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PETITIONER: INDIA CEMENT LTD.

       Vs.

RESPONDENT: STATE OF TAMIL NADU ETC.

DATE OF JUDGMENT25/10/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) VENKATARAMIAH, E.S. (CJ) MISRA RANGNATH OZA, G.L. (J) RAY, B.C. (J) SINGH, K.N. (J) NATRAJAN, S. (J)

CITATION:  1990 AIR   85            1989 SCR  Supl. (1) 692  1990 SCC  (1)  12        JT 1989 (4)   190  1989 SCALE  (2)953  CITATOR INFO :  F          1992 SC 103  (4,5,8)  RF         1992 SC1264  (24)

ACT:     Madras   Panchayats   Act,  1958:   Sections   115   and 116--Mining  lease--Levy  of  cess  on  royalty--Held  ultra vires.     Constitution  of  India,  1950:  Seventh  Schedule  List II--Entries 23, 49 & 50--Levy of cess on royalty in  respect of mining lease-Sections 115 & 116 of Madras Panchayats  Act 1958--Held illegal and ultra vires.     Mineral Concession Rules, 1960: Levy of cess in  respect of mining leases--Sections 115 and 116 Madras Panchayats Act 1958--Held illegal and ultra vires.

HEADNOTE:     The appellant company used to manufacture cement and was granted mining lease for limestone and kankar by the Govern- ment of Tamil Nadu in accordance with the Mineral Concession Rules,  1960.  The  royalty was fixed under  the  Mines  and Minerals  (Regulation  & Development) Act, 1957 which  is  a Central  Act by which the control of mines and minerals  had been taken over by the Central Government for the regulation and development of minerals.     Sub-section  1 of section 115 of the  Madras  Panchayats Act,  1958 enjoins that there shall be levied in every  pan- chayat  development  block, a local cess at the rate  of  45 paise on every rupee of land revenue payable to the  Govern- ment in respect of any land for every Fasli. An  explanation to the said section was added, and was deemed always to have been  incorporated by the Tamil Nadu  Panchayats  (Amendment and Miscellaneous Provisions) Act, 1964. In this explanation a  fiction was created whereby even the royalty payable  had been included within the definition of "land revenue".     The  appellant filed a writ petition in the  High  Court challenging the competence of the State legislature to  levy

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cess  on royalty. A learned Single Judge dismissed the  writ petition holding that the cess levied 693 under section 115 of the Madras panchayats Act was a tax  on land and, as such, fell under Entry 49 of the State List  of Schedule  VII of the Constitution. The Division  Bench  dis- missed  the  appellant’s  appeal and held  that  local  cess authorised  by  section 115 was not land revenue but  was  a charge on the land itself, and section 115 merely quantified the basis of the quantum of land revenue. The learned Single Judge, as well as the Division Bench, relied on the decision of  this  Court in H.R.S. Murthy v. Collector  of  Chittoor, [1964] 6 SCR 666.     Before  this  Court, it was contended on behalf  of  the appellant that the levy of cess on royalty in this case  was nothing  but a tax on royalty and was therefore ultra  vires the  State legislature. On the other hand, it was  contended that  the cess in the present case was a levy in respect  of land and could be justified or sustained either under  entry 49, 50 or 45 of List II of the 7th Schedule to the Constitu- tion.  It  was further submitted that the cess  having  been realised  on  the  basis of the decision of  this  Court  in "H.R.S. Murthy" case, if at all, the Court shall declare the said cess on royalty to be ultra vires prospectively. Allowing the appeal, this Court,     HELD:  (E.S.  Venkataramiah, C J,  Sabyasachi  Mukharji, Ranganath  Misra,  B.C. Ray, K.N. Singh  and  S.  Natarajan, JJ.--per Sabyasachi Mukharji, J.)     (1) Courts of law are enjoined to gather the meaning  of the  Constitution from the language used, and  although  one should  interpret the words of the Constitution on the  same principles  of interpretation as one applied to an  ordinary law  but these very principles of interpretation compel  one to  take into account the nature and scope of the Act  which requires interpretation. It has to be remembered that it  is a Constitution that requires interpretation. Constitution is the  mechanism under which the laws are to be made  and  not merely an Act which declares what the law is to be. [704B-C]     The Attorney General for the State of New South Wales v. The Brewery Employees Union of New South Wales, [1908] 6 CLR 469, referred to.     (2)  A Constitution must not be construed in any  narrow or  pedantic sense, and construction most beneficial to  the widest possible amplitude of its powers, must be adopted.  A broad and liberal spirit should inspire those whose duty  it is to interpret the Constitution, but 694 they are not free to stretch or pervert the language of  the enactment  in  the interest of any legal  or  constitutional theory,  or even for the purposes of supplying omissions  or correcting supposed errors. [704D-E-F]     In  re.’ C.P. Berar Sales of Motor Spirit  &  Lubricants Taxation  Act,  1938, [1939] FCR p. 1 and James  v.  Common- wealth of Australia, [1936] AC 578, referred to.     (3)  It is well-settled now that the various entries  in the  three lists are not powers but fields  of  legislation. The  power  to legislate is given by Article 246  and  other articles of the Constitution. [704G]     Calcutta Gas Co. v. State of West Bengal, [1962]  Suppl. 3 SCR 1, referred to.     (4)  It is well settled that widest amplitude should  be given  to the language of these entries, but some  of  these entries  in different lists or in the same list may  overlap and sometimes may also appear to be in direct conflict  with each  other. Then, it is the duty of the court to  find  out

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its  true  intent and purpose and to  examine  a  particular legislation  in its pith and substance to determine  whether it fits in one or the other of the lists. Each general  word should  be  held to extend to all  ancillary  or  subsidiary matters  which can fairly and reasonably be comprehended  in it. [705A-B & D]     H.R.  Banthia  &  Ors. etc. v. Union of  India  &  Ors., [1970]  1 SCR 479; Union of India v. H.S. Dhillon, [1971]  2 SCC 779 and D.C. Rataria v. Bhuwalka Brothers Ltd., [1955] 1 SCR 1071, referred to.     (5)  It is clear that over a period of  centuries,  land revenue  in  India has acquired a cannot active  meaning  of share  in the produce of land to which the King or the  Gov- ernment is entitled to receive. [707B]     N.R. Reddy & Ors. v. State of A.P., [1965] 2 Andhra  Law Times 297 and State ofA.P.v.N.R. Reddy & Ors., [1967] 3  SCR 28, referred to.     (6) There is a clear distinction between tax directly on land and tax on income arising from land. [708C]     Raja Jagannath Baksh Singh v. The State of U.P. &  Anr., [1963] 1 SCR 220, referred to. 695     (7)  Explanation to section 115(1) itself makes  a  dis- tinction  between land revenue as such and royalty which  by amendment  is deemed to be land revenue. It  is,  therefore, recognised  by  the very force of that explanation  and  the amendment thereto that the expression ’royalty’ in  sections 115  &  116  of the Act cannot mean  land  revenue  property called  or conventionally known, which is separate and  dis- tinct from royalty. [707D-E]     (8)  In  the instant case, cess is not on land,  but  on royalty, which is included in the definition of ’land  reve- nue’,  None  of the three lists of the 7th Schedule  of  the Constitution permits or authorises a State to impose tax  on royalty.     (9)  Royalty  which is indirectly connected  with  land, cannot  be  said  to be a tax directly on land  as  a  unit. Royalty is payable on a proportion of the mineral extracted. The  Act does not use dead rent as a basis on which land  is to  be  valued. Hence, there cannot be any  doubt  that  the impugned  legislation in its pith and substance is a tax  on royalty and not a tax on land. [709E]     New Manek Chand Spinning & Weaving Mills Co. Ltd. & Ors. v.  Municipal Corporation of the City of Allahabad  &  Ors., [1967]  2  SCR  679; S.C. Nawn v. W.T.O.  Calcutta  &  Ors., [1969]  1 SCR 108; Asstt. Commissioner of Urban Land  Tax  & Ors.  v. The Buckingham & Carnatic Co. Ltd. etc.,  [1970]  1 SCR  268; Second Gift ’Fax Officer, Mangalore etc.  v.  D.H. Nazareth etc., [1971] 1 SCR 195; Bhagwan Dass Jain v.  Union of  India, [1981] 2 SCR 808 and The Western  India  Theatres Ltd.  v.  The Cantonment Board, Poona Cantonment,  [1959]  2 Suppl. SCR 63, referred to.     (10) Royalty is directly relatable only to the  minerals extracted and on the principle that the general provision is excluded  by the special one, royalty would be relatable  to entries  23  & 50 of List II, and not entry 49 of  List  II. [713D]     (11)  Royalty  is a tax, and as such a cess  on  royalty being  a  tax on royalty, is beyond the  competence  of  the State  Legislature  because  section 9 of  the  Central  Act covers the field and the State Legislature is denuded of its competence under entry 23 of List II. In any event, cess  on royalty  cannot  be sustained under entry 49 of List  II  as being a tax on land. Royalty on mineral rights is not a  tax on land but a payment for the user of land. [713F-G]

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696     Waverly  Jute  Mills Co. Ltd. v. Raymon & Co.  (1)  Pvt. Ltd.,  [1963]  3 SCR 209; Anant Mills Co. Ltd. v.  State  of Gujarat & Ors., [1975] 3 SCR 220; The Hingir-Rampur Coal Co. Ltd. & Ors. v. The State of Orissa & Ors., [1961] 2 SCR 537; State  of  Orissa v. M.A. Tulloch & Co., [1964] 4  SCR  461; Baijnath  Kedia v. State of Bihar & Ors., [1970] 2 SCR  100: M/s. Laxminarayana Mining Co. Bangalore v. Taluk Dev  Board, AIR  1972 Mysore 299; M. Lal & Ors. v. The State of Bihar  & Ors.,  AIR 1965 Patna 491; Bherulal v. State  of  Rajasthan, AIR  1956 Rajasthan 161; Dr. S.S. Sharma & Anr. v. State  of Punjab  & Ors., AIR 1969 Pb. 79; Saurashtra Cement &  Chemi- cals India Ltd. v. Union of India & Anr., AIR 1979 Guj. 180; L.N.  Agarwalla & Ors. v. State of Orissa, AIR  1983  Orissa 210 and M/s Hira lal Rameshwar Prasad & Ors. v. The State of Madhya  Pradesh & Ors., M.P. High Court Misc.  Petition  No. 410/83, referred to.     H.R.S. Murthy v. Collector of Chittoor & Anr., [1964]  6 SCR 666, overruled.     (12)  The  amounts of cess have been  collected  on  the basis of the decision of this Court in H.R.S. Murthy’s case. The  Court is therefore justified in declaring the  levy  of the said cess under section 115 to be ultra vires the  power of the State legislature prospectively only. The respondents will  not be liable for any refund of cess already  paid  or collected. [714C-D & E] Per G.L. Oza, J.     (1)  Sub-clause (1) of Section 115 provides for levy  of 45 naya paise for every rupee of land revenue payable to the Government. In the explanation a fiction is created  whereby even the royalty payable has been included within the  defi- nition of ’land revenue’. [718A]     (2) The language of Entries 23 and 50 in List II clearly subjects the authority or jurisdiction on the State Legisla- ture to any enactment made by the Parliament. Entry 23 talks of regulation and Entry 50 talks of taxes on mineral rights. It therefore could not be disputed that if the cess  imposed under section 115 of the Madras Panchayats Act is a cess  or tax on mineral rights then that jurisdiction could be  exer- cised by the State Legislature subject to the law enacted by the Parliament. [715D-E]     (3) Unit of charge of royalty is not only land but  land + labour + capital. It is therefore clear that if royalty is a  tax or an imposition or a levy, it is not on  land  alone but it is a levy or a tax on mineral (land), 697 labour and capital employed in extraction of the mineral. It therefore  is  clear that royalty if it is  imposed  by  the Parliament  it could only be a tax not only on land  but  on the three things stated above. [718H; 719A]     (4)  When  the  Legislature included  royalty,  it  went beyond its jurisdiction under Entry 49 of List II and there- fore clearly is without the authority of law. [719D]     (5)  This may lead to an interesting situation. As  this cess on royalty is without the authority, the result will be that the cess is levied so far as lands other than the lands in  which mines are situated are concerned but  lands  where mines  are situated this levy of cess is not  in  accordance with  the law. This anamoly could have been averted  if  the Legislature had used words ’surface rent’ in place of royal- ty. Even if the lands where mines are situated and which are subject  to licence and mining leases, even for those  lands there  is a charge on the basis of the surface of  the  land which  is Sometimes described as surface rent  or  sometimes also as ’dead rent’. [719E-F]

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JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 62 (N) of 1970 etc. etc.     From  the  Judgment and Order dated 13.10. 1969  of  the Madras High Court in W.A. No. 464 of 1967.     K.  Parasaran, Attorney General, Dr. Y.S. Chitale,  F.S. Nariman. T.S. Krishnamurthy Iyer, A.K. Ganguli, B. Sen, L.N. Sinha,  R.N. Sachthey, R.B. Datar, R.F. Nariman, K.J.  John, H.N.  Salve, Praveen Kumar, A.V. Rangam,  T.Sridharan,  K.D. Prasad, Mrs. Naresh Bakshi, K. Rajendra Choudhary, Ms. Seita Vaidialingam,  V. Krishnamurthy, Ms. A. Subhashini, N.  Net- tar,  G.S. Narayan, Badrinath Babu, Anip Sachthey  and  S.K. Agnihotri for the appearing parties. The Judgment of the Court were delivered by     SABYASACHI  MUKHARJI, J. The question involved in  these appeals,  special  leave petitions and  writ  petitions  is, whether levy of cess on royalty is within the competence  of the State Legislature. In order to appreciate the  question, it is necessary to refer to certain facts. Civil appeal  No. 62/79  is an appeal by special leave from the  judgment  and order of the High Court of Madras, dated 13th October, 1969, in writ appeal No. 464/67. The appellant is a public limited 698 company  incorporated under the Indian Companies Act,  1913. The  Company  at  all relevant times,  used  to  manufacture cement in its factory at Talaiyuthu in Tirunelveli district, and at Sankaridrug in Salem district of Tamil Nadu. By  G.O. Ms. No. 3668 dated 19th July, 1963, the Govt. of Tamil  Nadu sanctioned  the  grant  to the appellant  mining  lease  for limestone and kankar for a period of 20 years over an extent of 133.91 acres of land in the village of Chinnagoundanur in Sankaridrug  Taluk of Salem district. Out of the  extent  of 133.91  acres  comprised in the mining lease, an  extent  of 126.14  acres was patta land and only the balance extent  of 7.77 acres Govt. land. The lease deed was in accordance with the  Mineral Concession Rules, 1960. The rates  of  royalty, dead rent and surface rent, were as follows:               "Royalty:               LIMESTONE               Government  Lands:  Re.O.75  per  tonne,   but               subject to a rebate of Re.O.38 per tonne to be               given on Imestone beneficiated by froth flota-               tion method.               Patta Lands: Re.O.38 per tonne but subject  to               a rebate of Re.O. 19 per tonne to be given  on               limestone  beneficiated  by  froth   flotation               method.               KANKAR               Government  Lands: Five per cent of  the  sale               price at the pit’s mouth.               Patta  Lands: 2-1/2% of the sale price at  the               pit’s mouth               Dead rent:               Government  lands:  Rs.25  (Rupees  twentyfive               only) per hectare per annum.               Patta  lands: Rs. 12/50 (Rupees twelve &  naya               paise fifty only) per hectare per annum.               Surface  rent and water rate: At such rate  as               the  land revenue and cess assessable  on  the               land are paid." The  appellant  started  mining operations  soon  after  the execution

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699 of the lease deed and has ever since been paying the  royal- ties, dead rents and other amounts payable under the Deed.     Under s. 115 of the Madras Panchayats Act (XXXV of 1958) (hereinafter  called  ’the Act’), as amended by  Madras  Act XVIII  of 1964 (herein after called ’the amended  Act’),  as royalty  the appellant was required to pay local cess  @  45 paise  per rupee. It may be mentioned that the said  imposi- tion  was  with retrospective effect along with  local  cess surcharge  under  s. 116 of the Act. The contention  of  the appellant  is and was, at all relevant times, that  cess  on royalty cannot be levied. This is the common question  which falls for consideration and requires determination in  these appeals and petitions.     To complete the narration of events, however, it has  to be  noted  that the Collector sent a communication  on  10th April, 1965, demanding cess or royalty payable under the Act on  minerals  carried  on  during  the  period  1.7.1961  to 31.12.1964,  and  the petitioner was threatened  of  serious consequences  in  case of default of payment on  receipt  of that  communication. Thereafter, writ petition  No.  1864/65 was  filed  in  the High Court of Madras.  By  the  judgment delivered and order passed on 23rd February, 1967. a learned Single  Judge  of the Madras  High  Court--Justice  Kailasam dismissed  the  writ petition holding that the  cess  levied under s. 115 of the act is a tax on land and, as such, falls under Entry 49 of the State List of the Schedule VII of  the Constitution,  and  was within the competence of  the  State legislature. Reliance was placed by the learned single Judge on the decision of this Court in H.R.S. Murthy v.  Collector of Chittoor & Anr., [1964] 6 SCR 666. He held that the  cess levied  under  s. 115 was a tax on land, though  fixed  with reference  to the land revenue. In regard to s. 116  of  the Act,  the learned Single Judge held that the  maximum  limit had been prescribed by the Government by rules flamed  under the  Act, and, therefore, there was no  arbitrariness  about the levy.     Sub-section  1 of s. 115 of the Act enjoins  that  there shall  be  levied in every panchayat  development  block,  a local  cess at the rate of 45 paise on every rupee  of  land revenue  payable  to the Govt. in respect of  any  land  for every  Fasli. An Explanation to the said section  was  added and  deemed  always to have been incorporated by  the  Tamil Nadu  Panchayats  (Amendment and  Miscellaneous  Provisions) Act, 1964 being Tamil Nadu Act 18 of 1964, which provided as follows:               "[Explanation.--In this section and in section               116,  ’land revenue’ means public revenue  due               on land and includes               700               water cess payable to the Government for water               supplied  or used for the irrigation of  land,               royalty, lease amount or other sum 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  sur-               charge  payable  under section  116,  provided               that land revenue remitted shall not be deemed               to be land revenue payable for the purpose  of               this section.]"     Sub-section  2  of s. 115 of the Act provides  that  the local  cess shall be deemed to be public revenue due on  all the  lands  in respect of which a person is  liable  to  pay local  cess and all the said lands, the buildings  upon  the said  lands  and  their products shall be  regarded  as  the

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security for the local cess. Sub-section 3, 4 (a), (b),  (c) and (d) of s. 115 of the said Act deal with the  application of  the  cess so collected for  various  purposes  mentioned therein.  In the controversy before us, the said  provisions need not be considered.               Section 116 of the Act is as follows:               "116.  Every panchayat union council may  levy               on every person liable to pay land revenue  to               the  Government in respect of any land in  the               panchayat union a local cess surcharge at such               rate  as  may  be considered  suitable  as  an               addition  to  the  local cess  levied  in  the               panchayat development block under section  115               provided that the rate of local cess surcharge               so  levied  (shall not exceed two  rupees  and               fifty  paise on every rupee of  land  revenue)               payable in respect of such land."     The words "shall not exceed two rupees & fifty paise  on every rupee of land revenue" were substituted for the  words "shall  be subject to such maximum as may be prescribed"  by section  3 of the Tamil Nadu Panchayats’ (2nd Amendment  and Validation) Act, 1970, and these words were substituted  for the  words  "shall not exceed one rupee and fifty  paise  on every  rupee  of  land revenue" by s. 2 of  the  Tamil  Nadu Panchayats (Amendment) Act, 1972.     There  was  an  appeal from the  said  decision  of  the learned  Single  Judge, to the division bench  of  the  High Court.  The division bench by its judgment and  order  dated 13th October, 1969, dismissed the writ appeal, and held that local  cess authorised by s. 115 as aforesaid "was not  land revenue but is a charge on the land itself and Section 115 701 merely quantified on the basis of the quantum of land  reve- nue". The division bench held that the meaning of the Expla- nation added to s. 115 was that the cess is levied as a  tax on  land  and is measured with reference  to  land  revenue, royalty, lease amount etc. as mentioned in the  Explanation. The division bench also relied on the decision of this Court in  H.R.S.  Murthy  (supra), and further held  that  in  the aforesaid view of the matter, it was not possible to  accept the contention that s. 115 of the Act read with the Explana- tion contravened in any manner s. 9 of the Mines and  Miner- als (Regulation and Development) Act, 1957. By leave granted by  this  Court on 12th January, 1970 the  appeal  has  been filed.     The  appellant  is  bound to pay royalty  to  the  Govt. according  to the rates provided in the Second  Schedule  to the  said Act of 1957. Clause (1) of Part VII of  the  lease document provides as follows:               "The lessee/lessees shall pay the rent,  water               rate  and royalties reserved by this lease  at               such times and in the manner provided in  Part               V and VI of these presents and shall also  pay               and discharge all taxes, rates, assessment and               impositions whatsoever being in the nature  of               public demand which shall from time to time be               charged, assessed or imposed by the  authority               of the Central and State Government upon or in               respect  of  the  premises and  works  of  the               lessee/lessees  in common with other  premises               and  work of a like nature except demands  for               land revenue."     As mentioned hereinbefore, there is an obligation of the lessee  to pay rent and other charges mentioned in the  said Clause,  and  all other Central and  State  Government  dues

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"except demands for land revenue". The question,  therefore, which arises is, is cess on royalty a demand of land revenue or additional royalty?     For the appellants and/or petitioners we have heard  Mr. Nariman,_  Dr. Chitale and Mr. Salve, and for the  interven- ers,  S/Shri K.D. Prasad, Rajendra Choudhary and  Ms.  Seita Vaidialingam  have made their submissions. For the State  of Tamil Nadu, Mr. Krishnamurthy Iyer and Mr. V.  Krishnamurthy have  made their submissions. We have had the  advantage  of the  submissions made by learned Attorney General on  behalf of  Union of India. The issues are common in the writ  peti- tions  as  well as in the appeal and in  the  special  leave petitions. The question involved in the appeals and the writ petition  is  about the constitutional validity  of  Section 115(1) of the Act, in so far as it 702 sought to levy as local cess @ 45 naya paise on every  rupee of  the land revenue payable to the Government, the  meaning of land revenue being artificially expanded by the  explana- tion  so  as  to include royalty payable  under  the  mining lease.     In  this connection, it may be appropriate to  refer  to the Statement of Objects and Reasons for the amendment which stated, inter alia, as follows:               "Under  the Explanation to section 115 of  the               Act "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 but does not  include  any               other cess or surcharge payable under  section               116.  The Explanation does not  cover  "royal-               ties",  lease amount or other sum  payable  to               the Government in respect of land held  direct               from the Government on lease or licence  which               were  included  in  the  definition  of  "land               revenue" under the Madras District Boards Act,               1920. As under the Madras District Boards Act,               1920, certain panchayat union councils contin-               ued  to levy the cess and surcharge under  the               Madras  Panchayats Act, 1958 also. It is  con-               sidered  that the levy should be on  the  same               basis as under the Madras District Boards Act,               1920.  It is, therefore, proposed  to  include               "royalty, lease amount and other sums  payable               to  the Government" in the definition of  land               revenue  in the Explanation to section 115  of               the  Act  and also to validate  the  levy  and               collection  of  the cess  and  surcharge  made               hitherto on the said basis."     It  is obvious that the said amendment was  intended  to bring  royalty within the Explanation and the definition  of land  revenue in section 115 as well as s. 116 of  the  Act, and was effected by the Gazette Notification of 2nd  Septem- ber, 1964 by Act No. 18 of 1964. In order to appreciate  the controversy,  it  has  no be understood that  in  this  case royalty  was payable by the appellant which  was  prescribed under  the  lease deed, the terms whereof  have  been  noted hereinbefore. The royalty had been fixed under the statutory rules and protected under those rules. The royalty was fixed under the Mines and Minerals (Regulation & Development) Act, 1957  which is a Central Act by which the control  of  mines and minerals had been taken over by the Central  Government. It was an Act for the regulation of mines and development of minerals under the control of Union of India. That 703

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Act  was  to  provide for the regulation of  mines  and  the development  of minerals under the control of the  Union  of India.  Sec. 2 of the Act declares that it is  expedient  in the  public  interest that the Union of  India  should  take under  its control the regulation of mines and the  develop- ment  of  the minerals to the extent provided  in  the  Act. Section 9 of the Act provides as follows:               "9.  (1) The holder of a mining lease  granted               before  the  commencement of this  Act  shall,               notwithstanding  anything  contained  in   the               instrument of lease or in any law in force  at               such  commencement, pay royalty in respect  of               any  mineral removed or consumed by him or  by               his  agent, manager, employee,  contractor  or               sub-lessee  from  the leased area  after  such               commencement,  at the rate for the time  being               specified in the Second Schedule in respect of               that mineral.               (2) The holder of a mining lease granted on or               after  the commencement of this Act shall  pay               royalty  in respect of any mineral removed  or               consumed  by  him or by  his  agent,  manager,               employee,  contractor or sub-lessee  from  the               leased  area  at the rate for the  time  being               specified in the Second Schedule in respect of               that mineral.               (2A)  The  holder of a mining  lease,  whether               granted  before or after the  commencement  of               the Mines and Minerals (Regulation and  Devel-               opment)  Amendment  Act, 1972,  shall  not  be               liable  to pay any royalty in respect  of  any               coal  consumed by a workman engaged in a  col-               liery  provided that such consumption  by  the               workman  does not exceed one-third of a  tonne               per month.               (3)  The Central Government may, by  notifica-               tion in the Official Gazette. amend the Second               Schedule  so as to enhance or reduce the  rate               at  which royalty shall be payable in  respect               of  any mineral with effect from such date  as               may be specified in the notification:                         Provided that the Central Government               shall  not  enhance  the rate  of  royalty  in               respect  of any mineral more than once  during               any period of three years." The Act was passed by virtue of the power of the Parliament 704 under  Entry  54 of list I of the 7th  Schedule.  Since  the control of mines and the development of minerals were  taken over by Parliament, the question that arises here is whether the  levy or the impost by the State Legislature imposed  in this  case can be justified or sustained either under  entry 49, 50 or 45 of list II of the 7th Schedule.     Courts of law are enjoined to gather the meaning of  the Constitution from the language used and although one  should interpret the words of the Constitution on the same  princi- ples of interpretation as one applies to an ordinary law but these  very principles of interpretation compel one to  take into account the nature and scope of the Act which  requires interpretation. It has to be remembered that it is a Consti- tution  that  requires interpretation. Constitution  is  the mechanism under which the laws are to be made and not merely an Act which declares what the law is to be. See the  obser- vations  of Justice Higgins in the Attorney General for  the State  of New South Wales v. The Brawery Employees Union  of

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New South Wales, [1908] 6 CLR 469 at 611-2.     In re: C.P. and Berar Sales of Motor Spirit & Lubricants Taxation Act, 1938, [1939] FCR at p. 1, Chief Justice  Gwyer of the Federal Court of India relied on the observations  of Lord  Wright in James v. Common wealth of Australia,  [1936] AC  578  and observed that a Constitution must not  be  con- strued  in any narrow or pedantic sense, and that  construc- tion most beneficial to the widest possible amplitude of its powers,  must be adopted. The learned Chief  Justice  empha- sised  that a broad and liberal spirit should inspire  those whose duty it is to interpret the Constitution, but they are not free to stretch or pervert the language of the enactment in  the interest of any legal or constitutional  theory,  or even  for the purposes of supplying omissions or  correcting supposed  errors. A Federal Court will not  strengthen,  but only derogate from, its position, if it seeks to do anything but  declare  the  law; but it may rightly  reflect  that  a Constitution  of  a country is a living and  organic  thing, which  of all instruments has the greatest claim to be  con- strued ut res magis valeat guam pereat.--’It is better  that it should live than that it should perish’.     Certain  rules have been evolved in this period, and  it is  wellsettled  now that the various entries in  the  three lists are not powers but fields of legislation. The power to legislate  is  given by Art. 246 and other articles  of  the Constitution. See the observations of this Court in Calcutta Gas  Co. v. State of West Bengal, [1962] Suppl 3 SCR 1.  The entries  in the three lists of the Seventh Schedule  to  the Constitution, 705 are legislative heads or fields of legislation. These demar- cate  the area over which appropriate legislature can  oper- ate.  It  is well settled that widest  amplitude  should  be given  to the language of these entries, but some  of  these entries  in different lists or in the same list may  overlap and sometimes may also appear to be in direct conflict  with each  other. Then, it is the duty of the court to  find  out its  true  intent and purpose and to  examine  a  particular legislation  in its pith and substance to determine  whether it  fits in one or the other of the lists. See the  observa- tions of this Court in H.R. Banthia & Ors. etc. v. Union  of India & Ors., [1970] 1 SCR 479 at 489 and Union of India  v. Shri  H.S.  Dillon, [1971] 2 SCC 779 at 792. The  lists  are designed  to  define  and delimit the  respective  areas  of respective  competence  of the Union and the  States.  These neither  impose any implied restriction on  the  legislative power  conferred  by Article 246 of  the  Constitution,  nor prescribe any duty to exercise that legislative power in any particular manner. Hence, the language of the entries should be  given  widest scope, D.C. Rataria v.  Bhuwalka  Brothers Ltd., [1955] 1 SCR 1071, to find out which of the meaning is fairly  capable because these set up machinery of the  Govt. Each general word should be held to extend to all  ancillary or  subsidiary  matters which can fairly and  reasonably  be comprehended in it. In interpreting an entry it would not be reasonable  to  import any limitation by comparing  or  con- trasting that entry with any other one in the same List.  It is  in this background that one has to examine  the  present controversy.     Here,  we  are concerned with cess on royalty.  One  can have  an idea as to what cess is, from the  observations  of Justice Hidayatullah, as the learned Chief Justice then was, in  M/s  Guruswamy  & Co. etc. v. State of  Mysore  &  Ors., [1967]  1 SCR 548 where at page 571, the learned  Judge  ob- served:

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             "The  word ’cess’ is used in Ireland and_.  is               still  in use in India although the word  rate               has replaced it in England. It means a tax and               is  generally used when the levy is  for  some               special administrative expense which the  name               (health cess, education cess, road cess  etc.)               indicates.  When levied as an increment to  an               existing  tax,  the name matters not  for  the               validity of the cess must be judged of in  the               same  way as the validity of the tax to  which               it is an increment."     The said observations were made in the dissenting  judg- ment, but there was no dissent on this aspect of the matter. Relying on the aforesaid observations, Mr Nariman  appearing for the appellant and 706 the  petitioners  suggested that the impugned levy  in  this case is nothing but a tax on royalty and is therefore  ultra vires the State legislature. Mr. Krishnamurthy Iyer  appear- ing  for the State of Tamil Nadu submitted that the cess  in question  in the instant case is a levy in respect  of  land for  every fasli. He urged that the words "a local  cess  at the  rate  of 45 naya paise on every rupee of  land  revenue payable" qualify the words "land revenue". These words  were only intended, according to Mr. Krishnamurthy Iyer, to  mean cess  payable. It is, however, not possible to  accept  this submission,  in  view  of the obligation  indicated  by  the language  of  the provisions. Cess is not on  land,  but  on royalty  which is included in the definition of ’land  reve- nue’.  None  of the three lists of the 7th Schedule  of  the Constitution permits or authorises a State to impose tax  on royalty.  This  levy has been sought to be  justified  under Entry 45 of List II of the 7th Schedule. Entry 45 deals with land revenue, which is a well-known concept and has  existed in  India before the Constitution came into force.  In  N.R. Reddy  & Ors. v. State of A.P. & Ors., [1965] 2  Andhra  Law Times  297, Jaganmohan Reddy, J. as the learned  Judge  then was  of  the Andhra Pradesh High Court, while sitting  in  a division bench observed that no land revenue Act existed  in the  composite State of Madras nor had the  ryotwari  system ever been established by legislative enactment. The  learned Judge  at p. 306 of the report observed that in the  earlier days, sovereigns had in exercise of their prerogative  right claimed a share of the produce of all cultivated land  known as  ’Rajabhagam’ or by any of the various other  names,  and had fixed their share or its commuted money value from  time to  time, according to their will and pleasure. The  learned Judge  noted that as long as the share of the sovereign  was being paid, the sovereign had no right to the possession  of the lands, and the proprietorship of these lands was  vested in  the occupier, who could not be removed  because  another offered  more. The right of the sovereign to a share in  the produce  as observed by the Govt. of Madras in 1856 "is  not rent which consists of all surplus produce after paying  the cost  of cultivation and the profits of  agricultural  stock but  land  revenue only which ought, if possible, to  be  so lightly assessed as to leave a surplus or rent to the  occu- pier, when he in fact lets the land to others or retains  it in his own hands." It was noted that the amount of tax  that was  levied  before the Mohamedan Rule, amounted  to  1/8th, 1/6th  or 1/12th according to Manu depending on the  differ- ences in the soil and the labour necessary to cultivate  it, and it even went up to 1/4th part, in times of urgent neces- sity, as of war or invasion. The later commentators, Yajnav- alkya,  Apastamba, Gautama, Baudhayana and Narada, have  all

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asserted  not  only the right but the extent of  the  share. When  the British came to India they followed not  only  the precedent 707 of  the previous Mohamedan Rulers who also claimed  enormous land  revenue, with this difference that what the  Mohamedan Rulers claimed they could never fully realise, but what  the British Rulers claimed they realised with vigour. It is  not necessary  to refer in detail how land revenue developed  in India  after  the advent of the British Rule. There  was  an appeal  from the said decision of the High Court  of  Andhra Pradesh  and this Court dismissed the appeal in State of  A. P. v. N.R. Reddy & Ors., [1967] 3 SCR 28.     It  is, however, clear that over a period of  centuries, land  revenue in India has acquired a connot active  meaning of  share  in the produce of land to which the King  or  the Govt. is entitled to receive. It was contended on behalf  of the appellants that the impugned measure being a tax, not on share  of  the produce of the land but on  royalty;  royalty being  the  return received from the produce  of  the  land, revenue  was payable for winning minerals from the land.  In the premises it was contended that it cannot be attributable to Entry 45 of List II of the 7th Schedule, being not a land revenue. It has, however, to be borne in mind that  Explana- tion to Section 115(1) was added and there was an  amendment as  we  have  noted before. That very  Explanation  makes  a distinction  between land revenue as such and royalty  which by amendment is deemed to be land revenue. It is, therefore, recognised  by  the very force of that Explanation  and  the amendment thereto that the expression ’royalty’ in  sections 115  &  116  of the Act cannot mean  land  revenue  properly called  or conventionally known, which is separate and  dis- tinct from royalty.     It was also contended on behalf of the respondent  State of  Tamil Nadu of Mr. Krishnamurthy Iyer that it could  also be  justified under Entry 49 of List II of the 7th  Schedule as  taxes on lands and buildings. This, however,  cannot  be accepted.  In this connection, reference may be made to  the decision of this Court in Raja Jagannath Baksh Singh v.  The State  of U.P. & Anr., [1963] 1 SCR 220 where at p.  229  it was  indicated  that the expression ’lands’ in Entry  49  is wide  enough  to include agricultural land as well  as  non- agricultural  land. Gajendragadkar, J. as the learned  Chief Justice then was, observed that the cardinal rule of  inter- preting  the  words used by the Constitution  in  conferring legislative  power  was  that these must  receive  the  most liberal construction and if they are words of wide amplitude the  construction must accord with it. If general  word  was used, it must be so construed so as to extend to all  ancil- lary  or subsidiary matters that can reasonably be  included in  it. So construed, there could not be any doubt that  the word ’land’ in Entry 48, List II of the 7th Schedule 708 includes all land whether agricultural or  non-agricultural. Hence, since the impugned Act imposed tax on land and build- ing which was within the competence of the State Legislature and its validity was beyond challenge but the Court observed that  as there was Entry 46 in List H which refers to  taxes on agricultural income, it is clear that agricultural income is  not included in Entry 49. If the State Legislature  pur- ports to impose a tax on agricultural income it would not be referable to Entry 49. Mr. Krishnamurthy Iyer relied on  the said principle. But in the instant case, royalty being  that which  is payable on the extraction from the land  and  cess being  an additional charge on that royalty, cannot  by  the

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parity  of the same reasoning, be considered to be a tax  on land.  But  since it was not a tax on land and there  is  no Entry like Entry 46 in the instant situation like the  posi- tion  before this Court in the aforesaid decision,  enabling the State to impose tax on royalty in the instant situation, the  State was incompetent to impose such a tax. There is  a clear  distinction between tax directly on land and  tax  on income  arising from land. The aforesaid decision  confirmed the  above position. In New Manek Chand Spinning  &  Weaving Mills  Co. Ltd. & Ors., v. Municipal Corpn. of the  City  of Allahabad & Ors., [1967] 2 SCR 679 at 696, this Court  after referring to the several decisions observed that Entry 49 of list  II of the 7th Schedule only permitted levy of  tax  on land  and  building. It did not permit the levy  of  tax  on machinery  contents  in  or situated on  the  building  even though  the machinery was there for the use of the  building for a particular purpose. Rule 7(2) of the Bombay  Municipal Corporation Rules was held to be accordingly ultra vires  in that case. In S.C. Nawn v. W.T.O., Calcutta & Ors., [1969] 1 SCR 108 this Court had occasion to consider this and  upheld the validity of the Wealth Tax Act, 1957 on the ground  that it  fell within Entry 86 of List I and not Entry 49 of  List II.  Construing  the said Entry, this  Court  observed  that Entry  49 list II contemplated a levy on land as a unit  and the  levy must be directly imposed on land and must  bear  a definite relationship to it. Entry 49 of list Il was held to be  more general in nature than Entry 86, list I, which  was held  to be more specific in nature and it  is  well-settled that  in the event of conflict between Entry 86, list I  and Entry 49 of list II, Entry 86 prevails as per Article 246 of the Constitution.     In  Asstt. Commissioner of Urban Land Tax & Ors. v.  The Buckingham  &  Carnatic Co. Ltd. etc., [1970] 1 SCR  268  at 278, this Court reiterated the principles laid down in  S.C. Nawn’s  case (supra) and held that entry 49 of list  II  was confined  to a tax that was directly on land as a  unit.  In Second  Gift  Tax Officer, Mangalore etc. v.  D.H.  Nazareth etc., [1971] 1 SCR 195 at 200 it was held that a tax on  the gift 709 of land is not a tax imposed directly on land but only on  a particular  user,  namely, the transfer of land  by  way  of gift. In Union of India v. H.S. Dhillon, (supra), this Court approved the principle laid down in S.C. Nawn’s case as well as Nazareth’s case (supra). In Bhagwan Dass Jain v. Union of India, [1981] 2 SCR 808 at 816 this Court made a distinction between  the levy on income from house property which  would be  an  income tax, and the levy on  house  property  itself which would be referable to entry 49 list II. It is,  there- fore,  not possible to accept Mr. Krishnamurthy Iyer’s  sub- mission  and that a cess on royalty cannot possibly be  said to be a tax or an impost on land. Mr. Nariman is right  that royalty  which is indirectly connected with land, cannot  be said to be a tax directly on land as a unit. In this connec- tion,  reference may be made to the differentiation made  to the different types of taxes for instance, one being profes- sional  tax  and  entertainment tax. In  the  Western  India Theatres  Ltd.  v. The Cantonment Board,  Poona  Cantonment, [1959] 2 Suppl. SCR 63 at 69 it was held that an  entertain- ment tax is dependent upon whether there would or would  not be  a show in a cinema house. If there is no show, there  is no tax. It cannot be a tax on profession or calling. Profes- sional tax does not depend on the exercise of one’s  profes- sion but only concerns itself with the right to practice. It appears  that in the instant case also no tax can be  levied

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or  is leviable under the impugned Act if no mining  activi- ties  are carried on. Hence, it is manifest that it  is  nor related to land as a unit which is the only method of valua- tion of land under entry 49 of list II, but is relatable  to minerals  extracted. Royalty is payable on a  proportion  of the  minerals  extracted. It may be mentioned that  the  Act does  not  use dead rent as a basis on which land is  to  be valued.  Hence, there cannot be any doubt that the  impugned legislation  in its pith and substance is a tax  on  royalty and not a tax on land.     On  behalf of the State of Tamil Nadu,  learned  counsel Mr.  Krishnamurthy Iyer sought to urge that it can  also  be sustained  under entry 50, list II. Entry 50 of list  II  of the 7th Schedule deals with taxes on mineral rights  subject to  limitation  imposed by Parliament  relating  to  mineral development.  Entry 23 of List II deals with  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 and entry 54 in list  I  deals  with regulation of mines and minerals under the control of  Union declared by the Parliament by law to be expedient in  public interest.  Even though minerals are part of the  State  List they  are  treated separately, and therefore  the  principle that the specific excluded the general, must be applied. See the observations of Waverly Jute Mills Co. Ltd. v. Raymon  & Co. (1) Pvt. Ltd., [1963] 3 710 SCR  209 at 220, where it was held that land in entry 49  of list II cannot possibly include minerals.     In  this connection, learned Attorney General  appearing for the Union of India submitted before us that in order  to sustain the levy, the power of the State Legislature has  to be found within one or more of the entries of list II of the 7th Schedule. The levy in question has to be either a tax or a fee or an impost. If it is neither a tax nor a fee then it should  be under one of the general entries under  List  II. The  expression ’land’ according to its  legal  significance has  an  indefinite extent both upward  and  downwards,  the surface  of the soil and would include not only the face  of the earth but everything under it or over it. See the obser- vations in Anant Mills Co. Ltd. v. State of Gujarat &  Ors., [19751  3 SCR 220 at 249. The minerals which are  under  the earth,  can in certain circumstances fall under the  expres- sion  ’land’ but as tax on mineral rights is expressly  cov- ered by entry 50 of list II, if it is brought under the head taxes under entry 49 of list II, it would render entry 50 of list  II  redundant. Learned Attorney General  is  right  in contending  that  entries should not be so construed  as  to make  any  one entry redundant. It was further  argued  that even in pith and substance the tax fell to entry 50 of  list II,  it would be controlled by a legislation under entry  54 of list I.     On  the other hand, learned Attorney  General  submitted that if it be held to be a fee, then the source of power  of the  state legislature is under entry 66 read with entry  23 of  list  II. Here also the extent to  which  regulation  of mines and mineral development under the control of the Union is  declared  by Parliament by law to be  expedient  in  the public interest, to the extent such legislation makes provi- sions  will  denude the State Legislature of  its  power  to override the provision under entry 50 of list II. In view of the Parliamentary legislation under entry 54, list I and the declaration  made under s. 2 and provisions of s. 9  of  the Act,  the  State  Legislature would be  overridden  to  that extent.  S.  2 declares that it is expedient in  the  public

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interest that Union should take under its control the  regu- lation  of  mines  and the development of  minerals  to  the extent  provided therein. In this connection, reference  may be  made to the decision of this Court in The  Hingir-Rampur Coal Co. Ltd. & Ors. v. The State of Orissa & Ors., [1961] 2 SCR  537.  See also the observations in State of  Orissa  v. M.A.  TuIloch & Co., [1964] 4 SCR 461 and Baijnath Kedia  v. State of Bihar & Ors., [1970] 2 SCR 100 at 111-115. Our  attention  was drawn to the decision  of  the  division bench 711 judgment of the High Court of Mysore in M/s.  Laxminarayana, Mining Co., Bangalore v. Taluk Der. Board., AIR 1972  Mysore 299. There speaking for the court, one of us,  Venkataramiah J-  of the Mysore High Court, as the learned  Chief  Justice then was, observed that a combined reading of entries 23 and 50  in list II and entry 54 of list I, establishes  that  as long as the Parliament does not make any law in exercise  of its  power under entry 54, the powers of the State  Legisla- ture  in entries 23 & 50 would be exercisable by  the  State Legislature.  But when once the Parliament makes a  declara- tion  by law that it is expedient in the public interest  to make regulation of mines and minerals development under  the control of the Union, to the extent to which such regulation and development is undertaken by the law made by the Parlia- ment, the power of the State Legislature under entries 23  & 50  of  List II are denuded. There the court  was  concerned with the Mysore Village Panchayats & Local Boards Act, 1959. Thus, it was held that it could not, therefore, be said that even after passing of the Central Act, the state legislature by  enacting s. 143 of the Act intended to confer  power  on the Taluk Board to levy tax on the mining activities carried on  by the persons holding mineral concessions. It  followed that  the  levy  of tax on mining by the Board  as  per  the impugned notification was unauthorised and liable to be  set aside. At p. 306 of the said report, it was held that royal- ty  under  s. 9 of the Mines and Minerals Act was  really  a tax.     To the similar effects are the observations of the  High Court  of  Patna in M. Lal & Ors. v. The State  of  Bihar  & Ors.,  AIR  1965 Patna 491 at 494. Mr.  Krishnamurthy  Iyer, however,  referred to the decision of this Court  in  H.R.S. Murthy’s  case  (supra). There under the terms of  a  mining lease  the  lessee worked the mines and won iron-ores  in  a tract  of  land in a village in Chittor district  and  bound himself  to pay a dead rent if he used the leased  land  for the extraction of iron ore, to pay a royalty on iron ore  if it were used for extraction of iron and in addition to pay a surface  rent  in respect of the surface  area  occupied  or used. In the said decision the legislative competence of ss. 78  &  79 of the Madras District Boards Act  was  upheld  by which  land cess was made payable on the basis  of  royalty. This Court proceeded on the basis that other cess related to land and would therefore be covered by entry 49 of list  II. It  was  held that land cess paid on royalty  has  a  direct relation to the land and only a remote relation with mining. This,  with respect, seems to be not a correct approach.  It was  further observed that it was not necessary to  consider the meaning of the expression ’tax on mineral right’ follow- ing  under  Entry 50 of List II in as much as  according  to this  Court,  Parliament  has not made any  tax  on  mineral rights. This is not a correct basis. 712     In  H.R.S. Murthy’s case (supra), at p. 676 of  the  re- port, it was observed by this Court as follows:

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             "When a question arises as to the precise head               of  legislative  power under  which  a  taxing               statute  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  royalty  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 miner-               al right. It is unnecessary for the purpose of               this  case 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  Parlia-               ment  as  regards  mineral  development.   Our               attention was not invited to the provision  of               any  such  law created by Parliament.  In  the               context  of  ss. 78 and 79 and the  scheme  of               those  provisions  it is clear that  the  land               cess is in truth a "tax on lands" within Entry               49 of the State List."     It seems, therefore, that attention of the Court was not invited to the provisions of Mines and Minerals (Development & Regulation) Act, 1957 and s. 9 thereof. S. 9(3) of the Act in terms states that royalties payable under the 2nd  Sched- ule of the Act shall not be enhanced more than once during a period  of  4 years. It is, therefore, a clear  bar  on  the state  legislature taxing royalty so as to in  effect  amend 2nd Schedule of the Central Act. In the premises, it  cannot be  right to say that tax on royalty can be a tax  on  land, and even if it is a tax, if it falls within entry 50 will be ultra  vires the State legislature power in view of s.  9(3) of  the Central Act. In Hingir--Rampur Coal Co. Ltd. v.  The State of Orissa (supra), Wanchoo J. in his dissenting  judg- ment has stated that a tax on mineral rights being different from a duty of excise, pertains only to a tax that is  levi- able for the grant of the right to extract minerals, and  is not  a  tax  on minerals as well. On that basis,  a  tax  on royalty  would  not  be a tax on mineral  rights  and  would therefore  in  any event be outside the  competence  of  the state legislature.     The  Rajasthan, Punjab, Gujarat and Orissa  High  Courts have held that royalty is not a tax. See. Bherulal v.  State of  Rajasthan & Anr., AIR 1956 Rajasthan 161-162;  Dr.  S.S. Sharma & Anr. v. State of 713 Pb.  &  Ors.,  AIR 1969 Pb. 79 at 84;  Saurashtra  Cement  & Chemicals India Ltd. v. Union of India & Anr., AIR 1979 Guj. 180  at 184 and L.N. Agarwalla & Ors. v. State of  Orissa  & Ors., AIR 1983 Orissa 210.     It  was  contended by Mr. Krishnamurthy  Iyer  that  the State has a right to tax minerals. It was further  contended that  if tax is levied, it will not be irrational to  corre- late  it to the value of the property and to make some  kind of  annual value basis of tax without intending to  tax  the income.  In  view  of the provisions of the  Act,  as  noted hereinbefore, this submission cannot be accepted. Mr. Krish- namurthy  Iyer also further sought to urge that in entry  50 of  list II, there is no limitation to the taxing  power  of the State. In view of the principles mentioned  hereinbefore and  the  expressed  provisions of s. 9(2) of  the  Mines  &

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Minerals (Regulation & Development) Act, 1957, this  submis- sion cannot be accepted. This field is fully covered by  the Central legislation.     In any event, royalty is directly relatable only to  the minerals  extracted  and on the principle that  the  general provision  is excluded by the special one, royalty would  be relatable to entries 23 & 50 of list II, and not entry 49 of list  II.  But as the fee is covered by  the  Central  power under entry 23 or entry 50 of list II, the impugned legisla- tion cannot be upheld. Our attention was drawn to a judgment of  the High Court of Madhya Pradesh in Miscellaneous  Peti- tion No. 410/83--M/s Hiralal Rameshwar Prasad & Ors. v.  The State of Madhya Pradesh & Ors., which was delivered on  28th March,  1986  by a Division Bench of the  High  Court.  J.S. Verma, Acting Chief Justice, as His Lordship then was,  held that development cess by s. 9 of the Madhya Pradesh Karadhan Adhiniyam,  1982 is ultra vires. It is not necessary in  the view taken by us, and further in view that the said decision is under appeal in this Court, to examine it in detail.     In  the  aforesaid  view of the matter, we  are  of  the opinion that royalty is a tax, and as such a cess on royalty being  a  tax on royalty, is beyond the  competence  of  the State Legislature because s. 9 of the Central Act covers the field and the State Legislature is denuded of its competence under  entry  23  of list II. In any event, we  are  of  the opinion that cess on royalty cannot be sustained under entry 49  of  list II as being a tax on land. Royalty  on  mineral rights  is not a tax on land but a payment for the  user  of land.     Mr.  Krishnamurthy Iyer, however, submitted that in  any event, the decision in H.R.S. Murthy’s case (supra) was  the decision  of the Constitution Bench of this Court. Cess  has been realised on that basis 714 for  the  organisation of village and  town  panchayats  and comprehensive  programme of measures had been  framed  under the National Extension Service Scheme to which our attention was drawn. Mr. Krishnamurthy Iyer further submitted that the Directive Principle of State Policy embodied in the  Consti- tution enjoined that the State should take steps to organise village  panchayats and endow them with power and  authority as  may be necessary to enable them to function as units  of self-Government  and  as the amounts have been  realised  on that  basis, if at all, we should declare the said  cess  on royalty to be ultra vires prospectively. In other words, the amounts  that  have  been collected by virtue  of  the  said provisions, should not be declared to be illegal  retrospec- tively 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’s case (supra) 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.     In that view of the matter, the appeals must, therefore, be allowed and the writ petitions also succeed to the extent indicated  above. We declare that the said cess by  the  Act under  s.  115 is ultra vires and the  respondent  State  of Tamil  Nadu is restrained from enforcing the same  any  fur- ther. But the respondents will not be liable for any  refund of cess already paid or collected. The appeals are  disposed of  accordingly. The special leave petitions and writ  peti- tions are also disposed of in those terms. In the facts  and the circumstances of the case, the parties will pay and bear

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their own costs.     OZA, J. While I agree with the conclusions reached by my learned brother Hon’ Mukharji, J. I have my own reasons  for the  same. The main argument in favour of this levy  imposed by the State Legislature is on the basis of Entry 49 in List II  of the Seventh Schedule conferring jurisdiction  on  the State  Legislature. The question therefore to be  determined is  whether the jurisdiction of the State Legislature  under Item 49 of List II could be so exercised to impose a cess on the  royality  prescribed under Section 9 of the  Mines  and Minerals (Regulation and Development) Act, 1957.     The entries which are relevant for the purpose of deter- mining this questions are: Entry 54 List I reads: 715               "Regulation  of mines and mineral  development               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."               Entry 23 List II reads:               "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 49 List II reads:               "Taxes on lands and buildings."               Entry 50 List II reads:               "Taxes on mineral rights subject to any  limi-               tations imposed by Parliament by law  relating               to mineral development." The  language of Entries 23 and 50 in List I1  clearly  sub- jects the authority or jurisdiction on the State Legislature to  any enactment made by the Parliament. Entry 23 talks  of regulation and Entry 50 talks of taxes on mineral rights. It therefore  could  not be disputed that if the  cess  imposed under  section 115 of the Madras Village Panchayat Act is  a cess  or tax on mineral rights then that jurisdiction  could be  exercised  by the State Legislature subject to  the  law enacted by the Parliament. The Parliament in Section 9(1) of the  Mines  and Minerals (Regulation and  Development)  Act, 1957 has fixed the limits of royality on the mining  rights. It  was therefore contended on behalf of the State  that  in fact what is imposed under Section 115 is not a cess on  the mining  rights  or on royality but is a tax  on  land  which clearly falls within the authority of the State  legislature in Entry 49 of List II.                   Section  9  of  the  Mines  and   Minerals               (Regulation and Development) Act reads:               "9(1)  The  holder of a mining  lease  granted               before  the  commencement of this  Act  shall,               notwithstanding  anything  contained  in   the               instrument of lease or in any law in force  at               such  commencement, pay royalty in respect  of               any  mineral removed or consumed by him or  by               his  gent,  manager, employee,  contractor  or               sub-lessee from the leased area               716               after  such commencement, at the rate for  the               time being specified in the Second Schedule in               respect of that mineral.               (2) The holder of a mining lease granted on or               after  the commencement of this Act shall  pay               royalty  in respect of any mineral removed  or               consumed  by  him or by  his  agent,  manager,

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             employee,  contractor or sub-lessee  from  the               leased  area  at the rate for the  time  being               specified in the Second Schedule in respect of               that mineral.               (2A)  The  holder of a mining  lease,  whether               granted  before or after the commence  of  the               Mines  and Minerals (Regulation  and  Develop-               ment) Amendment Act, 1972 shall not be  liable               to  pay  any royalty in respect  of  any  coal               consumed  by a workman engaged in  a  colliery               provided that such consumption by the  workmen               does  not  exceed  one-third of  a  tonne  per               month.               (3)  The Central Government may, by  notifica-               tion in the Official Gazette, amend the Second               Schedule  so as to enhance or reduce the  rate               at  which royalty shall be payable in  respect               of  any mineral with effect from such date  as               may be specified in the notification.                        Provided that the Central  Government               shall  not  enhance  the rate  of  royalty  in               respect  of any mineral more than once  during               any period of three years." It  is clear that by this Act alongwith Schedule  limits  on royality has been fixed and the authority has been given  to Parliament alone to vary it and that too not more than  once in a period of three years. Admittedly royality as not based on  the area of land under mining but per unit  of  minerals extracted.  Section 115 of the Madras Village Panchayat  Act reads as under:               "(1)  There shall not be levied in every  pan-               chayat development block, a local cess at  the               rate  of 45 naye paise on every rupee of  land               revenue  payable to the Government in  respect               of any land for every Fasli.                        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               717               or  used for the irrigation of land,  royalty,               lease  amount  for other sum  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 land               revenue  remitted  shall not be deemed  to  be               land revenue for the purpose of this Section.               (2)  The  local cess payable under  this  Sub-               section  (1)  shall  be deemed  to  be  public               revenue due on the lands in respect of which a               person is liable to pay local cess and all the               said lands, the buildings upon the said  lands               and  their products shall be regarded  as  the               security for the local cess.               (3)  The  provisions  of  the  Madras  Revenue               Recovery  Act,  1864 (Madras Act II  of  1864)               shall apply to the payment and recovery of the               local cess payable under this Act just as they               apply  to  the  payment and  recovery  of  the               revenue upon the lands in respect of which the               local cess under this act is payable.               (4)(a) Out of the process of the local cess so               collected   in  every  panchayat   development               block,  a sum representing four-ninths of  the

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             proceeds  shall be credited to  the  Panchayat               Union (Education) Fund.                   (b) Out of the proceeds of the local  cess               collected  in every panchayat town in  a  pan-               chayat  development block, a sum  representing               two-ninths of the said proceeds shall be cred-               ited to the town panchayat fund.                   (c)  Out of the balance of the local  cess               credited  in the panchayat development  block,               such percentage as the panchayat union council               may  fix  shall  be credited  to  the  village               panchayat  fund, and the percentage  shall  be               fixed so as to secure as nearly as may be that               the  total income derived by all  the  village               panchayats  in  the panchayat union  does  not               fall short of an amount calculated at 20  naye               paise  for  each  individual  of  the  village               population in the panchayat union.                   (d)  The  balance of the proceeds  of  the               local cess collected in the panchayat develop-               ment block shall be cre-               718               dited  to  the funds of  the  panchayat  union               council." The  explanation  to sub-clause I is the subject  matter  of controversy in this case. Sub-clause I provides for levy  of 45 naye paise for every rupee of land revenue payable to the Government  in the explanation a fiction is created  thereby even  the  royalty  payable have been  included  within  the definition of "land revenue". As it provides "royalty, lease amount or any other sum payable to the Government in respect of  land."  This  phraseology has been  incorporated  by  an amendment in 1964 by the Madras Village Panchayat  Amendment Act, 1964 Section 13 wherein the explanation to Section  115 was substituted and substituted retrospectively wherein this royalty  has also been included in the definition  of  ’land revenue’  and it is on this ground that it was  mainly  con- tended  that land revenue being a tax on land is within  the authority of the State Legislature under Item 49 of List  II and therefore the cess which is a tax on land revenue itself or an imposition on the land revenue and hence could not  be anything  else but a tax falling within the ambit of tax  on land  as provided by entry 49 List II and it  was  therefore contended  that it would not fall within the ambit of  entry 50  List II as if it falls within the ambit of entry  50  of List  II,  it  would be beyond the authority  of  the  State legislature as by passing Mines and Minerals (Regulation and Development) Act, 1957 the Parliament has denuded the  State Legislature  of  its  authority to levy any  tax  on  mining rights.     Whether  royality is a tax is not very material for  the purpose  of determination of this question in this case.  It is  admitted  that royality is charged on the basis  of  per unit of minerals extracted. It is no doubt true that mineral is  extracted from the land and is available, but  it  could only be extracted if there are three things: (1) Land from which mineral could be extracted. (2)  Capital for providing machinery, instruments and  other requirements. (3) Labour It is therefore clear that unit of charge of royalty is  not only land but land + Labour + Capital. It is therefore clear that  if royalty is a tax or an imposition or a levy, it  is not  on  land  alone but it is a levy or a  tax  on  mineral (land),  labour  and capital employed in extraction  of  the

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mineral. It therefore is clear that royalty if is imposed by the Parlia- 719 ment  it could only be a tax not only on land but  no  these three things stated above.     It  is  not in dispute that the cess  which  the  Madras Village  Panchayat  Act proposes to levy is nothing  but  an additional  tax  and originally it was levied only  on  land revenue, apparently land revenue would fall within the scope of  entry 49 but it could not be doubted that royalty  which is a levy or tax on the extracted mineral is not a tax or  a levy on land alone and if cess is charged on the royalty  it could not be said to be a levy or tax on land and  therefore it  could not be upheld as imposed in exercise of  jurisdic- tion under Entry 49 List II by the State Legislature.     Thus it is clear that by introducing this explanation to Section  115 clause (1) widening the meaning of  word  ’land revenue’  for the purposes of Section 115 and 116. When  the Legislature  included Royalty, it went beyond its  jurisdic- tion under entry 49 List II and therefore clearly is without the authority of law. But this also may lead to an interest- ing  situation.  This cess levied under Section 115  of  the Madras Village Panchayat Act is levied for purposes indicat- ed in the scheme of the Act and it was intended to be levied on all the lands falling within the area but as this cess on royalty is without the authority the result will be that the cess is levied so far as lands other than the lands in which mines  are situated are concerned but lands where mines  are situated  this levy of cess is not in accordance  with  that law. This anomaly could have been averted if the Legislature in  this explanation had used words ’surface rent’ in  place of  royalty. Even if the lands where mines are situated  and which  are  subject to licence and mining  leases  even  for those lands there is a charge on the basis of the surface of the  land  which is sometimes described as surface  rent  or sometimes also as ’dead rent’. It could not be doubted  that if such a surface rent or dead rent is a charge or an  impo- sition  on  the land only and therefore  will  clearly  fall within  the  purview  of entry 49 List H and if  a  cess  is levied  on  that it will also be justified as  tax  on  land falling  within the purview of entry 49 and it will also  be uniform as this cess would be levied in respect of the lands irrespective of the fact as to whether the land is one where a  mine  is situated or land which is only  used  for  other purposes for which land revenue is chargeable. R.S.S.                                                Appeal allowed. 720