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PETITIONER: ORISSA CEMENT LTD AND ORS. ETC. ETC.

       Vs.

RESPONDENT: STATE OF ORISSA AND ORS. ETC. ETC.

DATE OF JUDGMENT04/04/1991

BENCH: RANGNATHAN, S. BENCH: RANGNATHAN, S. KASLIWAL, N.M. (J) AGRAWAL, S.C. (J)

CITATION:  1991 AIR 1617            1991 SCR  (2) 105  1991 SCC  Supl.  (1) 430 JT 1991 (2)   439  1991 SCALE  (1)617

ACT:      Orissa  Cess  Act, 1962:  Sections  5-7--Constitutional validity of.      Orissa Cess Rules, 1963: Rule 6A.      Bengal  Cess  Act (Act IX of 1880)  (As  applicable  to State  of  Bihar):  Sections 4,5,6  and  9--  Constitutional validity of.      Madhya Pradesh Upkar Adhiniyam, 1981: Part  IV--Section 11--Constitutional validity of.      Madhya  Pradesh  Karadhan  Adhiniyam  1982:  Part  IV-- Section 9-Constitutional validity of.      Madhya  Pradesh Mineral Areas Development  Cess  Rules, 1982: Rule 3 and 10.      Land  Cess-Levy of cess based on royalty  derived  from mining   lands-Nature,  character  and   validity   of-State Legislatures-Legislative  competence of-Whether  denuded  by enactment of Mines and Minerals (Regulation and Development) Act. 1957.      ‘Royalty’--Whether tax.      ‘Land Revenue’--Connotation of.      Constitution  of India, 1950: Seventh Schedule- List  1 Entries 52 and 54- List II Entries 5, 18, 23, 45, 49. 50 and 66-State  Law-Central law-Doctrine of  occupied  field-State Act encrouching field occupied by Central Act-Effect of.      Articles   142,   246  and   265-Cess   -Constitutional invalidity-Consequences of -Refund of cess whether automatic and  inevitable  consequence-Declaration of  invalidity  and determination of relief in consequence whether two different things-Relief whether discretion of Court-Power of Court  to would   or  restrict  the  relief-Doctrine  of   prospective overruling  and doctrine of unjust  enrichment-Applicability of.      Article  277-Essential  requirements  of  the  Article- Discussed.      Practice  and  procedure:  Undertaking  given  by   the parties                                                         106 directions given by Supreme Court- Effect of.

HEADNOTE:

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    The States of Orissa, Bihar and Madhya Pradesh levied a cess  which  was based on the royalty  derived  from  mining lands.  The  cess  was levied by  these  States under  their respective statutes viz. Orissa Cess Act, 1962, Bengal  Cess Act,  1880  (as applicable to the State  of  Bihar),  Madhya Pradesh  Upkar  Adhiniyam 1981 and Madhya  Pradesh  Karadhan Adhiniyam, 1982.      The assesses challenged the constitutional validity  of the  cess by filing various petitions in the High  Courts of Orissa declared the cess unconstitutional on the ground that it  was  beyond  the legislative  competence  of  the  State Legislatures, but rejected the prayer of the assessees for a direction to the State to grant refund of the cess collected from the assessees. Against the decision of the Orissa  High Court the assessees have filed appeal in this Court  whereas the State of Orissa has filed a cross-appeal. The High Court of   Madhya   Pradesh  also  declared  the  levy   of   cess unconstitutional  on  the  ground that  it  was  beyond  the legislative  competence of the State  legislature.   Against the  decision of the Madhya Pradesh High Court the State  of Madhya  Pradesh has filed an appeal in this Court.   On  the other  hand  the  High Court of  Patna  dismissed  the  writ petition of the assessee.  Against the decision of the Patna High Court the assessee has filed an appeal in this court.      In appeal to this court, it was contended on behalf  of the  State  of  Orissa;  that (i) the  levy  of  cess  being referable to Entries 45, 49 and 50 of the State List of  the Seventh   Schedule   of  the   Constitution   the   impugned legislation  was  within the legislative competence  of  the State  legislature;  (ii)  the limitations  imposed  in  the statute on the modes of utilisation of cess supports a  view that  the  cess is fee on which the   State  legislature  is competent to legislate under Entry 23 read with Entry 66  of the  State List; (iii) since the impugned Act  was concerned with the raising of funds to enable panchayats and  Samithis to discharge their responsibilities of local  administration and  take  steps for proper development of  the  area  under their  jurisdiction, the impugned legislation was  referable to  Entry  5 of State List; and (iv) the  enactment  of  the Central Legislation viz. Mines and Minerals (Regulation  and Development) Act, 1957 has not denuded the State legislation of  its competence to enact the impugned  legislation  since the  scope  and subject matter of the two  legislations  are entirely  different and the impugned State Legislation  does not   encroach  upon  the  field  covered  by  the   Central Legislation i.e. 1957 Act.                                                        107      On  behalf of the assessees it was contended inter alia that  (i)  all  the State levies were ultra  vires  for  the reasons  given by this Court in the India Cement case;  (ii) the  State cannot seek to sustain the levy under the  Bengal Cess Act 1880 by relying on Article 277 of the Constitution; and  (iii) the levy being unconstitutional the Court  should direct  the  States to refund the cess  collected  from  the assessees  because  (a)  a  refund  is  the  automatic   and inevitable  consequence of the declaration of invalidity  of tax  and (b) the States have given undertakings before  this Court  that they would refund the amount collected  in  case the levy is declared invalid by this Court.      Disposing of the appeals, this Court,      HELD: 1. The levy of cess under sections 5 to 7 of  the Orissa Cess Act, 1962 is beyond the competence of the  State Legislature. [169B]      1.1. A royalty or the tax thereon cannot be equated  to land  revenue.  Therefore the cess cannot be  brought  under

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Entry 45 of List II. [142D]      India  Cement  & Ors. v. State of Tamil  Nadu  &  Ors., [1990] 1 S.C.C. 12, followed.      1.2  A tax on royalties cannot be a tax on minerals and is  outside  the  purview  of Entry  50  of  List  II.  Even otherwise, the competence of the State Legislature under the said  Entry is circumscribed by "any limitations imposed  by Parliament  by  law relating to  mineral  development".  The Mines and Minerals (Regulation and Development) Act, 1957 is a  law  of Parliament relating to  mineral  development  and Section 9 of the said Act empowers the Central Government to fix,  alter, enhance or reduce the rates of royalty  payable in respect of minerals removed from the land or consumed  by the  lessee,  Sub-Section (3) of Section 9 in  terms  States that the royalties payable under the Second Schedule to that Act shall not be enhanced more than once during a period  of three  years.  This is a clear bar on the State  legislature taxing  royalty  so  as,  in effect,  to  amend  the  Second Schedule  to  the  Central Act.  This is  exactly  what  the impugned  Act does.  Therefore the validity of the  impugned Act  cannot be upheld by reference to Entry 50 of  List  II. And if the cess is taken as a tax falling under Entry 50  it will be ultra vires in view of the provisions of the Central ACt. [144B, 153B-D, 168D]      India  Cement  & Ors. v. State of Tamil  Nadu  &  Ors., [1990] 1 S.C.C.12, followed.                                                        108      Hingir Rampur Coal Co. Ltd. & Ors. v. State of Orissa & Ors.,   [1961]  2  S.C.R.537,  Justice   Wanchoo’s   dissent explained.      1.3 There is a difference in principle between a tax on royalties  derived from land and a tax  on land measured  by reference  to  the  income derived  therefrom.   A   tax  on buildings  does  not cease to be such merely because  it  is quantified on the basis of the income it fetches. But in the impugned legislation the levy is not measured by the  income derived  by the assessee from the land, as is the case  with lands other than mineral lands.  The measure of the levy  is the royalty paid, in respect of the land, by the assessee to his  lessor which is quite a different thing.  The  impugned statute only purports to levy a cess on the annual value  of all land.  There is 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.  A  tax  on  royalty cannot  be  said  to be a tax directly on land  as  a  unit. Hence  the cess is outside the purview of Entry 49 List  II. [148H, 149A-D]      Ajay Kumar Mukherjea v. Local Board of Barpeta,  [1965] 3  Ss.C.R.  47; Ralla Ram v. The province  of  East  Punjab, [1948]  F.C.R.207;  Buxa Dooars Tea Co. v. State,  [1989]  3 S.C.R.211;  Bhagwan  Dass Jain v. Union of India,  [1981]  2 S.C.R. 808 and R.R. Emgomeeromg Co. v. Zila Parishad, [1980] 3 S.C.R. 1, referred to.      Union of India v. Bomnbay Tyre International, [1984]  1 S.C.R.347;  Re: A reference under the Government of  Ireland Act,  1920  and  Section  3 of  the  Finance  Act  (Northern Ireland), 1934, (1963) 2 All E.R.III, cited.      2. If the levy in question cannot be described as a tax on  land, it cannot be described as fee with regard to  land either. [169A]      2.1   Section 10 of the Orissa Cess Act, 1962  earmarks the  purposes of utilisation of only fifty per cent  of  the proceeds  of the cess and that, too, is limited to the  cess collected  in  respect of "lands other than lands  held  for

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carrying  on mining operations".  Therefore 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.  Accordingly the levy cannot be treated as a  fee which  the State legislature is competent to  legislate  for under entry 66 of the State List. [153E-F]      2.2   Even assuming that the levy is a fee,  the  State legislature  can impose a fee only in respect of any of  the matters in the State List.  The                                                        109 entry  relied upon for this purpose i.e. Entry 23 is  itself "subject  to  the  provisions  of List  I  with  respect  to regulation and development" of mines and minerals under  the control  of the Union. Under Entry 54 of List I,  regulation of  mines  and  mineral  development  is  in  the  field  of parliamentary  legislation  "to  the extent  to  which  such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the  public interest".  Such a declaration is contained in Section 2  of the  Mines  and Minerals (Regulation and  Development)  Act, 1957.  The validity of the impugned Act cannot be upheld  by reference to Entry 23 List II. [153G-H, 154A, 168D]      3.   There is a difference between the ’object’ of  the Act  and  its ’subject’.  The object of the levy may  be  to strengthen  the  finances of local bodies but  the  Act  has nothing  to  do  with  municipal  or  local  administration. Accordingly  State’s  reliance  on Entry 5  of  List  II  is plainly too tenuous. [164D]      4.  The  answer  to  the  question  whether  the  State Legislature  was  denuded  of its competence  to  enact  the impugned  legislation  because  of  the  Parliament   having enacted the Mines and Minerals (Regulation and  Development) Act, 1957 depends on a proper understanding of the scope  of the  Act and an assessment of the encroachment made  by  the impugned  State  legislation into the field covered  by  it. [161D]      4.1 The mere declaration of a law of Parliament that it is   expedient  for  an  industry  or  the  regulation   and development  of miners and minerals to be under the  control of  the Union under Entry 52 or entry 54 of List I does  not denude  the State legislatures of their  legislative  powers with respect to the fields covered by the several entries in List  II  or  List  III. Particularly,  in  the  case  of  a declaration under Entry 54, this legislative power is eroded only to the extent control is assumed by the Union pursuance to  such  declaration  as  spelt  out  by  the   legislative enactment  which  makes  the declaration.   The  measure  of erosion  turns  upon the field of the  enactment  framed  in pursuance of the declaration. [161E-F]      4.2   In  assessing  the field covered by  the  Act  of Parliament  in question, one should be guided not merely  by the  actual provisions of the Central Act or the rules  made thereunder  but  should also take into account  matters  and aspect which can legitimately be brought within the scope of the said statute.  Viewed in this light and in the Light  of the  provisions of the Bihar Cess Act the  conclusion  seems irresistible  that  the State Act has  trespassed  into  the field covered by the Central Act                                                        110 viz.  Mines  and Minerals (Regulation  and  Development)Act, 1957.[163F]      4.3  The impugned legislation which stands impaired  by the Parliamentary declaration under Entry 54, can hardly  be equated  to  the  law  for  land  acquistion  or   municipal adminstration  which  are traceable  to  different  specific

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entries in List II or List III [163G-H]      Hingir Rampur Coal Co. Ltd. & Ors. v. State of Orissa & Ors. [1961] 2. S.C.R. 537; State of Orissa v. M.A. Tulloch & Co.,  [1964] 4 S.C.R., 461 and Indian Cement & Ors v.  State of Tamil Nadu & Ors., [1990]1 S.C.C. 12 followed.      State  of Haryana v. Chanan Mal, [1976] 3  S.C.R.  688; Ishwari Khatan Sugar Mills (P) Ltd v. State of U.P. [1980] 3 S.C.R.  331  and  Western Coalfields Ltd.  v.  Special  Area Development Authority., [1982] 2 S.C.R.1,distinguished.      Indian tobacco Co. Ltd. v. Union, [1985] Supp. 1 S.C.R. 145;  State  of West Bengal v. Union [1964] 1.  S.C.R.  371; Central  Coalfields v. State of M.P., A.I.R. (1986)  M.P.33; M. Karunanidhi v. Union of India, [1979] 3 S.C.R. 254; State of  Tamil  Nadu v. Hind Stone etc., [1981]  2.  S.C.R.  742; I.T.C.  v.  State  of Karnataka, [1985]  Suppl  S.C.R.  145; Bharat  Coking Coal v. State of Bihar, [1990] 2  Scale  256; Kannan Dewan Hills Co. v. State of Kerala, [1973] 1.  S.C.R. 356;  Baijnath Kedia v. State of Bihar [1970] 2 S.C.R.  100; H.R.S.  Murthy  v. Collection of Chittoor &  Ors.  [1964]  6 S.C.R.; Ch. Tika Ramji & Ors. v. State of U.P.,[1956] S.C.R. 393; Laxmi Narayan Agarwala v. State, A.I.R. 919830 Ori.210; Bherulal  v. State, A.I.R. (1965) Raj. 161; Sharma v.  State A.I.R.  (1969)  P&H  79 and  Saurashtra  Cement  &  Chemical Industries  Ltd. v. Union A.I.R. (1979) Guj.  180,  referred to.      Trivedi  &  Sons  v. State of  Gujarat.  [1986]  Suppl. S.C.C. 20, cited.      5. Section 6 of the Bengal Cess Act, 1880  specifically enacts  that  the  cess will be on royalty  from  mines  and quarries  and  on  the annual net  profit  of  railways  and tramways.   The  further amendments to Section  6  have  not changed  this  basic position. Though the  Section  referees also  to  the  value  of  the  mineral-bearing  land,   that furnishes  only  the maximum upto which the cess,  based  on royalty,  could go.  Therefore, the cess is levied  directly on  royalties  from  mines  and  quarries.   The   different notifications issued by the State of Bihar under section 6                                                        111 of  the  Act determining the rate of cess on the  amount  of rayalty of all minerals of the State 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 statute that the amounts are collected by way of fee and not tax.  Section 9 indicates that only a small percentage  goes to  the  district fund and the remaining forms part  of  the consolidated  fund of the State  " for the  constrution  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.    Even   the assumption  that the levy can be treated, in part, as a  fee and,  in  part, as a tax will not advance the  case  of  the respondents.  Therefore, the levy of cess sunder the  Bengal Cess Act, 1880 is declared invalid. [169C-F,H,170A]      Indian  Cement  & Ors. v. State of Tamil Nadu  &  Ors., [1990] 1 S.C.C. 12 followed.      Central Coalfields Ltd. v. State (CWJC 2085/89  decided on 6.11.90 by Patna High Court, referred to.      5.1  The  attempt to sustain the tax under  the  Bengal Cess  Act  1880  on  the basis  of  Article  277 cannot also succeed.[171C]      Ramkrishna  Ramanath  v.  Janpad  Sabha,   [1962]Suppl. 3.S.C.R. 70; Town Municipal Committee v. Ramachandra  [1964] 6 S.C.R. 947, referred to.

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    6.  The  levy of cess under section 11  of  the  Madhya Pradesh Upkar Adhiniyam, 1981 is not covered by Entry 49  or Entry 50 of List II and is therefore, ultra vires., [172B]      M.P.  Lime Manufacturers’ Association v. State,  A.I.R. (1989) M.P. 264 referred to.      6.1   Under  Section  9  of  Madhya  Pradesh   Karadhan Adhiniyam, 1982 the proceeds of the cess are to be  utilised only  towards  the general  development  of  mineral-bearing areas.  Although there is no provision for the  constitution of a separate fund for this purpose as is found in  relation to  the cesses levied under Part II or Part III of  the  Act yet this consideration alone does not preclude the levy from being  considered  as a fee.  The clear ear-marking  of  the levy  for  purposes connected with  development  of  mineral areas was rightly considered by                                                        112 the  High  Court, as sufficient to treat it as a  fee.   The High  Court was also right in holding that such a fee  would be  referable  to item 23 but out of bounds  for  the  State Legislature,  after the enactment of the Mines and  Minerals (Regulation and Development) Act, 1957. [171F-H]      Srinivasa  Traders  v.  State,  [1983]  3  S.C.R.  843, referred to.      7.  The grant of refund is not an automatic consequence of a declaration of illegality i.e. where the levy of  taxes is found to be unconstitutional, the Court is not obliged to grant an order of refund.  Therefore a finding regarding the invalidity  of  a  levy need  not  automatically  result  in direction for a refund of all collections thereof made  made earlier.   The  declaration regarding the  invalidity  of  a provision and the determination of the relief that should be granted in consequence thereof are two deferent things  and, in  the  latter sphere, the Court has, and must be  held  to have,  a certain amount of discretion.  Once  the  principle that  the Court has a discretion to grant or decline  refund is recognised, the ground on which such discretion should be exercised is a matter of consideration for the Court  having regard to all the circumstances of the case.  The Court  can grant,  would  or  restrict  the relief  in  a  manner  most appropriate  to the situation before it is such a way as  to advance the interests of justice.  The Court is entitled  to refuse  the  prayer for good and valid reasons.   Laches  or undue  delay  or intervention of third  party  rights  would clearly  be one of those reasons.  Unjust enrichment of  the refundee may or may not be another.  Also there is no reason why the vital interest of the State should not be a relevant criterion for deciding that a refund should not be  granted. [185H, 186A-C, D & E 181D-E]      7.1  In the instant case though the levy of the cess is unconstitutional, yet there shall be no direction to  refund to the assessees of any amounts of cess collected until  the date  on  which  the  levy in  question  has  been  declared unconstitutional.  This, in regard to the Bihar cases,  will be  the date of this judgment i.e. 4.4.1991.  In respect  of Orissa  and Madhya Pradesh cases the relevant date  will  be the date on which the concerned High Court has declared  the levy  unconstitutional i.e.22.12.1989 in case of Orissa  and 28.3.1986  in  case  of Madhya Pradesh.  The  dates  of  the judgments of the appropriate High Court, may not  constitute a declaration of law within the scope of Article 141 of  the Constitution,  but  it  cannot be gainsaid  that  the  State cannot, on any ground of equity, be permitted to retain  the cess  collected  on and after the date of the  High  Court’s judgment.   Accordingly the State should refund the  amounts of  cess  collected  after the relevant  dates  to  assesses

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directly or in the Coalfields from whom they were collected, with                                                        113 interest at the rate directed by this Court or mentioned  in the  undertaking from the date of the relevant  judgment  to the  actual  date of repayment.  The Coalfields,  when  they get the refunds, should pass on the same to their customers, the assessees.  [186F-G, 187B-C]      India Cement & Ors. v.State of Tamil Nadu & Ors, [1990] 1 S.C.C.12, followed.      Linkletter,  14 L-Ed. (2d) 601; Sunburst. 77  L.Ed.310; Mahabir  Kishore & Ors. v. Stte of Madhya Pradesh, [1989]  4 S.C.C.  1;  Chhotabhai  Jethabhai Patel & Co.  v.  Union  of India, [1962] 2 Suppl. S.C.R. 1; State of Madhya Pradesh  v. Bhailal  Bhai  &  Ors., [1964] 6  S.C.R.  261;  Tilok  Chand Motichand v. Munshi, [1969] 2 S.C.R> 824; Ramchandra Shankar Deodhar  v. State of Maharashtra, [1974] 2 S.C.R. 216;  Shri Vallabh Glass Works Ltd. v. Union of India, [1984] 3  S.C.R> 180;  State of M.P. v. Nandlal Jaiswal, [1986] 4  S.C.C.566’ D.  Cawasji  & Co. v. State of Mysore, [1975]  2  S.C.R.511; Salonah  Tea Co. Ltd. v. Superintendent of Taxes,  [1988]  1 S.C.C.  401  and Lakshmi Narain Agarwala  v.  State,  A.I.R. (1983_ Orissa 210, referred to.      Behram Khursheed Pesikaka v. State of Bombay, [1955]  1 S.C.R.613;  R.M.D. Chamarbaugwala v. Union of India,  [1957] S.C.R.  930; M.P.V. Sundararamier & Co. v. State  of  Andhra Pradesh  &  Anr., [1958] S.C.R. 1422; West  Ramnad  Electric Distribution  Co. v. State of Madras, [1963] 2  S.C.R.  747; M.L.Jain  v.  State of U.P., [1963] suppl. 1  S.C.C.R.  912; K.T.  Moopil  Nayar  v. State of Kerala  &  Anr.,  [1961]  3 S.C.R.77;  Balaji  v. I.T.O. Special  Investigation  Circle, [1962] 2 S.C.R. 983; Raja Jagannath Bakshi Singh v. State of U.P.,  [1963]  1  S.C.R.  220; Prem  Chand  Garg  v.  Excise Commissioner, U.P. Allahabad, [1963] Suppl. 1 S.C.R. 885 and I.C.  Golaknath  & Ors.v. State of Punjab  &  Ors.,[1967]  2 S.C.R. 762, cited.      8.    The undertaking given by the parties  or  interim directions given by the Court cannot be understood in such a manner  as  to  conflict with the  Court’s  final  decision. [187]

JUDGMENT:      CIVIL APPELLATE JURISDICTION:  Civil Appeal Nos.4353-54 of 1983 etc. etc.      From  the  Judgment  and Order dated  7.3.1983  of  the Orissa High Court in O.J.C. No. 1517 of 1978.      A.K.  Ganguli, G. Ramaswamy, T.S.  Krishnamurthy  Iyer, Dr.                                                        114 L.M.  Singhvi,  Shanti Bhushan, P. Chidambram,  R.B.  Datar, T.V.   S.K.  Iyer,  V.A.  Bobde  B.Sen,  M.S.  Gujral,  R.F. Narinan,  P.H.  Parekh  Ms.  Shalini,  Soni,  K.K.   Lahiri, J.B.Dadachanji,   S.Sukumaran,   P.N.Gupta,   R.K.    Mehta, A.K.Panda,  Sakes Kumar, Ashok Singh, Satish  Agnihotri,  D. Goburdhan,  D.N.  Mishra, Shri Narain, Abhey  Sapra,  Sandep Narain,  Mrs.  Kirti  Misra, Harish  N.Salve,  S.R.  Grover, K.J.John,  M.P.  Sharma,  Ms. Deepa  Dixit,  Sanjay  Parekh, Praveen  Kumar,  Darshan Singh, K.V.  Srekumar,  T.G.N.Nair, B.R.Agrawal, S.K. Bagga, Mrs. S.K.Bagga, Rameshwar Nath  and A.M. Dittia for the appearing parties.      The Judgment of the Court was delivered by      RANGANATHAN,  J. These are connected batches  of  Civil Appeals and Special Leave Petitions. We grant special  leave

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to  appeal in all the petitions (condoning the delay in  the filing of the unnumbered one referred to below) and  proceed to dispose of all the appeals by this common judgment.   The details  of  the  appeals  and petition  are,  for  sake  of convenient reference, tabulated below: -----------------------------------------------------------------    High Court   Date of       Civil Appeal/       Name of                 Judgment      SLP Nos.            Appellant ------------------------------------------------------------------ 1.   Orissa    17.4.1980      C.A.2053-2080/80 Tata Iron & Steel                                                   Co. Ltd.                7.3.1983       C.A.4353-4354/83 Orissa Cement Ltd.               22.12.1989      S.L.P. 1479/90   State of Orissa               22.12.1989      S.L.P. ----/90   Orient Paper &                                                Industries Ltd.                                                & Anr.               13.7.1990       S.L.P.11939/90      -do-  2.  Bihar    10.2.1986       C.A. 592/86      Tata Iron & Steel                                                Co. Ltd.  3.  Madhya   28.3.1986       C.A. 1641-1662/86 State of M.P.      Pradesh      We  shall  discuss  later the  manner  in  which  these appeals  and  petitions  have  arisen.                                                        115 THE ISSUE      The  validity  of the levy of a "cess",  based  on  the royalty  derived from mining lands, by the States of  Bihar, Orissa  and Madhya Pradesh is challenged in these  petitions and  appeals.   A seven-Judge Bench of this Court  in  India Cement, [1990] 1 S.C.C. 12 struck down a similar levy  under a Tamil Nadu Act as beyond the legislative competence of the State Legislature. The 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 Seventh Schedule to the constitution which have a bearing on the issues to be discussed.  These are:                     List I-(Union List) Entry 52:      Industries, the control of which by the Union  declared by Parliament by law to be expedient in the public interest. Entry 54:      Regulation  of  mines and mineral  development  to  the extent  to which such regulation and development  under  the control  of  Union is declared by Parliament by  law  to  be expedient in the public interest.                                                        116

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                     List II-(State List) Entry 18:      Land,  that  is to say, rights in or  over  land,  land tenures  including the relation of landlord and tenant,  and the   collection  of  rents;  transfer  and  alienation   of agricultural   land;  improvement  and  agricultural   land; colonization. Entry 23:      Regulation of mines and mineral development subject  to the  provisions  of List I with respect  to  regulation  and development under the control of the Union. Entry 45:      Land  revenue, including the assessment and  collection of  revenue,  the maintenance of land  records,  survey  for revenue  purposes and records of rights, and alienation  of revenues. Entry 49:      Taxes on lands and buildings. Entry 50:      Taxes  on  mineral rights subject  to  nay  limitations imposed   by   Parliament  by  law   relating   to   mineral development. Entry 66:      Fees in respect of any of the matters in this List, but not including fees taken in any court.                       EARLIER HISTORY      Before  proceeding  to consider the provisions  of  the enactments  impugned, and the issues debated, before us,  it is  necessary to set out certain earlier controversies  that led to India Cement. Hingir Rampur Case [1961-2 S.C.R. 537]      As  early  as in 1960, this Court had to  consider  the constitutional   validity   of  the  Orissa   Mining   Areas Development Fund Act, 1952 (Orissa Act XXVII of 1952). S.  3 of  the  Act empowered the State  Government  to  constitute mining areas whenever it appeared to the Government that  it was necessary and expedient to provide amenities                                                         117 life  communications, water supply and electricity  for  the better  development  of  such areas or to  provide  for  the welfare  of the residents or workers in areas  within  which persons  employed  in a mine or a group of mines  reside  or work.  S.4  empowered  the State Government  to  impose  and collect a cess or fee on the minerals extracted the rate  of which was not to exceed 5% of the valuation of the  minerals at the pit’smouth. S.5 provided for the constitution of  the Orissa  Mining 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)

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Act,  (Central Act LIII of 1948) (‘the MMRD Act’ for  short) or  by  Entry  52  of  List  I  read  with  the   Industries (Development and Regulation) Act (‘the IDR Act’ for  short), 1951  (Central  ACt LXV of 1951).  The first  of  the  above arguments was based on the fact that the cess was fixed at a percentage  of  the valuation of the  mineral  concerned  at pit’s mouth.  This argument was based on two considerations. The  first related to the form and the second to the  extent of  the levy. Repelling the argument, it was held  that  the extent of levy of a fee would always depend upon the  nature of  the services intended to be rendered and  the  financial obligations incurred thereby and cannot by itself alter  the character  of  the  levy from a fee into the of  a  duty  of excise  except  where the correlation between the  levy  and services  is  not  genuine  or real or  where  the  levy  is disproportionately  higher  than  the  requirements  of  the services  intended  to  be rendered.  So far  as  the  first consideration was concerned, it was observed that the method in which the fee is recovered is a matter of convenience and by  itself  it cannot fix upon the levy the character  of  a duty  of  excise.  Though the method in which an  impost  is levied  may  be relevant in determining  its  character  its significance  and effect cannot be exaggerated.  The  court, therefore,  came to the conclusion that the cess  levied  by the impugned act was                                                        118 neither a tax nor a duty of excise but a fee.      The  second argument turned on the impact of  the  MMRD Act  on the State’s power to levy a fee under Entry 66  read with Entry 23 of List II as a consequence of the declaration contained in S.2 of the Central Act.  The Court agreed  that a  declaration by Parliament in terms of Entry 54 of List  I operated  as a limitation on the legislative  competence  of the State Legislature itself and observed:           "if  Parliament  by  its  law  has  declared  that           regulation  and  development of  mines  should  in           public interest be under the control of the Union,           to the extent of such declaration the jurisdiction           of  the State Legislature is excluded.   In  other           words,  if  a Central Act has  been  passed  which           contains  a declaration by Parliament as  required           by  Entry 54, and if the said  declaration  covers           the  field  occupied  by  the  impugned  Act,  the           impugned  Act would be ultra vires not because  of           any  repugnance  between  the  two  statutes   but           because the State Legislature had no  jurisdiction           to pass the  law."                                           (underlining ours) However, the answer to the argument was easily 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

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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 subject  to           the   provisions  of  List  I  with   respect   to           regulation and development under the con-                                                        119           trol of the Union, and Entry 54 in List I requires           a declaration by Parliament by law that regulation           and  development  of  mines should  be  under  the           control   of   the  Union  in   public   interest.           Therefore,  if a Central Act has been  passed  for           the purpose of providing for the conservation  and           development  of minerals, and if it  contains  the           requisite  declaration,  then  it  would  not   be           competent to the State Legislature to pass an  Act           in  respect of the subject-matter covered  by  the           said  declaration.  In order that the  declaration           should be effective it is not necessary that 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 Court then considered the argument based on Entry 52  of List  I  and the provisions of the IDR Act but came  to  the conclusion  that the vires of the impugned Act could not  be successfully challenged on this ground.      Wanchoo  J., delivered a separate dissenting  judgment. He  held  that the levy was not a fee or a land cess  but  a duty of excise. He pointed out (at p-579-80) how taxes could be turned into fees on the so-called basis of quantification with the help of the device of creating a fund and attaching certain  services to be rendered out of monies in the  fund. In  this view, he did not consider the question how far  the Central   Acts  of  1948  and  1951  impaired  the   State’s competence  to levy the fees in question.  He negatived  the State’s  attempt to bring the levy in question (treating  it as  a tax) within the scope of Entry 50 of List II.  He  was of  opinion that the expressions "taxes on  mineral  rights" referred  to taxes on the right to extract minerals and  not taxes on the minerals actually extracted.  He held that  the cess in the present case was not a tax on mineral rights but a  tax  on  the  minerals  actually  produced.   It  was  no different  in  pith  and substance from a  a  tax  on  goods produced  which  comes under Item 84 of List I  as  duty  of excise. Tulloch case [1964] 4 SCR 461.      The  same issue regarding the competence of the  Orissa State  Legislature  to levy the very same cess came  up  for consideration again                                                        120 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

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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 the provisions  of  the 1948 Act as a bar to the levy of the cess was therefore  out of the way.  The Court analysed in detail the provisions  of the impugned State Act as well as the two Central Acts.   It referred  to its conclusion in the Hingir-Rampur  case  that the  field covered by the impugned State Act was covered  by the  1948  Act and observed that this fully applied  to  the State  Act vis-a-vis the 1957 Act also, particularly as  Ss. 18(1)  and  (2)  of the 1957 Act were  wider  in  scope  and amplitude  and  conferred  larger  powers  on  the   Central Government  than  the corresponding provisions of  the  1948 Act.   Counsel  for the State attempted to  distinguish  the ambit  of  the 1957 Act from that of the 1948 Act.  But  the Court pointed out that the argument could not prevail. S. 13 of the 1957 Act contained an express provision for the  levy of  a fee. S. 25-though not as categorically as s. 6 of  the 1948  Act-clearly  implied a power to levy  "rent,  royalty, tax, fee and other sums" a nd, besides, S. 18 of the Central Act of 1957 were wider in scope and amplitude and  conferred larger   powers   on  the  Central   Government   than   the corresponding  provisions  of  the  Act  of  1948.   It  was reiterated,  referring to Hingir-Rampur  and  distinguishing Ch.  Tika Ramji & Ors. etc. v. The State of Uttar Pradesh  & Ors., [1956] S.C.R. 393 that it was incorrect to think that, until rules were made under S. 13 or steps taken under  S.25 to  collect fees etc., the Central Act would not  cover  the field.  The Court observed, further:                                                        121           "But  even  if  the matter  was  res  integra  the           argument  cannot be accepted.   Repugnancy  arises           when two enactments both within the competence  of           the   two  Legislatures  collide  and   when   the           Constitution expressly or by necessary implication           provides that the enactment of one legislature has           superiority  over the other then to the extent  of           the repugnancy the one supersedes the other.   But           two enactments may be repugnant to each other even           though  obedience  to  each of  them  is  possible           without  disobeying  the other.  The test  of  two           legislations  containing contradictory, for  if  a           competent  legislature  with a  superior  efficacy           expressly or impliedly evinces by its  legislation           an  intention  to  cover  the  whole  field,   the           enactments of the other legislature whether passed           before  or after would be overborne on the  ground           of  repugnance.  Where such is the  position,  the           inconsistency  is demonstrated 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

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         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 possessed, it would           follow that the "matter" in the State List is,  to           the extent of the declaration, subtracted from the           scope  and  ambit of Entry 23 of the  State  List.           There  would, therefore, after the Central Act  of           1957, be "no matter in the List" to which the fee                                                       122           could be related in order to render it valid."      The  result was that Tulloch declared the levy  of  the cess  to  be  invalid  and it was held  that,  as  and  from 1.6.1958,  the date on which the 1957 Act came  into  force, the  Orissa  Act should be deemed to  be   non-existent  for every purpose. Murthy case [1964-6 S.C.R 666]      We  now come to the third important case on the  topic, Murthy  v.  Collector of Chittoor, which seems to  strike  a somewhat different note although in both Tulloch and  Murthy the  judgments  were delivered within a few  month  of  each other by Rajagopala Ayyangar J. on behalf of 5-Judge Benches which were constituted differently.      The erstwhile Province of Madras (later State of  Tamil Nadu)  had been levying, since long, a cess on land  revenue under  the  Madras District Boards Act (Madras Act  XIV)  of 1920.   Under  S.78  of the Act, a cess was  levied  on  the annual  rent value of all occupied lands on whatever  tenure held.  It was a tax at two annas in the rupee of the  annual rent  value of all lands ins the district.  The annual  rent value  of  the  land  was to be  calculated  in  the  manner prescribed  in S.79 of the Act.  The appellant held  certain lands under a mining lease (for extraction of iron ore) from the  Government  which  stipulated  for  the  payment  of  a stipulated  amount of dead rent, a royalty on the  basis  of every ton of ore mined as well as a surface rent per acre of the  surface  area occupied or used.  In the  case  of  such lands,  S.79(i) provided that "the lease amount, royalty  or other sum payable to the Government for the lands" shall  be taken  to  be  the  such  lands,  annual  rent  value.   The appellant was, therefore, called upon to pay a cess based on the  royalty paid by him to the State Government (of  Andhra Pradesh,  which  had  succeeded to the State  of  Madras  in respect  of  the  territories in question) and  it  was  the validity  of  this levy which was upheld by the  High  Court that came up for the consideration of this Court.      It  was contended, on behalf of the appellant,  relying on  Hingir-Rampur and Tulloch, that the  provision  imposing land cess quoad royalty must be held to 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

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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:                                                        123           "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  everything  incidental   to   the           administration"  and  include  in  particular  the           several  matters  which  are  mentioned  in  those           sections.   It will thus be seen that there is  no           connection between the regulation and  development           of  mines  and collection of land-cess  for  which           provision  is  made by ss.78 and 79  of  the  Act.           There  is  therefore  no  scope  at  all  for  the           argument that there is anything in common  between           the  Act and the Central Acts of 1948 and 1957  so           as  to require any detailed examination  of  these           enactments  for discovering whether there  is  any           over-lapping" A second contention raised before the Court was that, as the impugned  land-cess  was payable only in the  event  of  the lessee  winning  the mineral and not when no  minerals  were extracted,  it was in effect a tax on the minerals won  and, therefore,  on mineral rights.  Rejecting  this  contention, the Court observed:           "We  are  unable to accept this argument.  When  a           question   arises  as  to  the  precise  head   of           legislative power under which a taxing statue  has           been  passed, the subject for enquiry is  what  in           truth and substance is the nature of the tax.   No           doubt, in a sense, but in a very remote sense,  it           has relationship to mining as also to the  mineral           won  from  the  mine under  a  contract  by  which           royally  is  payable on the  quantity  of  mineral           extracted. But that does not stamp it as a tax  on           either  the  extraction of the mineral or  on  the           mineral right.  It is unnecessary for the  purpose           of this case                                                         124           to  examine the question as to what exactly  is  a           tax  on mineral rights seeing that such a  tax  is           not  leviable by Parliament but only by the  State           and  the sole limitation on the State’s  power  to           levy the tax is that it must not interfere with  a           law   made  by  Parliament  as   regards   mineral           development.  Our attention was not invited to the           provision  of any such law enacted by  Parliament.           In  the context of ss.78 and 79 and the scheme  of           those  provisions it  is clear that the land  cess

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         is in truth a "tax on land" within Entry 49 of the           State List".                                             (emphasis added) The  Court proceeded to explain why the land cess before  it was nothing else except a land tax falling within Entry 49.           "Under  s. 78  of the Act the cess  is  levied  on           occupied land on whatever tenure held.  The  basis           of  the levy is the "annual rent value" i.e.,  the           value of the beneficial enjoyment of the property.           This being the basis 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 a royalty on           the  mineral won, which extended only to the  mere           use  of the surface land, places it in a  category           different  from other types where the lessee  uses           the  surface of the land alone.  In each case  the           rent                                                        125           which  a lessee or licensee actually pays for  the           land being the test, it is manifest that the land-           cess is nothing else except a land tax."      The  judgment of the Supreme Court in the  Murthy  case (supra) held the field from 1964 to 1990. Murthy followed:      The above type of levy was not peculiar to the State of Tamil Nadu. In fact, a cess on royalty was bound to be  very remunerative to States having a wealth of mineral resources. We are informed that similar cess is being levied in several States.   We  have already referred to the  cess  levied  in Orissa which came to be considered by this Court as early as 1961  and  1964  in the  Hingir-Rampur  and  Tulloch  cases. Further cases came up for consideration, on the same  lines; in Bihar, Associated Cement Co. Ltd. vState of Bihar, [1979] 27 B.L.J.R. 64 and Tata Iron & Steel Co. v. State, (C.W.J.C. 30/1978  decided  on 15.5.84 , the subject  matter  of  C.A. 592/86  before  us); in Orissa, Laxmi  Narayan  Agarwala  v. State,  A.I.R.  1983  Ori. 210; in  Rajasthan,  Bherulal  v. State,  A.I.R.  1965 Raj. 161; in Punjab, Sharma  v.  State, A.I.R,  1969  P  & H 79; in  Gujarat,  Saurashtra  Cement  & Chemical Industries Ltd. v. Union, A.I.R. 1979 Guj. 180; and Madhya  Pradesh,  Hiralal Rameshwar Prasad v.  State,  (m.P. 410/83  decided  on 28.3.1986) and M.P.  Lime  Manufactures’ Association v. State of M.P., A.I.R. 1989 M.P. 264 F.B. and, except  for  the  last two cases from  Madhya  Pradesh,  the

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others  upheld  the  levy  of  a  cess  which  depended   on royalties, following Murthy. India Cement case [1990] 1 S.C.C. 12      The correctness of the above line of decisions came  to be tested in India Cement Ltd. v. State.  The Government  of Tamil  Nadu and granted a mining lease on 19.7.1963  to  the appellant  for  extraction  of limestone and  kankar  for  a period  of  twenty  years.  The lease  deed,  which  was  in accordance with the Mineral Concession Rules, stipulated for the payment of royalty, dead rent and surface rent and  also provided  that the lessee was bound to pay all  Central  and State Government dues except land revenue.  At the time  the lease  was obtained, S.115(1) of the Madras Panchayats  Act. 1958  provided for the levy, in each  panchayat  development block,  of  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                                                        126 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 Rs.1.50 on every rupee of  land  revenue and  in  1972  to Rs.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 land held  direct           from the government on lease or licence, but  does           not  include  any  other  cess  or  the  surcharge           payable  under  Section 116, provided  that  lands           revenue  remitted shall not be deemed to  be  land           revenue payable for the purpose of this section". The  appellants’ challenge in the High Court to  this  levy- which was consequent on the 1964 amendment-was unsuccessful. The  High Court upheld it as a "tax on land"  measured  with reference to land revenue, royalty or lease or other  amount as  mentioned  in the Explanation.  The challenge  based  on Entry  54  of List I read with Entry 23 of List II  and  the provisions of the MMRD Act, 1957 was also repelled, applying the  decision  in  Murthy.  The appeal  to  this  Court  was referred  to  a  Bench  of seven  Judges  who  came  to  the conclusion that Murthy dity of the levy of the cess.  It may be  necessary to refer, in greater detail, to some  passages in  the judgment later but it will be convenient,.  for  the present, to summarise the salient conclusions of the Court. These were: 1.   The levy could not be supported under:      (a) Entry 45 of List II: as it is  not  a  tax  on land      revenue,  an  expression  which  has  a  well   defined      connotation.  ‘Land revenue’ is separate  and  distinct      from  ‘royalty.   The Explanation  to  S.115(1)  itself      proceeds  on  the  basis that royalty  cannot  be  land      revenue                                                        127      properly so called or conventionally so known.

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         (b)  Entry  49 of List II: as it is not a  tax  on      land.   A  tax on land can only be levied on tax  as  a      unit, must be imposed directly on land and must bear  a      definite   relationship  to  it.   There  is  a   clear      distinction between a tax directly on land and a tax on      income  arising  from  land.  The cess  is  not  a  tax      directly  on land as a unit but only a tax  on  royalty      which is indirectly connected with land.  In the  words      of  Oza. J. it is a tax not only on land but on  labour      and  capital as well.  It could have been treated as  a      tax  on land if it had been confined to ‘surface  rent’      instead of ‘royalty.           (c)   Entry 50 of List II: as a tax on royalty  as      it is not a tax on mineral rights and so is outside the      purview  of  Entry  50.  Even otherwise,  Entry  50  is      subject to the provisions of List I and is,  therefore,      subject  to  the  declaration  contained  in,  and  the      purview of, the MMRD Act  1957. 2.    Even  if the cess is regarded as a  fee,  the  State’s competence  to  levy  the  same can,  if  at  all,  only  be justified 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                                                        128 legislation.   The  Orissa enactment with which we  are  now concerned  is the Orissa Cess Act (Orissa Act IIof 1962)  as amended  by Act 42 of 1976.  According to the  Statement  of Objects  and  Reasons  accompanying the  bill,  the  primary objective of the legislation is to condense and simplify the existing  law on the subject by consolidating the  different enactments, customs and usages relating to the levy of  cess in  the State, to cure defects and deficiencies therein  and to  introduce uniformity in the levy of cess throughout  the State.  The Act proposed to adopt a uniform rate of 25 paise in  the rupee of the annual rental value and distribute  the entire gross collection among the zilla parishads, panchayat samithis  (referred to as ‘samithis’ in the Act)  and  grama panchayats  in the ratio 5:8:12 respectively thus  providing them  with  enhanced revenues to enable  them  to  discharge their statutory responsibilities more efficiently by  taking up  development works and providing better amenities to  the people  of  the  State.  Its  principal  provisions  are  as follows:      (i) Under Section 4, from and after the commencement of the  Act, all lands (other than lands which were not  liable

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to payment of rent or revenue before 1.4.77 and lands  which were  subject  to  a  tax on land  holdings  sunder  a  1950 Municipal  Act) are made liable to the payment of  cess  (in addition  to  any  land  revenue,  tax,  cess  rate  or  fee otherwise payable in respect thereof) determined and payable "as herein provided".  A 1976 amendment makes it clear  that ‘lands held for carrying on mining operations" ar not exempt from the cess.      (ii)   The "rate of cess, assessment [and] fixation  of cess year" are dealt with by S.5 which originally read thus:           "5.(1)  The cess shall be assessed on  the  annual           value  of  all  lands  on  whatever  tenure   held           calculated in the manner hereinafter appearing.           (2) The rate per year at which such cess shall  be           levied  shall  be  twenty five  percentum  of  the           annual value of the land.           (3)   x    x    x" Sub-section(2) was amended by Act 13 of 1970 by substituting of 50% in place of 25% but a 1982 amendment inserted S.5A to provide  that for a period 1.4.1977 to 31.3.1980,  the  cess would  be  levied at 25% of the annual value in  respect  of lands held for carrying on mining                                                        129 operations. S. 5 was again amended by Act 15 of 1988  w.e.f. 26.10.1988 to read thus:           "(2)  The rate at which such cess shall be  levied           shall be.           a)  in case 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 vary the rates by a  simple  notification. In consequence of this amendment, Schedule has been  omitted and   a  notification  has  been  issued   prescribing   the percentage of the royalty or the dead rent (as the case  may be)  that is to be levied as the cess in respect of  various items of specified minerals.  The rates specified are  650%, 400%,  300%, 200% and 150%. In respect of all  minerals  not specified  in  the notification, the rate of cess is  to  be 100% of the royalty or dead rent.      (iii)  S.6  specifies the person by whom  the  cess  is payable. In so far as is material for our present  purposes, it directs that the cess is payable "(c) by a person for the lands  he holds for carrying on mining operations and  shall be paid by him to the Government".  This clause was inserted in S.6 simultaneously with the amendment of S.5 by Act 42 of

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1976.                                                        130           (iv) "Annual value" is defined in S.7 thus:           "7.  Annual  Value-(1) The annual value  of  lands           held by a raiyat shall be the rent payable by such           raiyat to the land-lord immediately under whom  he           holds the land:                  x    x    x    x    x    x           (2)  In  the case of lands held as an  estate  the           annual value shall be the aggregate of -           (a) the amount which the intermediary is  entitled           to receive on account of revenue or rent less  the           amount payable by such intermediary as revenue  to           the intermediary immediately superior to him or to           the Government, as the case may be; and           (b) the rent, if any, payable held for carrying on           mining operations,  the annual value shall be  the           royalty  or,  as the case may be,  the  dead  rent           payable   by   the  person  carrying   or   mining           operations(s) to the Government." The  Explanation  to  the section defines  "dead  rent"  and "royalty"  in  terms  of  their  definitions  in  the   MMRD Act,1957.  It also states the "royalty" would  include  "any payments made or likely to be make to the Government for the right  of  raising  minerals from the land  which  shall  be calculated  on every tone of such minerals  despatched  from the  land at the same rate as prescribed under the said  Act or such other rate as may be fixed by the Government but not exceeding the amount which would have been otherwise payable as royalty under the said Act". Act 17 of 1989 also  amended S.7(3) to red thus:           "(3)  In  the case of lands held for  carrying  on           mining  operations, the annual value shall be  the           royalty  or,  as 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                                                        131 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  or  dead rent, by the Mining Officer concerned.      (vi)  S.10 also needs to be referred to. It  originally read  thus:           "10.  Application  of proceeds of  the  cess:  (1)           Notwithstanding  anything contained in  any  other

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         law the amount collected as cess shall be credited           to the Consolidated Fund of the State and shall be           utilised in the following manner, namely:           (a)  amounts collected in respect of lands  within           the  local limits of any Municipality or  Notified           Area constituted under the Orissa.  Municipal Act,           1950  shall  be paid to  the  concerned  Municipal           Council or Notified Area Council, as the case  may           be; and           (b) amounts other than those referred to in clause           (a) shall be distributed in the prescribed  manner           among the Grama Panchayats, Samitis and  Parishads           in the ratio of twelve is to eight is to five.                                                        132           Explanation-  In  this section  "Grama  Panchayat"           mean  a  Grama  panchayat  constituted  under  the           Orissa   Grama Panchayats Act, 1948  and  "Samiti"           and  "Parishad" respectively mean the  Samiti  and           Parishad  constituted under the  Orissa  Panchayat           Samiti  and Zila Parishad Act, 1964  and  "Samiti"           means  a  panchayat samiti constituted  under  the           Orissa Panchayat Samitis Act 1959. Orissa Act 13 of 1970 substituted the following section  for the above:           "10  Application  of  proceeds of  the  cess.  (1)           Notwithstanding  anything contained in  any  other           law,  the  amount  collected  as  cess  shall   be           credited to the Consolidated Fund of the State and           shell  be  utilised for  the  following  purposes,           namely:          (a)   primary education;          (b)   contribution to Grama-Panchayats; and          (c)   contribution to Samitis.          Explanation-In  this  section"Grama Panchayat"  means  &          Grama  Panchayat constituted under the Orissa  Panchayat          Samitis Act, 1959.           (2)  The proportion in which the amount  collected           as  cess  is to be allotted for the  said  purpose           shall be as may be prescribed. As substituted by Act 42 of 1976, it reads:          "10.  Application  of  proceeds of  the  cess:  (1)           Notwithstanding  anything contained in  any  other           law,  all  amounts  collected  as  cess  shall  be           credited fifty percentum of those which  represent           cess  collected  in respect of lands,  other  than           lands held by carrying on mining operations, shall           be utilised for the following purposes, namely:-           (a) primary education;           (b) contribution to Grama Panchayats: and           (c) contribution to Samitis.           (2)  The allotment of amounts to be  utilised  for           the pur-                                                        133           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,

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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 lieu of  royalty           for  the  right of working mines and  quarries  in           areas   held   or  acquired  under  any   Act   or           agreement". At   the  end  of  the  section  it  added   the   following ‘interpretation clause’:                "Valuation  of  mineral bearing  land"  means           with reference to assessment of local cess in  any           year  on land held for working mines and  quarries           the  value  at  pit’s mouth  of  all  the  mineral           extracted form the land in that year and the Explanation, which defines the value at pit’s  mouth of a mineral;      (ii) S.5 provided that, from and after the commencement of  this  Act, in any district or part of  a  district,  all immovable  property  situate  therein  except  otherwise  in Section2 provided shall be liable to the payment of a  local cess.                                                        134      (iii)  Section 6, again, is a much amended section,  As substituted  by Ordinance No.209 of 1975 dated  2.12.75,  it read:           "6. Cess has to be assessed: The local cess  shall           be assessed on the annual value of lands and until           provision   to  the  contrary  is  made   by   the           Parliament  on the royalty of mines and  quarries,           sale  value  of  the  other  immovable  properties           including  forest produce and annual  net  profits           from   tramways   and   railways   as    contained           respectively  as  prescribed in this Act  and  the           rate  at which the local cess shall be levied  for           each other 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 the amount of royalty;           (b)  in the case such annual net profits,  fifteen           paise on each rupee of such profits;           (c)  in the case of annual value of lands,  twenty           paise per rupee of the annual value; and           (d)  in  the  case  of  sale  value  of  immovable           properties including first produce,  the rate will           not  exceed 10% and the State Government may,   by           notification,  prescribe  from time  to  time  the           commodities  on  the sale of which cess  would  be           levied  along with the rate at which it  would  be           levied". It  was  amended  by  a series  of  Bihar  Cess  (Amendment) ordinances  between 1975 and 1982 .  It was further  amended by  the Finance Act, 1982 (w.e.f. 1.4.82), the Finance  Act, 1984, the Finance Act, 1985 (w.e.f. 1.8.1985) and the  Bihar Cess  (Amendment) Ordinance, 1985, After the last  of  these amendments, the section stood thus:           "S.6.  Cess  how to be assessed:  The  local  cess

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         shall be assessed on the annual value of the lands           and,  until provision to the contrary is  made  by           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                                                        135           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 may  exceed           five times the amounts of royalty;           (b)  in  the case of annual  net  profit,  fifteen           paise on each rupee of such profits;           (c)  in the case of annual value of  land,  twenty           five paise per rupee of the annual value; and           (d)  in  the  case of   sale  value  of  immovable           properties including first produce, the rate  will           not  exceed 30 per cent and the  State  Government           may , be notification prescribe from time to  time           the commodities on the sale of which cess would be           levied  along with the rates at which it would  be           levied". The Bihar Cess (Amendment) Ordinance, 1987 (replaced by  Act 3 of 1988) substituted 40% for 30% in clause (aa).      (iv)  S.9 of the Act deals with the application of  the proceeds  of cess.  It has been amended from time  to  time, inter  alia in 1976, 1977, 1978, 1979, 1980, 1981 and  1982. After all these amendments, the section stood thus:           "9.  Application  of  the proceeds  of  cess:  The           proceeds  of  local cess and all  sums  levied  or           recovered as interest or                                                         136           otherwise  shall in each district be paid  in  the           district fund-           (i)  at  such rate as may, from time to  time,  be           determined by the State Government in the case  of           local cess on annual value of land; and           (ii)  at such rate as may, from time to  time,  be           determined  by the State Government, subject to  a           maximum  of twenty per cent in case of local  cess           on  royalty  of mines and quarries,  or  value  of           mineral   bearing  land,  sale  value   of   other           immovable  properties, forest produce  and  annual           net  profit  from tramways and  railways  and  the           remaining   amount  shall  be  deposited  in   the           consolidated   fund   of   the   State   for   the

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         construction  and  maintenance of other  works  of           public utility;           xxx       xxx       xxx       xxx       xxx           Provided further that out of the remaining  amount           not  less  than ten percent of the amount  of  the           local  cess collected under clause (a)  or  clause           (aa)  of  Section 6 shall be  spent  for  purposes           relating to mineral development’’.      (v) In exercise of the powers conferred by S. 6  above, the  State  Government  issued a  notification  on  20.11.80 determining the rate of cess on the amount of royalty of all minerals of the State at 100% w.e.f. 1.2.1980. Our attention has  also  been  drawn  to,  and  some  print  made  of,   a notification  dated 20.4.85 by which the  State  Government, modifying the earlier notification of 1.10.1981,  determined the  rate  of cess  ‘‘on the amount of royalty of  iron  ore which  is extracted from manually 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 : Date of        Effective      Mineral                  Rate Notification   Date 20.11.85       21.6.85        Bauxite Ore, sand        500%                               for stowing 20.11.85       21.6.85        Copper Ore and           300%                               uranium 20.11.85       21.6.85        Lime stone and                               kynite                   200% 20.11.85        21.6.85        Coal           30% of pit’s                                               mouth value or                                               500% on the                                               amount of                                               royalty                                               whichever is                                               greater                                                        137 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  of  coal  bearing areas  [S.12(2)]  urban  development  [S.  7(2)]  and  rural development [S. 9(5)]. Act 21 of 1987 changed Part IV into a part  dealing  with ‘‘cess on land held in  connection  with mineral rights’’ with full retrospective effect. Part IV, as now substituted, deals only with ‘‘land situate in the State and  held  under  a  mining  lease  for  undertaking  mining operations in relation to major mineral including operations for raising, winning or extracting coal’’. Section 11 and 12 read thus:           ‘‘Section 11: There shall be levied and  collected

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         a  cess  on land held in connection  with  mineral           rights  at  such rate as may be  notified  by  the           State  Government per ton of major mineral  raised           and the rate of cess prevailing in respect of coal           during  the  period commencing from  the  date  of           commencement  of the Principal Act and  ending  on           the  date  of commencement of the  Madhya  Pradesh           Upkar  (Sanshodhan)  Adhiniyam,  1987,  shall   be           deemed to be the rate of cess notified under  this           sub-section in respect of coal:           Provided  the subject to the limitation  mentioned           above  the State Government may, by  notification,           increase or                                                        138           reduce the rate of cess at an interval of not less           than  one  year, where the rate  is  increased  it           shall  not be in excess of fifty per cent  of  the           rate for the time being in force;           Provided further that every notification under the           above  proviso shall be laid on the table  of  the           Legislative Assembly and the provisions of Section           24-A  of the Madhya Pradesh General  Clauses  Act,           1957  (No. 3 of 1958) shall apply thereto as  they           apply to rule.           (2) The rate of cess to be notified for the  first           time  in exercise of the powers conferred by  Sub-           section (1) shall be effective from the [first of]           April, 1987.           (3)  The cess levied under sub-section (1)  shall,           subject  to and in accordance with the rules  made           in this behalf, be assessed and collected by  such           agencies and in such manner as may be prescribed.           (4) The agencies prescribed under sub-section  (3)           shall  for the purpose of  assessment,  collection           and  recovery  of cess and all  matters  connected           therewith,  exercise such of the powers  conferred           upon the authorities specified in section 3 of the           Madhya Pradesh General Sales Tax Act, 1958 (No.  2           of  1959) for the purpose aforesaid in respect  of           sales  tax  under  said Act  and  the  rules  made           thereunder,  as  may  be  prescribed  as  if  such           agencies  were  the authorities 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                                                        139 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

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of every holding of six hectares and above to pay the school building  cess  as  provided therein. The  proceeds  of  the school building cess are required by S.4 to be credited to a separate Fund supplemented by a State contribution equal  to 50% thereof and utilised for construction and furnishing  of primary school buildings in non-urban areas. Part III of the Act  deals  with  the forest  development  cess.  Section  7 imposes forest development cess on every sale or supply  for forest  produce  by  the  Forest  Department.  The  proceeds thereof  are to be credited to a separate Fund and  utilised for  social forestry, afforestation,  reforestation,  forest rehabilitation  and  other purposes  connected  with  forest development.  Then  comes Part IV dealing with  the  mineral areas development cess, the provisions of which are relevant for  the  purpose of these appeals and it  is  the  charging provision  therefor  contained in Section 9 which  has  been attacked as constitutionally invalid. The Section read thus:           ‘‘9.  Levy  of mineral areas development  cess  on           land under mining lease’’.           (1)  There  shall be levied and collected  on  the           land  held  under a mining lease  for  undertaking           mining operation a mineral areas development  cess           at the rate of twenty five percent  of  the rental           value thereof.           (2)  For  the purpose of sub-section  (1),  rental           value shall be equal to the royalty or dead  rent,           as the case may be, whichever is higher.           (3)  The mineral areas development cess  shall  be           payable  by  person to whom the  mining  lease  is           granted.           (4)  The  mineral areas  development  cess  shall,           subject  to and in accordance with the rules  made           in this behalf, be collected by such agencies  and           in  such manner as may be prescribed and shall  be           applied  towards  development of  mineral  bearing           areas’’.                                                        140 The 1983 amendment substituted the following sub-section (1) in Section 9:           ‘‘(1)  There shall be levied and collected on  the           land  held  under a mining lease  for  undertaking           minor  operations for a major mineral,  a  mineral           areas development cess at the rate of one  hundred           percentum o the rental value thereof’’. The 1985 amendment substituted the following sub-section  in place of the above w.e.f. 1.8.1985:           ‘‘(1) There shall be levied and collected-           (a)  on  the  land held  under  mining  lease  for           undertaking mining operations for a major  mineral           other  than coal a mineral areas development  cess           at the rate of one hundred percentum of the rental           value thereof;           (b)  on  the  land held  under  mining  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

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         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 areas.                                                        141                       THE CONTENTIONS ORISSA      In the historical and statutory context set out  above, the attempt of Sri T.S. Krishnamurthy Iyer, learned  counsel for the State of Orissa to save the impugned legislation  of the  State is two fold. First, he points out that  in  India Cement  the statute, by Ss. 115 and 116, imposed a cess  and surcharge  on ‘land revenue’ and the explanation to  s.  115 defined  ‘land revenue’ to mean ‘royalties’. In other  words that  was a clear case of direct cess or Tax  on  royalties. Here,  on the other hand, s.5 makes it clear that  what  the legislature has provided for is a tax assessed on the annual value of all lands, on whatever tenure held, calculated at a percentage  of  the annual value of the land.  S.  7,  which defines ‘annual value’, provides for different measures  for determining the annual value in respect of lands held  under different  kinds of tenures; and, in the case of lands  held for  mining operations, the measure of such annual value  is the royalty or dead rent paid to the Government. On a proper construction of the statute, he submits, the cess levied  is a  cess or tax on land and the ‘royalty’ is only taken as  a measure for determining the quantum of tax. He contends that India  Cement only forbids a cess or tax on royalty as  such and not  a  cess or tax on land, which may  be  measured  by reference to the royalty derived from it. He presses in  aid of  his  argument the well-marked  distinction  between  the subject  matter of a tax and its measure  outlined,  amongst others, in Ralla Ram’s case [1948] F.C.R.207 at pp. 218, 224 and Bombay Tyre International v Union, [1984] 1 S.C.C.487 at pp.  481-4. This argument, Sri Iyer contended, is  based  on the statutory language used in the Orissa Cess Act, 1962 and should prevail independently of the correctness or otherwise of  Murthy, Secondly, he submitted that ‘royalty’ is  not  a tax  and  the cess on royalty is also not a tax but  only  a fee.  This  view is supported, he said, by  the  limitations imposed  in  the statute on the modes  of  its  utilisation. Being a fee, the State Legislature’s competence to impose it has  to be determined with reference to Entry 23  read  with Entry  66 of the State List. So doing, the validity  of  the levy  has  to  be upheld as, in  counsel’s  submission,  the declaration  contained in, and the provisions of,  the  MMRD Act,  1957  do not, in any way whittle down 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                                                        142           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

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         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  statute sought  to  include  royalty within  the  meaning  of  ‘land revenue’  but there is no such provision in the  Orissa  Act and,  this  being so, royalty or the tax thereon  cannot  be equated to land revenue. The cess here cannot be, therefore, brought under Entry 45.      Turning  next to Entry 50, though Murthy left open  the question how far a levy of this nature can be considered  to be a tax on mineral rights (vide page 676), India Cement has chosen  to  approve the contrary view of Wanchoo J.  in  his dissenting judgment in Hingir Rampur (para 30). Actually, it appears  that the observations of Wanchoo J. have  not  been fully  examined. The learned Judge held that the tax in  the case  before him was not a tax on mineral rights because  it was  levied on the value of the minerals extracted.  If  his observations  in this context are read as a whole, it  would seem that he also was of opinion that a tax on royalty would be a tax on mineral rights, for he observed (at pp. 582-3):           ‘The   next contention on behalf of the  State  of           Orissa  is that if the cess is not justified as  a           fee,  it is a tax under item 50 of List II of  the           Seventy  Schedule. Item 50 provides for  taxes  on           mineral rights subject to any limitations  imposed           by   Parliament   by  law  relating   to   mineral           development. This raises a question as to what are           taxes  on  mineral  rights.  Obviously,  taxes  on           mineral  rights  must be different from  taxes  on           goods produced in the nature of duties of  excise.           If                                                        143           taxes  on  mineral rights also  include  taxes  on           minerals  produced, there would be  no  difference           between  taxes  on mineral rights  and  duties  of           excise  under item 84 of List I. A  comparison  of           List  I and II of the Seventh Schedule shows  that           the  same tax is not put in both the Lists.  There           fore,  taxes on minerals rights must be  different           from duties of excise which are taxes on  minerals           produced. The difference can be understood if  one           sees that before minerals are extracted and become           liable  to  duties of excise somebody has  got  to           work  the mines. The usual method of working  them           is  for  the  owner of the mine  to  grant  mining           leases  to those who have got the capital to  work           the mines. There should therefore be no difficulty           in holding that taxes on mineral rights are  taxes           on the right to extract minerals and not taxes  on           the  minerals  actually  extracted.  Thus  tax  on           mineral rights would be confined, for example,  to           taxes  on leases of mineral rights and on  premium           or  royalty  for that. Taxes on such  premium  and           royalty  would  be taxes on mineral  rights  while

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         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 taxes on  mineral  rights           are taxes of this nature and not taxes on minerals           actually  produced. Therefore the present cess  is           not  a tax on mineral rights; it is a tax  on  the           minerals actually produced. Therefore the  present           cess  is not a tax on mineral rights; it is a  tax           on  the minerals actually produced and can  be  no           different in pith and substance from a                                                        144           tax on goods produced which comes under Item 84 of           List  I,  as  duty of  excise.  The  present  levy           therefore  under  s.  4  of  the  Act  cannot   be           justified as a tax on mineral rights. However, the conclusion of India Cement is clear that a  tax on  royalties cannot be a tax on minerals and we  are  bound thereby. This apart, we shall also advert, while  discussing the  second  question, to another hurdle in the way  of  the State’s attempt to have recourse to Entry 50, which has also been touched upon by India Cement.      Can,  then, the cess be described as a tax  on  land’’? The Status considered in India Cement, as Sri Iyer correctly points  out, was differently worded. It purported to levy  a cess  on land revenue and ‘royalty’ was brought  within  the definition  of  that expression. It was  therefore,  a  case where they levy had no reference to land at all but only  to the  income from the land, in the case of Government  lands, got by way of land revenue or otherwise. Here the Statute is different. The objective of the Cess Act as set out earlier, is  to levy a cess on all land. Indeed, originally the  idea was to levy a uniform cess at 25% of the annual value of all land which was subsequently raised to 50%. It is argued that the  tax  here  is,  therefore, a tax  on  land  and  it  is immaterial that this tax is quantified with reference to the income  yielded  by the land. A tax on land may  be  levied, inter  alia  with  reference to its capital  value  or  with reference to its annual value. One realistic measure of such capital  or  annual value will be the income that  the  land will  yield just as, for property tax purposes,  the  annual value  is  based on the amount for which  the  property  can reasonably  let from year to year. The income from the  land may be more or less due to a variety of reasons. In the case of agricultural lands, it may depend on the fertility of the soil,  the  sources of irrigation available, the  nature  of

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crops grown and other such factors. Likewise, where the land is  one  containing minerals, naturally the  value  (whether 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                                                        145 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 interpreted in their widest  amplitude           and  therefore if a tax can reasonably be held  to           be  a  tax on land it will come within  Entry  49.           Further  it  is equally well-settled that  tax  on           land may be based on the annual value of the  land           and would still be a tax on land and would not  be           beyond the competence of the State legislature  on           the  ground that it is a tax on income: see  Ralla           Ram  v.  The  Province  of  East  Punjab,   [1948]           F.C.R.207.  it follows therefore that the  use  to           which the land is put can be taken into account in           imposing  a tax on it within the meaning of  entry           49 of List II, for the annual value of land  which           can certainly be taken into account in imposing  a           tax   for   the  purpose  of  this   entry   would           necessarily depend upon the use to which the  land           it  put.  It  is  in the  light  of  this  settled           proposition that we have to examine the scheme  of           s.  62  of  the  Act which  imposes  a  tax  under           challenge.’’      On the other hand, it is contended for the  respondents that,  whatever  may have been the original  intention,  the true  and real impact of the cess is only on the  royalties. It is said that, at any rate, after the amendments of  1976, when  lands held for mining operations were  segregated  for levy  of separate and steep rates of cess based on  royalty, the ostensible appearance of levying a tax on all land  with reference  to  annual value has disappeared  and  a  direct, undisguised tax on royalties from mining lands has taken its place.  it  is urged that, for deciding whether the  tax  is really a tax on land as in Murthy or whether it is really  a tax on royalties which has been struck down in India Cement, it is not the form or the statutory machinery that  matters; one has to look at the real substance and true impact of the levy.  If  this is done, it is said, there can be  no  doubt that the cess impugned here suffers from the same vice  that vitiated the levy in India Cement.      The  decision of this Court in Buxa Dooars Tea  Co.  v. State,   [1989]  3  S.C.R.  211  was  referred  to  by   Sri G.Ramaswamy, learned

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                                                      146 counsel   for  Orient  Paper  Mills,  in  support  of   this contention.  In that case, this Court was concerned  with  a cess  levied  annually. Initially S. 4(2)  of  the  relevant statute levied the cess:           ‘‘(a)  in  respect of lands, at the  rate  of  six           paise on each rupee of development value thereof;           (b) in respect of coal mines, at the rate of fifty           paise  on  each  tonne  of  coal  on  the   annual           dispatches 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 dispatches or such percentage  of  despatches from  liability  to pay the whole or any part of  the  rural employment cess or reduce the rate of rural employment  cess payable  thereon, under clause (aa) of sub-section  (2),  on such  terms  and  conditions  as may  be  specified  in  the notification. With effect from 1.10.1982, the first  proviso to clause (aa) was omitted. It was contended                                                        147 for the tea estate, inter alia that the above levy  violated the  provisions of Article 301 of the Constitution  and  was also   beyond  the  legislative  competence  of  the   State Government. Upholding these contentions, the Court observed:           ‘‘The  question then is whether the impugned  levy           impedes  the  free  flow  of  trade  and  commerce           throughout the territory of India and, if it does,           whether  it falls within the exception carved  out           in  article 304(b). If the levy imposes a cess  in           respect  of tea estate, it may will be  said  that           even  though the free flow of trade is impeded  in           its Government throughout the territory of  India,           it  is  in consequence of an  indirect  or  remote           effect of the levy and that it cannot be said that           article 301 is contravened. The contention of  the           petitioners  is,  however, that it  is  ostensibly           only in respect of tea estate but in fact it is  a           levy  on despatches of tea. If that contention  is           sound, there can be no doubt that it constitutes a           violation of article 301 unless the legislation is           brought  within  the scope of article  304(b).  To

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         determine  whether the levy is in respect  of  tea           estates  or  is a levy on despatches of  tea,  the           substance  of the legislation must be  ascertained           from  the relevant provisions of the  statute.  It           cannot  be disputed that the subject of the  levy,           the  nature  of which defines the quality  of  the           levy,  must  not be confused with the  measure  of           liability, that is to say, the quantum of the tax.           There  is a plenitude of case law supporting  that           principle,  among the cases, being Union of  India           v. Bombay Tyre International, [1984] 1 S.C.R.347.           10.  But what is the  position  here?.........Now,           for   determining   the   true   nature   of   the           legislation,  whether  it  is  a  legislation   in           respect of tea estate and therefore of land, or in           respect of despatches of tea, we must, as we  have           said  take  all relevant provisions  into  account           and  ascertain the essential substance of  it.  It           seems to us that although the impugned  provisions           speak of a levy of cess in respect of tea estates,           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                                                        148           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 maintains a  nexus  with  the           essential character of the levy can be regarded as           a  valid  basis for assessing the measure  of  the           levy’’. Applying  the above tests to the case before it,  the  Court reached the conclusion that, in substance the impugned  levy was  a  levy  in respect of despatches of  tea  and  not  in respect  of  tea estates. It was then pointed out  that  the question  of  legislative  competence also  turned  on  this issue:           ‘‘If this impugned legislation were to be regarded           as  a levy in respect of the estates, it would  be           referable  to entry 49 in List II of  the  Seventh           Schedule of the Constitution which speaks  ‘‘taxes           on  lands and buildings’’. But if the  legislation           is   in  substance  legislation  in   respect   of           despatches  of tea, legislative authority must  be           found for it with reference to some other entry’’

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Pointing  out that no such entry in List II or III had  been brought o its notice and further that, under S.2 of the  Tea Ct, 1953, control over the tea industry has been assumed  by Parliament  within  the meaning of Entry 54 of List  I,  the Court  upheld the challenge to the competence of  the  State legislature to levy the impugned cess. it is submitted that, likewise, here the levy is one in substance on royalties and not one on land.      There  is force in the contention urged by  Sri  T.S.K. Iyer  that there is a difference in principle between a  tax on royalties derived                                                        149 from  land  and a tax on land measured by reference  to  the income  derived therefrom. That a tax on building  does  not cease  to  be such merely because it is  quantified  on  the basis of the income it fetches is nowhere better illustrated than  by  the form of the levy upheld in Ralla  Ram,  [1948] F.C.R.  207 followed by Bhagwan Dass Jain, [1981] 2 SCR  808 which illustrates the converse situation. Mukherjea  (supra) also  supports this line of reasoning. But here the levy  is not measured by the income derived by the assessee from  the land,  as is the case with lands other than  mineral  lands. The  measure of the levy is the royalty paid, in respect  of the  land,  by the assessee to his lessor which is  quite  a different  thing. Moreover, interesting as the argument  is, we are constrained to observe that it is only a  reiteration of the ratio in Murthy which has been upset in India Cement. We  may  point  out that this is  of  significance  because, unlike in India Cement, the statute considered in Murthy, as the  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  as  a tax on land falling within the  purview  of Entry  49, Here, however, the position is different and  so, he  urged, the nature of the levy is also different. We  may have  considered these points as furnishing some  ground  to distinguish  the present levy from that in india Cement  but for  the  Court’s  specific disapproval of  Murthy.  We  are unable  to  accept the plea of Sri Iyer that,  in  spite  of Murthy,  he  can support the validity of the  levy,  as  the statute  considered  in Murthy contained  exactly  the  same features  as  are  here  emphasised by  Shri  Iyer  and  the validity  of such Levy cannot be upheld after India  Cement. As to the second contention based on the observations in the judgment of Oza J., we may point out here the                                                        150 levy  is  not one confined to dead rent or surface  rent  as

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suggested by Oza J. but one on royalty which even  according to Oza J. cannot be described as a tax on land.      Sri  Iyer  contended  that  unless  the  case  of   the assessees  is  that  the statute is a  piece  of  colourable legislation,  it  is not possible to construe  the  levy  on mineral  lands differently. He pointed out that S. 4 of  the Orissa Cess Act, 1962 levies a cess on all land and that, if Sc.  7(1)  and (2) measuring the cess by  reference  to  the income  of other categories of land are valid, there  is  no reason  why S.7(3) alone should be treated  differently  and objected to as imposing a tax on royalties particularly when the levy also extends to dead rent.      The  answer to this contention appears to be  that  the plea  of  the assessee need not go to the extent  of  saying that  the levy is a colourable piece of legislation.  it  is sufficient  to  restrict oneself to the issue  of  a  proper determination of the pith and substance of the  legislation. There is no doubt an apparent anomaly in considering S. 7(1) and  (2) as levying a tax on land but construing S. 7(3)  as imposing  a  tax  on royalties and  this  anomaly  has  been noticed in India Cement (vide para 42). But the question is, what is it that is really being taxed by the Legislature? So far as mineral-bearing lands are concerned, is the impact of the  tax  on  the land or on royalties? The  change  in  the scheme  of  taxation under S.7 in 1976; the  importance  and magnitude of the revenue by way of royalties received by the State;  the charge of the cess as a percentage and,  indeed, as  multiples  of the amount of royalty; and  the  mode  and collection  of the cess amount 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  Rs.250  per annum referred to in Entry 60 would not be applicable to the tax, the Court uttered a ‘‘word of caution’’.                                                        151           ‘‘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  unlimited charter    on    the    local    authorities    to    impose disproportionately excessive levies on the assessees who are subject   to  their  jurisdiction.  An  excessive  levy   on circumstances  will tend to blue the distinction  between  a tax  on income and a tax on circumstances. income will  then cease to be a mere measure or yardstick of the tax and  will become the very subject matter of the tax. Restraint in this behalf  will  be  a  prudent  prescription  for  the   local authorities to follow’’. While Sri Iyer sought to use this decision in support of his contention  that  a  tax on  property  can  be  legitimately measured on the basis of the income therefrom, we think  the observations  extracted  above are very apposite  here.  The manner  in  which the levy, initially introduced  a  uniform

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cess  on all land, was slowly converted, qua  mining  lands, into  a  levy computed at multiples of the  royalty  amounts paid  by the lesses thereof seem to bear out the  contention that it is being availed of as a tax on the royalties rather than  one  on the annual value of the  land  containing  the minerals.  In the words of Chandrachud J. (as he  then  was) one can legitimately conclude that royalty has ceased to  be a  mere measure or yardstick of the tax and has  become  the very subject matter thereof.      For   the  reasons  discussed  above,  we   repel   the contention  of the State seeking to justify the  levy  under Entry 45, 49 and 50 of List II of the Seventh Schedule.      There has been considerable discussion before us as  to whether  ‘royalty’ itself is a tax or not.  The  controversy before us centres round the discussion contained in paras 31 to  34  of  the  India Cement  judgement.  Counsel  for  the assessees-respondents   invite  attention  to  the   opening sentence  of para 34 which runs: ‘‘In the aforesaid view  of the  matter, we are of the opinion that royalty is  a  tax’’ and  argue that this clinches the issue. On the other  hand, Sri  Iyer  submits that this purported conclusion  does  not follow from the earlier discussion and is also  inconsistent with  what  follows. He points out that though  there  is  a reference  in para 27 to the conclusion of Venkataramiah  J. in  a judgement of the Mysore High Court that royalty  under S.9 of the MMRD Act is really a tax, and a reference in para 31 to the Rajasthan, Punjab, Gujarat and Orissa decisions to the effect that royalty is not a                                                        152 tax, there is no discussion, criticism or approval 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 fee nor a tax but merely a  price paid for the use of mineral-bearing land.      We do not think that it is necessary for us to  express an  opinion either way on this controversy for, it seems  to us,  it is immaterial for the purposes of the present  case. If  royalty  itself  were to be regarded as a  tax,  it  can perhaps be described properly as a tax on mineral rights and has  to  conform  to the requirements of  S.  50  which  are discussed  later. We are, however, here concerned  with  the validity of the levy of not royalty but of cess. If the cess is taken as a tax, then, unless it can be described as  land revenue  or  a  tax on land or a tax on  mining  rights,  it cannot be upheld under Entry 45, 49 or 50. On the  contrary,

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if it  is treated to Entry 23, a proposition the  effect  of which will be considered later. the question whether royalty is  a  tax or not does not assist us much in  furnishing  an answer  to the two questions posed in the present  case  and set out earlier. We shall, therefore, leave this question to rest here.      This  takes  us  to the second  question  posed  by  us initially and this                                                        153 turns   on  the  effect  of  M.M.R.D.  Act,  1957  and   the declaration   contained  in  S.2  thereof  which  has   been extracted earlier. This will arise if we treat the levy as a tax falling under Entry 50 of List II or, alternatively,  as a fee though it may not affect the State’s competence if  it can be attributed to Entry 49 of List II.      To take up Entry 50 first, a perusal of entry 50  world show  that  the  competence of the  State  Legislature  with respect  thereto  is  circumscribed  by  ‘‘any   limitations imposed   by   Parliament  by  law   relating   to   mineral development’’.  The M.M.R.D Act, 1957, is - there can be  no doubt  about  this a law of Parliament relating  to  mineral development.  S.9  of  the said  Act  empowers  the  Central Government  to  fix, alter, enhance or reduce the  rates  of royalty payable in respect of minerals removed from the land or  consumed by the lessee. Sub-section (3) of Section 9  in terms  states  that the royalties payable under  the  Second Schedule  to  the Act shall not be enhanced more  than  once during  a period of three years. India Cement has held  that this is a clear bar on the State legislature taxing  royalty so  as,  in  effect, to amend the  Second  Schedule  to  the Central  Act and that if the cess is taken as a tax  falling under  Entry  50  it  will be ultra vires  in  view  of  the provisions of the 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’’ of mines and minerals under the control of the Union. Under Entry  54 of List I, regulation of mines and mineral development is in the  field of Parliamentary legislation ‘‘to the  extent  to which such regulation and                                                        154 development  under the control of the Union is  declared  by Parliament by law to be expedient in the public  interest’’. Such a declaration is contained in S. 2 of the M.M.R.D. Act, 1957, which has been set out earlier. It, therefore,  follow that  any State legislation to the extent it  encroaches  on the  field covered by the M.M.R.D. Act, 1957, will be  ultra vires.  The  assessees  contend,  in  this  case,  that  the

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legislation  in question is beyond the purview of the  State legislature by reason of the enactment of the M.M.R.D.  Act. It  would appear, prima facie that the contention has to  be upheld on the basis of the trilogy of decisions referred  to at the outset viz. Hingir-Rampur, Tulloch and India  Cement. They seem to provide a complete answer to this question. The argument  is, however, discussed at some length, because  it has  been put forward, mutatis mutandis, in support  of  the levy of cess by the other State as well.      Before dealing with the contentions of the counsel  for the  State  in  this behalf, a reference may be  made  to  a difference in wording between Entry 52 and Entry 54 of  List I.  The  languages  of Entry 52 read  with  Entry  24  would suggest that, once it is declared by Parliament by law  that the  control  of  a  particular industry  by  the  Union  is expedient  in  the public interest, the  State  legislatures completely lose all competence to legislate with respect  to such an industry in any respect whatever, indian Tobacoo Co. Ltd.  v.  Union [1985] Supp. 1 S.C.R. 145. But,  even  here, there  are judicial decisions holding that such  declaration does  not divest the State legislature of the competence  to make  laws the pith and substance of which fall  within  the entries in List II, (see for e.g. Kannan Dewan Hills Co.  v. State  of  Kerala, [1973] 1 S.C.R. 856  and  Ishwari  Khetan Sugar  Mills Ltd. v. State of U.P., [1980] 3 S.C.R.  331  to which  reference  will  also be made later,  merely  on  the ground that it has some effect on such industry. Compared to that of Entry 52, the language of Entry 54 is very  guarded. It deprives the States of legislative competence only to the extent to which the law of Parliament considers the  control of  Union  to be expedient in the 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                                                        155 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 of  Parliament  proposing to acquire  certain  coal  bearing areas  in  the State qua certain areas vested in  the  State itself.  While upholding the general right of Parliament  to legislate  for the acquisition of even property vested in  a State, the Court pointed out that this could be done only if there  is  some provision in the Central Act,  expressly  or necessarily implying that the property of the State is to be acquired  by the Union.  However, the Court held,  when  the requisite  declaration under Entry 54 is made, the power  to legislate  for  regulation  and  development  of  mines  and minerals under the control of the Union, would, by necessary implication,   include  the  power  to  acquire  mines   and

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minerals.      Baijnath  Kedia v. State of Bihar, [1970] 2 S.C.R.  100 was a case arising out of a 1964 amendment to the Bihar Land Reforms  Act, 1950.  By section 10 of the 1950 Act, all  the rights  of former landlords or lessors under  mining  leases granted by them in their "estates" came to be vested in  the State;  but  the terms and conditions of those  leases  were made  binding  upon the State Government.   Under  a  second proviso to this provision and a sub-rule added by virtue  of the 1964 amendment, additional demands were made to lessees, the  validity  of which was challenged  successfully  before this  Court.  The Court, applying Hingir Rampur and  Tulloch held  that  the  whose whole of  the  legislative  field  in respect  of  minor  minerals was  covered  by  Parliamentary legislation  and Entry 23 of List II was to the  extent  cut down  by  Entry 54 of List I.  The old leases could  not  be modified except by a legislative enactment by Parliament  on the lines of S.16 of the M.M.R.D. Act, 1957.      In State of Haryana v. Chanan Mal, [1976] 3 S.C.R., 688 the  State  Government  had declared saltpetre  as  a  minor mineral and auctioned saltpetre mines in the State under the M.M.R.D.  Act,  1957  read with the  Punjab  Minor  Minerals Concession Rules, 1964.  In a writ petition filed by one  of the owners, the High Court held, unless the mineral deposits were  specifically  mentioned  in the  wajib-ul-arz  of  the village                                                        156 as  having  vested  in  the  State,  their  ownership  would continue   to  remain  vested  in  the  former   proprietors according  to the record of rights. To meet this  difficulty and  the  difficulties that had been  created  by  haphazard leases  created  by  the erstwhile  proprietors,  the  State legislature passed the Haryana Minerals (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 Government, the State Government  had  a sphere of its own powers and  could  take legally  specified actions under the Central Act and  rules. In  particular  S.16(1)(b) of the Central  Act  showed  that Parliament itself contemplated State legislation for vesting of   lands  containing  minerals  deposits  in   the   State Government,  a feature that could be explained only  on  the assumption that Parliament did not intend to touch upon  the power  of State legislatures under Entry 18 of List II  read with Entry 42 of List III.S.17 also showed that there was no intention  to interfere with vesting of lands in the  States by the provisions of the Central Act. The decision of Hingir

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Rampur,  Tulloch and Baijnath Kedia were distinguished.   In Chanana  Mal  (Supra), the respondents relied  upon  certain observation  in  Hingir-Rampur and State of West  Bengal  v. Union,  (supra).   The Court,  however,  distinguished  them saying:           "In the two cases discussed above no provision  of           the Central Act 67 of 1957 was under consideration           by  this  Court.  Moreover, power to  acquire  for           purposes  of  development and regulation  has  not           been  exercised by Act 67 of 1957.  The  existence           of power of Parliament to legislate on this  topic           as an incident of exercise of legislative power on           another subject is one thing.  Its actual exercise           is another.                                                        157           It   is  difficult  to  see  how  the   field   of           acquisition could become occupied by a Central Act           in  the  same  way  as it had  been  in  the  West           Bengal’s  case  (supra)  even  before   Parliament           legislate  to  acquire land ina  State.  At  least           untill  Parliament  has so legislated  as  it  was           shown  to have done by the statute  considered  by           this Court in the case from West Bengal, the field           is  free for State legislation falling  under  the           express provisions of entry 42 of List III". Tulloch  and Baijnath Kedia were also considered  no  longer applicable  as  Ss.16 and 17 of the M.M.R.D. Act,  1957  had been  amended  to  get over the  need  for  a  parliamentary legislation pointed out in Baijnath Kedia.      A  similar question whether the State  legislature  was competent  to acquire certain sugar undertakings,  when  the sugar  industry had become a "declared: industry  under  the provisions of Entry 52 of List I read with S.2 of the I.D.R. Act,  arose for consideration of Ishwari Khetan Sugar  Mills (P)  Ltd. v. State of U.P.,[1980] 3. S.C.R. 331.   Answering this question in the affirmative, the Court observed :           "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 manage-                                                        158           ment or control of any industrial undertaking in a           declared  industry  the bar of  section  20  would           inhibit  exercise  of such executive  power.   The

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         inhibition of section 20 is on the executive power           which  if  as  a sequel to an  acquisition  of  an           industrial  undertaking the management or  control           of  the industrial undertaking stands  transferred           to  the  acquiring  authority section  20  is  not           attracted.  It does not preclude or forbid a State           legislature exercising legislative power under  an           entry  other  than Entry 24 of List II and  if  in           exercise    of   that   legislative   power    the           consequential  transfer of management  or  control           over  the  industry or undertaking follows  as  an           incident  of  acquisition  such  taking  over   of           management  or control pursuant to an exercise  of           legislative power is not within the inhibition  of           section 20:. The decisions in the above two case were, again, applied  in Western   Coalfields  Ltd.  v.  Special   Area   Development Authority, [1982] 2 S.C.R. 1. Here the question was  whether the  enactment of the Coal Mines Nationalisation  Act,  1973 and  the M.M.R.D. Act 1957 precluded the  State  legislature from  providing  for   the levy of a  property  tax  by  the Special Area Development Authority, constituted under a 1973 Act  of  the  State legislature, in  respect  of  lands  and buildings  used  for  the purposes of and  covered  by  coal mines.   The plea on behalf of the appellant-coalfields  was that  the State Act was invalid (a) as it encroached on  the field  vested in the Centre by reason of the declaration  of S.2  of  M.M.R.D. Act and (b) as it impeded the  powers  and functions of the union under the Coal Mines  Nationalosation Act   1973  which  had  been  enacted  by  Parliament   "for acquisition  of coal mines with a view to  reorganising  and restructuring  such  coal mines so to ensure  the  rational, coordinated  and scientific development and  utilisation  of coal  resources  as  best  to  subserve  the  common  good". Rejecting this contention the Court held :           " Apart from the fact that there is no data before           us  showing that the property tax  constitutes  an           impediment in the achievement of the goals of  the           Coal Mines Nationalisation Act, the provisions  of           the  M.P. Act of 1973, under which  Special  Areas           and  Special  Area  Development  Authorities   are           constituted  afford  an effective  answer  to  the           Attorney  General’s contention.  Entry 23 of  List           II  relates  to "Regulation of mines  and  mineral           development  subject to the provisions of  List  I           with  respect to regulation and development  under           the control of the Union".  Entry 54 of List I                                                        159           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

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         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 special areas, lays  down           by sub-section (4) that: Notwithstanding  anything           contained   in   the  Madhya   Pradesh   Municipal           Corporation   Act,   1956,  the   Madhya   Pradesh           Panchayats Act, 1962 the Municipal Corporation,           Municipal  Council, Notified Area Committee  or  a           Panchayat, as the case may be shall, in relation           to  the special area and as from the date  of  the           Special Area Development Authority undertakes  the           function  under  clause  (v)  of  clause  (vi)  of           Section  68  ceases  to exercise  the  powers  and           perform the function and duties which the  Special           Area   Development  Authority  is   competent   to           exercise  and  perform  under  the  Act  of  1973.           Section  68  defines the function of  the  Special           Area  Development  Authority,  one  of  which   as           prescribed  by  clause  (v),  is  to  provide  the           municipal  services as specified in  sections  123           and 124 of the Madhya Pradesh Municipalities  Act,           1961. Section 69, which defines the powers of  the           authority, shows that those powers are  conferred,           inter   alia   for  the   purpose   of   municipal           adminstration.  Surely, the functions, powers  and            duties of Municipalities do not become an occupied           filed  by reason of the declaration  contained  in           section 2 of the mines and Minerals (Development &           Regulation)  Act,  1957.   Though,  therefore,  on           account of that declaration, the legislative field           covered by Entry 23, List II may pass                                                        160           on  to the Parliament by virtue of Entry 54,  List           I, the competence of the State Government to enact           laws  for  municipal  adminstration  will   remain           unaffected by our declaration.           Entry  5 of List II related to "Local  Government,           that  is  to say, the constitution and  powers  of           municipal corporation and other local  authorities           for the purpose of local self-Government".  It  is           in   pursuance  of  this  power  that  the   State           legislature enacted the Act of 1973.  The power to           impose  tax on lands and buildings is  derived  by           the State Legislature from Entry 49 of List II:  "           Taxes  on lands and buildings". The power  of  the           municipalities to levy tax on lands and  buildings           has been conferred by the State Legislature on the           Sspecial  Area  Development  Authorities.    Those           authorities  have  the power to levy that  tax  in           order  effectively  to  discharge  the   municipal           functions  which are passed on them. Entry  54  of           List  I  does not contemplate the taking  over  of           municipal functions." The Court pointed out that Murthy provided a complete answer to the above contention. 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

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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  the reasoning in Hingir-Rampur and Tulloch but  only reefers to certain observations in the dissenting  judgement of Wanchoo J ( as His Lordship then was) in the former  case and urged.                                                        161 that  the entire matter requires careful consideration.   He submitted that Tulloch and Western Coalfields represent  two lines of cases which need reconciliation and that this  task has not been attempted at all in India Cement.      On the other hand, learned counsel for the  respondents submitted  that the authority of the Constitution  Bench  in Western    Coalfields-which   endorsed   Murthy-should    be considered  weak  after  India  Cement-which  has  overruled Murthy.  The  present case, it is  submitted, is  closer  to Baijnath  Kedia.  It  is submitted that  the  principles  of Tulloch  have been referred to with approval in a number  of cases  [  Karunanidhi,  1979-3SCR 254 at  277]  Hind  Stone, [1981]  2 SCR 742 at 746m I.T.C., [1985] Suppl. SCR  145  at 168 and are too well settled to need any reconsideration.      It is clear from a perusal of the decisions referred to above that the answer to the question before us depends on a proper understanding of the scope of M.M.R.D. Act 1957,  and an assessment of the encroachment made by the impugned State legislation into the field covered by it.  Each of the cases referred  to  above turned on such an  appreciation  of  the respective spheres of the two legislations.  As pointed  out in  Ishwari  Khetan,  the  mere  declaration  of  a  law  of Parliament  that  it  is expedient for an  industry  of  the regulation and development of mines and minerals to be under the control of the Union under Entry 52 or entry 54 does not denude  the State legislatures of their  legislative  powers with respect to the fields covered by the several entries in List  II  or  List  III.  Particularly, in  the  case  of  a declaration  under  Entry  54,  this  Legislature  Power  is extended  to  the  extent control is assumed  by  the  Union pursuant to such declaration as spelt out by the legislative enactment  which  makes  the declaration.   The  measure  of erosion  turns  upon the field of the  enactment  framed  in pursuance  of  the declaration.  While  the  legislation  in Hingir-Rampur and Tulloch was found to fall within the  pale of the prohibition, those in Chanan Mal, Ishwari Khetan  and Western  Coalfields were general in nature and traceable  to specific  entries in the State List and did not encroach  on the  field  of  the  Central  enactment  except  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

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                                                      162 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 particular, and without prejudice  to  the           generality of the foregoing power, such rules  may           provide  for all or any of the following  matters,           namely :-           (i)   the  fixing  and  collection  of  fees   for           prospecting  licenses  or mining  leases,  surface           rent,  security  deposit,  fines,  other  fees  or           charges  and the time within which and the  manner           in  which  the  dead  rent  or  royalty  shall  be           payable;*           XXX         XXX         XXX         XXX         XXX           (m)  the  construction,  maintenance  and  use  of           roads,   power   transmission   lines,   tramways,           railways,  aerial rope ways, pipe lines  and   the           making  of passages for water for mining  purposes           on any land comprised in the mining lease;           XXX         XXX         XXX         XXX         XXX           (qq)  The manner in which rehabilitation of  flora           and  other vegetation such as trees and  the  like           destroyed  by reason of any prospecting  a  mining           operation shall be made in the ______________________________________________________________ *Substituted  by Act 37 of 1986 for the original clause  (i) which read:      (i) the fixing and collection of dead rent, fines, fees      or  other charges and their collection of royalties  in      respect of-      (i) prospecting licenses,      (ii) mining leases,      (iii)   minerals,   mines,   quarried,   excavated   or collected".                                                        163           same  area  or in any other area selected  by  the           Central    Government   (whether   by    way    of           reimbursement  of  the cost of  rehabilitation  or           otherwise)  by the person holding the  prospecting           license or mining lease"* S.18, which originally laid a duty on the Central Government to  take  all  such  steps as  may  be  necessary  "for  the conservation and development of minerals in India" has  been amended  by  Act  37  of  1986  to  cover  steps  "for   the conservation and systematic development of minerals in India and  for  the  protection of environment  by  preventing  or controlling any pollution which may be caused by prospecting or mining operations" and the scope of the rule-making power under S.18(2) has likewise been enlarged. S.25(1) read thus:           "25(1) Any rent, royalty, tax fee or other sum due           to the Government under this Act or the rules made

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         thereunder  or under the terms and  conditions  of           any prospecting licence or mining lease may, on  a           certificate of such effect as may be specified  by           the State Government in this behalf by general  or           special order, be recovered in the same manner  as           an arrear of land revenue". and sub-section (2) provides, further, that all such  "rent, royalty,  tax,  fee"  etc. shall be a first  charge  of  the 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 inserted by Act 37 of 1986                                                        164      Sri Iyer contended that the object and purposes of  the Orissa  Act  and  its provisions  were  quite  distinct  and different  from the object and purposes of the  Central  Act with  the  result  that the  two  enactments  could  validly coexist  since  they do not cover the same  field.   It  was argued that the impugned Act was concerned with the  raising of funds to enable panchayats and Samitis to discharge their responsibilities of local administration and take steps  for proper  development of areas (including mining areas)  under their jurisdiction whereas the Central Act was concerned not with  any social purpose but merely with the development  of mineral  resources  of the country  and as  such  the  State legislation in this regard may also be treated as  referable to  Entry No.5 of the State List as the statute  in  Western Coalfields (supra).      As to the reliance on Entry 5 of List II, it is plainly to  tenuous.   As  pointed  out by Sri  Bobde,  there  is  a difference between the ‘object’ of the ACt and its ‘subject. The object of the levy of the fees may be to strengthen  the finances  of local bodies but the Act has noting to do  with municipal  or local administration. In this context, it  may be  pointed  out  that  while S.10 of  the  Orissa  Act,  as originally enacted, provided for a distribution of the  cess collected   among  local  bodies,  an  amendment   of   1970 restricted  the utilisation of the cess partly  for  primary education  and partly for the above purpose.  Even this  was amended  in  1976 whereafter there has been  no  restriction regarding  the  cess collected in respect  of  mining  areas which form part of the consolidated fund of the State.   The levy has, therefore, ceased to be capable of being described as  a fee.  Even if its purpose is only to levy a  fee,  the fee  can  be described only as one with  respect  of  ‘land’ (Entry 18) if considered generally or with respect to  mines

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and  minerals  development (Entry23) if  restricted  to  the nature  of  the  issue  before us.   We  shall  discuss  the relevance  of  Entry  18 later but, so far as  Entry  23  is concerned, the State’s legislative competence is subject  to the field covered by the Central Act.  Turning therefore  to the  distinction  sought to be made between  the  respective areas  of  operation  of the two Acts  the  answer  to  this contention  is provided by Hingir Rampur.  The  Constitution Bench first set out the scheme of the impugned 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                                                        165           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  to           attract  workmen to the area.  Before the  Act  wa           passed  it appears that the mine owners  tried  to           put  up small length roads and tramways for  their           own  individual purpose, but that obviously  could           not  be as effective as roads constructed  by  the           State  and tramway service provided by it.  It  is           on  a consideration of these facts that the  State           Legislature  decided to take an active part  in  a           systematic development of its mineral areas  which           would  held  the  mine  owners  in  moving   their           minerals  quickly through the shortest  route  and           would attract  labour to assist the excavation  of           the minerals.  Thus there can be no doubt that the           primary and the principal object of the Act is  to           develop  the  mineral areas in the  State  and  to           assist more efficient and extended exploitation of           its mineral wealth". A  little later, at pare 559, the provisions of Central  Act LIII of 1948 which were less far reaching that those of 1957 ACt  as  can be seen from the observations at  page  476  of Tulloch- were analysed and the Court concluded :           "Amongst the matters covered by S.6(2) is the levy           and  collection  of royalties, fees  or  taxes  in           respect of minerals mined, quarried, excavated  or           collected.  It is true that no rules have in  fact           been framed by the Central Government in regard to           the  levy and collection of any fees; but, in  our           opinion, that would not make any difference.    If           it is held that this Act contains the  declaration

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         referred to in Entry                                                        166           23  there would be no difficulty in  holding  that           the  declaration covers the field of  conservation           and development of minerals, and the said field is           indistinguishable  from the field covered  by  the           impugned  Act. What Entry 23 provides is that  the           legislative competence of the State Legislature is           subject  to the provisions of List 1 with  respect           of regulation and development under the control of           the  Union,  the  Entry 54 in List  1  requires  a           declaration  by Parliament by law that  regulation           and  development  of  mines should  be  under  the           control   of   the  Union  in   public   interest.           Therefore,  if a Central Act has been  passed  for           the purpose of providing for the conservation  and           development  of minerals, and if it  contains  the           requisite  declaration,  then  it  would  not   be           competent  to State Legislature to pass an Act  in           respect of the subject matter covered by the  said           declaration.  In order that the declaration should           be effective it is not necessary that 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 would include the  provision  of           amenities  to workmen employed in the mines  which           was  necessary in order to stimulate  or  maintain           the working of mines.  The test which he suggested           was whether, if under the power                                                        167           conferred   by  s.18(1) of the  Central  Act,  the           Central  Government has made rules  providing  for           the amenities for which provision was made by  the           Orissa  Act  and  if the  Central  Government  had           imposed  a  fee  to defray  the  expenses  of  the           provision of these amenities, would such rules  be           held to be ultra vires of the Central  Government,           and  this particularly when taken  in  conjunction           with  the  matters for which rules could  be  made           under  s.13  to which reference has  already  been           made.  We consider there is considerable force  in           this   submission  of  learned  counsel  for   the           respondent,  and thus would require very  detailed

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         and  careful scrutiny.  We are, however,  relieved           from   this  task  of  detailed  examination   and           discussion of this matter because we consider that           it is concluded by a decision of the Court in  the           Hingir-Rampur Coal Co. Ltd & Ors. v. The State  of           Orissa & Ors., [1961] 2.S.C.R. 537 The above argument was accepted by the Court, vide page 476, Reference  may also be made here to the recent  decision  of this Court in Bharat Coking Coal v. State of Bihar, [1990] 2 Scale 256.  The question whether the State of Bihar had  the authority  to grant a lease for lifting coal  slurry  coming out of the appellants washeries and getting deposited on the river  bed or other lands was answered in the  negative  the court  came  to  the  conclusion that  the  "slurry"  was  a "mineral"  and that its regulation was within the  exclusive jurisdiction  of  Parliament. The Court, in  coming  to  the conclusion, held that no rules had been framed under S.18(1) or  18(2)  (k)-  disposal or discharge of  waste,  slime  or tailing arising from any mining or metallurgical  operations carried out but held that this was immaterial in view of the principles laid down in Hingir Rampur, Tulloch and  Baijnath Kedia.   These observations establish on the one  hand  that the   distinction   sought  to  be  made   between   mineral development  and mineral area development is not a real  one as  the  two  types  of  development  are  inextricably  and integrally  interconnected and, on the other, that, fees  of the  nature  we are concerned with squarely  fall  with  the scope  of the provisions of Central Act.  The object of  S.9 of  the Central 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                                                        168 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 royalties and that, if different royalties  were  to be charged in  different  States,  their working would become impossible.  There appears to be  force in  this  submission.  As pointed out in India  Cement,  the Central  Act bars an enhancement of the royalty directly  or indirectly, except by the Union and in the manner  specified by  the 1957 Act, and this is exactly what the impugned  Act does.   We have, therefore, come to the conclusion that  the validity  of the impugned Act cannot be upheld by  reference to Entry 23 or Entry 50 of List II.      An attempt was made to rest the legislation of Entry 18 of List II viz. ‘land’.  This attempt cannot succeed for the reasons whichever have set out to negative the plea that  it falls  under  Entry  49.  A similar pleas  in  Baijnath  was rejected by Hidayatullah C.J. in the following words :

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         "Mr.   L.N.  Sinha  argued  that  the   topic   of           legislation  concerns  land  and  therefore  falls           under  entry 18 of the State List and he drew  our           attention  to other provisions on the  subject  of           mines  in  the  Land  Reforms  Act  as  originally           passed.    The   abolition  of   the   rights   of           intermediaries  to  the mines  and  vesting  these           rights  as lessors in the State Government  was  a           topic  connected with land and land tenures.   But           after  the mining leases stood  between the  State           Government   and  the  lessees,  any  attempt   to           regulate  those  mining leases will  fall  not  in           entry   18  but  in  entry  23  even  though   the           regulation  incidentally touches land.   The  pith           and  substance  of the amendment to  s.10  of  the           Reforms  Act  falls within entry  23  although  it           incidentally  touches  land and  not  vice  versa.           Therefore  this  amendment  was  subject  to   the           overriding power of Parliament as declared in  Act           67  of 1957 in S.15.  Entry 18 of the State  List,           therefore, is no help".                                                        169 It  will  be seen that, if the levy in  question  cannot  be described  as a tax on land, it cannot be described  as  fee with regard to land either.      For the reasons above mentioned, we hold that the  levy of  cess  under  S.5 to 7 of the Orissa Cess  Act,  1962  is beyond the competence of the State Legislature. Bihar:      The relevant provisions of the Bihar statutes have been set  out  earlier.   While  S.5  only  lays  down  that  all immovable  property shall be liable to a local cess and  S.6 provides  for  the levy to be based on the annual  value  of lands  and  sale value of other  immovable  properties,  the latter section specifically enacts that 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, therefore assume that the levy  can be  treated, in part, as a fee and, in part, as a tax.   But even  this does not advance the case of the respondents  for the reasons already discussed.      Shri Chidambaram submits that, in the original  counter affidavit  filed on behalf of the State, no case was  sought to be made out that it was a tax on land, the case was  that it was a "tax on mineral rights".  He urged that, this being out  of question because of India Cement (para 23 and 30)  a belated  attempt is made to bring it under Entry 49.  we  do

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not  need to discuss the contentions here in detail  because this  is a clearer case of levy on royalty than  in  Orissa; and,  for the reasons we have outlines in our discussion  in regard to the Orissa Acts, this levy                                                        170 has also to be declared invalid.      Shri  Chidambaram also contended that the State  cannot seek  sustain  the  levy  by relying  of  Art.  277  of  the Constitution  , in view of the fact that the cess  is  being levied since 1880.  Article 277 is in these terms :           "Any   taxes,  duties,  cesses  or   fees   which,           immediately   before  the  commencement  of   this           Constitution,  were being lawfully levied  by  the           Government  of any State or by an municipality  or           other  authority or body for the purposes  of  the           State, municipality, district or other local  area           may,  notwithstanding  that those  taxes,  duties,           cesses  or fees are mentioned in the  Union  List,           continue  to  be levied and to be applied  to  the           same  purposes until provision to the contrary  is           made by Parliament by law". We  think,  as rightly contended by Sri Chidambaram  that  a reliance on Art. 277 will be misplaced for three reasons :      (a)  The  levy  that is challenged  is  under  S.6,  as      amended in 1975, i.e. a post-constitution levy;      (b)  S.6 on its own language, is operative only  "until      provision  to the contrary is made by  the  Parliament"      and,  as we have held that the field is covered by  the      M.M.R.D.   Act,  is  supersedes  the  effect   of   S.6      re:mineral lands; and      (c)  Article 277 only saves taxes, duties,  and  cesses      mentioned  therein if they continue to be  applied  for      the same purposes and until Parliament by law  provides      to the contrary and with the enactment of the  M.M.R.D.      Act,  1957, they cease to be valid.  In  this  context,      the following observations of this Court in Ramakrishna      Ramanath v. Janpad Sabha,[1962] Supp 3 SCR 70 quoted in      Town  Municipal Committee v. Ramachandra, [1964] 6  SCR      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,                                                        171           (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)

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in a judgement dated 6.11.90, following India Cement. Madhya Pradesh :      We now turn to the provisions of Madhya Pradesh Act  15 of 1982.  We are concerned only with Part IV which levies  a cess not on land in general which could be referred to Entry 18  or  Entry 49 but only on land held  in  connection  with mineral  rights  which,  in the State,  are  principally  in regard to coal and limestone.  Under S.9 the proceeds are to utilised  only towards the general development  of  mineral- bearing  areas.   Although  there is no  provision  for  the constitution of a separate fund for this purpose as is found in  relation to the cesses levied under Part II or Part  III of  the Act this considerations alone does not preclude  the levy  from being considered as a fee:vide Srinivasa  Traders V. STate [1983] 3.SCR 843 at 873.  The clear ear-marking  of the levy for purposes connected with development of  mineral areas was considered by the High Court, in our view rightly, sufficient  to treat it as a fee.  However, the  High  Court pointed  out,  such fee would be referable to item  23  and, hence,  out of bounds for the State Legislature,  after  the enactment of M.M.R.D. Act, 1957.  For the reasons which have already been discussed in relation to the Orissa Statute, we uphold this conclusion.                                                        172      The  other  statute  viz.  the  Madhya  Pradesh   Upkar Adhiniyam  (Act  1 of 1982) came up for consideration  of  a Full  Bench  of the Madhya Pradesh High Court in  M.P.  Lime Manufacturer’s  Association v. State, (and connected  cases) in AIR 1989 M.P. 264.  The Full Bench held that, in view  of s.12  of the Act having been deleted by the 1989  amendment, the levy under s.11 of the Act ceased to be a fee and become a  tax.   It held further that the levy was not  covered  by Entry  49 or Entry 50 of List II and was,  therefore,  ultra vires. It observed :           "It  is  significant  to note  that  cess  is  not           imposed  on all land and that it is not  dependent           either   on  the  extent  of  the  land  held   in           connection  with  mineral rights or on  the  value           thereof.  The subject-matter of tax, therefore, is           major  mineral  raised  from  the  land  held   in           connection with mineral right.  If no minerals are           raised,  tax  is  not livable.   The  tax  is  not           dependent  on  the  extent of  the  land  held  in           connection  with  mineral rights. It is  not  case           where all land is liable to payment of cess,  that           the  liability  is assessed on the  basis  of  the           value of the land and that the measure 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."

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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                                                        173           lease.  The tax is levied on minerals produced  in           land   held   under   mining   lease.   In   these           circumstances, the tax levied by the Act cannot be           held to be a tax covered by Entry 50 of List II of           the Seventh Schedule to the Constitution.  In  our           opinion, therefore, it has not been shown that the           State   Legislature  is  competent  to  levy   the           impugned cess." This  conclusion  is obviously correct in the light  of  our earlier  discussion.   The  court,  however,  expressed   an opinion, in paras 10 to 12 of the judgment, that in case the levy  could be treated as a tax imposable under Entry 49  or 50  of List II in the Second Schedule to  the  Constitution, such power "has not been taken away by the provision of  the MMRD  Act".    We think, as already pointed out by  us  that though  the  MMRD Act, 1957, unlike s.6(2) of the  1948  Act does not contain a specific provision for the levy of taxes, s.25  of  the  former does indicate the  existence  of  such power.  The above observations of the High Court, therefore, in our view, do not attach sufficient importance to s.25  of the  MMRD  Act and the field covered thereby.  This  aspect, however,  is not of significance in view of  the  conclusion that the tax is not referable to Entry 49 or Entry 50.      We  may  add  that a Bench of this  Court  has  already dismissed the State’s petition for leave to appeal from  the judgment  of the Full Bench (S.L.P. 10052/89, 12696/84  etc. disposed  of  on 5.2.90) in limine as  squarely  covered  by India  Cement.  It is brought to our notice that the  Madhya Pradesh High Court, after India Cement, has reaffirment  its conclusions   in  Hiralal  and  M.P.   Lime   Manufacturers’ Association  in Ankur Textiles and Another v. South  Eastern Coalfields,  (M.P. No. 1547 of 1990) in the light  of  India Cement.                       THE REFUND ISSUE      Having  thus concluded that the levy of cess under  the Orissa, Bihar and Madhya Pradesh enactments is invalid,,  it becomes  necessary to consider the logical  consequences  of such a conclusion.  Prima facia it would seem that the  levy should  be considered bad since its inception and  that  all cess levied under the impugned provisions should be directed to  be  refunded to the assessees, particularly in  view  of Article  265 of the Constitution. For the  States,  however, reliance is placed on the following observations in para  35 of the judgement in India Cement to contend to the contrary. Towards   the  conclusion  of  his   judgement,   Sabyasachi Mukherjee, C.J. dealt with this issue thus :                                                        174           "Mr.  Krishnamurthy 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

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         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  position.   We   are,           therefore,   of  the  opinion  that  we  will   be           justified  in declaring the levy of the said  cess           to   be  ultra  vires  the  power  of  the   State           Legislature prospectively only".      Relying on the above, observations, it is submitted for the States that they should not be directed to refund a cess which  they have been levying for several years in the  past on  the  basis of the law declared by the Supreme  Court  in Murthy.  Certain other circumstances have also been  brought to our notice in this connection :           (i) Several States have preceded on the basis that      they  are  entitled  to levy a cess of  the  nature  in      question. In addition to the States referred to earlier      in  the  judgement, Rajashtan and Andhra  Pradesh  have      also similar statues.           (ii)  The levy accounts for a substantial part  of      the  States finances particularly in States  which  are      rich  in  minerals.  For e.g. State of  Madhya  Pradesh      accounts  for  a  good  percentage  of  this  country’s      mineral resource.  It produces 26.53% of the  country’s      production  in limestone.  36% in dolomite,  28.14%  in      coal,  21.5%  in iron ore, 13% in  bauxite,  21.38%  in      Manganese ore,                                                        175      14.43% in rock phosphate, 33% in copper ore and so  on.      The amounts of cess run to several crores.  A direction      to  refund the cess collected thus far will  result  in      crying  halt to all developmental activities  initiated      and  put  through  and cause irreparable  loss  to  the      State.           (iii)  As pointed out (for e.g. in pars 5 to 8  in      CMP  Nos.  31187 to 31196 of 1984 in CA  Nos.  1640  to      1643,1645,1649, 1654,  1655,1659, and 1662 of 1986) the      impact  of the cess has already been passed on  by  the      assessees- which are leading industries that can easily      bear  the  brunt of the same- to  their  customers.   A      refund granted to them will only result in their unjust      enrichment  and  this  should  be  safeguarded  against      applying  the  principles  in  U.P.  State  Electricity      Board, Lucknow & Ors. v. City Board, Mussoorie &  Ors.,      [1985]  2  SCR  815 at page 824  and  State  of  Madhya      Pradesh v. Vyankatlal & Anr., [1985] 3 SCR 561 at  page      568.      The  above  request  was  vehemently  opposed  by   the assessees counsel.  Presenting their case on this issue, Sri Nariman  (appear for the appellants in C.A. 4353-4  of  1983 and  C.A. 2053-80 of 1980) contended that we  should  ignore the  dicta in para 35 of India Cement as per  incuriam.   He submitted,  first,  that the Court there has  acted  on  the assumption  that  a doctrine of prospective  overruling  had

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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 265  say so.  There is no scope for, and no room for the exercise  of any discretion by, the Court to say that, there articles  of the Constitution notwithstanding, they                                                        176 would treat the legislation to be valid for a certain period or for certain purposes.  Third, he submitted that the above objection  cannot be "circumvented" by a resort  to  Article 142.   Sri  Nariman  referred  us in  this  context  to  the observations in the following decisions of this Court: Re: Article 246 Pesikaka            1955-1 SCR 613      at pp652,654,656 Chamarbaugwala      1857 SCR 930        at p. 940 Sundararamier & Co  1958 SCR 1422       at pp 1468-1474 West Ramnad         1963-2 SCR 747      at p.764 M.L. Jain           1963 Supp 1SCR 912  at pp 530-41 Re: Article 265 Moopil Nayar        1961-3 SCR 77       at p. 89 Balaji              1962-2 SCR 983      at p. 996 Chottachan          1962 Supp. 2 SCR 1  at pp. 29-30 Bakshi Singh        1963-1 SCR 220      at p. 233 Re: Article 142 Garg                1963 Suppl. 1 SCR   at pp. 896-8 It is submitted , relying on Mahabir Kishore  Ors. v.  State of  Madhya  Pradesh,  [1989] 4 SCC 1 that a  refund  is  the automatic  and inevitable consequence of the declaration  of invalidity  and  should be granted proved a  suit  within  a period   of  limitation  or  a  writ  for  declaration   and consequential relief is filed.      Supplementing  the  above arguments, Sri  G.  Ramaswamy appearing  for some of the assessees, contended  that  there can  be no question of the Court exercising  any  discretion under  Article 142 so as to destroy a fundamental  right  of the   assessees.   Learned  counsel   also  submitted   that considerations  of hardship of the States, in case they  are called  upon  to  refund huge amounts, can  be  no  relevant consideration  at all.  He urged, that in some at  least  of the cases here, there is no averment, much less evidence, of any  irreparable  hardship  that is likely to  result  if  a refund is ordered.  He also pointed out that in the                                                        177 converse situation where a retrospective levy is held to  be valid,  assessees have been held entitled to no relief  from payment of back duty on grounds of hardship: vide Chhotabhai Jethabhai  Patel  & Co.v. Union of India [1962] 2  Supp.  at

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Pp12,13 and urged that there cannot be a different rule  for the  State.  Sri B. Sen submitted that the ruling in  Murthy could not be invoked to seek prospective invalidation as, at least  so  far as Orissa was concerned, as the  decision  in Tulloch  had clearly defined the limitations of the  State’s power to make such levies.      In  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 the cess for the quarter ending  December, 1989  onwards  will not be enforced  until  further  orders. Presumably, therefore, there has been no collection for cess in Orissa since that period. (iii)  The  position in the Orissa case of  Orient  Paper  & Industries  Ltd.  is somewhat different. It is  pointed  out that  when  the levy of cess first came  into  force  w.e.f. 1.4.1977,  the Western Coalfields Ltd. who supplied coal  to the  assessees  had challenged the levy of cess  by  a  writ petition  and  obtained  an  interim  injunction  order  but eventually withdrew the writ petition.  But  simultaneously, the  said company wrote to the assessee that the amounts  of cess (which were collected from the assessee) would be  kept in a suspense account and that, after a deci-                                                        178 sion  is  rendered  by a court of law, it  will  be  decided whether they should be deposited with the State against cess or be refunded to the assessees.  It was made clear that, in case  the  levy of cess is held invalid, "there will  be  no hitch  in refunding the amount".  This arrangement  went  on between 1977 and 1982.      On  21.9.1982,  the  assessee  filed  a  writ  petition challenging  the levy as it was enahanced from 25%  to  100% from  1.4.80. An interim stay was granted by the High  Court restricted  to be enhanced demand but even this was  vacated by  the High Court on 13.5.1983 in view of the  decision  in Lakshmi  Narain Agarwala v. State AIR 1983  Orissa 210  that the  levy  was  valid.   Finally,  the  High  Court  by  its judgement dated 22.12.1989 followed India Cement and allowed the writ but directed that the collections so far made shall be  allowed to be retained by the State as was  directed  by the Supreme Court in the case of India Cement (supra).  This judgement  is the subject matter of SLP 1479 of 1990 by  the State.      The assessee thereupon file a review petition in regard to  the above direction contending ; (a) that a  High  Court had   no   jurisdiction   to  declare   provision   to   the

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unconstitutional only "prospectively"; (b) that the cess  in the case had been collected only by Western Coalfields  Ltd. and  had  not been deposited in the State coffers;  and  (c) that  the  principle of ‘unjust enrichment’  should  equally apply  to the State which should not be permitted to  enrich itself by the levy of an illegal exaction.  The  application for  review  was  dismissed by the High  Court  on  13.7.90. Thereupon  the assessee has preferred the unnumbered 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:                                                        179           "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 delivered by this time, and  it was directed that the State of Bihar should not also enforce any  demand for cess for the quarters ending December,  1989 and thereafter until further orders.  Presumably, therefore, there  has  been  no levy of cess in  Bihar  from  the  last quarter  of  1989 onwards.  Counsel for the  assessees  from Bihar-Sri  Chidambaram  and Sri Shanti Bhushan  stated  that they seek compliance with the order dated 10.2.86 and  would not insist on refund of cess collected earlier to that date.      (v) Turning to the Madhya Pradesh matters, the position is  this, The High Court, by its judgement  dated  28.3.1986 held the levy to be invalid.  In C.A. 1640 to 1662 of  1986, the initial order passed on 2.5.1986 was this :           " There will be stay of refund of the cess already           collected   pending  disposal  of   the   appeals.           Learned counsel for the State states that, in  the           event of the appeals being dismissed the State  is           prepared to pay interest at 12% per annum.   There           will,  however,  be no stay of  operation  of  the           judgement." As  a  result  of  the order,  there  should  have  been  no collection  of cess by the State subsequent to the  date  of the  judgement and only issue could have been regarding  the refund of the cess already collected from 1982 to 28.3.1986.      However,  the  Western Coalfields Ltd.  approached  the Court  with an application in one of the appeals (viz.  C.A. 1649/86)  praying that, pending disposal of the appeals,  it should  be  permitted  to collect the  amount  of  cess  and deposit the same in a separate account in the Bank vis-a-vis each  of  its customers.  This application  was  ordered  on 1.8.86.   When this order was passed, the  State  Government moved  an  application praying that, instead of  the  monies being kept in deposit in bank account by Western  Coalfields

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Ltd.,  it will be conducive to public interest if the  State is  permitted  to  utilise  the  moneys  "in  mineral  areas development programs" and that the State would abide by such                                                        180 terms as the Court may impose at the time of final decision. It  was,  therefore,  prayed that the  Western  Coal  fields should be directed to deposit the amounts collected by it to the   State  Government.   The  Court  found  this   request reasonable and passed the following order on 15.10.86 :           "The order dated 1.8.86 passed in the above appeal           is modified as follows :                The   amount   deposited   by   the   Western           Coalfields Ltd. in a separate account 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  in sub-para (iii) above), apparently on the understanding  that it should be refunded by the concerned State Government with interest  in case the levy is ultimately held invalid.   Sri Bobde, appearing for the Western Coalfields , made it  clear that  this  company would abide  by the  direction  of  this Court,  in  so far as the amounts of cess  collected  by  it remain  with it or are directed to be refunded by the  State Government to it.      We  have  given  our  earned  consideration  to   these contentions and were are of opinion that the ruling in India Cement   concludes   the  issue.   There   the   Court   was specifically called upon to consider an argument that,  even if the statutory levy should be found invalid, the                                                        181 Court  may  not give directions to  refund  amounts  already collected  and the argument found favour with the  bench  of seven  judges.   We  are bound by  their  decision  in  this regard.  It is difficult to accept the plea that, in  giving these  directions,  the Court overlooked the  provisions  of Article  246  and 265 of the Constitution.   The  Court  was fully  aware  of  the  position  that  the  effect  of   the legislation is question being found beyond the competence of the  State legislature was to render it void ab  initio  and the  collections  made thereunder without the  authority  of law.   Yet the Court considered that a direction  to  refund all the cesses collected since 1964 would work hardship  and injustice.  The directions, now impugned, were given in  the interest of equity and justice after due  consideration  and we cannot take a contrary view.

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    In  our  view, we need enter into a discussion  of  the principles of prospective validation enunciated by at  lease some of the Judges in Golaknath (supra) as the direction  in India  Cement  can  be supported  on  another  well  settled principle applicable in the area of the writ jurisdiction of Courts.  We are inclined to accept the view under on  behalf of  the state that a finding regarding the invalidity  of  a levy need not automatically result in a direction for  refund of  all  collections thereof made earlier.  The  declaration regarding   the   invalidity   of  a   provision   and   the determination  of  the  relief that  should  be  granted  in consequence  thereof  are two different things and,  in  the latter  sphere,  the Court has, and must be  held  to  have, certain   amount  of  discretion.   It  is  a   well-settled proportion that it is open to the Court to grant , could  or restrict  the  relief  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 of the relevant statute of files a  suit  to recover the taxes as                                                        182 paid  under a mistake of law.  In such a case, the Court can grant  relief only to extent permissible under the  relevant rules  of limitation.  Even if he files an  application  for refund or a suit for recovery of the taxes paid for  several years,  the  relief will be limited only to  the  period  in regard  to  which the application for refund or a  suit  for recovery  of  the taxes paid for several years,  the  relief will  be limited only to the period in regard to  which  the application  or suit is not barred by limitation.   If  even this instance is sought to be distinguished as a case  where the  Court’s hands are tied by limitations inherent  in  the form of forum in which the relief is sought, let us consider a  very  case  where a petitioner seeks  relief  against  an illegal exaction in a writ petition filed under Article 226. In this situation, the question has often arisen whether the petitioner’s  prayer for refund of taxes collected  over  an indefinite  period of years should be granted once the  levy is  found  to  be illegal.  To answer the  question  in  the affirmative  would result in discrimination between  persons based   on  their  choice  on  the  forum  for   relief,   a classification  which,  prima  facie is too  fragile  to  be considered   a   relevant  criterion   for   the   resulting discrimination.   This is one of the reasons why  there  has been  an understandable hesitation on the part of Courts  in answering the above question in the affirmative.      The  above aspect of the matter has been considered  in several decisions of this Court.  In State of Madhya Pradesh

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v. Bhailal Bhai & ORs., [1964] 6 SCR 261 the respondents who were dealers in tobacco in the State of Madhya Bharat  filed a  writ petition under Article 226 of the  Constitution  for the issue of writ of mandamus directing the refund of  sales tax collected from them on the ground that the impugned  tax was  violative  of Article 301 (a) of the  Constitution  and that they had paid the same under a mistake of law.   It was contended on behalf of the State that even if the  provision violated  the fundamental rights, the High Court should  not exercise  its  discretionary  power of  issuing  a  writ  of mandamus directing refund since there was unreasonable delay in  filing the petition.  This contention of the  State  was rejected by the High Court but on further appeal this  Court tool a different view.  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                                                        183           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 226 on           the  allegations that he has been assessed to  tax           under a void legislation and having paid it  under           a  mistake is entitled to get it back, if  it  the           Court,  finds that the assessment was void,  being           made  under  a  void provision  of  law,  and  the           payment was made by mistake, it is still not bound           to  exercise its discretion  directing  repayment.           Whether   repayment  should  be  ordered  in   the           exercise  of this discretion will depend  in  each           case  of its own facts and circumstances.   It  is           not easy nor is it desirable to lay down any rules           of universal application it may however be  stated           as   a  general  rule  that  if  there  has   been           unreasonable delay, the Court ought not ordinarily           to  lend its aid to a party by this  extraordinary           remedy of mandamus." The  Court  further  pointed  out  that  the  delay  may  be considered  unreasonable even if it is less than the  period of  limitation prescribed for a civil action for the  remedy but where the delay is more than this period, it will almost always  be  proper  for  the  court  to  hold  that  it   is unreasonable.   The  relief  given by  the  High  Court  was modified on this basis.  In Tilokchand Mothichand v.  Munshi [1969] 2 S.C.R., 824 the petitioners had collected sales tax from  their  customers and paid it over to the  State.   The Sales Tax Authorities directed a refund but on the condition

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that  the  amounts  should be passed on  to  the  customers. Since the petitioner did not comply with the condition,  the sales  tax  officer forfeited the sum under S.21(4)  of  the Bombay  Sales Tax Act, 1953.  A writ petition was  filed  by the  petitioner contending that S.21(4)  infringed  Articles 19[10(f)]  and 365 of the Constitution and hence, they  were not  liable to repay the amount.  This was dismissed on  the ground   that  they  had  defrauded  their  customers   and, therefore,  not entitled to any relief even if there  was  a violation  of fundamental rights.  An appeal to  a  Division Bench  was  also  dismissed.   Subsequently,  when  coercive proceedings were taken for recovering the amounts as arrears of  land revenue, the petitioners paid the amounts                                                        184 in 1959-60.  Much later, there was a decision of this  Court striking  down  the corresponding provision  of  the  Bombay Sales  Tax  Act  1946  as  ultra  vires.   The   petitioners thereupon  filed  a writ petition under Article  32  of  the Constitution  claiming a refund of the amounts paid by  them in  consequence of the recovery proceedings. It was held  by four 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  years ago and  could not  be  permitted  to resume  it  several years later merely  because  some  other person  had got the statue declared unconstitutional.  While Hidayatullah C.J. was of the view that the Court should not, on the facts of the case apply for analogy of the article in the  Limitation Act in cases of mistake of law give  relief, Bachawat  and Mitter JJ. felt that even for a writ  petition the limitation period fixed for a suit would be a reasonable standard  for  measuring  delay.    Sikri  J  and  Hegde  J. dissented. Sikri J. was of the view that on the facts of the case  there  was  no delay but that  the  period  under  the Limitation Act should not be applied to such cases and  that a  period  of one year should be taken as  a  period  beyond which the claim would be considered a stale claim unless the delay  is  explained. " Such a practice" the  learned  Judge observed, "would not destroy the guarantee under Article  32 because  the  article  nowhere lays  down  that  a  petition however  late,  should be entertained.  Only  Hegde  J.  was emphatic  that laches or limitation should be no  ground  to deny  relief.  The learned Judge observed (for  brevity,  we quote from head note):           "Since  the right given to the  petitioners  under           Article 32 is itself a fundamental right and  does           not  depend  on the discretionary powers  of  this           Court, as in the case of Article

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                                                      185          226, it is inappropriate to equate the duty imposed          on  this Court to the powers of Chancery  Court  in          England or the equitable jurisdiction of Courts  in          the  United States.  The facts that the  petitioner          have  no  equity in their favour is  an  irrelevant          circumstance  in deciding the nature of  the  right          available  to an aggrieved party under Article  32.          This Court is charged by the Constitution with  the          special responsibility of protecting and  enforcing          the  fundamental  rights, and hence laches  on  the          part  of an aggrieved party cannot deprive  him  of          his right to get relief under Article 32.  In fact,          law  reports do not show a single instance of  this          Court  refusing to grant relief on the  grounds  of          delay.  If  this Court could refuse relief  on  the          ground  of  delay , the power of  the  Court  under          Article  32  would be discretionary power  and  the          right  would cease to be a fundamental right.   The          provisions  contained in the Limitation Act do  not          apply to proceedings under Articles 226 and 32  and          if  these  provisions  of the  Limitation  Act  are          brought  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.    The importance of these cases, however, lies not in the  grounds on  which refund has been held declinable but  because  they lay  down unequivocally that the grant of refund is  not  an automatic consequence of a                                                        186 declaration  of  illegality.  Once the  principle  that  the Court  has  a  discretion  to grant  or  decline  refund  is recognised,  the ground on which such discretion  should  be exercised is a matter of consideration for the Court  having regard to all the circumstances of the case.  It is possible that  a direction for refund may be opposed by the State  on grounds  other  than  laches  or  limitation.   To  give  an instance,  in  recent years the question  has  often  arisen whether  a  refund could be refused on the ground  that  the person who seeks the refund has already passed on the burden of  the illegal tax to others and that to grant a refund  to him would result in his "unjust enrichment". Some  decisions have  suggested a solution of neither granting a refund  nor permitting  the State to retain the illegal exaction.   This issue has been referred to a larger Bench of this Court  and

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its  is  not necessary for us to enter  into  that  question here.   so  far as the present cases are  concerned,  it  is sufficient   to  point  out  that  all  the  decided   cases unmistakably  show  that, even where the levy  of  taxes  is fount  to be unconstitutional, the Court is not  obliged  to grant  an  order of refund.  It is entitled  to  refuse  the prayer  for good and valid reasons.  Laches and undue  delay or  intervention of third party rights would clearly be  one of those reasons.  Unjust enrichment of the refundee may  or may  not  be another.  But we see no reason  why  the  vital interests of the State, taken note of by the learned  judges in  India  Cement  should not be a  relevant  criterion  for deciding  that  a  refund should not be  granted.   We  are, therefore, unable to agree with the learned counsel for  the petitioners  that any different criterion should be  adopted and  that  the  direction in paragraph 35  of  India  Cement should not be followed in those cases.      For  the  reasons discussed above, we  are  of  opinion that,  though  the levy of the  cess  was  unconstitutional, there shall be no direction to refund the  assessees of  any amounts  of cess collected until the date on which the  levy in  question  has been declared  unconstitutional.  This  in regard  to  the  Bihar  cases, will  be  the  date  of  this judgement.  In respect of Orissa, the 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.                                                        187      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 manner as to  conflict  with out final decision on the writ petitions set out above.  But we  agree  that, to the extend refunds of amounts  of   cess collected  after the relevant dates are permissible  on  the basis indicated by us, the State should refund those amounts to  the  assessees directly or to the Coalfields  from  whom they  were collected, with interest at the rate directed  by this Court or mentioned in the undertaking from the date  of the relevant judgment to the actual date of repayment.   The Coalfields, when hey get th refunds, should pass on the same to their customers, the assessees.      The appeals are disposed of accordingly.  There will be no order as to costs. T.N.A.                        Appeals disposed of.                                                        188