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PETITIONER: RAOJIBHAI JIVABHAI PATEL AND ORS. ETC. ETC.

       Vs.

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

DATE OF JUDGMENT07/12/1989

BENCH: VENKATARAMIAH, E.S. (CJ) BENCH: VENKATARAMIAH, E.S. (CJ) SINGH, K.N. (J) KASLIWAL, N.M. (J)

CITATION:  1989 SCR  Supl. (2) 406  1989 SCC  Supl.  (2) 744  JT 1989 (4)   505        1989 SCALE  (2)1297

ACT:     Mines  and  Minerals (Regulation  and  Development)  Act 1957/  Gujarat Minor Minerals Rules, 1966:  Section  15/Rule 21--Royalty-Levy  of by State Government on  minor  minerals validity of.

HEADNOTE:     The  Petitioners in these petitions have challenged  the validity  of  a  Notification issued by  the  Government  of Gujarat  on June 25, 1985 whereby the Gujarat Minor  Mineral Rules  were amended with effect from 1.7.1985. By  the  said notification, original Rule 21 of the Rules was  substituted by  a new Rule 21 which provided that a holder of  a  quarry lease  or  any other mineral concession  granted  under  the Rules shall pay royalty in respect of minor minerals provid- ed  in column 2 of the Schedule. It is under this  Notifica- tion  that the rate of royalty in respect of Black trap  and Hard  Murrum  was increased from Rs.4 to Rs.  7  per  metric tonne.     The validity of Rule 21 as it stood prior to its  amend- ment  by the aforesaid impugned notification was  considered and upheld by this Court on March 6, 1986 in D.K. Trivedi  & Sons  & Ors. v. State of Gujarat & Ors., [1986] 1  SCR  479. The impugned notification was issued at a time when the Writ Petitions  in  the aforesaid case were pending in  the  High Court.  The increase in the levy of royalty effected by  the impugned notification is now questioned in these  petitions. The Petitioners raised the following contentions viz;     (1) That the royalty levied and covered under the  Rules should be applied only for mineral development and since the royalty is being treated as part of the consolidated fund of the State and used for other purposes by the State, the levy was bad; and     (2)  That the impugned notification in question  was  in contravention of clause (c) of Art. 304 of the constitution. (3)  That  the impugned notification  is  discriminatory  in character. 407 Dismissing the Writ Petitions, this Court,     HELD:  That  Act is no doubt passed for  development  of minerals  but  while discharging its functions  relating  to

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development,  if the State incidentally allows mining to  be carried on in the public interest and levies in that connec- tion  a  tax, it does not mean that the said tax  should  be used  only  for development of minerals and  not  for  other purposes sanctioned by law. [412B]     The  India Cement Ltd. etc. v. The State of  Tamil  Nadu etc., [1989] 4 SC--Judgment Today 190.     No restriction is being imposed on the freedom of  trade of  the  petitioners by the levy of  royalty.  The  minerals belong  to the Government and if anybody wants to  have  the right  as a lessee to exploit the mines to the exclusion  of others  and  to remove the minerals with a  view  to  making profit,  he has to pay a royalty imposed in accordance  with law. [412E]     In  the instant case, the levy is made under a law  made by the Central Government. It is not an imposition made by a law  made by the State Legislature on which alone,  the  re- striction contemplated under Art. 304(b) applies. [412F]     If the Executive or the administrative authority acts in an  arbitrary  manner, its action would be bad  in  law  and liable  to be struck down by the Courts but the  possibility of  abuse  of power or arbitrary exercise  of  power  cannot invalidate  the  statute conferring the power or  the  power which has been conferred by it. [413B-C]     Since  the power exercised is legislative in  character, the  authority  which is exercising the said power  has  the power  to make Rules equitable by necessary implication.  No express power need be conferred on such subordinate authori- ty in order to make a classification for purposes of  imple- menting  the  policy of the Act under which  the  Rules  are made. [415G]

JUDGMENT:     ORIGINAL   JURISDICTION: Writ  Petition   (Civil)   Nos. 12676-77 of 1985 etc. etc. (Under Article 32 of the Constitution of India)     R.F.  Nariman, P.H. Parekh, N.N. Keshwani, Mrs. H.  Wahi and R.N. Keshwani for the Petitioners. 408     G.A.  Shah, M.N. Shroff, K.M.M. Khan and T.U. Mehta  for the Respondents. The Judgment of the Court was delivered by     VENKATARAMIAH,  CJ. The petitioners in  these  petitions have questioned the validity of a notification issued by the Government  of Gujarat on June 26, 1985 in exercise  of  its powers  conferred  by Section 15 of the Mines  and  Minerals (Regulation and Development) Act, 1957 (67 of 1957), herein- after  referred  to as the Act, amending the  Gujarat  Minor Mineral  Rules 1966, hereinafter referred to as  the  Rules, with effect from 1-7-1985 substituting the original rule  21 of the Rules by a new rule which reads as follows:               "21. Rate of Royality: The holder of a  quarry               lease or any other mineral concession  granted               under these rules shall pay royalty in respect               of  minor minerals, specified in column  2  of               the schedule, removed or consumed by him or by               his  agent, manager, employee,  contractor  or               sub  lessee from the leased area at the  rates               respectively specified against them in  column               3 of the said schedule.               Provided that:               (i)  the  holder of a  Parwana  granted  under               these  rules shall pay royalty at the rate  of

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             fifty percent of the rate of royalty specified               in the said schedule.               (ii) no royalty shall be charged from  Nimbha-               das  of village potters who  manufacture  upto               one lakh bricks per year.               (iii) no royalty shall be charged from Nimbha-               das of village potters if their annual produc-               tion  is  not exceeding two lakhs  bricks  and               they  supply at least one lakh bricks  to  the               Rural Housing Board or Panchayats.               (iv)  Royalty  shall be recoverable  in  whole               rupees,  fraction fifty paise and above to  be               rounded upwards to a whole rupee and               fraction below fifty paise shall be ignored" and fixing the royalty payable by the lessees in respect  of minor  minerals known as Black Trap and Hard Murrum at  Rs.7 per metric tonne by amending schedule of the Rules which was being levied at Rs. 4 till the date of the said amendment. 409     In order to understand the case of the petitioners it is necessary to set out some other provisions of law  governing the case. The Act was passed in the year 1957 by  Parliament to  provide for the regulation of mines and  development  of minerals  under  the control of the Union and  it  was  made applicable  to the whole of India. Under section 3A  of  the Act the word ’minerals’ is defined as including all minerals except mineral oils. Clause (e) of the said section  defines ’minor minerals’ as building stones, gravel, ordinary  clay, ordinary  sand other than sand used for prescribed  purposes and  any other mineral which the Central Government may.  by notification in the Official Gazette, declare to be a  minor mineral. It is not disputed that Black Trap and Hard  Murrum are  notified as minor minerals. The Act has made  provision with regard to the issue of prospecting licences and  mining leases  in respect of various kinds of minerals  other  than minor  minerals  and the procedure to be  followed  in  that connection  in the matter of issue of  prospecting  licences and mining leases. Section 9 of the act empowers the Central Government to levy royalty in respect of the minerals  which are  won  by the mining lease holders under the Act  at  the rates  prescribed  in  the Second Schedule to  the  Act.  It empowers  the  Central Government to enhance or  reduce  the rate of royalty prescribed by the Second Schedule in respect of  any  mineral subject to the condition 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. Section 14 of the Act provides that sections 5 to  13 (inclusive) shall not apply to quarry leases, mining  leases or  other mineral concessions in respect of minor  minerals. Section 15 as it stood during the relevant time read thus:               "15. (1) The State Government may, by  notifi-               cation in the Official Gazette, make rules for               regulating the grant of (quarry leases, mining               leases  or other mineral concessions)  in  re-               spect  of  minor  minerals  and  for  purposes               connected therewith.               (2)  Until  rules are made  under  sub-section               (1),  my  rules  made by  a  State  Government               regulating the grant of (quarry leases, mining               leases  or other mineral concessions)  in  re-               spect  of  minor minerals which are  in  force               immediately  before the commencement  of  this               Act shall continue in force.               (3) The holder of a mining lease or any  other               mineral concession granted under any rule made

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             under sub-section (1)               410               shall  pay royalty or dead rent, whichever  is               more  in respect of minor minerals removed  or               consumed  by  him or by  his  agent,  manager,               employee, contractor or sub-lessee at the rate               prescribed  for  the time being in  the  rules               framed  by the State Government in respect  of               minor minerals;                         Provided  that the State  Government               shall  not  enhance  the rate  of  royalty  in               respect  of  any minor mineral for  more  than               once during any period of three years."     It is seen from section  15 that the State Government is empowered  to make rules for regulating the grant of  quarry leases,  mining leases or other mineral concessions  in  re- spect  of minor minerals and for purposes  connected  there- with.  In  exercise of the said power under section  15  the Government of Gujarat promulgated the Gujarat Minor Minerals Rules,  1966  which are referred to as the Rules  as  stated above.  Rule 21 of the Rules provides for the  determination of the rate of royalty payable in respect of minor minerals. The  original rule 21 was substituted by new rule 21 by  the issue  of impugned notification on 26-6-1985 which  provides that a holder of a quarry lease or any other mineral conces- sion granted under the Rules shall pay royalty in respect of minor minerals provided in column 2 of the Schedule, removed or  consumed  by  him or by his  agent,  manager,  employee, contractor  or sub-lessee from the leased area at the  rates specified in column 3 of the said Schedule. It is under this notification  the rate of royalty in respect of  black  trap and Hard Murrum was increased from Rs. 4 to Rs.7 per  metric tonne.  The rule also provides that the holder of a  Parwana granted under the Rules shall pay royalty at the rate of  50 per cent of the rate of royalty specified in the said Sched- ule  and that no royalty shall be charged from Nimbhadas  of village  Potters  who manufacture upto one lakh  bricks  per year.  It further provides that no royalty shall be  charged from Nimbhadas of villages potters if the annual  production is  not exceeding two lakh bricks and they supply  at  least one  lakh bricks to the Rural Housing Board  or  Panchayats. The validity of rule 21 as it existed prior to the issue  of the  impugned notification was considered in B.K. Trivedi  & Sons and Ors. v. State of Gujarat and Ors., [1986] 1 SCR 479 as  under  the said rule the royalty payable in  respect  of some of the minor minerals had been enhanced. Originally all lessees  had  to pay a minimum dead rent in respect  of  the area  covered by a minor mineral lease issued in respect  of any  minor mineral or the royalty prescribed in  respect  of quantity  of  minor minerals owned by  him,  which-ever  was higher. The history of the legislation of the Rule from  the year 1986 is set out in detail in the said 411 decision. Hence it is not necessary to refer to it in detail here. By the said decision the constitutionality of  section 15  of the Act and the validity of a notification issued  on June  18,  1981  under which the rate of  royalty  had  been raised  was upheld and the writ petitions in which the  said validity  had been questioned were dismissed. That  decision was  rendered on March 5, 1986. During the pendency  of  the said  petitions in the High Court the impugned  notification was  issued  increasing the royalty payable  in  respect  of Black  Trap  and  Hard Murrum from Rs.4 to  Rs.7.  In  these petitions the impugned notification issued in the year  1985 is  questioned. Since many of the contentions raised by  the

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parties in respect of the constitutionality of section 15 of the  Act and the validity of Rules made thereunder had  been considered  and  the contentions urged  by  the  petitioners against the said rule in those petitions had been  rejected, in the present case the petitioners have confined their case only to the following points which according to them had not been considered in the said decision.     Shri  R.F. Nariman, learned counsel for the  petitioners in some of the petitions had two contentions:               1.  that the royalty levied and covered  under               the  Rules should be applied only for  mineral               development  and  since the  said  royalty  is               being treated as part of the consolidated fund               of  the State and used for other  purposes  by               the State the levy was bad; and               2. that the impugned notification in  question               was in contravention of clause (b) of  Article               304 of the Constitution.     The  contention  of the learned counsel was  that  under Entry 50 of List II of the 7th Schedule to the Constitution, the royalty recovered by the State Government had to be used only  for mineral development and could not be used for  any other purpose. According to him the Act had been passed  for purposes  of  regulation  and development  of  minerals.  He depended upon the language of Entry 50 which reads thus: "taxes on mineral rights subject to any limitations  imposed by Parliament by law relating to mineral development"     We  do not find much substance in this  contention.  Re- cently  a Constitution Bench of this Court has held  in  The India Cement Ltd. etc. etc. v. The State of Tamil Nadu etc., [1989]  4 S.C.--Judgments Today 190 that the royalty  levied on  the extracted mineral was in the nature of a tax and  it was not in the nature of a fee which could be used 412 only  for specific purposes. Any tax realised by  the  State Government forms part of the consolidated fund of the  State and the said tax can be used by the State Government for any of the purposes to which its executive powers extend subject to any law made by the State Legislature in that regard.  We do  not, therefore, find any substance in the above  conten- tion. It is no doubt true that the Act is passed for  devel- opment  of  minerals, but while  discharging  its  functions relating  to development, if the State  incidentally  allows mining to be carried on in the public interest and levies in that  connection a tax, it does not mean that the  said  tax should be used only for development of minerals and not  for other purposes sanctioned by law.     In support of the second contention the learned  counsel Shri Nariman argued that notwithstanding anything  contained in Article 301 or Article 303 the Legislature of a State may by law impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State  as required  in the public interest. Provided that no  Bill  or amendment for the purpose of sub-clause (b) shall be  intro- duced  or  moved in the legislature of a State  without  the previous sanction of the president.     We  do not find that clause (b) of Article 304  has  any relevance on the point in question. No restriction is  being imposed  on the freedom of trade of the petitioners  by  the levy  of royalty. The minerals belong to the Government  and if  anybody wants to have the right as a lessee  to  exploit the mines in question to the exclusion of all others and  to remove the minerals with a view to making profit, he has  to pay a royalty imposed in accordance with law. In the instant case  the levy is made under a law made by the Central  Gov-

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ernment.  It is not an imposition made by a law made by  the State Legislature on which alone the restriction contemplat- ed under Article 304(b) applies.     We  do  not also find much substance in  the  contention that the levy in question is unreasonably heavy and has been imposed  in an arbitrary manner. The burden of  establishing that the levy is unreasonably heavy, is on the  petitioners. It  is urged that in the other States the royalty  is  being levied  at the rate of Re. 1 per metric tonne of Black  Trap and  Hard  Murrum  and Rs.7 levied in  the  notification  is excessive.  The  fact that in other States  the  royalty  is fixed at Re. 1 is not by itself sufficient to hold that Rs.7 per  metric tonne is unreasonably high rate of  royalty.  In Trivedi’s  case  (supra) this Court had upheld the  levy  of Rs.4  per metric tonne which had been fixed in 1981  and  in 1985 it was increased to Rs.7. Having regard to the depreci- ation in the value of 413 the rupee and the increase in the cost of’ administration of the  State, which is ever increasing, as a welfare State  we cannot  say that Rs.7 is an unreasonably high rate. We  have taken this view after going through the observations made by this Court in Trivedi’s case (supra) at page 544 where  this Court has observed that where a statute confers  discretion- ary powers upon the executive or an administrative  authori- ty,  the validity or constitutionality of such power  cannot be  judged  on  the assumption that the  executive  or  such authority will act in an arbitrary manner in the exercise of the  discretion conferred upon it. If the executive  or  the administrative  authority acts in an arbitrary  manner,  its action  would be bad in law and liable to be struck down  by the  courts but the possibility of abuse of power  or  arbi- trary  exercise of power cannot invalidate the statute  con- ferring  the power or the power which has been conferred  by it. We do not find that the levy is arbitrarily imposed.     It  is obvious that the petitioners are lessees who  are exploiting  the  mining areas for purposes of  business  and that the royalty in question is ultimately passed on to  the consumers.  It is not shown that the business ,of the  peti- tioners has been adversely affected in such a way that it is liable to be struck down on the ground of arbitrariness.  We do  not,  therefore, find any substance  in  the  contention urged by Shri Nariman.     In  Civil  Writ Petition No. 618 of 1987  filed  by  Jai Sholanath  Quarry  Works and another, Mr.  Keswani,  learned counsel for the petitioners contended that the impugned rule 21 which was substituted in the place of the former rule  21 was  invalid as it was discriminatory in character. He  con- tended that the concession shown in favour of Parwana  hold- ers  was discriminatory and violative of  Article  14.-Under clause 1 of the proviso to the impugned rule 21, a holder of a Parwana granted under the Rules has to pay royalty at  the rate  of 50 per cent of the royalty payable by  the  lessees and no royalty is payable by village potters who manufacture upto  one  lakh bricks per year and by the  village  potters whose  annual production was not exceeding two  lakh  bricks and who supply at least one lakh bricks to the Rural Housing Board  or Panchayats. His contention was that section 15  of the Act which authorised the State Government to make  rules in respect of minor minerals does not specifically authorise the State Government to make such discrimination. We find no substance in this contention too. It  is  obvious that a valid classification of  persons  and things for 414

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purposes  of  imposing any obligation on them would  not  be violative  of  Article 14 provided the classification  is  a reasonable one. It is well settled that a classification  to be valid has to satisfy two conditions:               (1) that there is an intelligible  differentia               between  those who are included in  the  class               which is affected by any law or rule and those               who are placed outside the said rule; and               (2)  that there is a reasonable nexus  between               the  classification  and  the  object  to   be               achieved by the rule or law in question.      The Act under the Rules was made for purposes of  regu- lation  and development and conservation of minerals. It  is equally  clear that while levying a tax the  authority  con- cerned  is  entitled  to grant  concessions  and  exemptions wherever necessary having regard to the purpose of the  Act, the  levy  of royalty is incidental to  the  regulation  and development of minerals. Many a time absence of such classi- fication may itself result in the invalidation of the law or rule. Whoever is given an exclusive right to exploit a  mine will have to pay some amount by way of return to the Govern- ment  of India as authorised by entry 50 of List II  of  the 7th Schedule to the Constitution. Having regard to the broad policy underlying the Constitution if a concession is  shown in  favour  of the poor and the down-trodden, it  cannot  be said that the exemption or concession is invalid.  According to rule 2(vi)(a) of the Rules a "quarrying Parwana" means  a quarrying  Parwana granted under these rules to extract  and remove any minor mineral from land not exceeding a specified area.  Rule  33-A provides that the  competent  officer  may notify areas of limestone, Black Trap, sand stone and build- ing  stones for the purpose of grant of quarrying  parawana, as  he  deems fit. When any area is so notified,  no  quarry lease shall be granted for such notified area. Rule 33-B  of the Rules reads thus:               "33.B.--Grant  of  quarrying  Parwana--On   an               application made to the competent officer,  he               may  grant a quarrying Parwana to extract  and               remove  from  the specified  area  within  his               jurisdiction the minor mineral from a plot not               exceeding  2,000  square  meters,  as  may  be               specified by the competent officer. The compe-               tent  officer  may grant such Parwana  in  the               following priorities:                         (a)  Individual families to  Khanias               belonging  to  the  Scheduled  Castes  or  the               Scheduled  Tribes, who do physical work  I  of               excavating  minor mineral in the area  applied               for.               415               (b)  Individual families of ’Khanias’  who  do               physical work in excavating minor minerals  in               the area applied for.               (c)  New  individual Khanias who  do  physical               work in excavating minor minerals in any other               areas." Rule  33-C provides that the lease shall be granted for  one year ending 31st December on a payment of a fee of Rs.50 for an  area  upto 1,000 square meters and Rs. 100 for  an  area above 1,000 square meters and upto 2,000 square meters. Thus it is seen that a Parwana can be given only respect of plots not  exceeding 2,000 square meters and for a limited  period of  one year. It is only in the case of such people who  are described  in  the Rules and who invariably  belong  to  the weaker  sections  of society the concession is  shown  under

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rule  21, whereas the mining lease may be given  to  persons mentioned  in rule 9. Under rule 18 of the Rules the  period of lease in the case of the minor minerals can be for a much longer  period, it can be upto 10 years in respect of  minor minerals  except in the case of ordinary sand, Kankar,  Mur- ram,  Gravel and in the case of Kankar, Murram and gravel  a lease can be granted upto three years, and the area or  land covered by a mining lease is governed by rule 15 which  says that no quarry lease shall be granted for an area  exceeding 10  hectares in case of specified minor mineral and 20  hec- tares in the case of other minerals. So a comparison of  the relevant  rules  would  show that a  larger  restriction  is imposed both on the area in respect of which a Parwana could be issued and the duration of the Parwana right and as  also stated  that  the  persons who take  quarrying  Parwana  are persons  belonging to the weaker sections of society and  if under  rule  21  a concession is shown in  their  favour  it cannot be said that there is no reasonable nexus between the classification  for  purposes of the proviso to rule  21  to show concession in the matter of payment of royalty and  the social  policy underlying the Constitution, the statute  and the  Rules.  The  fact that section 15 of the  Act  does  no authorise the State Government to show such concession while promulgating  the Rules which are in the nature of  subordi- nate legislation is also of no consequence. Since the  power exercised is legislative in character the authority which is exercising the said power has the power to make rules  equi- table  by  necessary implication. No express power  need  to conferred  on such subordinate authority in order to make  a classification  for purposes of implementing the  policy  of the Act under which the Rules are made.     We do not also agree with the contention that levying of royalty in the State of Gujarat on the minor minerals  would impose in any way 416 the freedom guaranteed under Article 301 of the Constitution regarding  movement of goods from one State to  another  for the  activity of quarrying does not involve any movement  as such.  The mineral may be consumed inside the State  and  in some cases may latter on be taken outside the State. But the movement outside the State is not the direct consequence  of quarrying.     We  do not, therefore, find any substance in any of  the contentions urged before us.     These  petitions are dismissed with costs. Each  of  the petitioners  shall pay a sum of Rs.2,000 by way of costs  to the State of Gujarat. Y.  Lal                                      Petitions  dis- missed. 417