 3
read with section 2(a) & (d) of the Act, imposed a tax on
annual value of mineral bearing land based on dead rent or
royalty whichever is higher. Holding that the levy in the
said case is practically on all fours with the levy in
Orissa Cement’s case (supra), a three Member Bench of this
Court observed at page 244 thus:
"The question of validity of levies of this
type has come up for consideration by a seven
Judge bench of this Court in India Cement Ltd.
v. State of Tamil Nadu and by a three Judge
bench in Orissa Cement Ltd. v. State of
Orissa."
"...For the reasons set out in India Cement
and Orissa Cement cases, we are of the opinion
that the State legislature did not have the
competence to legislate for the levy cf a tar
on mineral bearing lands based on the royalty
derived from the land.
21. In the light of the aforesaid decisions,we have no
hesitation to hold that Orissa Act 36 of 1992 purports to
impose a tax on coal bearing land and mineral bearing land
as defined in section 2(a-1) and 2(d) of the Act, which is
fully covered by Parliamentary legislation Mines and
Mineral (Regulation & Development) Act, 1957,
22. Mr. B. Sen, Counsel for the appellants submitted that
in India Cement’s case (1989 Supp. (1) SCR 692 = 1990 (1)
SCC 12) the sole question that arose for consideration was
whether royalty was a tax and whether cess on royalty
amounts to a tax on tax thereby denuding the legislation of
its true character as a tax on land. It was held that
royalty being within the purview of section 9 of Act, the
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levy was invalid. But, in the instant case, tax is levied
on land, and so clearly within List II Entry 49. Support
was sought from certain observations in Orissa Cement case
(1991 Supp. (1) SCC 430) and also the latest decision in
Goodricke Group Ltd. (JT 1994 (7) SC 577) and in particular,
the following observations contained in paragraph 29 of the
latter Judgment:
"It is thus clear from the aforesaid decisions
that merely because a tax on land or building
is imposed with reference to its income or
yield, it does not cease to be a tax on land
or building. The income or yield of the
land/building is taken merely as a measure of
the tax; it does not alter the nature or
character of the levy. It still remains a tax
on land or building. There is no set pattern
of levy of tax on lands and buildings indeed
there can be no such standardization. No one
can say that a tax under a particular entry
must be levied only in a particular manner,
which may have been adopted hitherto. The
Legislature is free to adopt such method of
levy as it chooses and so long as the
character of levy remains the same, i.e.,
within the four corners of the particular
entry, no objection can be taken to the method
adopted. "
Stress was also laid on the fact that the decisions in India
Cement’s and Orissa Cement’s case were distinguished in
Goodricke case. On the other hand, counsel for the
respondents submitted that reliance placed on Goodricke case
is erroneous since the Orissa Rural Employment, Education
and Production Act, 1992 is in substance and effect a levy
on minerals and mineral rights and not on land; and in
Goodricke case, the Act was held to be a law relating to tax
on land and that makes all the difference. The respondents
also took up the plea that some of the observations in
Goodricke case are not in accord with India Cement’s case
and the Orissa Cement’s case. We are of the view that it is
unnecessary to consider the rival pleas on this score, since
we have held that the levy under Orissa Rural Employment,
Education and Production Act, 1992 is not on land, but on
minerals and mineral rights.
23. We concur with the conclusion of the High Court of
Orissa that section 3 (2) (c) of the impugned Act as well as
the Schedule attached to the impugned Act, levying a tax of
Rs. 32,000/- per acre of coal bearing land, should be
declared illegal and ultra vires. The consequential notices
issued in Form V and the demand notices in Form VII and the
certificate proceedings pending before any forum for the
realisation of the dues under the impugned Act are also
illegal and infirm. We further concur with the decision of
the High Court that the demands raised by the Mahanadi
Coalfields Ltd against the traders and consumers on account
of the additional bur-
684
den of tax on land are invalid and illegal. The judgment of
the High Court of Orissa dated 26.4.1994 is affirmed but in
the circumstances of the case without any order as to costs.
24. We should hasten to add that we have not pronounced
on any other question raised either before the High Court
of Orissa or before us by any of the parties, in this batch
of cases, and they are left open for consideration in the
future as and when occasion arises therefore. It is un-
necessary to pronounce on those questions at this stage, in
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view of the fundamental infirmity regarding the competency
of the State Legislature to enact Orissa Act 36 of 1992 as
stated by us earlier. Mr. Shanti Bhushan, senior counsel,
submitted that M/s. Mahanadi Coalfields Ltd. should be
afforded sufficient time to return the amounts collected
from the traders and consumers of coal, as, more than one
crore of rupees has been collected and unless sufficient
time is given, it will cause irreparable hardship. We see
force in this plea. We are of the view that it is only
appropriate to afford a breathing time to Mahanadi
Coalfields Ltd. in that behalf In our opinion, the amount so
collected may be refunded to persons entitled to the same,
within a period of one year from today, failing which they
shall pay interest at 18% p.a. on expiry of one year. All
the above civil appeals and the special leave petitions are
disposed of as above.
690