Full Judgment Text
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PETITIONER:
RAOJIBHAI JIVABHAI PATEL AND ORS. ETC. ETC.
Vs.
RESPONDENT:
STATE OF GUJARAT AND ORS. ETC. ETC.
DATE OF JUDGMENT07/12/1989
BENCH:
VENKATARAMIAH, E.S. (CJ)
BENCH:
VENKATARAMIAH, E.S. (CJ)
SINGH, K.N. (J)
KASLIWAL, N.M. (J)
CITATION:
1989 SCR Supl. (2) 406 1989 SCC Supl. (2) 744
JT 1989 (4) 505 1989 SCALE (2)1297
ACT:
Mines and Minerals (Regulation and Development) Act
1957/ Gujarat Minor Minerals Rules, 1966: Section 15/Rule
21--Royalty-Levy of by State Government on minor minerals
validity of.
HEADNOTE:
The Petitioners in these petitions have challenged the
validity of a Notification issued by the Government of
Gujarat on June 25, 1985 whereby the Gujarat Minor Mineral
Rules were amended with effect from 1.7.1985. By the said
notification, original Rule 21 of the Rules was substituted
by a new Rule 21 which provided that a holder of a quarry
lease or any other mineral concession granted under the
Rules shall pay royalty in respect of minor minerals provid-
ed in column 2 of the Schedule. It is under this Notifica-
tion that the rate of royalty in respect of Black trap and
Hard Murrum was increased from Rs.4 to Rs. 7 per metric
tonne.
The validity of Rule 21 as it stood prior to its amend-
ment by the aforesaid impugned notification was considered
and upheld by this Court on March 6, 1986 in D.K. Trivedi &
Sons & Ors. v. State of Gujarat & Ors., [1986] 1 SCR 479.
The impugned notification was issued at a time when the Writ
Petitions in the aforesaid case were pending in the High
Court. The increase in the levy of royalty effected by the
impugned notification is now questioned in these petitions.
The Petitioners raised the following contentions viz;
(1) That the royalty levied and covered under the Rules
should be applied only for mineral development and since the
royalty is being treated as part of the consolidated fund of
the State and used for other purposes by the State, the levy
was bad; and
(2) That the impugned notification in question was in
contravention of clause (c) of Art. 304 of the constitution.
(3) That the impugned notification is discriminatory in
character.
407
Dismissing the Writ Petitions, this Court,
HELD: That Act is no doubt passed for development of
minerals but while discharging its functions relating to
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development, if the State incidentally allows mining to be
carried on in the public interest and levies in that connec-
tion a tax, it does not mean that the said tax should be
used only for development of minerals and not for other
purposes sanctioned by law. [412B]
The India Cement Ltd. etc. v. The State of Tamil Nadu
etc., [1989] 4 SC--Judgment Today 190.
No restriction is being imposed on the freedom of trade
of the petitioners by the levy of royalty. The minerals
belong to the Government and if anybody wants to have the
right as a lessee to exploit the mines to the exclusion of
others and to remove the minerals with a view to making
profit, he has to pay a royalty imposed in accordance with
law. [412E]
In the instant case, the levy is made under a law made
by the Central Government. It is not an imposition made by a
law made by the State Legislature on which alone, the re-
striction contemplated under Art. 304(b) applies. [412F]
If the Executive or the administrative authority acts in
an arbitrary manner, its action would be bad in law and
liable to be struck down by the Courts but the possibility
of abuse of power or arbitrary exercise of power cannot
invalidate the statute conferring the power or the power
which has been conferred by it. [413B-C]
Since the power exercised is legislative in character,
the authority which is exercising the said power has the
power to make Rules equitable by necessary implication. No
express power need be conferred on such subordinate authori-
ty in order to make a classification for purposes of imple-
menting the policy of the Act under which the Rules are
made. [415G]
JUDGMENT:
ORIGINAL JURISDICTION: Writ Petition (Civil) Nos.
12676-77 of 1985 etc. etc.
(Under Article 32 of the Constitution of India)
R.F. Nariman, P.H. Parekh, N.N. Keshwani, Mrs. H. Wahi
and R.N. Keshwani for the Petitioners.
408
G.A. Shah, M.N. Shroff, K.M.M. Khan and T.U. Mehta for
the Respondents.
The Judgment of the Court was delivered by
VENKATARAMIAH, CJ. The petitioners in these petitions
have questioned the validity of a notification issued by the
Government of Gujarat on June 26, 1985 in exercise of its
powers conferred by Section 15 of the Mines and Minerals
(Regulation and Development) Act, 1957 (67 of 1957), herein-
after referred to as the Act, amending the Gujarat Minor
Mineral Rules 1966, hereinafter referred to as the Rules,
with effect from 1-7-1985 substituting the original rule 21
of the Rules by a new rule which reads as follows:
"21. Rate of Royality: The holder of a quarry
lease or any other mineral concession granted
under these rules shall pay royalty in respect
of minor minerals, specified in column 2 of
the schedule, removed or consumed by him or by
his agent, manager, employee, contractor or
sub lessee from the leased area at the rates
respectively specified against them in column
3 of the said schedule.
Provided that:
(i) the holder of a Parwana granted under
these rules shall pay royalty at the rate of
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fifty percent of the rate of royalty specified
in the said schedule.
(ii) no royalty shall be charged from Nimbha-
das of village potters who manufacture upto
one lakh bricks per year.
(iii) no royalty shall be charged from Nimbha-
das of village potters if their annual produc-
tion is not exceeding two lakhs bricks and
they supply at least one lakh bricks to the
Rural Housing Board or Panchayats.
(iv) Royalty shall be recoverable in whole
rupees, fraction fifty paise and above to be
rounded upwards to a whole rupee and
fraction below fifty paise shall be ignored"
and fixing the royalty payable by the lessees in respect of
minor minerals known as Black Trap and Hard Murrum at Rs.7
per metric tonne by amending schedule of the Rules which was
being levied at Rs. 4 till the date of the said amendment.
409
In order to understand the case of the petitioners it is
necessary to set out some other provisions of law governing
the case. The Act was passed in the year 1957 by Parliament
to provide for the regulation of mines and development of
minerals under the control of the Union and it was made
applicable to the whole of India. Under section 3A of the
Act the word ’minerals’ is defined as including all minerals
except mineral oils. Clause (e) of the said section defines
’minor minerals’ as building stones, gravel, ordinary clay,
ordinary sand other than sand used for prescribed purposes
and any other mineral which the Central Government may. by
notification in the Official Gazette, declare to be a minor
mineral. It is not disputed that Black Trap and Hard Murrum
are notified as minor minerals. The Act has made provision
with regard to the issue of prospecting licences and mining
leases in respect of various kinds of minerals other than
minor minerals and the procedure to be followed in that
connection in the matter of issue of prospecting licences
and mining leases. Section 9 of the act empowers the Central
Government to levy royalty in respect of the minerals which
are won by the mining lease holders under the Act at the
rates prescribed in the Second Schedule to the Act. It
empowers the Central Government to enhance or reduce the
rate of royalty prescribed by the Second Schedule in respect
of any mineral subject to the condition 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. Section 14 of the Act provides that sections 5 to 13
(inclusive) shall not apply to quarry leases, mining leases
or other mineral concessions in respect of minor minerals.
Section 15 as it stood during the relevant time read thus:
"15. (1) The State Government may, by notifi-
cation in the Official Gazette, make rules for
regulating the grant of (quarry leases, mining
leases or other mineral concessions) in re-
spect of minor minerals and for purposes
connected therewith.
(2) Until rules are made under sub-section
(1), my rules made by a State Government
regulating the grant of (quarry leases, mining
leases or other mineral concessions) in re-
spect of minor minerals which are in force
immediately before the commencement of this
Act shall continue in force.
(3) The holder of a mining lease or any other
mineral concession granted under any rule made
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under sub-section (1)
410
shall pay royalty or dead rent, whichever is
more in respect of minor minerals removed or
consumed by him or by his agent, manager,
employee, contractor or sub-lessee at the rate
prescribed for the time being in the rules
framed by the State Government in respect of
minor minerals;
Provided that the State Government
shall not enhance the rate of royalty in
respect of any minor mineral for more than
once during any period of three years."
It is seen from section 15 that the State Government is
empowered to make rules for regulating the grant of quarry
leases, mining leases or other mineral concessions in re-
spect of minor minerals and for purposes connected there-
with. In exercise of the said power under section 15 the
Government of Gujarat promulgated the Gujarat Minor Minerals
Rules, 1966 which are referred to as the Rules as stated
above. Rule 21 of the Rules provides for the determination
of the rate of royalty payable in respect of minor minerals.
The original rule 21 was substituted by new rule 21 by the
issue of impugned notification on 26-6-1985 which provides
that a holder of a quarry lease or any other mineral conces-
sion granted under the Rules shall pay royalty in respect of
minor minerals provided in column 2 of the Schedule, removed
or consumed by him or by his agent, manager, employee,
contractor or sub-lessee from the leased area at the rates
specified in column 3 of the said Schedule. It is under this
notification the rate of royalty in respect of black trap
and Hard Murrum was increased from Rs. 4 to Rs.7 per metric
tonne. The rule also provides that the holder of a Parwana
granted under the Rules shall pay royalty at the rate of 50
per cent of the rate of royalty specified in the said Sched-
ule and that no royalty shall be charged from Nimbhadas of
village Potters who manufacture upto one lakh bricks per
year. It further provides that no royalty shall be charged
from Nimbhadas of villages potters if the annual production
is not exceeding two lakh bricks and they supply at least
one lakh bricks to the Rural Housing Board or Panchayats.
The validity of rule 21 as it existed prior to the issue of
the impugned notification was considered in B.K. Trivedi &
Sons and Ors. v. State of Gujarat and Ors., [1986] 1 SCR 479
as under the said rule the royalty payable in respect of
some of the minor minerals had been enhanced. Originally all
lessees had to pay a minimum dead rent in respect of the
area covered by a minor mineral lease issued in respect of
any minor mineral or the royalty prescribed in respect of
quantity of minor minerals owned by him, which-ever was
higher. The history of the legislation of the Rule from the
year 1986 is set out in detail in the said
411
decision. Hence it is not necessary to refer to it in detail
here. By the said decision the constitutionality of section
15 of the Act and the validity of a notification issued on
June 18, 1981 under which the rate of royalty had been
raised was upheld and the writ petitions in which the said
validity had been questioned were dismissed. That decision
was rendered on March 5, 1986. During the pendency of the
said petitions in the High Court the impugned notification
was issued increasing the royalty payable in respect of
Black Trap and Hard Murrum from Rs.4 to Rs.7. In these
petitions the impugned notification issued in the year 1985
is questioned. Since many of the contentions raised by the
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parties in respect of the constitutionality of section 15 of
the Act and the validity of Rules made thereunder had been
considered and the contentions urged by the petitioners
against the said rule in those petitions had been rejected,
in the present case the petitioners have confined their case
only to the following points which according to them had not
been considered in the said decision.
Shri R.F. Nariman, learned counsel for the petitioners
in some of the petitions had two contentions:
1. that the royalty levied and covered under
the Rules should be applied only for mineral
development and since the said royalty is
being treated as part of the consolidated fund
of the State and used for other purposes by
the State the levy was bad; and
2. that the impugned notification in question
was in contravention of clause (b) of Article
304 of the Constitution.
The contention of the learned counsel was that under
Entry 50 of List II of the 7th Schedule to the Constitution,
the royalty recovered by the State Government had to be used
only for mineral development and could not be used for any
other purpose. According to him the Act had been passed for
purposes of regulation and development of minerals. He
depended upon the language of Entry 50 which reads thus:
"taxes on mineral rights subject to any limitations imposed
by Parliament by law relating to mineral development"
We do not find much substance in this contention. Re-
cently a Constitution Bench of this Court has held in The
India Cement Ltd. etc. etc. v. The State of Tamil Nadu etc.,
[1989] 4 S.C.--Judgments Today 190 that the royalty levied
on the extracted mineral was in the nature of a tax and it
was not in the nature of a fee which could be used
412
only for specific purposes. Any tax realised by the State
Government forms part of the consolidated fund of the State
and the said tax can be used by the State Government for any
of the purposes to which its executive powers extend subject
to any law made by the State Legislature in that regard. We
do not, therefore, find any substance in the above conten-
tion. It is no doubt true that the Act is passed for devel-
opment of minerals, but while discharging its functions
relating to development, if the State incidentally allows
mining to be carried on in the public interest and levies in
that connection a tax, it does not mean that the said tax
should be used only for development of minerals and not for
other purposes sanctioned by law.
In support of the second contention the learned counsel
Shri Nariman argued that notwithstanding anything contained
in Article 301 or Article 303 the Legislature of a State may
by law impose such reasonable restrictions on the freedom of
trade, commerce or intercourse with or within that State as
required in the public interest. Provided that no Bill or
amendment for the purpose of sub-clause (b) shall be intro-
duced or moved in the legislature of a State without the
previous sanction of the president.
We do not find that clause (b) of Article 304 has any
relevance on the point in question. No restriction is being
imposed on the freedom of trade of the petitioners by the
levy of royalty. The minerals belong to the Government and
if anybody wants to have the right as a lessee to exploit
the mines in question to the exclusion of all others and to
remove the minerals with a view to making profit, he has to
pay a royalty imposed in accordance with law. In the instant
case the levy is made under a law made by the Central Gov-
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ernment. It is not an imposition made by a law made by the
State Legislature on which alone the restriction contemplat-
ed under Article 304(b) applies.
We do not also find much substance in the contention
that the levy in question is unreasonably heavy and has been
imposed in an arbitrary manner. The burden of establishing
that the levy is unreasonably heavy, is on the petitioners.
It is urged that in the other States the royalty is being
levied at the rate of Re. 1 per metric tonne of Black Trap
and Hard Murrum and Rs.7 levied in the notification is
excessive. The fact that in other States the royalty is
fixed at Re. 1 is not by itself sufficient to hold that Rs.7
per metric tonne is unreasonably high rate of royalty. In
Trivedi’s case (supra) this Court had upheld the levy of
Rs.4 per metric tonne which had been fixed in 1981 and in
1985 it was increased to Rs.7. Having regard to the depreci-
ation in the value of
413
the rupee and the increase in the cost of’ administration of
the State, which is ever increasing, as a welfare State we
cannot say that Rs.7 is an unreasonably high rate. We have
taken this view after going through the observations made by
this Court in Trivedi’s case (supra) at page 544 where this
Court has observed that where a statute confers discretion-
ary powers upon the executive or an administrative authori-
ty, the validity or constitutionality of such power cannot
be judged on the assumption that the executive or such
authority will act in an arbitrary manner in the exercise of
the discretion conferred upon it. If the executive or the
administrative authority acts in an arbitrary manner, its
action would be bad in law and liable to be struck down by
the courts but the possibility of abuse of power or arbi-
trary exercise of power cannot invalidate the statute con-
ferring the power or the power which has been conferred by
it. We do not find that the levy is arbitrarily imposed.
It is obvious that the petitioners are lessees who are
exploiting the mining areas for purposes of business and
that the royalty in question is ultimately passed on to the
consumers. It is not shown that the business ,of the peti-
tioners has been adversely affected in such a way that it is
liable to be struck down on the ground of arbitrariness. We
do not, therefore, find any substance in the contention
urged by Shri Nariman.
In Civil Writ Petition No. 618 of 1987 filed by Jai
Sholanath Quarry Works and another, Mr. Keswani, learned
counsel for the petitioners contended that the impugned rule
21 which was substituted in the place of the former rule 21
was invalid as it was discriminatory in character. He con-
tended that the concession shown in favour of Parwana hold-
ers was discriminatory and violative of Article 14.-Under
clause 1 of the proviso to the impugned rule 21, a holder of
a Parwana granted under the Rules has to pay royalty at the
rate of 50 per cent of the royalty payable by the lessees
and no royalty is payable by village potters who manufacture
upto one lakh bricks per year and by the village potters
whose annual production was not exceeding two lakh bricks
and who supply at least one lakh bricks to the Rural Housing
Board or Panchayats. His contention was that section 15 of
the Act which authorised the State Government to make rules
in respect of minor minerals does not specifically authorise
the State Government to make such discrimination. We find no
substance in this contention too.
It is obvious that a valid classification of persons and
things for
414
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purposes of imposing any obligation on them would not be
violative of Article 14 provided the classification is a
reasonable one. It is well settled that a classification to
be valid has to satisfy two conditions:
(1) that there is an intelligible differentia
between those who are included in the class
which is affected by any law or rule and those
who are placed outside the said rule; and
(2) that there is a reasonable nexus between
the classification and the object to be
achieved by the rule or law in question.
The Act under the Rules was made for purposes of regu-
lation and development and conservation of minerals. It is
equally clear that while levying a tax the authority con-
cerned is entitled to grant concessions and exemptions
wherever necessary having regard to the purpose of the Act,
the levy of royalty is incidental to the regulation and
development of minerals. Many a time absence of such classi-
fication may itself result in the invalidation of the law or
rule. Whoever is given an exclusive right to exploit a mine
will have to pay some amount by way of return to the Govern-
ment of India as authorised by entry 50 of List II of the
7th Schedule to the Constitution. Having regard to the broad
policy underlying the Constitution if a concession is shown
in favour of the poor and the down-trodden, it cannot be
said that the exemption or concession is invalid. According
to rule 2(vi)(a) of the Rules a "quarrying Parwana" means a
quarrying Parwana granted under these rules to extract and
remove any minor mineral from land not exceeding a specified
area. Rule 33-A provides that the competent officer may
notify areas of limestone, Black Trap, sand stone and build-
ing stones for the purpose of grant of quarrying parawana,
as he deems fit. When any area is so notified, no quarry
lease shall be granted for such notified area. Rule 33-B of
the Rules reads thus:
"33.B.--Grant of quarrying Parwana--On an
application made to the competent officer, he
may grant a quarrying Parwana to extract and
remove from the specified area within his
jurisdiction the minor mineral from a plot not
exceeding 2,000 square meters, as may be
specified by the competent officer. The compe-
tent officer may grant such Parwana in the
following priorities:
(a) Individual families to Khanias
belonging to the Scheduled Castes or the
Scheduled Tribes, who do physical work I of
excavating minor mineral in the area applied
for.
415
(b) Individual families of ’Khanias’ who do
physical work in excavating minor minerals in
the area applied for.
(c) New individual Khanias who do physical
work in excavating minor minerals in any other
areas."
Rule 33-C provides that the lease shall be granted for one
year ending 31st December on a payment of a fee of Rs.50 for
an area upto 1,000 square meters and Rs. 100 for an area
above 1,000 square meters and upto 2,000 square meters. Thus
it is seen that a Parwana can be given only respect of plots
not exceeding 2,000 square meters and for a limited period
of one year. It is only in the case of such people who are
described in the Rules and who invariably belong to the
weaker sections of society the concession is shown under
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rule 21, whereas the mining lease may be given to persons
mentioned in rule 9. Under rule 18 of the Rules the period
of lease in the case of the minor minerals can be for a much
longer period, it can be upto 10 years in respect of minor
minerals except in the case of ordinary sand, Kankar, Mur-
ram, Gravel and in the case of Kankar, Murram and gravel a
lease can be granted upto three years, and the area or land
covered by a mining lease is governed by rule 15 which says
that no quarry lease shall be granted for an area exceeding
10 hectares in case of specified minor mineral and 20 hec-
tares in the case of other minerals. So a comparison of the
relevant rules would show that a larger restriction is
imposed both on the area in respect of which a Parwana could
be issued and the duration of the Parwana right and as also
stated that the persons who take quarrying Parwana are
persons belonging to the weaker sections of society and if
under rule 21 a concession is shown in their favour it
cannot be said that there is no reasonable nexus between the
classification for purposes of the proviso to rule 21 to
show concession in the matter of payment of royalty and the
social policy underlying the Constitution, the statute and
the Rules. The fact that section 15 of the Act does no
authorise the State Government to show such concession while
promulgating the Rules which are in the nature of subordi-
nate legislation is also of no consequence. Since the power
exercised is legislative in character the authority which is
exercising the said power has the power to make rules equi-
table by necessary implication. No express power need to
conferred on such subordinate authority in order to make a
classification for purposes of implementing the policy of
the Act under which the Rules are made.
We do not also agree with the contention that levying of
royalty in the State of Gujarat on the minor minerals would
impose in any way
416
the freedom guaranteed under Article 301 of the Constitution
regarding movement of goods from one State to another for
the activity of quarrying does not involve any movement as
such. The mineral may be consumed inside the State and in
some cases may latter on be taken outside the State. But the
movement outside the State is not the direct consequence of
quarrying.
We do not, therefore, find any substance in any of the
contentions urged before us.
These petitions are dismissed with costs. Each of the
petitioners shall pay a sum of Rs.2,000 by way of costs to
the State of Gujarat.
Y. Lal Petitions dis-
missed.
417