1988 (2) TMI 480 - HC - Income Tax

Summary

Issues Involved:
1. Legislative Competence of the State Legislature.
2. Nature of Royalty under Section 9 of the Central Act.
3. Validity of the Notification under Section 3 of the Impugned Act.
4. Alleged Violation of Article 14 of the Constitution.
5. Alleged Violation of Article 19(1)(g) and Articles 263 and 300A of the Constitution.

Detailed Analysis:

1. Legislative Competence of the State Legislature:
The petitioners argued that the Gujarat Mineral Rights Tax Act, 1985 (the impugned Act) was beyond the legislative competence of the State Legislature as it did not fall under any matters enumerated in List II (State List) or List III (Concurrent List) of the Constitution. They contended that the field was occupied by the Central Act, Mines and Minerals (Regulation and Development) Act, 1957, under Entry 54 of the Union List, thereby precluding the State Legislature from enacting the impugned Act. The Court, however, held that the impugned Act fell within Entry 50 of the State List, which allows taxes on mineral rights, and that the Central Act did not impose any limitations that would preclude the State Legislature from enacting the impugned Act.

2. Nature of Royalty under Section 9 of the Central Act:
The petitioners contended that the royalty under Section 9 of the Central Act was a tax on minerals and thus occupied the field under Entry 50 of the State List. The Court, referring to various precedents, concluded that royalty is a payment made by the lessee to the lessor for the minerals extracted, which is more akin to rent or compensation and not a tax. Hence, the royalty under Section 9 did not preclude the State Legislature from imposing a tax on mineral rights under Entry 50 of the State List.

3. Validity of the Notification under Section 3 of the Impugned Act:
The petitioners challenged the notification issued under Section 3 of the impugned Act on the grounds that it prescribed different rates for the same mineral, which was not permitted by Section 3, and that it was discriminatory. The Court held that Section 3 allowed the State Government to prescribe different rates for different minerals and that the use of the plural "rates" indicated that the rates need not be uniform. The Court found that the State Government had judiciously exercised its discretion in fixing the rates after considering all relevant factors, and thus the notification was valid.

4. Alleged Violation of Article 14 of the Constitution:
The petitioners argued that the different rates prescribed for lessees having captive mines for the manufacture of cement and other lessees were discriminatory and violated Article 14 of the Constitution. The Court held that the classification was based on intelligible differentia and had a rational nexus with the object of the legislation. The Court noted that the State Government had taken into account various factors, such as the profitability of the cement units, the cost of production, and the market conditions, before fixing the rates. Therefore, the classification and the different rates prescribed were not arbitrary or unreasonable and did not violate Article 14.

5. Alleged Violation of Article 19(1)(g) and Articles 263 and 300A of the Constitution:
The petitioners contended that the impugned Act imposed an unreasonable restriction on their fundamental right to carry on trade or business under Article 19(1)(g) and deprived them of their property without authority of law under Article 300A. The Court held that the tax imposed was not confiscatory and did not impose an unreasonable restriction on the petitioners' right to carry on trade or business. The Court also noted that the impugned Act was a valid law, and therefore, the contention based on Article 300A could not survive.

Conclusion:
The Court dismissed the petitions, holding that the impugned Act was within the legislative competence of the State Legislature, the royalty under Section 9 of the Central Act was not a tax, the notification under Section 3 of the impugned Act was valid, and the different rates prescribed did not violate Articles 14, 19(1)(g), or 300A of the Constitution. The interim relief granted in each petition was vacated.