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TMI Blog1991 (4) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees, in the matters now before us, claim that the issue here is directly and squarely governed by the above decision. The State, on the other hand, claim that the nature and character of the levies imposed by them is totally different from that of the Tamil Nadu levy and that they are entirely within the scope of the States' Legislative powers under the Constitution. This is the issue to be decided in these matters. As the impugned enactments of Bihar, Orissa and Madhya Pradesh mutually differ from one another in some respects, they will need separate consideration. However, the basic issue being the same, all these matters have been heard together and it is found convenient to dispose of them all by this common judgment. We may mention in passing that, initially, these matters were listed before a Bench of two Judges of this court. It referred the matters on 17.8.1990 to the learned Chief Justice for the constitution of a larger Bench. The matters have come up before us in pursuance of the directions of the Hon'ble Chief Justice. THE LEGISLATIVE ENTRIES It will be convenient, at the outset, to refer to the various entries of the Union and the State Lists in the Sev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning Areas Development Fund. The proceeds of the cess recovered in pursuance of S.4 along with other subsidies from Government, local authorities and other public subscriptions were credited to the fund and the expenses for such collection debited thereto. The fund has to be utilised to meet expenditure incurred in connection with such development measures as the State Government might draw up for the purposes above mentioned as well as for the purposes specified in clauses (a) to (e) of S.5(5). The validity of this levy of cess was challenged by the petitioner coal company in the Hingir Rampur case as ultra vires the powers of the State Legislature because (a) the cess was not a fee but a duty of excise on coal which was a field covered by Entry 84 of List I in the Seventh Schedule and repugnant to the Local Mines Labour Welfare Fund Act, 1947 (Central Act XXXII of 1947); and (b) even if it was treated as a fee relatable to Entries 23 and 66 of List II in the Seventh Schedule, it was hit by Entry 54 of List I read with the Mines and Minerals (Development & Regulation) Act, (Central Act LIII of 1948) (`the MMRD Act' for short) or by Entry 52 of List I read with the Industries ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ily found by the Court inasmuch as the declaration on the terms of Entry 54 of List I relied on for the coal company was founded on Act LIII of 1948 which was an Act of the Dominion Legislature and not an Act of Parliament. However, the Court did not stop here. It proceeded to review the provisions of Central ACt LIII of 1948 and concluded that, if this Act were held to contain the declaration referred to in Entry 23, there would be no difficulty in holding that the declaration covered the field of conservation and development of minerals, and that the said field was indistinguishable from the field covered by the impugned Act. In coming to this conclusion the Court pointed out that the rule-making powers conferred on the Central Government under Section 6(2) of the Act included the levy and collection of royalties, fees and taxes in respect of minerals, mines, quarried excavated or collected. The circumstance that no rules had in fact been framed by the Central Government in regard to the levy and collection of any fees, it was held, would not make any difference, The Court observed: "What Entry 23 provides is that the legislative competence of the State Legislature is subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCR 461. The same issue regarding the competence of the Orissa State Legislature to levy the very same cess came up for consideration again in the Tulloch case. The scenario had changed because the levy now challenged was in respect of the period July 1957 to March, 1958 by which time the MMRD Act, 1957 (Central Act (Central Act LIII of 1948). The 1948 Act, which had earlier provided for the regulation of mines and oil fields and for the development of minerals, was now limited only to oil fields and the 1957 Act provided for the regulation of mines and mineral development. S.2 of the 1957 Act, like the predecessor 1948 Act, contained the following declaration in terms of Entry 54 of List I. It read: "It is hereby declared that it is expedient in the public interest that the Union should take under its control the regulation of mines and the development of minerals to the extent hereinafter provided". but unlike the earlier one this was a declaration contained in an Act of Parliament which had the effect of impairing the legislative competence of the State under Entry 23 read with Entry 66 of the State List. The hurdle which prevented the Supreme Court from considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strated not by a detailed comparison of provisions of the two statutes but by the mere existence of the two pieces of legislation. In the present case, having regard to the terms of s. 18(1) it appears clear to us that the intention of Parliament was to cover the entire field and thus to leave no scope for the argument that until rules were framed, there was no inconsistency and no supersession of the State Act". Meeting the argument that the power to levy a fee was an independent head of legislative power under each of the three legislative lists and that the levy of tax undue the State Act could be traced to this entry, the Court pointed out the fallacy underlying the argument in the following words: "The materials words of the Entries are: "Fees in respect of any of the matters in this List". It is, therefore, a prerequisite for the valid imposition of a fee that it is in respect of a "matter in the list". If by reason of the declaration by Parliament the entire subject- matter of "conservation and development of minerals" has been taken over, for being dealt with by Parliament, thus depriving the State of the power which it theretofore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be repealed by MMRD Act of 1948 or, in any event, by the MMRD Act, 1957 (Central Act LXVII of 1957) and that, after the date when these enactments came into force, the land cess that could be levied must be exclusive of royalty under a mining lease. Distinguishing the decisions cited, this Court rejected the contention. It observed: "It will be seen that there is no resemblance, whatever, between the provision of the Orissa Act considered in the two decisions and the provision for the levy of the land cess under ss. 78 and 79 of the Act with which we are concerned. Sections 78 and 79 have nothing to do and are not concerned with the development of mines and minerals or their regulation. The proceeds of the land cess are, under s.92 of the Act, to be credited to the District fund, into which, under the terms of the Finance Rules in s. V to the Act, the land-cess as well as several other taxes, fees and receipts are directed to be credited. This fund is to be used under Ch. VII of the Act with which s.112 starts "for everything necessary for or conducive to the safety, health, convenience or education of the inhabitants or the amenities of the local area concerned and eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of the Tax and disclosing its true nature, s.79 provides for the manner in which the "annual rent value" is determined i.e., what is the amount for which the land could reasonably be let, the benefit to the lessor representing the rateable value "or the annual rent value". In the case of ryotwari lands it is the assessment which is payable to the Government that is taken as the rental value being the benefit that accrues to the Government. Where the land is held under lease it is the lease amount that forms the basis. Where land is held under a mining lease, that which the occupier is willing to pay is accordingly treated as the "annual rent value" of the property. Such a rent value would, therefore, necessarily include not merely the surface rent, but the dead rent, as well as the royalty payable by the licensee, lessee or occupier for the user of the property. The position then is that the rent which a tenant might be expected to pay for the property is, in the case of lease-hold interests, treated as the statutory "annual rent value". It is therefore not possible to accept the contention, that the fact that the lessee or licensee pays ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a local cess at the rate of 45 paise on every ruupee of land revenue payable to the Government in respect of any land for every fasli. S. 115(2) provided that the local cess will be deemed to be public revenue and all the lands and buildings thereon shall be regarded as security therefore. S 115(3) and (4) set out the various purposes for which the cess levied and collected under S. 115 could be utilised. S116 provided for the levy of a local cess surcharge. The maximum amount of such surcharge was originally left to be prescribed by the Government and was in 1970 limited to ₹ 1.50 on every rupee of land revenue and in 1972 to ₹ 2.50 on every rupee of land revenue. Apparently inspired by the decision in Murthy, the Tamil Nadu Panchayats (Amendment and Miscellaneous Provisions) Act (Tamil Nadu Act 18 of 1964) added, with full retrospective effect, the following Explanation to S.115(1): "Explanation: In this section and in Section 116, `land revenue' means public revenue due on land and includes water cess payable to the government for water supplied or used for the irrigation of land, royalty, lease amount or other sums payable to the government in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied with reference to Entry 23 and Entry 50 of List II but this recourse is not available as the field is already covered by Central Legislation referable to Entry 54 of List I. 3. Murthy was not rightly decided. The view of the Rajasthan, Punjab, Gujarat and Orissa decisions was overruled. In the view taken by the Court, i.e. Madhya Pradesh ruling was not examined n detail, particularly as it was said to be pending in appeal before the Supreme Court. In issue before us now are the levies of cesses based on royalty from lands containing minerals by the States of Orissa, Bihar and Madhya Pradesh. Since the relevant statutes vary in detail and the parties concerned have also taken different stands, emphasising different aspects, the arguments have to be considered and dealt with separately, We may, however, mention that the appeals before us include those in the cases of Laxmi Narayan Agarwalla (Orissa). land Harilal Rameshwar Prasad (Madhya Pradesh) noticed earlier. THE VARIOUS ENACTMENTS ORISSA The invalidation in 1961 of Orissa Act XXVII of 1952 in Hingir Rampur apparently rendered it necessary for the State to bring in fresh legislation. The Orissa enactment with which we are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of lands held for carrying on mining operations in relation to any mineral, on such percentum of the annual value of the said lands as specified against that mineral in Schedule II; and b) in case of other lands fifty percentum of the annual value. Clause (a) was again amended by Act 17 of 1989 to read thus: "(a) in the case of land held for carrying on mining operations in relation to any mineral, such percentum of the annual value as the State Government may, by notification, specify from time to time in relation to such mineral". It will thus be seen that, in place of a fixed rate, an elasticity was provided for, initially, by requiring the rates to be specified in the Schedule differently for different minerals. Schedule II prescribed the percentage which the cess was to bear to the annual value; the percentages varied from 650% in the case of sand, to 300% in the case of coal, 200% in respect of certain minerals such as iron ore, limestone, manganese ore (except those meant for export or cement manufacture), 150% in the case of certain other minerals and 100% in respect of the rest. Further elasticity was provided for in 1989 by leaving it to the Government to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case may be, the dead rent payable by the person carrying on mining operations(s) to the Government or the pit's mouth value wherever it has determined". This was apparently intended to regulate the cess on coal in respect of which the pit's mouth value had been determined. So a notification dated 14.8.89 was issued to provide that the cess in respect of coal bearing lands would be 30% of the pit's mouth value of the said mineral. (v) Sections 8 to 9B provide for the assessment of the cess in respect of various cases. S.9B, inserted by the 1976 amendment, provided: "9B- Assessment of cess on lands held for mining operations: (1) The cess payable in respect of lands held for carrying on mining operations shall be assessed in the prescribed manner. (2) Nothing contained in Sections 8,9 and 9A shall apply in relation to the assessment of cess in respect of the aforesaid lands: The prescribed manner of such assessment had been already set out in the Orissa Cess Rules, 1963. Rule 6A, inserted in 1977, deals with this but it is unnecessary for us to consider the details except to mention that it is assessed and collected, along with the amount of royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of amounts to be utilised for the pur- poses mentioned in clause (a) , (b) and (c) of sub-section(1) shall be made in such proportion as may be prescribed" BIHAR We shall now turn to the relevant provisions of the Bihar Act. Bihar is governed in this respect by the provisions of the Bengal Cess Act (Act IX of 1880). It is sufficient to refer to the provisions of Sections 4 to 6,9 and to certain notifications. (i) A definition of `royalty' was introduced in S.4 of the Act by an ordinance of 1975. It was amended by the Bihar Finance Act, 1981 and then by the Bihar Finance Act, 1982. The definition as amended, w.e.f. 1.4.1982, by the latter reads as follows: "royalty for the purpose of this Act in respect of mines and quarries means payment (which includes dead rent) made or likely to be made to the owner of mines and minerals for the right of working the same on the quantity or value of such produce by a lessee if the land had been under a lease granted under MMRD Act, 1957, and rules made thereunder and includes any amount which Government may demand from the appropriation of mines and minerals belonging to the Government and any amount that may be paid as or in li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Parliament, on the royalty of mines and quarries or on value of mineral bearing land as the case may be, sale value of other immovable properties including forest produce and annual net profits from tramways and railways ascertained respectively as prescribed in the Act and the rate at which the local cess shall be levied for each year shall be- (a) in the case of royalty, the rate will be determined by the Government from time to time but it will not exceed five times the amount of royalty, provided that the local cess payable in any one year shall not be less than the amount arrived at by multiplying the dead rent with the rate of cess determined undo clause (a); (aa) in the case of value of mineral bearing land, where the local cess payable in any year in respect of any mineral bearing land as assessed in clause (a) is less than 30 per cent of the value of mineral bearing land in that year, then, notwithstanding anything hereinbefore contained, the State Government may assess the local cess at such percentage of the value of the mineral bearing land, not exceeding [of] 30 per cent, as may be notified in the Official Gazette from time to time although the cess so assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anually operated iron ore mines'' at 100% w.e.f. 1.10.84 which was followed up by a notification dated 20.11.85 enhancing the rate at 300% on the amount of royalty of iron ore w.e.f.21.6.85 in respect of mines other than those in which the ore is extracted manually. Other notifications were also issued determining the rate of cess in respect of other minerals as indicated below : Madhya Pradesh: In Madhya Pradesh, two statutes have to be considered: The first is the Madhya Pradesh Upkar Adhiniyam, 1981 (Act 1 of 1982). It provides for the levy of an energy development cess (Part I), an urban development cess (Part II), a cess on transfer of vacant land (Part III), and a cess on storage of coal (Part IV). The Act provided that the cesses levied under Parts I and IV should first be credited to the Consolidated Fund of the State but subsequently withdrawn and credited to a separate Electrical Development Fund [Ss.3(2)] and Coal bearing Area Development Fund [s. 12(1)] and that the amounts to the credit of the funds as well as the cesses collected under Parts II and III should be utilised for special purposes connected respectively with energy development [S.3(3)] development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es specified in the section 3 and the cess on land held in connection with mineral rights were the tax levied under the said Act. Section 12 : The proceeds of the cess on land held in connection with the mineral rights may be utilised by the State Government for the general development of the mineral bearing areas.'' Section 12 has, however been omitted by an Amending Act of 1989, again, with full retrospective effect i.e. from 1.10.1982. It appears, however, that there was in force in Madhya Pradesh w.e.f. 1.11.1982 another statute levying mineral development cess. It was the M.P. Karadhan Adhiniyam, 1982 (Act 15 of 1982) as amended by M.P. Acts 1983 and 13 of 1985 which was challenged before the M.P. High Court in Hiralal Rameshwar Prasad v. State and other connected cases. The Madhya Pradesh Karadhan Adhiniyam, 1982, was enacted by State Legislature ``to provide for levy of school building cess, forest development cess and mineral areas development cess and matters incidental thereto''. Part II of the Act deals with the school building cess. Section 5 therein requires the holder of every holding of six hectares and above to pay the school building cess as provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ining lease for undertaking mining operations for coal, a mineral area development cess at the rate of the hundred twenty five percentum of the rental value thereof''. and also made a provision for payment of interest on arrears of cess. Rules have been framed under this Act called ``The Madhya Pradesh Mineral Areas Development Cess Rules, 1982''. Rule 3 provided for the collection of the cess every month along with the royalty or dividend. Rule 10 thereof is alone relevant for the purpose of these partitions and read as under: ``10. Application of cess: The State Government shall decide from time to time the manner in which the amount collected from cess shall be utilized for the development of mining lease areas''. In 1985, an amendment substituted the words ``mineral bearing'' for the words ``mining lease'' in this rule. It will be seen that, unlike the cesses referred to in Part I and III, the Act did not provide for the creation of a separate Fund for the mineral areas development cess. The manner of utilisation thereof was also left to the discretion of the State Government though it had to be spent for development of mineral bearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or impair this competence. Basically, it will seen, two questions arise- (1) Can the cess be considered as ``land revenue'' under Entry 45 or as a ``tax on land'' under Entry 49 or as a ``tax on mineral rights'' under Entry 50 of the State List? (2) If the answer to question (1) is in the negative, can the cess be considered to be a fee pertaining to the field covered by Entry 23 of the State List or has the State been denuded of the legislative competence under this Entry because of Parliament having enacted the MMRD Act, 1957? Taking up the first question, the attempt to bring the levy under Entry 45 of the State List proceeds in two steps. First, land revenue is the sovereign's share of the proceeds of the land belonging to the sovereign and is represented, in the case of land containing minerals, by the payment of royalty to the Government. Second, the cess, being an accretion to royalty, partakes of the same character. This argument, however, must fail in view of the categorical observations of the Supreme Court in india Cement, (vide paras 20 and 21) as to the connection of the expression `land revenues'. At least, in India Cement, the statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights and on premium or royalty for that. Taxes on such premium and royalty would be taxes on mineral rights while taxes on the minerals actually extracted would be duties of excise. It is said that there may be cases where the owner himself extracts minerals and does not give any right of extraction to somebody else and that in such cases in the absence of mining leases or sub-leases there would be no way of leaving tax on mineral rights. It is enough to say that these cases also, rare though they are, present no difficulty. Take the case of taxes on annual value of buildings. Where there is a lease of the building, the annual value is determined by the lease-money; but there are many cases where owners themselves live in buildings. In such cases also taxes on buildings are levied on the annual value worked out according to certain rules. There would be no difficulty where an owner himself works the mine to value the mineral rights on the same principles on which leases of mineral rights are made and then to tax the royalty which, for example, the owner might have got if instead of working the mine himself he had leased it out to somebody else. there can be no doubt therefore that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther annual or capital value) will be more if it contains richer minerals and can be legitimately measured by reference to the royalties paid in respect thereof. the mere fact, it is argued, that the annual value is measured with reference to the royalty, dead rent or pit's mouth value of the mineral does not mean that it ceases to have the character of a tax on land. In this context, Sri Iyer places strong reliance on the decision of a Constitution Bench of this Court in Ajay Kumar Mukherjea v. Local Board of Barpeta, [1965]3 S.C.R. 47. There a local Board was authorised to ``grant....a license for the use of any land as a market and impose an annual tax thereon''. The Court held, examining the Scheme and the language of the provision in question, that the tax imposed was a tax on land under Entry 49. The Court indicated the following approach to the issue before it: ``The first question which falls for consideration therefore is whether the impost in the present case is a tax on land within the meaning of Entry 49 of List II of the Seventh Schedule to the Constitution. It is well-settled that the entries in the three legislative lists have to be interpreted interpre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hes therefrom; (c) in respect of mines other than coal mines and quarries, at the rate of six paise on each rupee of annual net profits thereof''. With effect from 1.4.1981, clause (a) above was amended and clause (aa) inserted to provide for the levy of cess- ``(a) in respect of land other than a tea estate, at the rate of six paise on each rupee of development value thereof; (aa) in respect of a tea estate at such rate, not exceeding rupees six on each kilogram of tea on the dispatches from such tea estate of tea grown therein, as the State Government may, by notification in the Official Gazette, fix in this behalf: Provided that in calculating the dispatches of tea for the purpose of levy of rural employment cess, such dispatches for sale made at such tea auction centres as may be recognised by the State Government by notification in the Official Gazette shall be excluded: Provided further that the State Government may fix different rates on dispatches of different kinds of tea''. Sub-section (4) was added in Section 4 to enable the State Government, if it considers necessary so to do, by notification in the Official Gazette, to exempt such categories of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , what is contemplated is a levy on despatches of tea instead. The entire structure of the levy points to that conclusion. If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea dispatched, there must be a nexus between the two indicating relationship between the levy, on the tea estate and the criteria for determining the measure of liability. If there is no nexus at all it can conceivably be inferred that the levy is not what it purports to be. The statutory provisions for measuring the liability on account of the levy throws light on the general character of the tax as observed by the Privy Council in Re: A Reference under the Government of Ireland Act, 1920 and Section 3 of the Finance Act (Northern Ireland), 1934 [1963] 2 A.E.R. III. In R.R. Engineering Co. v. Zilla Parishad, Barielly, [1980] 3 SCR 1 this Court observed that the method of determining the rate of levy would be relevant in considering the character of the levy. All these cases were referred to in Bombay Tyer International Ltd., [1984] 1 S.C.R. 347 where in the discussion on this point at page 367 this Court said: Any standard which main ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e one here, only purported to levy a cess on the annual value of all land. India Cement draws a ``clear distinction between tax on land and tax on income arising from land''. The former must be one directly imposed on land, levied on land as a unit and bearing a direct relationship to it. In para 23 of the judgment, the Court has categorically stated that a tax on royalty cannot be said to be a tax directly on land as a unit. Sri Iyer contended that all the observations and propositions in India Cement stem from the basic conclusion of the Court that the cess levied there was a cess on royalty in view of the Explanation to S. 115. He also submitted that the statue under consideration in India Cement did not provide for any cess in the case of land which did not yield any royalty; in other words, the Act did not use dead rent as a basis on which land was to be valued. He drew attention to the observations of Oza, J.In para 42 of India Cement that if the Explanation to S. 115 had used the words `surface rent' in place of `royalty' the position would have been different and that, if a cess on such `surface rent' or `dead rent' is charged, it could be justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t along with the royalties and as part thereof are circumstances which go to show that the legislation in this regard is with respect to royalty rather than with respect to land. Sri Iyer had invited our attention to the decision of this Court in R.R. Engineering Co. v Zila Parishad, [1980] 3 S.C.R. 1 which upheld the validity of a `circumstances and property tax' levied by a Zila Parishad. The High Court had held this levy could not be traced to any entry other than the residuary Entry 97 of List I. This Court, on appeal, pointed out the distinction between a tax of this type and a tax on income. It held that the tax was a composite one referable to Entry 49 (tax on lands and buildings), Entry 58 (taxes on animals and boats) and Entry 60 (tax as on professions, trades, callings and employments) of List II. While holding, therefore, that the ceiling of ₹ 250 per annum referred to in Entry 60 would not be applicable to the tax, the Court uttered a ``word of caution''. ``The fact that one of the components of the impugned tax, namely, the component of `circumstances' is referable to other entries in addition to Entry 60, shall not be construed as conferring an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val of any of the decision on this point and that, therefore, the first sentence of para 34, relied upon for the respondents, is non-sequitir. He submits that, perhaps, there is a typographical error in the first sentence of para 34 and that the sentence should really read thus: ``In the aforesaid view of the matter, we are of opinion that cess is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature........'' He also points out that the last sentence of para 34 reads thus: ``Royalty on mineral right is not a tax on land but a payment for the use of land''. He submits, therefore, that this issue has not been decided in India Cement. He submits that, before we express any opinion on this issue, we should consider the matter afresh and places before us extracts from various lexicons and dictionaries to show that a royalty is nothing more than the rent or lease amount paid to a lessor in consideration for the grant of a lease to exploit minerals. Reference may also be made to the discussion in this respect in paras 35-40 of Trivedi & Sons v. State of Gujarat, [1986] Supp. S.C.C. 20. It is therefore, neither a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Central Act. It is possible, then, to treat the levy as a fee which the State legislature is competent to legislate for under Entry 66 of the State List? Sri Iyer contends for this position particularly on the strength of S.10 of the Orissa Cess Act, 1962. There is one great difficulty in accepting this solution to the State's problem. S.10 as it stands now earmarks the purposes of utilisation of only fifty percent of the proceeds of the cess and that, too, is limited to the cess collected in respect of ``lands other than lands held for carrying on mining operations''. In other words, the levy cannot be correlated to any services rendered or to be rendered by the State to the class of persons from whom the levy is collected. Whether royalty is a tax or not, the cess is only a tax and cannot be properly described as a fee. This consideration apart, even assuming it is a fee, the State legislature can impose a fee only in respect of any of the matters in the State List. The entry in the State List that is relied upon for this purpose is Entry 23. But Entry 23, it will be seen, is ``subject to the provisions of List I with respect to regulation and development' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter of regulation of mines and mineral development. Emphasising this difference, learned counsel for the State of Orissa submits that the intent, purpose and scope of the M.M.R.D. Act is totally different and does not cross the field covered by the impugned Act. It is a law to provide for the proper exploitation and development of minerals and regulates the persons to whom, the manner in which and procedure according to which licenses for prospecting or leases for minerals should be granted. The enactment is concerned with the need for a proper exploitation of minerals from lands. The impugned Act, on the other hand, concentrates on the need for development of mineral areas as such and provides for the collection of cess to cater to these needs. The scope of the subject matter of legislation under the two Acts are entirely different and the M.M.R.D. Act cannot be considered to exclude State legislation of the nature presently under consideration. Before considering the above contention, it will be useful to refer to certain earlier decisions of this Court which have a bearing on this issue. State of West Bengal v. Union, [1964] 1 S.C.R. 371 concerned the validity of an Act o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erals (Vesting of Rights) Act, 1973 and issued notifications thereunder again acquiring the rights to the saltpetre in the lands putting up certain saltpetre-bearing lands to auction. The High Court upheld the challenge to the validity of the notifications holding that, in view of the declaration contained in S.2 of the M.M.R.D. Act, the field covered by the impugned Act was already fully occupied by Central legislation and that, therefore, the State Act was void and imperative on grounds of repugnancy. This Court, however, reversed the High Court's decision. It held that though the stated objects and reasons of the State Act showed that the acquisition was to be made to protect the mineral potentialities of the land and to ensure their proper development and exploitation on scientific lines-and this did not materially differ from that which could be said to lie behind the Central Act- the character of the State Act had to be judged by the substance and effect of its provisions and not merely by the purpose given in the Statement of Objects and Reasons. Analysing the provisions of the Central Act, the Court pointed out that, subject to the overall supervision of the Central Gov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "The argument that the State legislature lacked competence to enact the impugned legislation is without force. Legislative power of the State under Entry 24, List II is eroded only to the extent control is assumed by the Union pursuant to a declaration made by the Parliament in respect of a declared industry as spelt out by the legislative enactment and the field occupied by such enactment is measure of erosion. Subject to such erosion, on the remainder the State legislature will have power to legislate in respect of a declared industry without in any way trenching upon the occupied field. State legislature, which is otherwise competent to deal with industry under Entry 24, List II, can deal with that industry in exercise of other powers enabling it to legislate under different heads set out in Lists II and III and this power cannot be denied to the State. The contention that the impugned Act is in violation of section 20 of the Central Act had no merit. The impugned legislation was no enacted for taking over the management or control of nay industrial undertaken by the State undertakings. If an attempt was made to take over the management or control of any industrial under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of List I with respect to regulation and development under the control of the Union". Entry 54 of List I relates to "Regulation of mines and mineral development to the extent to which such regulation and development under control of the Union is declared by Parliament by law to be expedient in the public interest". It is true that on account of declaration contained in S.2 of the Mines and Minerals (Development & Regulation) Act. 1957, the legislative field covered by Entry 23 of List II will pass on to Parliament by virtue of Entry 54, List I. But in order to judge whether, on that account, the State legislature loses its competence to pass the Act of 1973, it is necessary to have regard to the object and purpose of that Act and to the relevant provisions thereof, under which Special Area development Authorities are given the power to tax lands and buildings within their jurisdiction. We have set out the objects of the Act at the commencement of this judgement, one of which is to provide for the development and administration of Special Areas through Special Area Development Authorities. Section 64 of the Act of 1973, which provides for the constitution of the spec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion. Chanan Mal and Ishwari Khetan, were referred to and Baijnath Kedia distinguished. The decision of the Madhya Pradesh High Court in Central Coalfields v. State of M.P., A.I.R. 1986 M.P. 33 also arose out of similar facts: The question for consideration was whether the functions, powers and duties of Municipalities and Special Area Development Authority (SADA) become an occupied field by virtue of S.2 of the MMRD Act, 1957 and the powers vested in them to regulate construction activities relating to mining areas was ultra vires. It was found that SADA had become the local authority to discharge the functions of a municipal adminstration under a State Act and that the regulation of construction activities was one of the aspects of municipal adminstration and management. In this situation, the question posed was answered in the negative following Ishwari Khetan, Western Coalfields and Chanan Mal. Placing considerable reliance on the decisions in Chanan Mal, Ishwari Khetan and Western Coalfields, Sri Iyer contended that the State legislation in the present case is not vitiated by reason of M.M.R.D. Act, 1957. He also pointed out that India Cement also dies not consider in detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by way of incidental impact. The Central Act, considered in Chanan Mal, seemed to envisage and indeed permit State legislation of the nature in question. To turn to the respective spheres of the two legislations we are here concerned with, the Central Act (M.M.R.D. Act, 1957) demarcates the sphere of Union control in the matter of mines and mineral development. While concerning itself generally with the requirements regarding grants of licenses and leases for prospecting and exploitation of minerals, it contains certain provisions which are of direct relevance to the issue before us. S.9, which deals with the topic of royalties and specifies not only the quantum by also the limitations on the enhancement thereof, has already been noticed. S.9A enacts a like provision in respect of dead rent. Reference may also be made to S.13 and S.18, which to the extent relevant, are extracted here. 13. Power of Central Government to make rules in respect of minerals- (1) The Central Government may, by notification in the Official Gazette, make rules for regulating the grant of prospecting licenses and mining leases in respect of minerals and for purposes connected therewith. (2) In particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets of the holder of the prospecting licence or mining lease as the case may be. If one looks at the above provisions and bears in mind that, in assessing the field covered by the Act of Parliament in question, one should be guided (as laid down in Hingir-Rampur and Tulloch) not merely by the actual provisions of the Central Act or the rules made thereunder but should also take into account matters and aspects which can legitimately be brought within the scope of the said statute, the conclusion seems irresistible, particularly in view of Hingir-Rampur and Tulloch, that the State Act has trespassed into the field covered by the Central Act. The nature of the incursion made into the fields of the Central Act in the other cases were different. The present legislation, traceable to the legislative power under Entry 23 or Entry 50 of the State List which stands impaired by the Parliamentary declaration under Entry 54, can hardly be equated to the law for land acquisition or municipal administration which were considered in the cases cited and which are traceable to different specific entries in List II or List III. ___________________________________________________________ *Newly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act thus : "The scheme of this Act thus clearly shows that it has been passed for the purpose of development of mining areas in the State. The basis for the operation of the Act is the constitution of a mining area, and it is in regard to mining areas thus constituted that the provision of the Act come into play. It is not difficult to appreciate the intention of the State Legislature evidenced by this Act. Orissa is an under-developed State in the Union of India though it has a lot of mineral wealth of great potential value. Unfortunately its mineral wealth is located generally in areas sparsely populated with bad communication. Inevitably the exploitation of the minerals is handicapped by lack of communications, and the difficulty experienced in keeping the labour force sufficiently healthy and in congenial surroundings. The mineral development of the State, thereof, requires that provision should be made for improving the communications by constructing good roads and by providing means of transport such as tramways, supply of water and electricity would also help. It would also be necessary to provide for amenities of sanitation and education to the labour force in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t rules should be made or enforced; all that this required is a declaration by Parliament that it is expedient in the public interest to take the regulation and development of mines under the control of the Union. In such a case the test must be whether the legislative declaration covers the field or not. Judged by this test there can be no doubt that the field covered by the impugned Act is covered by the Central Act LIII of 1948". The following observations in Tulloch are also apposite in this context: " On the other hand, Mr. Setalvad-learned counsel for the respondent-urged that the Central ACt covered the entire field of mineral development, that being the "extent" to which Parliament had declared by law and it was expedient that the Union should assume control. In this connection he relied most strongly on the terms of s.18(1) which laid a duty upon the Central Government "to take all such steps as may be necessary for the conservation and development of minerals in India and " for that propose the Central Government may, by notification, make such rules as it deems fit". If the entire field of mineral development was taken over, that wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral Act cannot be ignored. The terms of S.13 of the Central Act extracted earlier empower the Union to frame rules in regard to matters concerning roads and environment. S.18(1) empowers the Central Government to take all such steps as may be necessary for the conservation and development of minerals in India and for protection of environment. These, in the very nature of things, cannot mean such amenities only in the mines but take in also the areas leading to and all around the mines. The development of mineral areas is implicit in them. S.25 implicitly authorises the levy of rent, royalty, taxes and fees under the Act and the rules. The scope of the powers thus conferred is very wide. Read as a whole, the purpose of the Union control envisaged by Entry 45 and the M.M.R.D. Act 1957, is to provide for proper development of mines and mineral areas and also to bring about a uniformity all over the country in regard to the minerals specified in Schedule I in the matter of royalties and, consequently prices. Sri Bobde, who appears for certain Central Government undertakings, points out that the prices of their exports are fixed and cannot be escalated with the enhancement of the ro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cess will be on royalty from mines and quarries and on the annual net profit the railways and tramways. The further amendments of S.6 have not changed this basic position. Though the section refers also to the value of the mineral-bearing land, that furnishes only the maximum upto which the cess, based on royalty, could go. In other words, the cess is levied directly on royalties from mines and quarries. The case is, therefore, indistinguishable from India Cement. The notifications place the matter beyond all doubt. The levy is a percentage or multiple of the royalty depending upon the kind of mineral and - in the case of iron ore- the method of extraction and nature of the process employed. There are no clear indications in the stature that the amounts are collected by way of fee and not tax. The provisions of S.9 extracted earlier would indicate that only a small percentage goes to the district fund and the remaining forms parts of the consolidated fund of the State "for the construction and maintenance of other works of public utility". However, the proviso does require at least ten percent to be spent for purposes relating to mineral development. We shall, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 947 at 959 are quire apposite : "Dealing next with the import of the words `may continue to be levied' the same was summarized in these terms: (1) The tax must be one which was lawfully levied by a local authority for the purpose of a local area, (2) the identity of the body that collects the tax, the area for whose benefit the tax is to be utilised and the purposes for which the utilization is to take place continue to be the same, and (3) the rate of the tax is not enhanced not its incidence in any manner altered, so that it continues to be the same tax". It is obvious that if these tests were applied the attempt to sustain the tax on the basis of Art. 277 cannot succeed. Indeed, no such attempt was made before us. We, therefore, hold that the levy of cess has to be struck down. It has also been brought to our notice that a Bench of two Judges of this Court has already allowed an appeal by an assessee from a judgement of the Patna High Court to the contrary viz. CA No.1521 of 1990. It has been brought to our notice also that the Patna High Court has recently invalidated the levy of the cess in Central Coalfields Ltd. v. State, (CWJC 2085/89 and connected cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asure of the tax in so far as land held under a mining lease is concerned, is the value of the minerals produced. Under the impugned Act, value of the land or of the minerals produced does not play any part in the levy of cess. The quantity of major minerals produced from the land determines the liability to pay tax. In these circumstances, the impugned levy cannot be held to be a tax on land which is covered by Entry 49 of the State List. After distinguishing Ajay Kumar Mukherjea v. Local Board, AIR 1965 SC 1561 and referring to Union v. Bombay International Ltd. AIR 1984 SC 420 the Courted concluded : " The character of impost in the instant case is that though in form it appears to be a tax on land, in substance, it is a tax on minerals produced therefrom. The subject-matter of tax is, therefore, not covered by Entry 49 of the State List." As for Entry 50, after referring Hingir Rampur, the Court observed : "Now from a perusal of S.11 of the Act, it would be clear that in the instant case by the charging section, tax is not imposed on the mineral rights of every holder of mining lease. The tax is levied on minerals produced in land held under mining lease. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thy Iyer, however, submitted that, in any event, the decision in H.R.S. Murthy case was the decision of the Constitution Bench of this Court. Cess has been realised on that basis for the organisation of village and town panchayats and comprehensive programme of measures had been framed under the National Extension of Service Scheme to which our attention was drawn. Mr. Krishnamurthy Iyer further submitted that the Directive Principles of State Policy embodied in the Constitution enjoined that the States should take steps to organise village panchayats and endow them with power and authority as may be necessary to enable them to function as units of self-government and as the amounts have been realised on that basis, it at all, we should declare the said cess on reality to be ultra vires prospective, In other words, the amounts that have been collected by virtue of the said provision,s should not be declared to be illegal retrospectively and the State made liable to refund the same. We see good deal of substance in this submission. After all, there was a decision of this Court in H.R.S. Murthy case and amounts have been collected on the basis that the said decision was the correct p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine of prospective overruling had been enunciated in Golaknath, [1967] 2 SCR 762. Analysing the various judgments delivered in that case, he submitted that, while Subba Rao C.J. and four other judges (pp 805-813) approved of the applicability of this doctrine in India, five other judges spoke against it (pp 890, 897, 899- 922, 921 and 952) and the eleventh judge was neutral (p.408). He therefore, submitted that the judges who decided Golaknath were equally divided on the issue and so there is no reason disdained of the Court binding on us. Second, he submitted that the doctrine of prospective overruling was evolved by the Supreme Court of the United States in the absence of any constitutional provision militating against it, vide sunburst 77 L.Ed. 310 (at page 366) and Linkletter, 14 L.Ed (2d) 601 (at page 604-8). In India, however, the application of the doctrine, particularly in the context of an issue regarding the validity of a tax levy, would run counter to specific provisions contained Articles 246 and 265 of the Constitution. Where the Court finds that a legislation is beyond the competence of the concerned legislature, it stands uprooted altogether because Articles 246 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition to the above general arguments, reliance had also been placed by the assessees on certain specific interim orders passed in these cases and it has been contended that these orders should be given effect to, or at least taken into account, in deciding the issue of the final relief to be granted. It is therefore necessary to refer to these orders : (i) In C.A. Nos. 4353-4 of 1983, there is no interim order staying recovery of the cess at all except of the arrears for the period from 1.1.1983 to 31.3.1983 and even this was made subject to the furnishing of a bank guarantee by the assessee. (ii) In C.A. 2053-80 of 1980 there was initially (on 2/2/1981) an order of stay of recovery of cess on the furnishing of bank guarantees. But this was later substituted by an order of 25.3.1983 by which the amounts of cess were to be deposited in the High Court every quarter and then withdrawn by the State but this was on the undertaking buy the State's Advocate General to refund the amount "if deposited, in the event the appeal succeeds". This continued till 30.1.90 when the Counsel of the State of Orissa undertook, in view of the decision in India Cement, that the levy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbered SLP on 1990 and SLP 11939 on 1990 respectively against the original judgement dated 22.12.1989 and the order on the review petition dated 13.7.1990. It is contended that the High Court, having regard to the circumstances set out earlier, should have directed a refund of the cess. collected. IT is stated that, subsequently, Western Coalfields have paid over the amounts of cess to the Government [vide orders of this Court referred to in sub para (v) below]. It is also submitted that the averments by the State now made that the amounts collected have been utilized by the State on objects enumerated in Part IV of the Constitution are the result of an afterthought and are being put forward to defeat the rightful entitlement of the assessee to the refund. (iv) In the Bihar case, there was an interim order on 10.2.1986 to the following effect: "On the stay application there will be no stay of recovery of cess but in case appellants succeed in appeal in this Court, the excess amount so recovered will bepaid to the appellants with interest at the rate of 12% from the date of recovery" This was modified on 30.1.90 in view of the judgement in India Cement which had been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the Bank in accordance with the directions issued by this Court on 1.8.1986 shall be paid to the State Government of Madhya Pradesh. In the event, of the State Government failing in this appeal, the amount received by the Madhya Pradesh Government under this order shall be refunded by that Government within three months from the date of the judgement to the Western Coalfields Ltd. with interest at 12% per annum to disburse in favour of those who had paid it, subject to such directions which this court may give in its judgement. The amount received by the Madhya Pradesh State Government shall be spent in accordance with the provisions contained in the impugned Act." Fresh applications were filed by the State in a number of the other appeals seeking similar direction as in C.A. 1649/86 but the request does not show that any such order were passed in appeal other than C.A. 1649/86. However, it seems that, in the case of coal, the cess is being collected by Western Coalfields Ltd. and other like public sector organisation (which are subsidiaries of Coal India Ltd.) from all their customers and passed on to the State not only in Madhya Pradesh but also in Orissa (as indicated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a inner most appropriate to the situation before it is insuch a way as to advance the interests of justice. It will be appreciated that it is not always possible in all situations to give a logical and complete effect to a finding. Many situations of this arise in actual practice . For instance , there are cases where a comes to the conclusion that the termination of the services of an employee is invalid, yet in refrains from giving him benefits of "reinstatement" (i.e. continuity in service) on "back wages". In such cases, the direction of the Court does not result in a person being denied the benefits that should flow to him as a logical consequence of a declaration inhis favour. It may be said that, in such a case, the Court's direction does not violate any fundamental right as happens in a case like this were an "illegal" exaction is sought to be retained by the State. But even in the latter type of cases relief has not been considered automatic. One of the commonest issue that arose in the context of the situation we are concerned with is where a person affected by an illegal exaction files an application for refund under the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While agreeing that the Courts have the power, for the purposes of enforcement of fundamental rights and statutory rights, to give a consequential relief by ordering repayment of any money realised by the government without authority of law, the Court said: "At the same time we cannot lose sight of the fact that the special remedy provided under Article 226 is not intended to supersede completely the modes of obtained relief by an action in a civil court or to deny defends legitimately open in such actions. It has been made clear more than once that the power to give relief under Article 226 is a discretionary power. This is specially true in the case of power to issue writs in the nature of mandamus. Among the several matters which the High Courts rightly take into consideration in the exercise of that discretion is the delay made by the aggrieved party in seeking the special remedy and what excuse there is for it. Another matter which can be rightly taken into consideration is the nature of the facts and law that may have to be decided as regarded the availability of consequential relief. Thus, where, as in these cases, a person comes to the Court for relief under Article 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of the five learned Judges of this Court that the writ petition should be dismissed on the ground of laches. Chief Justice Hidayatullah held that though Article 32 gives the right to move the Court by appropriate proceedings for enforcement of fundamental rights and State cannot place any hindrance in the way of an aggrieved person, once the matter reached this court, the extent or manner of interference was for the Court to decide. The learned Chief Justice pointed out that this Court had put itself in restraint in the matter of petitions under Article 32. For example, if a party had already moved High Court under Article 226, this court would refuse to interfere. Similarly, in inquiring into belated and stale claims, this Court should take note of evidence of neglect of the petitioner's own rights for a long time or of the rights of innocent parties which might have merged by reason of the delay. It was possible for this Court to lay down any specific period as the ultimate limit of action and the case will have to be considered on its own facts. On the facts of the case before it, the majority found that the petitioner had by his own conduct abandoned his litigation year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht in indirectly to control the remedies conferred by the Constitution, it would be a case of Parliament indirectly abridging the fundamental rights which this court, in Golaknath's case. [1967]2 S.C.R. 752 held that Parliament cannot do. The fear that forgotten claims and discarded right against Government may be sought to be enforced after the lapse of a number of years if fundamental rights are held to be enforceable without any time limit, is an exaggerated one, for , after all, a petitioner can only enforce an existing right." The above principles have been applied in several subsequent cases: Ramchandra Shankar Deodhar v. State of Maharastara, [1974] 2 SCR 216; Shri Vallabh Glass works Ltd. v. union of India [1984] 3 SCR 180; State of M.P. v. Nandlal Jaiswal, [1986] 4 SCC 566; D. Cawasji & Co. v. State of Mysore, [1975] 2 SCR 511 and Salonah Tea Co. Ltd. v. Superintendent of Taxes.[1988] 1 SCC 401. The above cases no doubt only list situations where directions for refund have been refused, or considered to be liable to be refused, on grounds of unreasonable delay or laches on the part of the petitioners in approaching the Court in the interests of justice and equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant date will be 22.12.1989 on which date, the High Court, following India Cement declared the levy by the State Legislature unconstitutional. In respect of Madhya Pradesh, the relevant date will be the date of the judgement in Hiralal Ramswarup and connected cases (viz. M.P. 410/83 decided on 28.3.1986) in respect of the levy under State Act 15 th 1982. Though there are the dates of the Judgement of the appropriate High Court, which may not constitute a declaration of law within the scope of Article 141 of the constitution, it cannot be gainsaid that the State cannot, on any grounds of equity, be permitted to retain the cess collected on and after the date of the High Court's judgement. Another point that was raised, was that in many of these cases the State or a Coal field Companies had given an undertaking that incase the levy is held to be invalid by this Court, they would refund the amount collection with interest. It is submitted that the condition imposed, or undertakings given, to this effect and recorded at the time of passing interim orders in the various cases should be given implemented. The interim undertakings or directions cannot be understood in such a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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