2004 (1) TMI 71 - SC - VAT and Sales Tax

Constitutional significance centering around entries 52,54 and 97 in List I and entries 23,49,50 and 66 in List II of the Seventh Schedule to the Constitution of India as also the extent and purport of the residuary power of legislation vested in the Union of India. Held that - The federalism under the Indian context points out to the supremacy of Parliament and the legislative entries contained in different Lists of the Seventh Schedule must be construed accordingly. The interpretation of the legislation will depend upon the legislative entries to which it relates and intent and purport of the makers of the Constitution and no principle of interpretation can be introduced to the effect that the court should lean towards a State. Tea and coal being subjects of great importance, Parliament has taken over complete control of the entire field in respect thereof and other minerals in terms of the Tea Act, 1953, and the Mines and Minerals (Regulations and Development) Act, respectively. Having regard to the purport and object of the said Parliamentary Acts and the declarations contained in section 2 of the 1957 Act and the 1952 Act, the State must be held to be denuded of its power to levy any tax on coal or tea, particularly, having regard to the provisions of sections 9, 9A, 13, 18 and 25 of the 1957 Act and sections 10, 13, 15, 25 and 30 of the Tea Act. Field of taxation on minerals is also covered by section 25 of the 1957 Act. The field of taxation under the Tea Act is specifically covered by section 25 thereof. The State being owner of the minerals and grant of mineral right being controlled by the Parliamentary statute, the State is denuded of its power to impose any tax on mineral right in terms of entry 50 of List II of the Seventh Schedule to Constitution of India. Having regard to the underlying object of the 1953 Act and the 1957 Act, even if the doctrine of pith and substance is applied, it may not be possible to hold that the State Legislature has only incidentally encroached upon the legislative field occupied by Parliament. Levy of tax on coal bearing lands and mineral bearing lands where mining operations are being carried out through the process of incline or digging pits is illegal, inasmuch as the underground mining right would be larger in area than the surface right and, thus, it is not possible to uphold the validity of such statute with reference to the extent of the surface right as mineral is being extracted from a larger underground area. Different rights may belong to different persons over the same surface land and similarly different rights may belong to different persons in respect of or over underground rights and the impugned statutes having not made any provision of different method of levy, the impugned statutes are ultra vires. The impugned provisions do not specify who would be liable to pay in relation to different rights and who would be considered to be the owner of the land and to what extent. If the extent of surface land is treated to be the unit, the same having regard to different mining rights granted to different persons over different minerals would all be liable to pay cess although they may not have any right over the surface at all or exercise such right thereover only over a part thereof. As mineral bearing lands cannot be treated as an independent unit in respect of which tax can be invoked, the impugned Acts must be held to be unconstitutional. Tax on lands and buildings in terms of entry 49 of List II of the Seventh Schedule to the Constitution of India can be levied on land as a unit and not otherwise. As green tea leaves are marketable, the decision in Goodricke Group 1994 (11) TMI 353 - SUPREME COURT OF INDIA having mainly been rendered on the premise that green tea leaves are not marketable must be held to have passed sub-silentio and, thus, does not lay down correct legal position. In view of the definitions of land and immovable property contained in the Bengal Cess Act, 1880, as no road cess or public works cess can be imposed on standing crops or any kind of structures, houses, shops or other buildings which would include factories and workshops for processing tea, no levy by way of cess can be imposed by reason of the impugned Acts either on the mining leasehold or the tea estate containing standing crops as also houses and buildings. Measure of a tax although may not be determinative of the nature thereof, the same will play an important role in determining the character thereof particularly keeping in view the purpose and object the Parliamentary Acts seek to achieve. In determining the legislative competence the taxing event also plays an important role. The Tea Act having been enacted in terms of entries 10 and 14 of List I as also article 253 of the Constitution, the State is completely denuded of its legislative power in relation thereto. The expression tea should be given a broad meaning and entry 52 of List I of the Seventh Schedule to the Constitution should be interpreted in relation to tea having regard to the purport and object it seeks to achieve.

Summary

Issues Involved:
1. Legislative Competence of State Legislatures to Impose Cess on Coal, Tea, Brick Earth, and Minor Minerals.
2. Interpretation of Entries in the Seventh Schedule of the Constitution.
3. Distinction Between General Legislative Entries and Taxation Entries.
4. The Doctrine of Pith and Substance.
5. The Impact of Central Legislation on State Legislative Competence.
6. Validity of State Legislation in Light of Central Legislation.
7. Nature and Character of Royalty.
8. Measure of Tax and Its Relevance to the Nature of the Levy.
9. Application of International Treaties and Conventions.
10. Concept of Federalism in the Indian Context.

Detailed Analysis:

1. Legislative Competence of State Legislatures to Impose Cess on Coal, Tea, Brick Earth, and Minor Minerals:
The court examined the legislative competence of the State Legislatures to impose cess on coal, tea, brick earth, and minor minerals. It was held that the legislative competence of the State to impose cess is traceable to entries 49 and 50 of List II vis-a-vis entries 52 and 54, read with entry 97, of List I of the Seventh Schedule to the Constitution of India. The court found that the State Legislatures are denuded of their power to levy any taxes on minerals so long as the declaration in section 2 of the Mines and Minerals (Regulation and Development) Act, 1957 (MMRD Act) stands. The court also held that the entire field of legislation relating to tea is covered by the Tea Act, 1953, and the State is denuded of its power to impose any tax on tea.

2. Interpretation of Entries in the Seventh Schedule of the Constitution:
The court emphasized that the various entries in the three Lists of the Seventh Schedule are fields of legislation designed to define and delimit the respective areas of legislative competence of the Union and the State Legislatures. The court held that the interpretation of the legislative fields must be done in a manner that avoids conflict and overlapping. The court also stated that the entries in List I and List II must be construed broadly and not narrowly or in a pedantic manner.

3. Distinction Between General Legislative Entries and Taxation Entries:
The court reiterated that there is a clear distinction between general subjects of legislation and heads of taxation. Taxation is regarded as a distinct matter and is separately set out in the Legislative Lists. The court held that the power to tax cannot be inferred by implication; there must be a charging section specifically empowering the State to levy tax.

4. The Doctrine of Pith and Substance:
The court applied the doctrine of pith and substance to determine the true nature and character of the legislation. The court held that if a legislation in pith and substance falls within one entry or the other but some portion of the subject-matter of the legislation incidentally trenches upon and might enter a field under another List, the Act as a whole would be valid notwithstanding such incidental trenching.

5. The Impact of Central Legislation on State Legislative Competence:
The court examined the impact of central legislation on the legislative competence of the State Legislatures. The court held that the MMRD Act, 1957, and the Tea Act, 1953, have taken over the entire control of the fields of mines and mineral development and tea industry, respectively. The court held that the State Legislatures are denuded of their power to make any legislation in relation to these fields.

6. Validity of State Legislation in Light of Central Legislation:
The court held that the impugned State legislations imposing cess on coal, tea, brick earth, and minor minerals are ultra vires the Constitution as they encroach upon the legislative fields occupied by the central legislations. The court held that the impugned levies are not taxes on land as a unit but are taxes on minerals and mineral rights, which are beyond the competence of the State Legislatures.

7. Nature and Character of Royalty:
The court examined the nature and character of royalty and held that royalty is not a tax. The court held that royalty is a payment made for the materials or minerals won from the land and is not a compulsory exaction in the nature of a tax or impost.

8. Measure of Tax and Its Relevance to the Nature of the Levy:
The court held that the measure of tax is not determinative of its essential character, but it is a relevant factor for determining the nature of the tax. The court held that the impugned levies on coal, tea, brick earth, and minor minerals are not taxes on land as a unit but are taxes on the production of minerals and tea, which are beyond the competence of the State Legislatures.

9. Application of International Treaties and Conventions:
The court held that the Tea Act, 1953, was enacted by Parliament in exercise of its power under article 253 of the Constitution to implement international treaties and conventions. The court held that the State Legislatures are denuded of their power to make any legislation in relation to tea, as the entire field is covered by the Tea Act.

10. Concept of Federalism in the Indian Context:
The court emphasized the importance of federalism in the Indian context and held that the Constitution provides for a strong Centre. The court held that the federal distribution of powers is designed to ensure the supremacy of Parliament in matters of national importance. The court held that the interpretation of legislative entries must be done in a manner that upholds the supremacy of Parliament and avoids conflict between the Union and the State Legislatures.

Conclusion:
The court concluded that the impugned State legislations imposing cess on coal, tea, brick earth, and minor minerals are ultra vires the Constitution as they encroach upon the legislative fields occupied by the central legislations. The court held that the State Legislatures are denuded of their power to levy any taxes on minerals and tea, and the impugned levies are not taxes on land as a unit but are taxes on the production of minerals and tea, which are beyond the competence of the State Legislatures.