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CASE NO.: Appeal (civil)  1532-1533 of 1993

PETITIONER: The State of West Bengal                                 

RESPONDENT: Kesoram Industries Ltd. and Ors.                            

DATE OF JUDGMENT: 15/01/2004

BENCH: CJI, R.C. LAHOTI, B.N. AGRAWAL & Dr. AR. LAKSHMANAN.

JUDGMENT: JUDGMENT

C.A.  Nos. 1532-1533 OF 1993  (With C.A. Nos.3518-3519 of 1992, 5149-54 of 1992, C.A. No.2350 of  1993, C.A.No.7614 of 1994, C.A. Nos......................................................of  2004 (Arising out of  SLP (C) Nos.3986 of 1993, 11596 and 17549 of  1994).

W.P.(C) Nos. 262 of 1997

The Terai Indian Planters’ Association & Anr.           ...Appellants

Versus

The State of West Bengal & Ors.                    ...Respondents (With W.P.(C) Nos.515, 641,642 of 1997, W.P.(C) Nos.347,360  of 1999, W.P.(C) Nos.50, 553 of 2000, W.P.(C) Nos.207,288,389  of 2001 and W.P.(C) No.81 of 2003)

W.P.(C) No.247/1995  

Bengal Brickfield Owners’ Assn. & Anr.               ... Appellants

Versus

State of West Bengal & Ors.                               ....Respondents (With W.P.(C) No.412/1995)

Civil Appeal No.5027/2000  

Anil Kumar Singh                                                     ... Appellant Versus

Collector, Sonbhadra District & Ors.              ....Respondents

(With C.A.Nos.6643 to  6650 of 2000, 6894 of 2000 and  C.A.No.1077 of 2001)

R.C. Lahoti, J.

This batch of matters, some appeals by special leave under  Article 136 of the Constitution and some writ petitions filed in  this Court, raise a few questions of constitutional significance  centering around Entries 52, 54 and 97 in List I and Entries 23,

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49, 50 and 66 in List II of the Seventh Schedule to the  Constitution of India as also the extent and purport of the  residuary power of legislation vested in the Union of India.   Cesses on coal bearing land, levied in exercise of the power  conferred by State Legislation, have been struck down by a  Division Bench of the Calcutta High Court.  In exercise of the  same power conferred by State legislation whereunder cesses  were levied on coal bearing land, cesses have also been levied  on tea plantation land which are the subject-matter of writ  petitions filed in this Court.  The Bengal Brickfield Owners’  Association have also come up to this Court by filing a writ  petition under Article 32 of the Constitution, laying challenge to  the same cesses levied on the removal of brick earth.  These  three sets of matters arise from West Bengal.  The High Court of  Allahabad has upheld the constitutional validity of cess levied in  the State of U.P. on minor minerals which decisions are the  subject-matter of civil appeals filed under Article 136 of the  Constitution.  For the sake of convenience, we would call these  matters, respectively as (A) ’Coal Matters’, (B) ’Tea Matters’, (C)   ’Brick Earth Matters’, and (D) ’Minor Mineral Matters’. Inasmuch  as the basic constitutional questions arising for decision in all  these matters are the same, all the matters have been heard  analogously.

       We would first set out the facts in brief and so far as  relevant for appreciating the issues arising for decision and  thereafter deal with the same.

(A)  Coal Matters

       A Division  Bench of the Calcutta High Court has, vide its  judgment dated 25.11.92 reported as Kesoram Industries Ltd.  (Textiles Division) Vs. Coal India Ltd., AIR 1993 Calcutta 78,  struck down certain levies by way of cess on coal as  unconstitutional for want of legislative competence in the State  Legislature.  Feeling aggrieved, the State of West Bengal has  come up in appeal by special leave.

The levies which are the subject matter of   challenge   are  as under: The Cess Act, 1980

"S.5  All immovable property to be  liable to a road cess and public works  cess.  From and after the commencement of  this Act in any district or part of a district, all  immovable property situate therein except as  otherwise in (Section 2) provided, shall be  liable to the payment of a road cess and a  public works cess."

"S.6  Cesses how to be assessed.   The road cess and the public works cess

[shall be assessed___

(a) in respect of lands on the annual  value thereof,

(b) in respect of all mines and quarries,  on the annual dispatches therefrom, and,

(c) in respect of tramways, railways and  other immovable property, on the annual net  profit thereof, ascertained respectively as in

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this Act prescribed]

and the rates at which such cesses  respectively shall be levied for each year shall  be determined for such year in the manner in  this Act prescribed:

Provided that___

(1)     the rates of such road cess and  public works cess shall not exceed six paise  and twenty-five paise respectively on each  rupee of such annual value,

(2)     the rates of each of such road cess  and public works cess shall not exceed___

(i)     fifty paise on each tonne of coal,  minerals or sand of such annual dispatches,  and

(ii)    six paise on each rupee of such  annual net profits,

Explanation. ___  For the purposes of this  proviso, one tonne of coke shall be counted as  one and a quarter tonne of coal."

2.      West Bengal Primary Education  Act, 1973

"78.    Education cess. ___ (1) All  immovable properties on which road and public  works cesses are assessed, [or all such  properties which are liable to such assessment]  according to the provisions of the Cess Act,  1880, shall be liable to the payment of  education cess.

(2)     The rate of the education cess shall  be determined by the state Government by  notification and shall not exceed___

(a)[in respect of lands, other than a tea  estate] ten paise on each rupee of the annual  value thereof;

(aa)    xxx             xxx             xxx

(b)     in respect of coal mines [five per  centum of the value of coal] on the dispatches  therefrom;

(c)     in respect of quarries and mines  other than coal mines, [one rupee on each  tonne of materials or minerals other than coal  on the annual dispatches therefrom]

Explanation. ___ For the purpose of clause  (b) the expression ’value of coal’ shall mean___

(i) in the case of dispatches of coal as a  result of sale thereof, the prices charged by

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the owner of a coal mine for such coal, but  excluding any sum separately charged as tax,  cess, duty, fee or royalty for payment of such  sum to Government to a local body, or any  other sum as may be prescribed or

(ii) in the case of dispatches other than  those referred to in item(i), the prices  chargeable by the owner of a coal mine for  such coal if they were dispatched as a result of  sale thereof, but excluding any sum separately  chargeable as tax, cess, duty, fee or ___ royalty  for payment of such sum to Government or a  local body or any other sum as may be  prescribed:

Provided that if more than one price is  chargeable for the same variety of coal, the  maximum price chargeable for that variety of  coal shall be taken as the basis of valuation for  the purpose of this item."

3.      West Bengal Rural Employment  and Production Act, 1976.

"S.4.  Rural employment cess. ___ (1)  On and from the commencement of this Act, all  immovable properties on which road and public  work cesses [are assessed or liable to be  assessed] according to the provisions of the  Cess Act, 1880, shall be liable to the payment  of rural employment cess;

Provided that on raiyat who is exempted  from paying revenue in respect of his holding  under clause (a) of sub-sec.(1) of S.23B of the  West Bengal Land Reforms Act, 1955 shall be  liable to pay rural employment cess.

(2)  The rural employment cess shall be  levied annually___

(a) [in respect of lands, other than a tea  estate,] at the rate of six paise on each rupee  of development value thereof;

(aa)    xxx             xxx             xxx  

(b)     in respect of coal mines, at the  rate of [thirty-five paise per centum] on each  tonne of coal on the xxx dispatches therefrom;

(c)     in respect of mines other than coal  mines and quarries, [at the rate of fifty paise  on each tonne of materials other than coal on  the annual dispatches therefrom]

Explanation. ___ For the purpose of clause  (b) the expression ’value of coal’ shall mean___

(i) in the case of dispatches of coal as a  result of sale thereof, the prices charged by  the owner of a coal mine for such coal but  excluding any sum separately charged as tax,  cess, duty, fee or royalty for payment of such

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sum to Government or a local body, or any  other sum as may be prescribed, or

(ii)    in the case of dispatches, other  than those referred to in item (i), the prices  chargeable by the owner of a coal mine for  such coal if they were dispatched as a result of  sale thereof, but excluding any sum separately  chargeable as tax, cess, duty, fee or royalty for  payment of such sum to Government or a local  body, or any other sum as may be prescribed:

Provided that if more than one price is  chargeable for the same variety of coal, the  maximum price chargeable for that variety of  coal shall be taken as the basis of valuation for  the purpose of this item."

All the three legislations above-referred to are State  enactments.  The provisions of the West Bengal Primary  Education Act, 1973 and the West Bengal Rural Employment and  Production Act, 1976, which levied cess were amended by the  West Bengal Taxation Laws (Amendment) Act, 1992 with effect  from 1-4-1992. The text of the said Amendment Act is as  follows: "West Bengal Act II of 1992

THE WEST BENGAL TAXATION LAWS (AMENDMENT) ACT, 1992.

[Passed by the West Bengal Legislature]

[Assent of the Governor was first published in  the Calcutta Gazette, Extraordinary, of the 27th  March, 1992.]

An Act to amend the West Bengal Primary  Education Act, 1973 and the West Bengal Rural  Employment and Production Act, 1976.

       WHERAS it is expedient to amend the  West Bengal Primary Education Act, 1973 and  the West Bengal Rural Employment and  Production Act, 1976, for the purposes and in  the manner hereinafter appearing:

       It is hereby enacted in the Forty-third  Year of the Republic of India, by the  Legislature of West Bengal, as follows:-

1.      (1)  This Act may be called the West  Bengal Taxation Laws (Amendment) Act, 1992.

       (2)   It shall come into force on the 1st  day of April, 1992.

(Section 2.)

2.  In the West Bengal Primary Education Act,  1973,___

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(1) in section 78 for sub-section (2), the  following sub-section shall be substituted:___

’(2)  The education cess shall be levied  annually___

(a) in respect of land, except when a  cess is leviable and payable under clause  (b) or clause (c) of sub-section (2A), at  the rate of ten paise on each rupee of  annual value thereof as assessed under  the Cess Act, 1880;

(b)  in respect of a coal-bearing land, at  the rate of five per centum of the annual  value of the coal-bearing land as defined  in clause (1) of Section 2 of the West  Bengal Rural Employment and Production  Act, 1976;

(c) in respect of a mineral-bearing land  (other than coal-bearing land) or quarry,  at the rate of one rupee on each tonne of  minerals (other than coal) or materials  despatched within the meaning of clause  (1b) of Section 2 of the West Bengal  Rural Employment and Production Act,  1976, from such mineral bearing land or  quarry;

Provided that when in the coal- bearing land referred to in clause (b)  there is no production of coal for more  than two consecutive years, such land  shall be liable for levy of cess in respect  of any year immediately succeeding the  said two consecutive years in accordance  with clause (a):

Provided further that where no  despatch of minerals or materials is  made during a period of more than two  consecutive years from the mineral- bearing land or quarry as referred to in  clause (c), such land or quarry shall be  liable for levy of cess in respect of any  year immediately succeeding the said  two consecutive years in accordance with  clause (a).

Explanation. ___ For the purposes of this  chapter, ’coal-bearing land’ shall have the  same meaning as in clause (1a) of Section 2 of  the West Bengal Rural Employment and  Production Act, 1976.’.

(2)     in section 78A,___

(a)  for clause (a), the following clause  shall be substituted:-

"(a) the education cess payable for a  year under sub-section (1) of section 78  in respect of coal-bearing land referred

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to in clause (b) of sub-section (2) of that  section shall be paid by the owner of  such coal-bearing land in such manner,  at such intervals and by such dates as  may be prescribed;";

(b)  for clause (b), the following clause  shall be substituted:-

"(b)  every owner of a coal-bearing land  shall furnish a declaration relating to a  year showing the amount of education  cess payable by him under clause (a) in  such form and by such date as may be  prescribed and to such authority as may  be notified by the State Government in  this behalf in the Official Gazette  (hereinafter referred to as the notified  authority);";

(c) in clause (c),__

       (i) for the words "coal mine",  wherever they occur, the words  "coal-bearing land" shall be  substituted;

       (ii) for the word "return", wherever  it occurs, the word "declaration"  shall be substituted;

       (iii)for the word "period", wherever  it occurs, the word "year" shall be  substituted;

(d)  for clause (d), the following clause  shall be substituted:-

       "(d)  the education cess under  clause (b) of sub-section (2) of  section 78 shall be assessed by the  notified authority in the manner  prescribed, and if the declaration  under clause (b) is not accepted,  the owner of the coal-bearing land  shall be given a reasonable  opportunity of being heard before  making such assessment;";

(e)  in clause (g), for the words "coal mine" in   the two places where they occur, the words  "coal-bearing land" shall be substituted;

(f)   for clause (ga), the following clause shall  be substituted:-

       "(ga)  where an owner of a coal-bearing  land furnishes a declaration referred to in  clause (b) in respect of any year by the  prescribed date or thereafter, but fails to  make full payment of education cess  payable in respect of such period by such  date, as may be prescribed under clause  (a), he shall pay a simple interest at the  rate of two per centum for each English

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calendar month of default in payment  under clause (a) from the first day of  such month next following the prescribed  date up to the month preceding the  month of full payment of such cess or up  to the month prior to the month of  assessment under clause (d) in respect  of such period, whichever is earlier, upon  so much of the amount of education cess  payable by him according to clause (a)  as remains unpaid at the end of each  such month of default;"

(g)  for clause (gb), the following clause shall  be substituted:-

       "(gb)  where an owner of a coal-bearing  land fails to furnish a declaration referred  to in clause (b) in respect of any year by  the prescribed date or thereafter before  the assessment under clause (d) in  respect of such year and, on such  assessment, full amount of education  cess payable for such year is found not  to have been paid in the manner and by  the date prescribed under clause (a), he  shall pay a simple interest at the rate of  two per centum for each English calendar  month of default in payment under  clause (a) from the first day of the  month next following the prescribed date  for such payment up to the month  preceding the month of full payment of  education  cess under clause (a) or up to  the month prior to the month of such  assessment under clause (d), whichever  is earlier, upon so much of the amount of  education cess payable by him according  to clause (a) as remains unpaid at the  end of each such month of default:

               Provided that where the education  cess payable under clause (a) is not paid  in the manner prescribed under that  clause by the owner of a coal-bearing  land, the notified authority shall, while  making the assessment under clause (d)  in respect of a year, apportion on the  basis of such assessment the education  cess payable in accordance with clause  (a);";

(h)  in clause (gc), for the words "coal mine",  the words "coal-bearing land" shall be  substituted;

(i)  in clause (ge), for the words "coal mine",  the words "coal-bearing land" shall be  substituted;

(j)  for clause (gf), the following clause shall be  substituted:-

       "(gf)  interest under clause (ga) or  clause (gb) shall be payable in respect of

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payment of education cess which falls  due on any day after the 30th day of  April, 1992, and interest under clause  (gc) shall be payable in respect of  assessment for which notices of demand  of education cess under clause (d) are  issued on or after the date of  commencement of the West Bengal  Taxation Laws (Amendment) Act, 1992:

               Provided that interest under clause  (ga) or clause (gb) in respect of any  period ended on or before the 31st day of  March, 1992, or interest under clause  (gc) in respect of assessment, for which   notices of demand of education cess  under clause (d) are issued before the  date of commencement of the West  Bengal Taxation Laws (Amendment) Act,  1992, shall continue to be payable in  accordance with the provisions of this Act  as they stood immediately before the  coming into force of the aforesaid Act as  if the aforesaid Act had not come into  force;";

(k)  in clause (gh), for the words "coal mine",  the words "coal-bearing land" shall be  substituted;

(l)  in clause (gi), for the words "coal mine",  the words "coal-bearing land" shall be  substituted;

(m)  in clause (gj), for the words "coal mine",  the words "coal-bearing land" shall be  substituted;

"3.  In the West Bengal Rural Employment and  Production Act, 1976, ___  

(1) in Section 2, ___

(a) for clause (1), the following clauses  shall be substituted___ (1)     "annual value of coal-bearing  land", in relation to a financial year, means  one-half of the value of coal, produced from  such coal-bearing land during the two years  immediately preceding that financial year, the  value of coal being that as could have been  fetched by the entire production of coal during  the said two immediately preceding years, had  the owner of such coal-bearing land sold such  coal at the price or prices excluding the  amount of tax, cess, fee, duty, royalty,  crushing charge, washing charge, transport  charge or any other amount as may be  prescribed, that prevailed on the date  immediately preceding the first day of that  financial year. Explanation. ___ Where different prices  are prevailing on the date immediately  preceding the first date of that financial year

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for different grades or qualities of coal, the  value of coal of each grade or quality produced  during the two years immediately preceding  that financial year shall be determined  accordingly; (1a) "coal-bearing land" means holding  or holdings of land having one or more seams  of coal comprising the area of a coal mine; (1b)  ’despatched’, for a financial year,  shall, in relation to a mineral-bearing land  (other than coal-bearing land) or a quarry,  mean one-half the quantity of minerals, or  minerals, despatched during two years  immediately preceding that financial year from  such mineral-bearing land or quarry; (1c)  ’development value’ means a sum  equivalent to five times the annual value of  land as assessed under the Cess Act, 1880;’; (b)     after clause (3), the following  clause shall be added and shall be deemed  always to have been added:-         ’(4)    ’year’ means a financial year as  defined in clause (15) of Section 3 of the  Bengal General Clauses Act, 1899;’;  (2)  in section 4, for sub-section (2), the  following sub-section shall be substituted:-         "(2)  The rural employment cess shall be  levied annually___         (a) in respect of land, except when a  cess is leviable and payable under clause  (b) or clause (c) or sub-section (2A), at  the rate of six paise on each rupee of  development value thereof;         (b)  in respect of a coal-bearing land, at  the rate of thirty-five per centum of the  annual value of coal-bearing land as  defined in clause (1) of Section 2;         (c) in respect of a mineral-bearing land  (other than coal-bearing land) or quarry,  at the rate of fifty paise on each tonne of  minerals (other than coal) or materials  despatched therefrom: (g)  for clause (gb), the following clause shall  be substituted:-         "(gb)  where an owner of a coal-bearing  land fails to furnish a declaration referred  to in clause (b) in respect of any year by  the prescribed date or thereafter before  the assessment under clause (d) in  respect of such year and, on such  assessment, full amount of rural  employment cess payable for such year  is found not to have been paid in the  manner and by the date prescribed  under clause (a), he shall pay a simple  interest at the rate of two per centum for  each English calendar month of default in  payment under clause (a) from the first  day of the month next following the  prescribed date for such payment up to  the month preceding the month of full  payment of rural employment cess under  clause (a) or up to the month prior to the  month of such assessment under clause  (d), whichever is earlier,  upon so much

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of the amount of rural employment cess  payable by him according to clause (a)  as remains unpaid at the end of each  such month of default:                 Provided that where the rural  employment cess payable under clause  (a) is not paid in the manner prescribed  under that clause by the owner of a coal- bearing land, the notified authority shall,  while making the assessment under  clause (d) in respect of a year, apportion  on the basis of such assessment the rural  employment cess payable in accordance  with clause (a);";

(h)  in clause (gc), for the words "coal mine",  the words "coal-bearing land" shall be  substituted;

(i)  in clause (ge), for the words "coal mine",  the words "coal-bearing land" shall be  substituted; (j)  for clause (gf), the following clause shall be  substituted:-

       "(gf)  interest under clause (ga) or  clause (gb) shall be payable in respect of  payment of rural employment cess which  falls due on any day after the 30th day of  April, 1992, and interest under clause  (gc) shall be payable in respect of  assessments for which notices of demand  of rural employment cess under clause  (d) are issued on or after the date of  commencement of the West Bengal  Taxation Laws (Amendment) Act, 1992:

               Provided that interest under clause  (ga) or clause (gb) in respect of any  period ended on or before the 31st day of  March, 1992, or interest under clause  (gc) in respect of assessments for which  notices of demand of rural employment  cess under clause (d) are issued before  the date of commencement of the West  Bengal Taxation Laws (Amendment) Act,  1992, shall continue to be payable in  accordance with the provisions of this Act  as they stood before the coming into  force of the said Act as if the said Act  had not come into force;";

(k)  in clause (gh), for the words "coal mine",  the words "coal-bearing land" shall be  substituted;

(l)  in clause (gi), for the words "coal mine",  the words "coal-bearing land" shall be  substituted;

(m)  in clause (gj), for the words "coal mine",  the words "coal-bearing land" shall be  substituted;

_____

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By order of the Governor R. BHATTACHARYYA, Secy. to the Govt. of West Bengal."

       It is the constitutional validity of the amendment in the  two legislations, given effect to from 1.4.92, which was  successfully  impugned in the High Court and  is  sought to be  restored in these appeals.           The High Court has placed reliance mainly on two decisions  of this Court, namely India Cement Ltd. & Ors. Vs. State of  Tamil Nadu & Ors., (1990) 1 SCC 12 (Seven-Judges Bench  decision) and Orissa Cement Ltd. Vs. State of Orissa & Ors.,  1991 Supp.(1) SCC 430 (Three-Judges Bench decision).  In both  these decisions the levy of cess impugned therein was struck  down as unconstitutional.  The High Court of Calcutta has held  that the levy impugned herein is similar to the one  held ultra  vires the legislative competence of the State twice by the  Supreme Court, and hence the same was  liable to be struck  down.

       In the opinion of the High Court,  the cess is assessed and  computed on the basis of value of coal produced from the coal  bearing land, and coal bearing land has been defined to mean  land having one or more seams of coal comprising the area of a  coal mine. Therefore, it is the production of coal from a coal  mine which is the basic event for the levies and the cess is to be  levied at 35 per centum of the ’annual value of the coal bearing  land’, which, as per definition, is directly related to the value of  coal produced from the coal mines.  The value of the coal has  been related to the price.  Explanation to Clause (1) of sub- Section (2) of the 1922 Act, as amended by the 1976 Act, makes  the real nature of the levy clearer by providing that where  different prices are prevailing on the relevant date for different  grades or qualities of coal, the value of coal of each grade or  quality shall be relevant.  The High Court has concluded that the  cess cannot be said to be on land so as to be covered by Entry  49 in Schedule II.  On behalf of the writ petitioner__ respondents,  the judgment of the High Court has been supported on similar  grounds as were successfully urged before the High Court and   which we shall presently deal with.  On the other hand, the  learned counsel for the appellant-State of West Bengal has  submitted that having regard to the real nature of the levy, it  clearly falls within the legislative field of Entry 49 in List II.   

(B)  Tea matters

The writ petitions in which the validity of the levy of cesses  relatable to tea estates is involved has an interesting legislative  history behind it.  By virtue of the West Bengal Taxation Laws  (Amendment) Act, 1981, amendments were effected in the  provisions of the West Bengal Primary Education Act, 1973, and  the West Bengal Rural Employment And Production Act, 1976.   Cesses were sought to be levied upon certain lands and buildings  in the State for raising funds for the purpose of providing  primary education throughout the State and to provide for  employment in rural areas.  Different rates in respect of lands,  coal mines and other mines on annual basis were provided.  Tea  estates were carved out as a separate category and a separate  rate was prescribed therefor as under.    

"Section 4(2) : The rural employment cess shall be levied

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annually - (a)     in respect of lands, other than a tea  estate, at the rate of six paise on each rupee of  development value thereof;

(aa)    in respect of a tea estate at such rate,  not exceeding ruppes six on each kilogram of  tea on the despatches from such tea estate of  tea grown therein, as the State Government  may, by notification in the Official Gazette, fix  in this behalf :

Provided that in calculating the  despatches of tea for the purpose of levy of  rural employment cess, such despatches for  sale made at such tea auction centers as may  be recognized by the State Government by  notification in the Official Gazette shall be  excluded:

Provided further that the State  Government, may fix different rates on  despatches of different classes of tea.

Explanation. - For the purpose of this  section, ’tea’ means the plant Camelia Sinensis  (L) O. Kuntze as well as all varities of the  product known commercially as tea made from  the leaves of the plant Camelia Sinensis (L) O.  Kuntze, including green tea and green tea  leaves, processed or unprocessed."

Sub-section (4) was introduced in Section 4 which empowered  the State Government to exempt "such categories of dispatches  or such percentage of dispatches from the liability to pay the  whole or any part of the rural employment cess or reduce the  rate..." . By another amendment effected in 1982, the first  proviso to clause (aa) in Section 4(2) was omitted.  Several  notifications were issued by the Government from time to time  as contemplated by Section 4(2).

The constitutional validity of the abovesaid amendment  was challenged successfully in  Buxa Dooars Tea Company  Ltd. and Ors. Vs. State of West Bengal and Ors. -  (1989) 3  SCC 211.  The decision is by a Bench of two learned Judges.   The levy of cess having been struck down, the State became  liable to refund the cess already collected and the relevant  schemes which were financed by the cessess so collected came  under jeopardy.  The West Bengal Taxation Laws (Second  Amendment) Act, 1989 was enacted, which is under challenge  herein.   

Section 2 of the impugned Act contains amendments to  West Bengal Primary Education Act while Section 3 sets out the  amendments to West Bengal Rural Employment and Production  Act, 1976. As mentioned hereinbefore, it would be enough to  notice the gist of the amendments made in one of the two Acts  of 1976 since the amendments in both   are identical.   Clause (aa) in sub-section (2) of Section 4 was omitted  with effect from 1.4.1981.  After sub-section (2), sub-section (2- A) was introduced with retrospective effect from 1.4.1981.  Sub- section (2-A) reads : (2-A) The rural employment cess shall be

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levied annually on a tea estate at the rate of  twelve paise for each kilogram of green tea  leaves produced in such estate.

Explanation. - For the purposes of this  sub-section, sub-section (3) and Section 4-B-

(i)     ’green tea leaves’ shall mean the  plucked and unprocessed green leaves of the  plant Camelia Sinensis (L) O. Kuntze;

(ii)    ’tea estate’ shall mean any land  used or intended to be used for growing plant  Camelia Sinensis (L) O.Kuntze and producing  green tea leaves from such plant, and shall  include land comprised in a factory or  workshop for producing any variety of the  product known commercially as ’tea’ made  from the leaves of such plant and for housing  the persons employed in the tea estate and  other lands for  purposes ancillary to the  growing of such plant and producing green tea  leaves from such plant."

       Clause (a) in sub-section (3) was also substituted which  had the effect of making the owner of the tea estate liable for  the said cess.  The other provisions require the owner of the tea  estate to maintain a true and correct account of green tea leaves  produced in the tea estate.  Sub-section (4) was also  substituted.  The substituted sub-section (4) empowered the  State Government to exempt from the cess such categories of  tea estates producing green tea leaves not exceeding two lakh  fifty thousand kilograms and located in such area as may be  specified in such notification.  Section 4-B contains the validation  clause.  It says that any cess collected for the period prior to the  said Amendment Act shall be deemed to have been validly levied  by it and collected under the Amended Act.  Any assessment  made or other proceedings taken in that behalf for assessing   and collecting the said tax were also to be deemed to have been  taken under the Amended Act.

Goodricke Group Ltd. & ors. filed a writ petition under  Article 32 of the Constitution of India in this Court.  The levy of  cesses under both the State enactments as amended by the  West Bengal Taxation Laws (Second Amendment) Act, 1989 was  impugned.  A few matters raising a similar challenge and  pending in various High Courts were also withdrawn to this  Court.  All the matters were heard and decided by a three- Judges Bench of this Court, vide judgment dated November 25,  1994, reported as Goodricke Group Ltd. and Ors. Vs. State  of West Bengal and Ors. - (1995) Supp. 1 SCC 707.   The  decision of this Court in India Cement  Ltd. and Ors.    Vs.   State of Tamil Nadu & Ors. (1990) 1 SCC 12 (seven-judges  Bench) and Orissa Cement Limited Vs. State of Orissa &  Ors. (1991) Suppl.1 SCC 430 (three-judges Bench) were cited  before the three-judges Bench in Goodricke.  Both the decisions  were distinguished and the constitutional validity of the 1989  amendments was upheld.  The writ petitions were dismissed.  

It appears that a similar cess was levied by a pari materia  provision enacted by the State Legislature of Orissa as the  Orissa Rural Employment, Education and Production Act, 1982.   The cess was on land bearing coal and minerals.  Challenge to  the constitutional validity of such cess was successfully laid

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before this Court, and the Orissa Legislation was struck down as  unconstitutional and ultra vires the competence of the State  Legislature in State of Orissa Vs. Mahanadi Coal Fields  Limited (1995) Suppl.2 SCC 686 decided on April 21, 1995.  

On 30.3.1996 a writ petition under Article 32 of the  Constitution of India has been filed in this Court laying challenge  to the constitutional validity of the very same amendments  which were unsuccessfully impugned in the Goodricke’s case.

The writ petitioners in the Tea Matters have in their  petition stated a few grounds in support of the relief sought for.   However, a perusal of the grounds reveals that in substance the  challenges is only one, i.e., the decision in Goodricke runs  counter to the view of the law taken by Seven-Judges Bench in  India Cement and three-Judges Bench in Orissa Cement;  Goodricke was rightly not followed in Mahanadi Coal Fields;  rather Mahanadi Coal Fields has whittled down the authority of  Goodricke and that being the position of law the impugned cess  is ultra vires the power of the State Legislature and deserves to  be pronounced so.  In short,  the same challenge as was laid and  turned down in Goodricke, is reiterated drawing support from  the decisions of this Court previous and subsequent to  Goodricke, and seeks the overruling of Goodricke.

(C)  Brick-Earth Matters The Bengal Brickfield Owners’ Association, being a  representative body of the persons engaged in the activity of  brick manufacturing and owning brickfields as also one of the  brickfield owners, have joined in filing a writ petition before this  Court wherein the constitutional validity of the very same  provisions as contained in the Cess Act, 1880, the West Bengal  Primary Education Act, 1973 and the West Bengal Rural  Employment and Production Act, 1976 ( both as amended by the  Bengal Taxation Laws Amendment Act, 1992) has been put in  issue, as has been subjected to challenge by the coal mine  owners and the tea estate owners disputing the levy of cess  allegedly on coal and tea.  The grounds of challenge, briefly  stated, are three in number:  firstly, that brick-earth is a minor  mineral to which the Mines and Minerals Development and  Regulation Act, 1957, applies and by virtue of the declaration  made by Section 2 of the Act by reference to Entry 54 in  Schedule I of the Constitution, the field relating to such minor  minerals is entirely covered by the Central Legislation and hence  the State Legislations are not competent to levy the impugned  cess; secondly, that the levy is on the dispatch of minor minerals  for sale while the process of manufacturing bricks does not  involve any dispatch of the brick-earth inasmuch as the brick- earth is consumed then and there, on the brickfield itself, in the  process of manufacturing of bricks, and there being no dispatch  of brick-earth, the cess is not leviable; and thirdly, that the State  Government is not empowered to levy any cess on either the  extraction of brick-earth or on the dispatch of brick-earth.  In  support of these three grounds, it is further submitted that the  same quantity of brick-earth is subjected by Central Legislation  to payment of royalty which is a tax, and the same quantity of  brick-earth is sought to be levied with cess which is incompetent  so far as the State Legislature is concerned.  The writ petition  places reliance on the decisions of this Court in  India Cement  Ltd. & Ors (supra), Orissa Cement Ltd. (supra) and Buxa  Dooars Tea Company Ltd. and Ors.(supra).  Some of the  members of the petitioner association were served with demand  notices.  The relief sought for in the petition is striking down of  the relevant provisions of the three State Legislations as ultra  vires the Constitution and quashing of the demand notices.   The

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reason for filing the petition in this Court, as stated in the writ  petition, is that the provisions sought to be impugned herein  have already   been declared ultra vires by the High Court of  Calcutta in relation to ’tea’, an appeal against which decision has  been filed in this Court and by an interim order the operation of  the judgment of the High Court was stayed.                  According to the respondents, the cess sought to  be levied  by the impugned State Legislation is in the nature of fee and not  tax.  The purpose of levying fee, as stated in the Preamble to the  relevant legislation, is rendering different services to the society  and for public benefit.  The cesses have been levied by the State  Government for securing of welfare to the people by the State as  is enshrined in Part IV of the Constitution of India by providing  communication facilities, removal of illiteracy and rural  employment to the poor living below the poverty line.  The  impugned legislations levying the cess, do not encroach upon the  field covered by the Central legislation.  The brick-klin owners  extract the brick-earth as an item of trade.  From every 100 cft  of brick-earth which weighs 5 metric tones, 1382 bricks are  manufactured.  The dispatch of 1382 bricks means the dispatch  of 100 cft or 5 metric tones of brick-earth.  A brickfield owner  performs dual functions: firstly, he extracts a quantum of brick- earth from the quarry, and secondly, he dispatches the same for  manufacture of bricks in the same quarry-field.  The brickfield  owner is an extractor of brick-earth and also a manufacturer of  bricks.  The element of dispatch is kept hidden.  That is why the  cess is now assessed on annual dispatches.  Dispatch, in the  context of brick-earth, means removal of brick-earth from one  place to another which may be within the same complex and for  domestic or captive use or consumption.  In any case, the  removal of brick-earth involved in the process cannot escape  assessment.

(D) Minor Mineral Matters This batch of appeals puts in issue the judgment dated  1.3.2000 delivered by a Division Bench of the Allahabad High  Court (reported as Ram Dhani Singh Vs.  Collector,  Sonbhadra and Ors. - AIR 2001 Allahabad 5), upholding the  constitutional validity of a cess on mineral rights levied under  Section 35 of the U.P. Special Area Development Authorities Act,  1986, read with Rule 3 of the Shakti Nagar Special Area  Development Authority (Cess on Mineral Rights) Rules, 1997  (herein referred to briefly as ’SADA Act’ and ’SADA Cess Rules’  respectively).  There was a bunch of 73 writ petitions filed in the  High Court which have all been dismissed.  The challenge is  being pursued in this Court by ten writ petitioners through these  appeals by special leave.

       The Governor of Uttar Pradesh promulgated U.P.  Ordinance No.15 of 1985, which was repealed by U.P. Special  Area Development Authorities Act, 1986 (U.P. Act No.9 of 1986),  containing identical provisions as were contained in the  preceding Ordinance.  The said Act received the assent of the  President of India on 19.3.1986 and was published in U.P.  Gazette of that day.  Section 35 of the Act provides as under : "35. Cess on mineral rights.-  (1) Subject to any limitations imposed by  Parliament by law relating to mineral  development, the Authority may impose a  cess on mineral rights at such rate as may  be prescribed.

(2)  Any Cess imposed under this section shall  be subject to confirmation by the State

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Government and shall be leviable with  effect from such date as may be appointed  by the State Government in this behalf."

On 24.2.1997, in exercise of the power conferred by  Section 35 of the Act, the Governor made the Shakti Nagar  Special Area Development Authority (Cess on Mineral Rights)  Rules, 1997, which were published on the same day in the U.P.  Gazette and came into force.  Rule 2(b) and Rule 3(1) and (2),  relevant for our purpose, are extracted and reproduced  hereunder : "2. In these rules, unless there is anything  repugnant in the subject or context__

(a)             xxx                     xxx                     xxx

(b)  "Mineral Rights" means rights conferred on  a lessee under a mining lease granted or  renewed for mining operations in relation  to Minerals (providing operation for  raising, winning or extracting coal) as  defined in the Mines and Minerals  (Regulation and Development) Act, 1957  (Act No.67 of 1957"

"3.(1) The Authority may, subject to sub-rules  (2) and (3) impose a cess on mineral  rights on such minerals and minor  minerals and at such rates are specified  below :

MINERAL/MINOR  MINERAL MINIMUM  RATE MAXIMUM  RATE (1) Cess on Coal Rs.5.00 (per ton) Rs.10.00 (per ton) (2) Cess on Stone,  Coarse Sind/Sand Rs.2.00 (Per Cubic  metre) Rs.5.00 (Per Cubic  metre)

(2) The rates shall not be less than the  minimum rates or more than the maximum  rates specified in sub-rule (1) and shall be  determined by the Authority by a special  resolution which shall be subject to  confirmation by the State Government."

In exercise of the power conferred by the Act and the Rules, the  State Government proceeded to levy cess and take steps for  recovery thereof by serving notices and issuing citations on the  several stone crushers (which the appellants are), who extract  stone as mineral and convert the same into metal by a process

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of crushing.  They filed the writ petitions disputing the levy and  the demand by the State Government.

       On behalf of the writ-petitioners, the SADA Cess Rules as  also the legislative competence of the State Legislature to enact  Section 35 of the SADA Act were challenged on the ground that  the MMDR Act, 1957, having been enacted containing a  declaration under Section 2 as contemplated by Entry 54 of List- I and the Act being applicable to Sonbhadra falling within the  State of U.P. as well, the State Legislature was denuded of its  power to enact the impugned law and levy the impugned cess.   It was also submitted that the impugned cess would have the  effect of adding to the royalty already being paid and thereby  increasing the same, which was ultra vires the power of the  State Government as that power was exercisable only by the  Central Government.                  The High Court has held the SADA Act, the SADA Cess  Rules and the levy of cess thereunder within the competence of  State Legislature by reference to Entry 5 in List II.

Reference to Constitution Bench Since the appeals referable to coal matters and the writ  petition referable to tea matters raised common issues, the  cases were taken up for hearing together.  On 12.10.1999, the  conflict amongst several decisions of this Court  was brought to  the notice of the three-judges Bench hearing the matter which  passed the following order :

"Great emphasis has been placed by  learned counsel for the State of West Bengal  upon the judgment of a Bench of three learned  Judges in Goodricke Group Ltd. & Ors. Vs.  State of West Bengal & Ors. [1995 Suppl. (1)  SCC 707].   Quite apart from the fact that  there are pending proceedings in this Court  seeking to reconcile the judgment in Goodricke  with that in State of Orissa & Ors. V. Mahanadi  Coalfields Ltd. & Ors. [1995 Suppl.(2) SCC  686], we find some difficulty in accepting as  correct the view taken by Goodricke,  particularly having regard to the earlier  decision (of a Bench of two learned Judges) in  Buxa Dooars Tea Co.Ltd. Vs. State of West  Bengal [(1989) 3 SCC 211].  We think,  therefore, that these matters should be heard  by a Constitution bench.

The papers and proceedings may,  accordingly, be placed before the Hon’ble Chief  Justice for appropriate directions."

The brick-earth matters were also clubbed with the  abovesaid matters for hearing.   The impugned judgment of the High Court of Allahabad in  Minor Mineral Matters has placed reliance on the decision of this  Court in Goodricke Group Ltd. and Ors. Vs.  State of West  Bengal and Ors.  - (1995) Supp. 1 SCC 707.  The correctness  of the said decision was in issue in Civil Appeal Nos.1532-33 of  1993 and batch matters and hence these appeals were also  directed to be placed before the Constitution Bench for hearing.   

       This is how the four sets of matters have been listed

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before and heard by the Constitution Bench.      

Relevant Entries and principles of interpretation Before we proceed to examine the merits of the  submissions and counter submissions made on behalf the  parties, it will be useful to recapitulate and summarise a few  principles relevant for interpreting entries classified and grouped  into the three Lists of the Seventh Schedule of the Constitution.   The law is legion on the point and the principles which are being  briefly stated hereinafter are more than settled.  These principles  are referred to in the several decisions which we shall be  referring to hereinafter. So far as the principles are concerned  they have been followed invariably in all the decisions, however  diverse results have followed based on facts of individual cases  and manner of application of such principles to the facts of those  cases.

       The relevant entries to which reference would be required  to be made during the course of this judgment are extracted and  reproduced herein:-

"SEVENTH SCHEDULE (Article 246)

List I - Union List

52.     Industries, the control of which by the  Union is declared by Parliament by law to  be expedient in the public interest.

54.     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.

96.     Fees in respect of any of the matters in  this List, but not including fees taken in  any court.

97.     Any other matter not enumerated in List  II or List III including any tax not  mentioned in either of those Lists.

List II - State List 23.     Regulation of mines and mineral  development subject to the provisions of  List I with respect to regulation and  development under the control of the  Union.

49.     Taxes on lands and buildings.

50.     Taxes on mineral rights subject to any  limitations imposed by Parliament by law  relating to mineral development.

66.     Fees in respect of any of the matter in  this List, but not including fees taken in  any court."

         Article 245 of the Constitution is the fountain source of  legislative power.  It provides - subject to the provisions of this

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Constitution, Parliament may make laws for the whole or any  part of the territory of India, and the Legislature of a State may  make laws for the whole or any part of the State.  The legislative  field between the Parliament and the Legislature of any State is  divided by Article 246 of the Constitution.  Parliament has  exclusive power to make laws with respect to any of the matters  enumerated in List I in Seventh Schedule, called the ’Union List’.   Subject to the said power of the Parliament, the Legislature of  any State has power to make laws with respect to any of the  matters enumerated in List III, called the ’Concurrent List’.  Subject to the abovesaid two, the Legislature of any State has  exclusive power to make laws with respect to any of the matters  enumerated in List II, called the ’State List’.  Under Article 248  the exclusive power of Parliament to make laws extends to any  matter not enumerated in the Concurrent List or State List.  The  power of making any law imposing a tax not mentioned in the  Concurrent List or State List vests in Parliament.  This is what is  called the residuary power vesting in Parliament.  The principles  have been succinctly summarized and restated by a Bench of  three learned Judges of this Court on a review of the available  decisions in M/s. Hoechst Pharmaceuticals Ltd. & Ors. Vs.  State of Bihar & Ors., -  (1983)  4 SCC 45.  They are-   

(1)     the various entries in the three Lists are not ’powers’ of  legislation but ’fields’ of legislation.  The Constitution  effects a complete separation of the taxing power of the  Union and of the States under Article 246.  There is no  overlapping anywhere in the taxing power and the  Constitution gives independent sources of taxation to the  Union and the States.

(2)     In spite of the fields of legislation having been demarcated,  the question of repugnancy between law made by  Parliament and a law made by the State Legislature may  arise only in cases when both the legislations occupy the  same field with respect to one of the matters enumerated  in the Concurrent List and a direct conflict is seen.  If there  is a repugnancy due to overlapping found between List II  on the one hand and List I and List III on the other, the  State law will be ultra vires and shall have to give way to  the Union law.  

(3)     Taxation is considered to be a distinct matter for purposes  of legislative competence.  There is a distinction made  between general subjects of legislation and taxation.  The  general subjects of legislation are dealt with in one group  of entries and power of taxation in a separate group.  The  power to tax cannot be deduced from a general legislative  entry as an ancillary power.  

(4)     The entries in the List being merely topics or fields of  legislation, they must receive a liberal construction  inspired by a broad and generous spirit and not in a  narrow pedantic sense.  The words and expressions  employed in drafting the entries must be given the widest  possible interpretation.   This is because, to quote  V.Ramaswami, J., the allocation of the subjects to the lists   is not by way of scientific or logical definition but by way of  a mere simplex enumeratio of broad categories. A power  to legislate as to the principal matter specifically  mentioned in the entry shall also include within its expanse  the legislations touching incidental and ancillary matters.

(5)     Where the legislative competence of a Legislature of any  State is questioned on the ground that it encroaches upon

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the legislative competence of Parliament to enact a law,  the question one has to ask is whether the legislation  relates to any of the entries in Lists I or III.  If it does, no  further question need be asked and Parliament’s legislative  competence must be upheld.  Where there are three Lists  containing a large number of entries, there is bound to be  some overlapping among them.  In such a situation the  doctrine of pith and substance has to be applied to  determine as to which entry does a given piece of  legislation relate.  Once it is so determined, any incidental  trenching on the field reserved to the other Legislature is  of no consequence. The Court has to look at the substance  of the matter.  The doctrine of pith and substance is  sometimes expressed in terms of ascertaining the true  character of legislation.  The name given by the Legislature  to the legislation is immaterial.  Regard must be had to the  enactment as a whole, to its main objects and to the scope  and effect of its provisions.  Incidental and superficial  encroachments are to be disregarded.   

(6)     The doctrine of occupied field applies only when there is a  clash between the Union and the State Lists within an area  common to both.  There the doctrine of pith and substance  is to be applied and if the impugned legislation  substantially falls within the power expressly conferred  upon the Legislature which enacted it, an incidental  encroaching in the field assigned to another Legislature is  to be ignored.  While reading the three Lists, List I has  priority over Lists III and II, and List III has priority over    List II.  However, still, the predominance of the Union List  would not prevent the State Legislature from dealing with  any matter within List II though it may incidentally affect  any item in List I. (emphasis supplied)

Tax Legislation The abovestated are general principles.  Legislations in the  field of taxation and economic activities need special  consideration and are to be viewed with larger flexibility in  approach.  Observations of the Constitution Bench in R.K. Garg  Vs. Union of India & Ors., (1981) 4 SCC 676, are apposite,  wherein this Court has emphasized a greater latitude - like play  in the joints - being allowed to the Legislature because it has to  deal with complex problems which do not admit of solution  through any doctrinaire or straitjacket formula.  In this field the  Court should feel more inclined to give judicial deference to  legislative judgment. Their Lordships quoted with approval the  following statement of Frankfurter, J. in Morey Vs. Doud,  (1957) 354 US 457:-         "In the utilities, tax and economic  regulation cases, there are good reasons for  judicial self-restraint if not judicial deference to  legislative judgment.  The legislature after all  has the affirmative responsibility.  The Courts  have only the power to destroy, not to  reconstruct.  When these are added to the  complexity of economic regulation, the  uncertainty, the liability to error, the  bewildering conflict of the experts, and the  number of times the judges have been  overruled by events, self-limitation can be  seen to be the path to judicial wisdom and  institutional prestige and stability".

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Their Lordships further observed that the Courts ought to adopt  a pragmatic approach in solving problems rather than measuring  the propositions by abstract symmetry.  The exact wisdom and  nice adaptations of remedies may not be possible.  Even  crudities and inequities have to be accommodated in complicated  tax and economic legislations.

       We now proceed to enter a deeper dimension in the field of  tax legislation by considering the problem of devising the  measure of taxation.  This aspect has been dealt with in detail in  Union of India & Ors. Vs. Bombay Tyre International Ltd.,  (1983) 4 SCC 210.  Tracing the principles from the leading  authority of Re.: a reference under the Government of  Ireland Act 1920 and Section 3 of the Finance Act  (Northern Ireland) 1934, (1936) A.C. 352, passing through  Ralla Ram Vs. Province of East Punjab, 1948 FCR 207, and  treading through the law as it has developed through judicial  pronouncements one after the other, this Court has made subtle  observations therein. It has been long recognized that the  measure employed for assessing a tax must not be confused  with the nature of the tax. A tax has two elements: first, the  person, thing or activity on which the tax is imposed, and  secondly, the amount of tax.  The amount may be measured in  many ways; but a distinction between the subject matter of a  tax and the standard by which the amount of tax is measured  must not be lost sight of.  These are described respectively as  the subject of a tax and the measure of a tax.  It is true that the  standard adopted as a measure of the levy may be indicative of  the nature of the tax, but it does not necessarily determine it.   The nature of the mechanism by which the tax is to be assessed  is not decisive of the essential characteristic of the particular tax  charged, though it may throw light on the general character of  the tax.         Here we may refer to certain illustrative cases of well  settled authority - the authority which has not been shaken so  far and has rather withstood the test of times.  

Taxation - measure of levy not suggestive of nature of tax  - illustrative cases

       In Ralla Ram (supra) the Federal Court held that a tax on  buildings under Section 3 of the Punjab Urban Immovable  Property Tax Act, 1940, measured by a percentage of the annual  value of such building, remained a tax on buildings even though  the measure of annual value of a building was also adopted as a  standard for determining income from property under the  Income Tax Act.  The same standard was adopted as a measure  for the two levies, yet the levies remained separate imposts by  virtue of their distinctive nature. The measure adopted, it was  held, could not be identified with the nature of the tax levied.

       In M/s. Sainik Motors, Jodhpur Vs. State of  Rajasthan, (1962) 1 SCR 517, a tax on passengers and goods  was assessed as a rate on the fares and freights payable by the  owners of the motor vehicles.  The contention that the levy was  a tax upon income and not upon passengers and goods was  repelled by this Court.  The Court pointed out that though the  measure of the tax is furnished by the fares and freights it does  not cease to be a tax on passengers and goods.

       In D.G. Gouse & Co. Vs. State of Kerala, (1980) 2 SCC  410, the Court examined the different modes available to the  Legislature for measuring the levy of tax on buildings.  The Court  upheld the provision made by the Legislature linking the levy

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with the annual value of the building and prescribing a uniformed  formula for determining its capital value and for calculating the  tax.

       In The Hingir-Rampur Coal Co. Ltd. Vs. State of  Orissa, (1961) 2 SCR 537, the form in which the levy was  imposed was held to be an impermissible test for defining in  itself the character of the levy.  It was argued that the method  of determining the rate of levy was by reference to the minerals  produced by the mines and, therefore, it was levy in the nature  of a duty of excise.  This Court held that the method thus  adopted may be relevant in considering the character of the  impost but its effect must be weighed alongwith and in the light  of the other relevant circumstances.   Referring to  Bombay  Tyre International Ltd. (supra), the Court further held that it  is clear that when enacting a measure to serve as a standard for  assessing the levy, the Legislature need not contour it along  lines which spell out the character of the levy itself.  A broader  based standard of reference is permissible to be adopted for the  purpose of determining the measure of the levy.  Any standard  which maintains a nexus with the essential character of the levy  can be regarded as a valid basis for assessing the measure of  the levy.  

Meaning of ’Lands’ - as used in Entry 49 in List II         The word ’land’ __ as used in Entry 49 in List II, came up  for the consideration of this Court in Anant Mills Vs. State of  Gujarat, (1975) 2 SCC 175.  It was held that the word ’land’  cannot be assigned a narrow meaning so as to confine it to the  surface of the earth.  It includes all strata above or below.  In  other words, the word ’land’ includes not only the surface of the  earth but everything under or over it, and has in its legal  significance an indefinite extent upward and downward.  The  four-Judges’ Bench upheld the validity of the law levying tax in  respect of area occupied by underground lines by reference to  Entry 49 in List II, holding it to be a tax on land only.  

       Ample authority is available for the concept that under  Entry 49 in List II the land remains a land without regard to the  use to which it is being subjected.  It is open for the Legislature  to ignore the nature of the user and tax the land.  At the same  time it is also permissible to identify, for the  purpose of  classification, the land by reference to its user. While taxing the  land it is open for the Legislature to consider the land which  produces a particular growth or is useful for a particular utility  and to classify it separately and tax the same.  Different pieces  of land identically situated otherwise, but being subjected to  different uses, or having  different potential, are capable of being  classified separately without incurring the wrath of Article 14 of  the Constitution.  The Constitution Bench in Kunnathat  Thathunni Moopil Nair etc. Vs. State of Kerala & Anr.  (1961) 3 SCR 77, held that the land on which a forest stands is  not to be excluded necessarily from Entry 49.  The erstwhile  Entry 19 of Schedule II applied to ’forest’.  Their Lordships held  that the use of the word ’forest’ in Entry 19 could not be pressed  into service to cut down the plain meaning of the word ’land’ in  Entry 49.  It was permissible to tax the land on which a forest  stands by reference to Entry 49.  In Ajoy Kumar Mukherjee  Vs. Local Board of Barpeta, (1965) 3 SCR 47, the appellant, a  land holder, held a hatt (or market) on his land. The Local Board  asked the appellant to take out a licence and pay Rs.600/-, later  Rs.700/-, by way of licence fee for holding the market.  It was  urged that the impost was unconstitutional, inter alia, on the  ground that the tax was actually imposed on the market, which  infringed Article 14 of the Constitution, and also because the

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State Legislature had no legislative competence to tax a market.   The Local Board relied on Entry 49 in List II.  The appellant  urged that Entries 45 to 63 which deal with taxes do not  contemplate a tax on markets.  Repelling the plea, the  Constitution Bench held that the tax was on the land though the  charges arise only when the land is used for a market.  The tax  remained a tax on land in spite of the imposition being  dependant upon the user of the land as a market.  The tax was  an annual tax as contrasted to a tax for each day on which the  market was held.  The owner or occupier of the land was  responsible for payment of tax on an annual basis.  The amount  of tax depended upon the area of the land on which the market  was held and the importance of the market.  Thus, the tax was  held to be a tax on land, though the incidence depended upon  the use of the land as a market.

       In Vivian Joseph Ferreira & Anr. Vs. The Municipal  Corporation of Greater Bombay & Ors., (1972) 1 SCC 70, the  tax was confined to the residential tenanted buildings.  The  classification was held to be valid.  In The Government of  Andhra Pradesh & Anr. Vs. Hindustan Machine Tools Ltd.,  (1975) 2 SCC 274, house tax was levied on the buildings.  The  new definition of ’house’ included ’a factory’.  However, the  house tax was levied only on the building occupied by the factory  and not on the machinery and furniture. The State Legislature  claimed competence to do so under Entry 49, List II.  The power  to tax a building, exercisable without reference to the use to  which the building is put, was held to be valid.  In the opinion of  the Court, it was irrelevant that the building was occupied by a  factory which could not conduct its activities without the  machinery and furniture.

       Once it is held that the land or building is available to be  taxed, it does not matter to what use the land is being subjected  though the nature of the user may enable land of one particular  user being classified separately from the land being subjected to  another kind of user.  The tax would remain a tax on land.  It  cannot be urged that what is being taxed is not the land but the  nature of its user.  So also it is permissible to adopt myriad  forms and methods of valuation for the purpose of quantifying  the tax.

       In Ralla Ram  Vs.  The Province of East Punjabu -  1948 FCR 207, the Federal Court made it clear that every effort  should be made as far as possible to reconcile the seeming  conflict between the provisions of the Provincial Legislation and  the Federal Legislation.  Unless the court forms an opinion that  the extent of the alleged invasion by a Provincial Legislature into  the field of the Federal Legislature is so great as would justify  the view that in pith and substance the impugned tax is a tax  within the domain of the Federal Legislature, the levy of tax  would not be liable to be struck down.  The test laid down in  Sir  Byramjee Jeejeebhoy’s case (AIR 1940 Bom 65) by the Full  Bench of Bombay High Court was approved.

       In Assistant Commissioner of Urban Land Tax Madras  and Ors. etc.  Vs.  Buckingham and Carnatic Co. Ltd. etc. -  (1969) 2 SCC 55, for the purpose of attracting the applicability  of Entry 49 in List II, so as to cover the impugned levy of tax on  lands and buildings, the Constitution Bench laid down twin tests,  namely, (i) that such tax is directly imposed on lands and  buildings, and (ii) that it bears a definite relation to it.  Once  these tests were satisfied, it was open for the State Legislature,  for the purpose of levying tax, to adopt the annual value or the  capital value of the lands and buildings for determining the

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incidence of tax.  Merely, on account of such methodology  having been adopted, the State Legislature cannot be accused of  having encroached upon Entries 86, 87 or 88 of List I.  Entry 86  in List I proceeds on the Principle of Aggregation and tax is  imposed on the totality of the value of  all the assets.  It is quite  permissible to separate lands and buildings for the purpose of  taxation under Entry 49 in List II.  There is no reason for  restricting the amplitude of the language used in the Entry 49 in  List II.  The levy of tax, calculated at the rate of a certain per  centum of the market value of the urban land was held to be  intra vires the powers of the State Legislature and not trenching  upon Entry 86 in List I.  So is the view taken by another  Constitution Bench in Shri Prithvi Cotton Mills Ltd., etc.  Vs.   Broach Borough Municipality and Ors., (1969) 2 SCC 283,  where the submission that the levy was not a rate on lands and  buildings as appropriately understood, but rather a tax on capital  value  was discarded.

       M/s. R.R. Engineering Co., etc. Vs. Zila Parishad,  Bareilly and Anr. etc. - (1980) 3 SCC 330, is a case of  circumstance and properties tax levied on the basis of income  which the assessee receives from his profession, trade, calling or  property.  The plea that the tax was a tax on income was  discarded.  The test propounded by the Constitution Bench is  that an excessive levy on circumstance may tend to blur the  distinction between a tax on income and a tax on circumstances.   Income will then cease to be a measure or yardstick of the tax  and will become the very subject-matter of the tax.  Restraint in  this behalf is a prudent prescription for the local authorities to  follow.  The Constitution Bench observed that it was only a  matter of convenience that income was adopted as a yardstick or  measure for assessing the tax and the evolvement of such  mechanism was not conclusive on the nature of tax.   

We are inclined to make a reference to a few selected Full  Bench decisions of different High Courts which have been cited  with approval before this Court in many of the decisions to which  we are making reference during the course of this judgment.

       In Sir Byramjee Jeejeebhoy  Vs.  Province of Bombay  and Ors. - A.I.R. 1940 Bombay 65 (F.B.) the Provincial  Government levied a tax at the rate of 5%  of the annual letting  value in the City of Bombay on the buildings and lands.  The  buildings were classified by reference to their annual letting  value, and exception from payment of tax was also carved out in  favour of such buildings as remained vacant and unproductive of  rent for the specified period.  It was urged that the impugned  tax purported or desired to tax the value.  Placing reliance on  the Federal Court’s decision in  ’In Re: C. P. Motor Spirit Act ,  1939’ (1939 FCR 18) Chief Justice Beaumont held that the  impugned tax was a tax on lands and buildings.  Three  submissions were made in support of the challenge: (i) that the  tax is graded by reference to the annual value of the property  charged, (ii) that an allowance was available to be made in  respect of vacant properties,  and (iii) that the basis of the tax  was the same as the basis on which tax on income from property  was imposed by Sections 6 and 9 of Income Tax Act and,  therefore in reality the rate was a tax on income.  Beaumont,  C.J. held that regard must be had to the pith and substance of  the impugned tax and not merely to the form.  All the items in  the Provincial List must be so construed as to exclude taxes on  income.  The tax is charged on lands and buildings and it is  based on the estimated rent which the property would fetch.   Such a value may bear very little relation to the actual income of  the property.  It is imposed without any relation to the capital

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value except insofar as such value can be ascertained by  reference to the rateable value.  It did not make any difference if  the arbitrary basis which was adopted for the purpose of the rate  might as well be applied for ascertaining the capital value as for  ascertaining income.  The fact that some concession is allowed  to the small owner, a concession which may be based as much  on political as on economic considerations and that an allowance  may be made where the property is shown to produce no  income, a fact which may be taken to show that the estimated  value was found to be erroneous, cannot alter the nature of the  tax.  The concept that in case of conflict between the Federal List  and Provincial List, an entry in the Federal List may be given a  more restricted meaning, was endorsed.  The legality of the levy  was upheld.

       In District Board of Farrukhabad  Vs.  Prag Dutt and  Ors. - AIR 1948 Allahabad 382 (F.B.), a tax on ’circumstances  and property’ was under challenge.  It was urged that it was a  tax on income.  Chief Justice Malik held that the fundamental  difference between the tax on ’income’ and a tax on  ’circumstances and property’ is that income tax can only be  levied if there is income and if there is no income, no tax is  payable.  But in the case of ’circumstances and property’ tax,  where a man’s status has to be determined, his total business  turnover may be considered for purposes of taxation, though he  may not have earned any taxable income.

       The State of Punjab Vs. The Union of India through  the Secrtary to Government Finance Department,  Government of India, New Delhi - AIR 1971 Punjab &  Haryana 155 (F.B.), is a Five-Judges Bench decision delivered by  Chief Justice Harbans Singh.  Conflict was noticed between List I,  Entry 86 and List II, Entry 49.  Dealing with the scope of Entry  49 in List II, it was held that it empowers the State Legislatures  to directly tax lands and buildings, and for determining the basis  of the tax the State Legislature may take either the area, annual  rental value, market value or the capital value of the land as a  basis for calculating and quantifying the tax on land.  Merely  because tax was calculated on the basis of annual rental value, it   will not turn it into a tax on income, and if it is based on capital  value, it will not turn it into a tax on capital value.  

       Yet another angle which the Constitutional Courts would  advisedly do better to keep in view while dealing with a tax  legislation, in the light of the purported conflict between the  powers of the Union and the State to legislate, which was stated  forcefully and which was logically based on an analytical  examination of constitutional scheme by Jeevan Reddy, J. in  S.R. Bomai and Ors. Vs. Union of India, (1994) 3 SCC 1,   may be touched.  Our Constitution has a federal structure.   Several provisions of the Constitution unmistakably show that  the Founding Fathers intended to create a strong centre.  The  historical background relevant at the time of the framing of the  Constitution warranted a strong centre naturally and necessarily.   This bias of the framers towards the centre is found reflected in  the distribution of legislative heads between the Centre and the  States.  More important heads of legislation are placed in List I.   In the Concurrent List the parliamentary enactment is given  primacy, irrespective of the fact whether such enactment is  earlier or later in point of time to a State enactment on the same  subject matter.  The residuary power to legislate is with the  Centre.  By the Forty-second Amendment a few of the entries in  List II were omitted or transferred to other lists.  Articles 249 to  252 further demonstrate the primacy of Parliament, allowing it  liberty to encroach on the field meant exclusively for the State

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legislation though subject to certain conditions being satisfied.   In the matter of finances, the States appear to have been placed  in a less favourable position.  True, the Centre has been given  more powers but the same is accompanied by certain additional  responsibilities as well.  The Constitution is an organic living  document.  Its outlook and expression as perceived and  expressed by the interpreters of the Constitution must be  dynamic and keep pace with the changing times.  Though the  basics and fundamentals of the Constitution remain unalterable,  the interpretation of the flexible provisions of the Constitution  can be accompanied by dynamism and lean, in case of conflict,  in favour of the weaker or the one who is more needy.  Several  taxes are collected by the Centre and allocation of revenue is  made to States from time to time.  The Centre consuming the  lion’s share of revenue has attracted good amount of criticism at  the hands of the States and financial experts.  The interpretation  of Entries can afford to strike a balance, or at least try to remove  imbalance, so far as it can.  Any conscious whittling down of the  powers of the State can be guarded against by the Courts. "Let it  be said that the federalism in the Indian Constitution is not a  matter of administrative convenience, but one of principle - the  outcome of our own historical process and a recognition of the  ground realities."   Quoting from M.C. Setalvad, Tagore Law  Lectures "Union and State relations under the Indian  Constitution" ( Eastern Law House, Calcutta, 1974), Jeevan  Reddy, J. observed - "It is enough to note that our Constitution  has certainly a bias towards the Centre vis-‘-vis the States.......It  is equally necessary to emphasise that Courts should be careful  not to upset the delicately-crafted constitutional scheme by a  process of interpretation."   

The Conflict - a cautious evaluation of "India Cement"         We will now refer to and deal with those cases which have  led to the three learned Judges of this Court, placing the matter  for consideration by a Constitution Bench.  We would refer to the  cases mentioned in the order of reference and also to those  cases which were heavily relied upon on behalf of the  respondents, disputing the validity of the impugned tax.   Immediately, we take up India Cement.

       In India Cement Ltd. and Ors.  Vs. State of Tamil  Nadu and Ors. - (1990)  1 SCC 12, what was impugned was a  levy of cess on  royalty and the question was, whether such cess  on royalty is within the competence of the State Legislature.   The appellant was required to pay, by the Madras Panchayats  Act, 1958, local cess at the rate of 45 paise per rupee of the  royalty already being paid.  The question formulated by the  Court, as arising for decision was : is cess on royalty a demand  of land revenue or additional royalty?  The Court found that the  royalty was payable by the appellant as prescribed under the  lease deed.  The rates of the royalty were fixed under the Mines  and Minerals (Development and Regulation) Act, 1957, which is  a Central Act, passed under Entry 54 in List I, by which the  control of mines and minerals has been taken over by the  Central Government.    The State Legislature sought  to justify  and sustain the levy by reference to Entry 49, 50 or 45 in List II.   Cess is a tax and is generally used when the levy is for some  special administrative expense, suggested by the name of the  cess, such as health cess, education cess, road cess etc.  This is  a well-settled position of law.  The levy was sought to be  justified under Entry 45 in List II by including it within the  meaning of land revenue, and in the alternative under Entry 49  in List II as tax on lands.  The challenge to the constitutional  validity of the levy was upheld.  We would briefly state the  reasoning which prevailed with the learned Judges.

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       G.L. Oza, J. delivered a separate concurring opinion.  The  majority opinion expressed through Sabyasachi Mukharji, J. (as  his Lordship then was),  first clarified the distinction between  ’royalty’ and ’land revenue’.  ’Land revenue’ is connotative of the  share in the produce of land which the king or the Government is  entitled to receive.  ’Royalty’ is a charge payable on the  extraction of minerals from the land.  A cess on royalty cannot,  therefore, be called additional land revenue and as such the  State was disabled from imposing tax on royalty.  There is a  clear distinction between ’tax directly on land’ and ’tax on  income arising from land’.  Royalty is indirectly connected with  land and a cess on royalty cannot be called a tax directly on land  as a unit.  The levy could also not be sustained under Entry 50 in  List II which deals with taxes on mineral rights subject to  limitation imposed by Parliament relating to mineral  development.  Assuming that the tax in pith and substance fell  to Entry 50 in List II, it would be controlled by a legislation under  Entry 54 in List I.

A  Division  Bench decision  of  Mysore  High Court in  M/s  Laxminarayana Mining Co., Bangalore and Anr. Vs. Taluk  Development Board and Anr. - AIR 1972 Mysore 299 was  cited with approval in India Cement.  The Mysore High Court  struck down as violative of MMDR Act, 1957 a licence fee on  mining manganese or iron ore etc. imposed by a State  Legislation.  A perusal of the judgment of the Mysore High Court  shows that the impost was by way of licence fee on the mining  of certain minerals.  Regulation and development of mines and  minerals was undertaken by the Central Legislation and  therefore the power of the State Legislature  under Entries 23  and 52 in List-II got denuded in the field of regulation and  development covered by the Central Legislation.  The Division  Bench vide para 6 held "it is therefore clear that to the extent  the Central Act makes provision regarding the regulation and  development of minerals, the powers of the State Legislatures  under Entry 23 of List II stand curtailed". The State Government  had sought to defend the licence fee on the ground that it was in  the nature of a tax and not a licence fee.  This plea has been  specifically noted by the High Court and dealt with.  However,  what is significant to note is the revelation, made by careful  reading of the judgment, that provision for licence fee was made  in the Central Legislation and licence fee was sought to be  imposed by the State too.  In fact, the licence fee was a step  trenching upon the field of regulation and therefore was liable to  be struck down on this ground alone.  Yet, another reasoning  which prevailed with the High Court was that Section 143 of the  State Act, which was not inconsistent with the Central Act, was  relied on by the State Government as conferring power on it to  levy the impugned licence fee.  On that plea the High Court  formed an opinion that on the framing of Section 143 of the  State Act it did not in express terms authorize a levy of fee or  tax.    The High Court observed - "It (Section 143) cannot also  be construed as conferring such a power on the respondents to  levy a tax or fee on mining, in view of the well-settled and  statutory construction that a Court construing a provision of law  must presume that the intention of the authority in making it  was not to exceed its power but to enact it validly".  The ratio of  the decision of the Mysore High Court is that provision for  licenses and license fees, operating in the field of regulation of  mines and minerals is not available to be made by State  legislation - in view of the declaration in terms of Entry 54 in List  I.   

In our view, the decision by Mysore High Court cannot be

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read so widely as laying down the law that Union’s power to  regulate and control results in depriving the States of their  power to levy tax or fee within their legislative competence  without trenching upon the field of regulation and control.  There  is a distinction between power to regulate and control and power  to tax, the two being distinct and that difference has not been  kept in view by the Mysore High Court.

(A diversion from main issue) Royalty, if tax?         We would like to avail this opportunity for pointing out an  error, attributable either to a stenographer’s devil or to sheer  inadvertence, having crept into the majority judgment in India  Cement Ltd.’s case (supra).  The error is apparent and only  needs a careful reading to detect.  We feel constrained - rather  duty-bound - to say so, lest a reading of the judgment  containing such an error - just an error of one word - should  continue to cause the likely embarrassment and have adverse  effect on the subsequent judicial pronouncements which would  follow India Cement Ltd.’s case, feeling bound and rightly, by  the said judgment having the force of pronouncement by seven-  Judges Bench.  Para 34 of the report reads as under : "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 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, 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."

(underlining by us)          In the first sentence the word ’royalty’ occurring in the  expression - ’royalty is a tax’, is clearly an error.  What the  majority wished to say, and has in fact said, is - ’cess on royalty  is a tax’.  The correct words to be printed in the judgment should  have been ’cess on royalty’ in place of ’royalty’ only.  The words  ’cess on’ appear to have been inadvertently or erroneously  omitted while typing the text of judgment.  This is clear from  reading the judgment in its entirety.  Vide para 22 and 31, which  precede  para 34 above said, their Lordships have held that  ’royalty’ is not a tax.  Even the last line of para 34 records  ’royalty on mineral rights is not a tax on land but a payment for  the user of land’.  The very first sentence of the para records in  quick succession ’......as such a cess on royalty being a tax on  royalty, is beyond the competence of the State legislature....’.   What their Lordships have intended to record is ’......that cess on  royalty is a tax, and as such a cess on royalty being a tax on  royalty is beyond the competence of the State Legislature.....’.   That makes correct and sensible reading.  A doubtful expression  occurring in a judgment, apparently by mistake or inadvertence,  ought to be read by assuming that the Court had intended to say  only that which is correct according to the settled position of law,  and the apparent error should be ignored, far from making any  capital out of it, giving way to the correct expression which  ought to be implied or necessarily read in the context, also  having regard to what has been said a little before and a little  after.  No learned Judge would consciously author a judgment  which is self-inconsistent or incorporates passages repugnant to  each other.  Vide para 22, their Lordships have clearly held that  there is no entry in Schedule II which enables the State to

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impose a tax on royalty and, therefore, the State was  incompetent to impose such a tax (cess).  The cess which has an  incidence of an additional charge on royalty and not a tax on  land, cannot apparently be justified as falling under Entry 49 in  List II.

It is of significance for the issue before us, to determine  the nature of royalty and whether it is a tax, and if not, then,  what it is.  Until the pronouncement of this Court in India  Cement (supra), it has been the uniform and unanimous judicial  opinion that royalty is not a tax.

First we will refer to certain dictionaries oft-cited in courts  of law. Words and Phrases, Permanent Edition (Vol.37A, page  597)-   ""Royalty" is the share of the produce reserved  to owner for permitting another to exploit and  use property.  The word "royalty" means  compensation paid to landlord by occupier of  land for species of occupation allowed by  contract between them.  "Royalty" is a share of  the product or profit (as of a mine, forest, etc.)  reserved by the owner for permitting another  to use his property."

Stroud’s Judicial Dictionary of Words and Phrases  (Sixth Edition, 2000, Vol.3, page 2341) -  "the word "royalties" signifies, in mining  leases, that part of the reddendum which is  variable, and depends upon the quantity of  minerals gotten or the agreed payment to a  patentee on every article made according to  the patent.  Rights or privileges for which  remuneration is payable in the form of a  royalty"   

       Words and Phrases, Legally Defined (Third Edition,  1990, Vol.4, page 112) -   "A royalty, in the sense in which the word is  used in connection with mining leases, is a  payment to the lessor proportionate to the  amount of the demised mineral worked within  a specified period"

       Wharton’s Law Lexicon (Fourteenth Edition, page 893) -  "Royalty, payment to a patentee by  agreement on every article made according to  his patent; or to an author by a publisher on  every copy of his book sold; or to the owner of  minerals for the right of working the same on  every ton or other weight raised."

       Mozley & Whiteley’s Law Dictionary (Eleventh Edition,  1993, page 243) -  "A pro rata payment to a grantor or lessor, on  the working of the property leased, or  otherwise on the profits of the grant of lease.   The word is especially used in reference to  mines, patents and copyrights."

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       Prem’s Judicial Dictionary (1992, Vol.2, page 1458) -  "royalties are payments which the Government  may demand for the appropriation of minerals,  timber or other property belonging to the  Government.  Two important features of  royalty have to be noticed, they are, that the  payment made for the privilege of removing  the articles is in proportion to the quantity  removed, and the basis of the payment is an  agreement."

                Black’s Law Dictionary (Seventh Edition, p.1330) -  

"Royalty - A share of the product or profit from  real property, reserved by the grantor of a  mineral lease, in exchange for the lessee’s  right to mine or drill on the land.  

Mineral Royalty : A right to a share of income  from mineral production."

       In D.K. Trivedi & Sons. & Ors. Vs. State of Gujarat &  Ors., 1986 (Supp) SCC 20, a Bench of two learned Judges of  this Court dealt with "rent", "royalty" and "dead rent" and held  as follows.  Rent is an integral part of the concept of a lease.  It  is the consideration from the lessee to the lessor for the demise  of the property to him.  In a mining lease the consideration  usually moving from the lessee to the lessor is the rent of the  area leased (often called surface rent), dead rent and royalty.   Since the mining lease confers upon the lessee the right not  merely to enjoy the property as under an ordinary lease but also  to extract minerals from the land and to appropriate them for his  own use or benefit, in addition to the usual rent for the area  demised, the lessee is required to pay a certain amount in  respect of the minerals extracted proportionate to the quantity  so extracted.  Such payment is called "royalty".  It may,  however, be that the mine is not worked properly so as not to  yield enough return to the lessor in the shape of royalty.  In  order to ensure for the lessor a regular income, regardless of  whether the mine is worked or not, a fixed amount is provided to  be paid to him by the lessee.  This is called "dead rent".  "Dead  rent" is calculated on the basis of the area leased while "royalty"  is calculated on the quantity of minerals extracted or removed.   Thus, while dead rent is a fixed return to the lessor, royalty is a  return which varies with the quantity of minerals extracted or  removed.  Since dead rent and royalty are both a return to the  lessor in respect of the area leased, looked at from one point of  view dead rent can be described as the minimum guaranteed  amount of royalty payable to the lessor but calculated on the  basis of the area leased, and not on the quantity of minerals  extracted or removed.   In H.R.S. Murthy Vs. Collector of  Chittor, (1964) 6 SCR 666, too the Constitution Bench of this  Court had defined Royalty to mean ’the payment made for the  materials or minerals won from the land’.

       The judicial opinion as prevailing amongst the High Courts  may be noticed.  A Full Bench of the High Court of Orissa held in  Laxmi Narayan Agarwalla & Ors. Vs. State of Orissa &  Ors., AIR 1983 Orissa 210, ’Royalty is the payment made for the  minerals extracted; it is not tax’.  In Surajdin Laxmanlal  Vs.  

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State of M.P., Nagpur and Ors. - AIR 1960 M.P. 129, a  Division Bench of the High Court of Madhya Pradesh referred to  the Wharton’s Law Lexicon and Mozley & Whiteley’s Law  Dictionary and said - "royalties are payments which the  Government may demand for the appropriation of minerals,  timber or other property belonging to the Government."  The  High Court opined that there are two important features of  royalty: (i) the payment is in proportion to the quantity  removed; and (ii) the basis of the payment is an agreement.          Drawing a distinction between ’royalty’ and ’tax’, a Division  Bench of the High Court of Punjab and Haryana High Court held  in Dr. Shanti Saroop Sharma and Anr.  Vs.  State of Punjab  and Ors. - AIR 1969 Punjab & Haryana 79 as under -  "if a person is merely in occupation of land  which contains minor minerals, he is not liable  to pay any royalty, but it is only when he holds  a mining lease and by virtue of that extracts  one or more minor minerals that he is called  upon to pay royalty to the Government where  the lease is in respect of the land in which  minor minerals vest in the Government.    Royalty thus has its basis in the contract.  For  payment to the owner of the minerals for the  privilege of extracting the minor minerals  computed on the basis of the quantity actually  extracted and removed from the leased area.   It is more akin to rent or compensation  payable to an owner by the occupier or lessee  of land for its use or exploitation of the  resources contained therein.  Merely because  the provision with regard to royalty is made by  virtue of the rules relating to the regulation of  the mining leases and a uniform rate is  prescribed, it does not follow that it is a  compulsory exaction in the nature of tax or  impost."    

       A Division Bench of Gujarat High Court in Saurashtra  Cement & Chemical Industries Ltd., Ranavav  Vs.  Union of  India and Anr. - AIR 1979 Gujarat 180, emphatically said -  "royalty may not be a fee but it is not a tax.  It  is a payment for the mineral which is removed  or consumed by the holder of the mining lease.   The minerals themselves, - the property  beneath the soil - belong to the Union.  When  the holder of a mining lease removes these  minerals or consumes them, he can do so only  on payment of its price or value.  Therefore,  royalty is a share which the Union claims in the  minerals which have been won from the soil by  the lessee and which otherwise belong to it.   Royalty is a share in such minerals and not a  tax in the form of a compulsory exaction.  It is  not compulsory because anyone who applies  for a mining lease to win minerals for being  removed or consumed must pay its price.  If  he does not want to pay the price, he may not  apply for a mining lease.  Royalty which is a  share of the owner of the minerals - the Union  - won by the lessee from the soil with the  authority of the Union can never be said to be  an imposition on the holder of a mining lease.

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       We need not further multiply the authorities.  Suffice it to  say that until the pronouncement in India Cement, nobody  doubted the correctness of ’royalty’ not being a tax.

       Such has been the position even subsequent to the  pronouncement in India Cement.  

       In Inderjeet Singh Sial & Anr.  Vs.  Karam Chand  Thapar & Ors. - (1995) 6 SCC 166, a Bench of two learned  judges held that -  

"In its primary and natural sense ’royalty’, in  the legal world, is known as the equivalent or  translation of jura regalia or jura regia.  Royal  rights and prerogatives of a sovereign are  covered thereunder.  In its secondary sense  the word ’royalty’ would signify, as in mining  leases, that part of the reddendum, variable  though, payable in cash or kind, for rights and  privileges obtained.  It is found in the clause of  the deed by which the grantor reserves  something to himself out of that which he  grants.  It may even be a clause reserving rent  in a lease, whereby the lessor reserves  something for himself out of that which he  grants."

In Ajit Singh  Vs.  Union of India & Ors. - 1995 Supp.  (4) SCC 224, another Bench of two learned Judges held that the  grant of mining lease involves grant of a privilege by the State.   In both these decisions India Cement’s is not noticed.   

       In Quarry Owners’ Association  Vs.  State of Bihar &  Ors. - (2000) 8 SCC 655, a Bench of two learned Judges was  faced with a submission, based on India Cement and  subsequent decisions following it, that royalty is a tax.  The  learned Judges found it difficult to accept the concept but tried  to wriggle out of the situation by observing -  "royalty includes the price for the consideration  of parting with the right and privilege of the  owner, namely, the State Government who  owns the mineral.  In other words, the  royalty/dead rent, which a lessee or licensee  pays, includes the price of the minerals which  are the property of the State.  Both royalty and  dead rent are integral parts of a lease.  Thus, it  does not constitute usual tax as commonly  understood but includes return for the  consideration for parting with its property."

       In India Cement (vide para 31, SCC) decisions of four  High Courts holding ’Royalty is not tax’ have been noted without  any adverse comment.  Rather, the view seems to have been  noted with tacit approval.  Earlier (vide para 21, SCC) the  connotative  meaning of royalty being ’share in the produce of  land’ has been noted.  But for the first sentence (in para 34,  SCC) which we find to be an apparent error, no where else has  the majority judgment held royalty to be a tax.             How the abovenoted inadvertent error in India Cement  has resulted into throwing on the loop line the movement of later  case law on this point may be noticed.  In State of M.P. Vs.

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Mahalaxmi Fabric Mills Ltd. and Ors. - 1995 Supp. (1) SCC  642 (decision by a Bench of three learned Judges) and  Saurashtra Cement and Chemicals Industries and Anr.  etc.etc. Vs. Union of India and Ors. - (2001) 1 SCC 91  (decision by a Bench of two learned Judges) para 34 (from SCC)  in India Cement has been quoted verbatim and dealt with.  In  Mahalaxmi Fabric Mills Ltd. and Ors.’s case (supra), the  Court noticed several dictionaries defining royalty and also the  decisions of High Courts available and stated that traditionally  speaking royalty is an amount which is paid under contract of  lease by the lessee to the lessor, namely, the State  Governments concerned and it is commensurate with the quality  of minerals extracted.  But then (vide para 12), the Court felt  bound by the view taken in India Cement, reiterated in Orissa  Cement, to hold that royalty is a tax. The point that there was  apparently a ’typographical error’ in para 34 in India Cement  was specifically raised but was rejected.  In Saurashtra  Cement and Chemicals Industries and Anr.(supra) too the  Court felt itself bound by the decision in Mahalaxmi Fabric  Mills Ltd. and Ors (supra), backed by India Cement, and  therefore held royalty to be tax.

       We have clearly pointed out the said error, as we are fully  convinced in that regard and feel ourselves obliged  constitutionally, legally and morally to do so, lest the said error  should cause any further harm to the trend of jurisprudential  thought centering  around the meaning of ’royalty’.  We hold  that royalty is not tax.  Royalty is paid to the owner of land who  may be a private person and may not necessarily be State.  A  private person owning the land is entitled to charge royalty but  not tax.  The lessor receives royalty as his income and for the  lessee the royalty paid is an expenditure incurred.  Royalty  cannot be tax.  We declare that even in India Cement it was  not the finding of the Court that royalty is a tax.  A statement  caused by an apparent typographical or inadvertent error in a  judgment of the Court should not be misunderstood as  declaration of such law by the Court.  We also record our  express dissent with that part of the judgment in Mahalaxmi  Fabric Mills Ltd. and Ors. which says (vide para 12 of SSC  report) that there was no ’typographical error’ in India Cement  and that the said conclusion that royalty is a tax logically flew  from the earlier paragraphs of the judgment.

Inter-relationship of Schedule I Entry 54 and Schedule II  Entry 23          With the abovesaid reflection of ours on clarifying India  Cement, clarification now we proceed to examine the the inter- relationship of Schedule I Entry 54 and Schedule II Entry 23  which have been quoted and reproduced in the earlier part of  this judgment.  

Conflict in Entries (in the three Lists in Seventh Schedule)         The analysis of decided cases as made by eminent  constitutional jurist H.M. Seervai in his work on Constitutional  Law of India (Fourth/Silver Jubilee Edition, Vol.3) is apposite.  Vide para 22.168, he states __ "In Gov.-Gen. in Council Vs.  Madras, 1945 FCR 179, the Privy Council laid down important  principles for interpreting apparently conflicting legislative  entries in general, and apparently conflicting tax entries in  particular.  The Privy Council held, first, that though a tax in List  I (e.g. a duty of excise) and a tax in List II (e.g. a tax on the  sale of goods) of the Government of India Act, 1935,  may  overlap, in fact there would  be no overlapping in law, if the  taxes were separate and distinct imposts; secondly, that the

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machinery of tax collection did not affect the real nature of a tax.   Another principle for reconciling apparently conflicting tax entries  follows from the fact that a tax has two elements : the person,  thing or activity on which the tax is imposed, and the amount of  the tax.  The amount may be measured in many ways; but  decided cases establish a clear distinction between the subject  matter of a tax and the standard by which the amount of tax is  measured.  These two elements are described as the subject of a  tax and the measure of a tax.  In D.G. Gouse Vs. Kerala -  (1980) 2 SCC 410, which is considered later, the above passage  was quoted with approval by the Supreme Court as stating  precisely the two elements involved in almost all tax cases,  namely, the subject of a tax and the  measure of a tax."

       It is necessary to examine the scheme underlying the  Seventh Schedule of the Constitution.  We are relieved of the  need of embarking upon any maiden voyage in this direction in  view of the availability of a Constitution Bench decision in M.P.V.  Sundararamier & Co. Vs. The State of Andhra Pradesh &  Anr., (1958) SCR 1422. Venkatarama Aiyar, J., speaking for the  Constitution Bench, traced the history of legislations preceding  the Constitution, analysed the scheme underlying the division of  legislative powers between the Centre and the States and then  succinctly summed up the quintessence of the analysis.  It was  held, inter alia: 1.      In List I, Entries 1 to 81 mention the  several matters over which Parliament has  authority to legislate.  Entries 82 to 92  enumerate the taxes which could be imposed  by a law of Parliament.  An examination of  these two groups of Entries shows that while  the main subject of legislation figures in the  first group; a tax in relation thereto is  separately mentioned in the second.

2.      In  List II, Entries 1 to 44 form one  group mentioning the subjects on which the  States could legislate. Entries 45 to 63 in that  List form another group, and they deal with  taxes.

3.      Taxation is not intended to be comprised  in the main subject in which it might on an  extended construction be regarded as included,  but is treated as a distinct matter for purposes  of legislative competence.  And this distinction  is also manifest in the language of Art.248,  Cls.(1) and (2) and of Entry 97 in List I of the  Constitution. Under the scheme of the Entries  in the Lists, taxation is regarded as a distinct  matter and is separately set out.

4.      The entries in the Legislative Lists must  be construed broadly and not narrowly or in a  pedantic manner.

5.      The entries in the two Lists - List I and II  - must be construed, if possible, so as to avoid  conflict.  Faced with a suggested conflict  between entries in List I and List II, what has  first to be decided is whether there is any  conflict.  If there is none, the question of  application of the non-obstante clause ’subject  to’ does not arise.  And, if there be conflict, the  correct approach to the question is to see

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whether it was possible to effect a  reconciliation between the two Entries so as to  avoid a conflict and overlapping.  

Illustration   If it is possible to construe Entry 42 in  List I as not including tax on inter-state sales it  should be so construed and the power to levy  such tax must be held to be included in Entry  54 in List II (Entries as they existed pre-Forty  Second Amendment, 1976) (See: Governor  General in Council  Vs.  Province of Madras  - AIR 1945 PC 98, and Province of Madras   Vs.  Bodder Paidenna & Sons - AIR 1942 FC  33)  

6.      In the event of a dispute arising it should  be determined by applying the doctrine of pith  and substance to find out whether between  two Entries assigned to two different  legislatures the particular subject of the  legislation falls within the ambit of the one or  the other.  Where there is a clear and   irreconcilable conflict of jurisdiction between  the Centre and a provincial legislature it is the  law of the Centre that must prevail.     [underlining by us]

Referring to M.P.V. Sundararamier & Co. (supra)  Sabyasachi Mukharji, J. (as his Lordship then was) speaking for  six out of the seven Judges constituting the Bench in Synthetics  and Chemicals Ltd. & Ors.  Vs.  State of U.P. & Ors. -  (1990) 1 SCC 109 held that under the constitutional scheme of  division of powers in the Seventh Schedule, there are separate  entries pertaining to taxation and other laws.  A tax cannot be  levied under a general entry.

       The abovesaid principles continue to hold the field and  have been followed in cases after cases.   

General power of ’Regulation and Control’ does not  include power of taxation                  One thing, which too is well settled by a series of decisions  is that the power of "regulation and control" is separate and  distinct from the power of taxation.  How this principle has been  applied in myriad situations may be illustratively noticed.

       The Constitution Bench in The Hingir-Rampur Coal  Co.Ltd. & Ors. Vs. The State of Orissa & Ors. etc. - (1961) 2  SCR 537, was faced with a challenge to the constitutional validity  of the Orissa Mining Areas Development Fund Act, 1952.  The  petitioner-company was engaged in producing and selling coal  excavated from its collieries at Rampur in the State of Orissa.  The Act and the Rules framed and the notification issued  thereunder levied the payment of cess on the petitioner’s  Rampur Colliery.  The cause of action had arisen to the petitioner  therein on account of the communications made to the company  in March 1959 calling  upon them to file monthly returns for the  assessment of the cess which was levied by issuance of a  notification dated June 24, 1958.     

       The challenge to the constitutional validity of the levy  imposed by the impugned Act came to be examined by reference

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to Entry 54 in List I read with the Mines and Minerals (Regulation  and Development) Act, 1948 (Act No. 53 of 1948) as also by  reference to Entry 52 in List I read with the Industries  (Development and Regulation) Act, 1951 (Act No.65 of 1951).   On behalf of the State of Orissa, the levy was defended as a fee  relatable to Entries 23 and 66 in List II.  The Constitution Bench  entered into an enquiry as to what is the primary object of the  levy and the essential purpose which it is intended to achieve.  It  was observed that its primary object and the essential purpose  must be distinguished from its ultimate or incidental results  or  consequences, as that is the true test in determining the  character of the levy.  The submission that the impugned levy  could be either duty of excise or tax, was dismissed.  The  Constitution Bench held that the form in which the levy is  imposed and the extent of the levy, i.e., being too high, do not  alter the character of the levy from a fee into that of a duty of  excise.  The Constitution Bench laid down the features which  would distinguish excise from a tax or fee and also the features   which distinguish a tax from   a fee though there is no  generic   difference in a tax and a fee, both being compulsory exactions of  money by public authorities.                  The scheme of the impugned Orissa Act was examined in- depth and their Lordships found that the cess levied by the  impugned Act was a fee.  The Act was passed for the purpose of  the development of mining areas in the State.  Orissa is a poor  State carrying in its womb a lot of mineral wealth of great  potential value, but the areas where its mineral wealth is located  lack infrastructure which would enable the exploitation of  minerals.  The primary and the principal object of the Act was to  develop the mineral areas in the State and to assist more  efficient and extended exploitation of its mineral wealth.  The  cess levied did not become a part of the consolidated fund and  was not subject to an appropriation in that behalf ; it went into  the special fund earmarked for carrying out the purpose of the  Act and thus its existence established a correlation between the  cess and the purpose for which it was levied, satisfying the  element of quid pro quo in the scheme.  The scheme of the Act  showed that the cess was levied against the class of persons  owning mines in the notified area and to enable the State  Government to render specific services to the said class by  developing the notified mineral area.    Its application was  regulated by a statute and was confined to its purposes.  There  was a definite correlation between the impost and the purpose of  the Act which was to render services to the notified area.  These  features of the Act impressed upon the levy the character of a  fee as distinct from a tax.

               The inter-relationship of Entries 23 and 66 in List II  qua  Entry 54 in List I was so stated by the Constitution Bench:-         "The effect of reading the two Entries  together is clear.  The  jurisdiction  of the  State Legislature under Entry 23 is  subject to the limitation imposed by the  latter part of the said Entry.  If  Parliament by its law has declared that  regulation and development  of mines  should in public interest be under the  control of the Union, to the extent of  such declaration the jurisdiction of the  State Legislature is excluded.  In other  words, if a Central Act has been passed  which contains a declaration by  Parliament as required by Entry 54, and  if the said declaration covers the field

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occupied by the impugned Act the  impugned Act would be ultra vires, not  because of any repugnance between the  two statutes but because the State  Legislature had no jurisdiction to pass  the law.  The limitation imposed by the  latter part of Entry 23 is a limitation on  the legislative competence of the State  Legislature itself."

               The Constitution Bench then proceeded to test the validity  of the cess by reference to two Central Acts, namely (A) the  Mines and Minerals (Regulation and Development) Act, 1948  (Act No.53 of 1948) and (B) The Industries (Development and  Regulation) Act, 1951 (Act No.65 of 1951).

(A) Act No.53 of 1948 is a pre-constitutional piece of  Central legislation.  It was found that the applicability of the Act  which was initially attracted to mines as well as oil fields  remained confined to oil fields in view of the subsequent  parliamentary enactment, i.e., the MMDR Act, 1957 (Act No.67  of 1957).  Therefore, the question which remained to be  examined was only   for the year 1952 as at that time the Act  No.53 of 1948 applied to mines as well as oil fields.  The factual  constitutional position was that Act No.53 of 1948 ceased to  apply to Orissa post-constitution and assuming it applied yet  there was no such declaration post-constitution made by  Parliament as is referred to in Entry 23 in List II read with Entry  54 in List I and therefore in either case the validity of the said  State Legislation was not impaired in spite of the finding  recorded by the Court that ’there can be no doubt that the field  covered by the impugned (State) Act is covered by the Central  Act 53 of 1948’.

               (B) What is significant for our purpose is the law laid down  by the Constitution Bench as to the validity of the impugned  State legislation by reference to Act No. 65 of 1951, Section 2  whereof contained a declaration - "it is hereby declared that it is  expedient in the public interest that the Union should take under  its control the industries specified in the First Schedule" as  contemplated  by Entry 52 in List I to which Entry 23 in List II is  subject.  The first schedule included coal as an article as to  which the industry engaged in the manufacture or production  was brought within the purview of the Act.  Section 9  empowered the Central Government to levy cess for the purpose  of the Act on all goods manufactured or produced in any  scheduled industries including coal.  The Constitution Bench held  that the Central Act was passed to provide for the development  and regulation of certain industries one of which undoubtedly is  coal mining industry.  The declaration made by Section 2 of the  Act covered the same field as is covered by the impugned State  Act.  Then the Constitution Bench held :-         ".........but in dealing with this question it  is important to bear in mind the doctrine  of pith and substance.  We have already  noticed that in pith and substance the  impugned Act is concerned with the  development of the mining areas notified  under it.  The Central Act, on the other  hand, deals more directly with the  control of all industries including of  course the industry of coal.  Chapter II of  this Act provides for the constitution of  the Central Advisory Council and  Development Councils, Chapter III deals

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with the regulation of scheduled  industries, Chapter IIIA provides for the  direct management or control of  industrial undertakings by Central  Government in certain cases, and  Chapter IIIB is concerned with the topic  of control of supply, distribution, price,  etc. of certain articles.  The last chapter  deals with miscellaneous incidental  matters.  The functions of the  Development Councils constituted under  this Act prescribed by S.6(4) bring out  the real purpose and object of the Act.   It is to increase the efficiency or  productivity in the scheduled industry or  group of scheduled industries, to  improve or develop the service that such  industry or group of industries renders or  could render to the community, or to  enable such industry or group of  industries  to render such service more  economically.  Section 9 authorises the  imposition of cess on scheduled  industries in  certain cases.  Section 9(4)  provides that the Central Government  may hand over the proceeds of the cass  to the Development Council there  specified  and that the Development  Council shall utilize the said proceeds to  achieve the objects mentioned in cls. (a)  to (d).  These objects include the  promotion of scientific and  industrial  research, of improvements in design and  quality, and the provision for the training  of technicians and labour in such  industry or group of industries.  It would  thus be seen that the object of the Act is  to regulate the scheduled industries with  a view to improvement and development  of the service that they may render to  the society, and thus assist the solution  of the larger problem of national  economy.  It is difficult to hold that the  field covered by the declaration made by  S.2 of this Act, considered in the light of  its several provisions, is the same as the  field covered by the impugned Act.  That  being so, it cannot be said that as a  result of Entry 52 read with Act LXL of  1951 the vires of the impugned Act can  be successfully challenged.                  Our conclusion, therefore, is that  the impugned Act is relatable to Entries  23 and 66 in List II of the Seventh  Schedule, and its validity is not impaired  or affected by Entries 52 and 54 in List I  read with the Act LXV of 1951 and Act  LIII of 1948 respectively.  In view of this  conclusion it is unnecessary to consider  whether the impugned Act can be  justified under Entry 50 in List II, or  whether it is relatable to Entry 24 in List  III and as such suffers from the vice of  repugnancy with the Central Act XXXII of

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1947." [Underlining by us]

In spite of having held that the Central Act of 1951 was  attracted to coal industries, their Lordships, by applying the  doctrine of pith and substance, refused to annul the levy of cess  under the impugned Orissa Act based on the following  distinction:- Central Act, 1951 State Legislation of 1952 Deals more directly with the  control of all industries  including the industry of coal  with a view to improvement  and development of the service  that they may render to the  society and thus assist the  solution of the larger problem  of national economy. Is concerned with the  development of the mining  areas notified under it.

       Though both were cesses, one levied by the Central Act  and the other levied by the State Act, inasmuch as they had  different fields to operate, Entries 52 and 54 in List I were held  not to have any adverse or denuding effect on the legislative  competence of the State referable to Entries 23 and 66 in List II.       

As a result, the writ petitions laying challenge to the  constitutional validity of Orissa Act of 1952 were directed to be  dismissed.           The distinction: Here we will pause for a moment with a  view to highlight a feature of singular significance in The Hingir- Rampur Coal Co. as it would be the decisive factor for the  applicability of the ratio of the case ___ where it would apply and  where it would not. Section 6 of Act No.43 of 1948 which came  up for the consideration of the Constitution Bench, specifically  provides:- "6.     Power to make rules as respects minerals  development __ (1)  The Central Government  may, by notification in the official Gazette,  make rules for the conservation and  development of minerals.

(2)  In particular, and without prejudice to the  generality of the foregoing power, such rules  may provide for all or any of the following  matters, namely:-

       xxx             xxx             xxx             xxx

       (i)  the levy and collection of royalties,  fees or taxes in respect of minerals mined,  quarried, excavated or collected;

       xxx             xxx             xxx             xxx

10.     Rules to be laid before the Legislature__  All rules made under any of the provisions of  this Act shall be laid before the Central  Legislature as soon as may be after they are  made."

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Thus, the power to levy and collect fees or taxes in respect of  minerals mined, quarried, excavated or collected was expressly  conferred on the Central Government by a specific provision  made in that regard by the Act itself.  Because the power to levy  tax or fee was appropriated to itself by a Central Legislation it  was held that the impugned Orissa Act - a State Legislation,  could not have provided for the levy of a fee as by virtue of the  Central Legislation, the Union having exercised its power to  legislate, the field was covered and excepted from the legislative  competence of the State.  Yet the recovery was held not liable to  be annulled inasmuch as the Central Act No.53 of 1948 was a  pre-Constitution Legislation and as to which a declaration in  terms of Entry 54 in List I was not made by the Parliament after  the coming into force of the Constitution.

       As to the Central Act of 1951, though it contained a  declaration as contemplated by Entry 52 of List I, and though it  applied to several goods including coal, the doctrine of pith and  substance when correctly applied showed that the Central Act  was intended for improvement of service while the State Act of  1952 was intended to deal with development of mining areas  and the latter was valid.

       The MMDR Act, 1957, which we are called upon to deal  with, stands on much better footing for the writ petitioners  herein as it does not contain any provision similar to Sections 6  and 10 of the Central Act No.53 of 1948 or Section 9 of the  Central Act No.65 of 1951.

       Challenge to levy under the abovesaid Orissa Act 27 of  1952 did not come to an end with Hinger-Rampur Coal Co..  It  was once again raised in the High Court with  success and the  State of Orissa came up in appeal which was heard and decided  by a Constitution Bench in State of Orissa & Anr. Vs. M/s  M.A. Tulloch and Co. - (1964) 4 SCR 461.  The respondent   writ-petitioner was working  a manganese mine in the State of  Orissa under a lease granted under the provisions of the MMRD  Act, 1948.  The fee levied under the Orissa Act for the period of  six quarters from September 30, 1956, to   March 31, 1958, was  under challenge.  The MMDR Act 1957 came into force w.e.f.  June 1, 1958.  The recovery impugned, therefore, related to the  period pre-MMDR Act 1957 i.e. for the period during which  Industries (Development and Regulation) Act 1951 was  applicable.  The recovery was sought to be effected after the  enactment and coming into force of the Act No.67 of 1957,  though the recovery was referable to the period prior to it.  It  was held that the demand was liable to be raised for the period  for which it was raised and the validity of the demand was an  issue concluded by Hingir-Rampur Coal Co.. The demand  having validly accrued prior to June 1, 1958, the recovery  thereof could be validly enforced, notwithstanding the repeal of  Act No.65 of 1951, on the general principles of interpretation of  statutes as also under Section 6 of the General Clauses Act.  Reiterating the findings in Hingir-Rampur Coal Co. the  Constitution Bench held that the impugned Act empowered the  State Government to levy a fee on a percentage of the value of  the mined ore at the pit’s mouth, the collections being intended  for the development of the "mining areas" in the State.  This  finding is very significant.                  The Constitution Bench laid down  the following principles  which are relevant for our purpose :-

(1)     Entry 23 of the State List vests in the State Legislature  power to enact laws on the subject of ’regulation of mines

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and mineral development subject to the provisions of List I  with respect to regulation and development under the  control of the Union’.  It would be seen that "subject to"  the provisions of List I the power of the State to enact  Legislation on the topic of "mines and mineral  development" is plenary.  The relevant provision in List I  is, as already noticed, Entry 54 of the Union List.   (2)     To the extent to which the Union Government had taken  under its control the regulation and development of  minerals that much (i.e. to that extent) was withdrawn  from the ambit of the power of the State Legislature under  Entry 23 and legislation of the State which had rested on  the existence of power under that entry would, to the  extent of that control, be superseded or rendered  ineffective, for here we have a case not of mere  repugnancy between the provisions of the two enactments  but of a denudation or deprivation of State legislative  power by the declaration which Parliament is empowered  to make, and has made.

(3)     The States would lose legislative competence only to the  "extent to which regulation and development under the  control of the Union has been declared by Parliament to be  expedient in the public interest".

(4)     It would be logical first to examine and analyse the State  Act and determine its purpose, width and scope and the  area of its operation and then consider to what "extent"  the Central Act cuts into it or trenches on it.

       As to the MMDR Act, 1957, the Constitution Bench in M.A.  Tulloch observed by reference to Section 18 of the Act that the  intention of Parliament was to cover the entire field and thus to  leave no scope for the argument that until rules were framed  there was no inconsistency and no supersession of the State Act.

       The following holding of the above Constitution Bench is  again worth noting :         "......that technically speaking the power  to levy a fee is under the entries in the  three lists treated as a subject-matter of  an independent grant of legislative  power, but whether it is an incidental  power related to a legislative head or an  independent legislative power it is  beyond dispute that in order that a fee  may validity be imposed the subject- matter or the main head of legislation in  connection with which the fee is imposed  is within legislative power.  The material  words of the Entries are : "Fees in  respect of any of the matters in this  List".  It is, therefore, a prerequisite for  the valid imposition of a fee that it is in  respect of "a matter in the List".  If by  reason of the declaration by Parliament  the entire subject-matter of  "conservation and development of  minerals" has been taken over, for being  dealt with by Parliament, thus depriving  the State of the power which it therefor  possessed, it would follow that the  "matter" in the State List is, to the  extent of the declaration, subtracted

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from the scope and ambit of Entry 23 of  the State List.  There would, therefore,  after the Central Act of 1957, be "no  matter in the List" to which the fee could  be related in order to render it valid."

         In the last but one para of M.A. Tulloch this sentence  occurs:- "If this were the true position about the effect of the  Central Act 67 of 1957 as the liability to pay the fee which was  the subject of the notices of the demand had accrued  prior to  June 1, 1958, it would follow that these notices were valid and  the amounts due thereunder could be recovered notwithstanding  the disappearance of the Orissa Act by virtue of the superior  legislation by the Union Parliament".  This observation, read out  of the context and facts of the case alongwith the Court having  referred to Sections 18 and 25 of the MMDR Act 1957, creates  an impression that the power to levy fee having been  appropriated by the Central Legislation to the Central  Government, the cess levied by the State would stand  obliterated or repealed, is the holding by the Court. But that is  not the ratio of the case and it could not have been because in  Hingir-Rampur Coal Co. the Constitution Bench has clearly  held to the contrary and the Constitution Bench in M.A. Tulloch  has squarely followed the holding in Hingir-Rampur Coal Co..   Nobody should act on an assumption that in M.A. Tulloch the  Constitution Bench has held - much less as a ratio of the  decision - that under Act No. 67 of 1957 the Central  Government has appropriated to itself the power to levy tax or  cess on minerals or mineral bearing land.  All that the Court has  said  is that the 1957 enactment covers the field of legislation as  to the regulation of mines and the development of minerals. As  Section 2 itself provides and indicates, the assumption of control  in public interest by the Central Government is on (i) the  regulation of mines, (ii) the development of minerals, and (iii) to  the extent hereinafter provided. The scope and extent of  declaration cannot and could not have been enlarged by the  Court nor has it been done.  The effect is that no State  Legislature shall have power to enact any legislation touching (i)  the regulation of mines, (ii) the development of minerals, and  (iii) to the extent provided by Act No.67 of 1957.  The Preamble  to the Central Act 67 of 1957 itself speaks ___ "An Act to provide  for the development and regulation of mines and minerals under  the control of the Union".  Tax and fee is not a subject dealt with  by Act No.67 of 1957.  Let us demonstrate the same from the  provisions of the Act and for that purpose relevant part of  Section 13, sub-Section (1) and relevant part of sub-Section (2)  of Section 18, sub-Section (3) of Section 18 and Section 25 are  extracted and reproduced as under : "13. Power of Central Government to  make rules in respect of minerals. -  (1) The Central Government may, by  notification in the Official Gazette, make  rules for regulating the grant of  reconnaissance permits, prospecting  licences and mining leases in respect of  minerals and for purposes connected  therewith.

(2) In particular, and without  prejudice to the generality of the  foregoing power, such rules may provide  for all or any of the following matters,  namely:

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(a) to (h)      ***             ***

(i) the fixing and collection of fees  for reconnaissance permits, prospecting  licences or mining leases, surface rent,  security deposit, fines, other fees or  charges and the time within which and  the manner in which the dead rent or  royalty shall be payable;

18. Mineral development. - (1)  It shall be the duty of the Central  Government to take all such steps as  may be necessary for the conservation  and systematic development of minerals  in India and for the protection of  environment by preventing or controlling  any pollution which may be caused by  prospecting or mining operations and for  such purposes the Central Government  may, by notification in the Official  Gazette, make such rules as it thinks fit.

(2)     In particular, and without  prejudice to the generality of the  foregoing power such rules may provide  for all or any of the following matters,  namely:

       (a) to (o) - (Not reproduced)

       (p)     the procedure for and the  manner of imposition of fines for the  contravention of any of the rules framed  under this section and the authority who  may impose such fines; and

(q)     the authority to which, the  period  within which, the form and the  manner in which applications for revision  of any order passed by any authority  under this Act and the rules made  thereunder may be made, the fee to be  paid and the documents which should  accompany such applications.

(3)     All rules made under this  section shall be binding on the  Government.

25. Recovery of certain sums as  arrears of land revenue. - Any rent,  royalty, tax, fee or other sum due to the  Government under this Act or the rules  made thereunder or under the terms and  conditions of any reconnaissance permit,  prospecting  licence or mining lease may,  on a certificate of such officer as may be  specified by the State Government in this  behalf by general or special order, be  recovered in the same manner as an  arrear of land revenue.

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         We have three comments to offer on M.A. Tulloch. Firstly,  the provisions of the Act No.67 of 1957 did not directly come up  for the scrutiny of the Constitution Bench as there was no  demand raised after the commencement of this Act which was  put in issue before the Constitution Bench; the Constitution  Bench was only adjudicating upon the issue whether a liability to  pay cess incurred under the previous Act could be enforced  under Act No.67 of 1957 or in other words if Act No.67 of 1957  had any castigating effect on the demand validly raised under  the previous enactment.  Secondly, the extent to which power to  legislate by the States was excluded by the Central Act No.65 of  1951 was not a question dealt with in-depth as it was done in  Hingir-Rampur Coal Co..  Thirdly, M.A. Tulloch, if not  correctly read, creates a wrong impression that Act No.67 of  1957 provides for levy of tax and fee, which in fact it does not.

Section 13(2)(i) cannot be read as empowering the Central  Government to levy any tax or fee.  The expression "other fees  and charges" have to be interpreted ejusdem generis taking  colour from other words and phrases employed in the same  clause.  The word "charges" cannot and does include within its  meaning any tax.  The expression "other fees or charges" must  be assigned such meaning as to include therein only such fees  and charges as are meant for regulation or development.

       We are clear in our minds that  a power to levy tax or fee  cannot be spelled out from sections 13, 18 and 25 of the Act  No.67 of 1957.  It is well-settled that power to tax cannot be  inferred by implication; there must be a charging section  specifically empowering the State to levy tax.  Section 18 (2)(q)  speaks of fee to be paid on applications for revision and not on  minerals, mineral rights or mining land.  Section 25 speaks of   ’recovery of tax and fee’ amongst others.  Two observations are  spontaneous.  Firstly, a provision for recovery, being a  machinery  provision, cannot be read as empowering  the levy of  tax or fee.  Secondly, it speaks of tax or fee being due to the  Government without defining the same and without qualifying  the word ’Government’ with Central or State.  A perusal of  several provisions of the  Act and in particular Sections 9-A, 15,  15 (1-A) (a) and (g), 15(3), 17(3), 21(5), 25 goes to show that  the power of recovery is invariably given to the State  Government and obviously the word ’Government’ in Section 25  refers to the State Government, which only is empowered to  recover the sums due as arrears of land revenue.   

       The relevant principles of law laid down in M.A. Tulloch,  which we have extracted and reproduced hereinabove, do not  run contrary to the view we are taking  in the present case.  The   recovery  of fee  could have been held to be vitiated in that case  because the field of mining activity in manganese ore was fully  covered by the MMDR Act, 1957, and the levy under the  impugned State Act, as found by the two Constitution Benches in  Hingir-Rampur Coal Co. and M.A. Tulloch was being   collected for the development of the mining areas in the State.   The doctrine of pith and substance noted and applied in  Hingir- Rampur Coal Co. has been restated in M.A. Tulloch wherein  the Constitution Bench had said, as noted hereinabove, that the  Orissa Act was concerned with the development of the mining  areas notified under the Act while the Central Act on the other  hand dealt more directly with the control of all industries  including of course the industry of coal and the object of the  Central Act was to regulate the scheduled industry with a view to  make improvement and development of the service that they  may render to the society and thus assisting the solution of the

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larger problem of the national economy.  In spite of the  declaration made by Section 2 of the Central Act of 1951  considered in the light of its several provisions it was found  difficult to hold that the field covered by the Central Act was the  same as the field covered by the impugned Orissa Act.  None of  the two Constitution Benches have held that power to regulate  and develop with which the Central Act of 1951 was concerned  would include the power to levy tax and fee, which power shall  have to be traced to some other entry in List I.  List I contains a  general entry i.e. Entry 96 for levy of fee in respect of matters in  List I but so far as levy of tax is concerned there are separate  and specific entries (see Entries 82 to 92B in List I and Entries  45 to 63 in List II).  Further in view of Entry 50 of List II,  Parliament can by any law relating to mineral development limit  or place limitations on the power of the State Legislatures to  impose taxes on mineral rights.

Power to tax not a residuary power         Article 265 mandates - no tax shall be levied or collected  except by authority of law.  The scheme of the Seventh Schedule  reveals an exhaustive enumeration of legislative subjects,  considerably enlarged over the predecessor Government of India  Act.  Entry 97 in List I confers residuary powers on Parliament.   Article 248 of the Constitution which speaks of residuary powers  of legislation confers exclusive power on Parliament to make any  law with respect to any matter not enumerated in the  Concurrent List or the State List. At the same time, it provides  that such residuary power shall include the power of making any  law imposing a tax not mentioned in either of those Lists.  It is,  thus, clear that if any power to tax is clearly mentioned in List -  II the same would not be available to be exercised by Parliament  based on the assumption of residuary power.  The Seven-Judges  Bench in Union of India Vs. Harbhajan Singh Dhillon, (1971)  2 SCC 779, ruled, by a majority of 4:3, that the power to  legislate in respect of a matter does not carry with it a power to  impose a tax under our constitutional scheme.  According to  Seervai (Constitutional Law of India, Fourth/Silver Jubilee  Edition, Vol.3, para 22.191):- "Although in Dhillon’s case  conflicting views were expressed about the nature of the  residuary power, the nature of that power was stated  authoritatively in Kesvananda’s Case, (1973) 4 SCC 225. Earlier,  in Golak Nath’s case (AIR 1967 SC 1643), Subha Rao C.J. (for  himself, Shah, Sikri, Shelat and Vaidyalingam JJ) had held that  Art. 368 only provided the procedure for the amendment of the  Constitution, but that the power to amend the Constitution was  to be found in the residuary power conferred on Parliament by  Arts. 245 and 246(1) read with entry 97, List I and by Art. 248.   Seven out of the nine judges who overruled Golak Nath’s Case  held, inter alia, that the power to amend the Constitution could  not be located in the residuary powers of Parliament.  Hegde and  Mukherjea JJ held that - "It is obvious that these Lists have  been very carefully prepared. They are  by and large exhaustive.  Entry 97 in List  I was included to meet some unexpected  and unforeseen contingencies.  It is  difficult to believe that our Constitution- makers who were keenly conscious of  the importance of the provision relating  to the amendment of the Constitution  and debated that question for several  days, would have left the important  power hidden in entry 97 of List I leaving  to the off chance of the courts locating  that power in that entry.  We are unable

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to agree with those learned judges when  they sought to place reliance on Arts.  245, 246 and 248 and entry 97 of List I  for the purpose of locating the power of  amendment in the residuary power  conferred on the Union." (italics  supplied)

Similar views were expressed by five other judges.   According to Seervai, "the law laid down in Kesavananda’s Case  is that if a subject of legislation was prominently present to the  minds of the framer of our Constitution, they would not have left  it to be found by courts in the residuary power; a fortiori, if a  subject of legislative power was not only present to the minds of  the framers but was expressly denied to Parliament, it cannot be  located in the residuary power of Parliament."   

       Vide para 22.194 the eminent jurist poses a question:  "Does Art. 248 add anything to the exclusive residuary power of  Parliament under Art. 246 (1) read with Entry 97 List I to make  laws in respect of "any other matter" not mentioned in List II  and List III including any tax not mentioned in those Lists?" and  answers by saying __ "The answer is ’No’."

       As to the riddle arising in the context of mines and  minerals development legislation by reference to the Entries in  List I and List II, Seervai states ____ "the regulation of mines and  mineral development is a subject of exclusive State legislation,  but for the limitation placed upon that power by making it  subject to the provisions in that behalf in List I.  If Parliament  does not exercise its power under Entry 54, List I, the States’  power under Entry 23, List II would remain intact.  If Parliament  exercised its power under Entry 54, List I, only on a part of the  field, as for example, major minerals, the States’ legislative  power over minor minerals would remain intact."    (para 22.195  at p. 2433)

Power to tax must be express, else no power to tax       There is nothing like an implied power to tax.  The source  of power which does not specifically speak of taxation cannot be  so interpreted by expanding its width as to include therein the  power to tax by implication or by necessary inference.  States  Cooley in Taxation (Vol.1, Fourth Edition) ___ "There is no such  thing as taxation by implication.  The burden is always upon the  taxing authority to point to the act of assembly which authorizes  the imposition of the tax claimed." (para 122 at p.278).

       Justice G.P. Singh in Principles of Statutory Interpretation  (Eighth Edition, 2001) while dealing with general principles of  strict construction of taxation statutes states __ "A taxing statute  is to be strictly construed.  The well-established rule in the  familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury  and Lord Simonds, means : "The subject is not to be taxed  without clear words for that purpose; and also that every Act of  Parliament must be read according to the natural construction of  its words".  In a classic passage Lord Cairns stated the principle  thus : "If the person sought to be taxed comes within the letter  of the law he must be taxed, however great the hardship may  appear to the judicial mind to be.  On the other hand, if the  Crown seeking to recover the tax,  cannot bring the subject  within the letter of the law, the subject is free, however  apparently within the spirit of law the case might otherwise  appear to be.  In other words, if there is admissible in any  statute, what is called an equitable construction, certainly, such  a construction is not admissible in a taxing statute where you

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can simply adhere to the words of the statute.  Viscount Simon  quoted with approval a passage from Rowlatt, J. expressing the  principle in the following words : "In a taxing Act one has to look  merely at what is clearly said.  There is no room for any  intendment.  There is no equity about a tax.  There is no  presumption as to tax.  Nothing is to be read in, nothing is to be  implied.  One can only look fairly at the language used." (at  p.635)

       The judicial opinion of binding authority flowing from  several pronouncements of this Court has settled these  principles: (i) in interpreting a taxing statute, equitable  considerations  are entirely out of place.  Taxing statutes cannot  be interpreted on any presumption or assumption. A taxing  statute has to be interpreted in the light of what is clearly  expressed; it cannot imply anything which is not expressed; it  cannot import provisions in the statute so as to supply any  deficiency; (ii) before taxing any person it must be shown that  he falls within the ambit of the charging section by clear words  used in the Section; and (iii) if the words are ambiguous and  open to two interpretations, the benefit of interpretation is given  to the subject.  There is nothing unjust in the tax-payer escaping  if the letter of the law fails to catch him on account of  Legislature’s failure to express itself clearly. (See, Justice G.P.  Singh, ibid, pp.638-639).

Power to tax is not an incidental power. According to  Seervai, although legislative power includes all incidental and  subsidiary power, the power to impose a tax is not such a power  under our Constitution.  It is for this reason that it was held that  the power to legislate in respect of inter-state trade and  commerce (Entry 42, List I, Schedule 7) did not carry with it the  power to tax the sale of goods in inter-state trade and commerce  before the insertion of Entry 92A in List I and such power  belonged to the States under Entry 54 in List II. Entry 97 in List  I also militated against the contention that the power to tax is an  incidental power under our Constitution (See: Constitutional Law  of India, H.M. Seervai, Fourth/Silver Jubilee  Edition, Vol.3, para  22.20).

Power to regulate and control and power to tax ___  determining the nature of legislation by reference to the  power exercised

       It is of paramount significance to note the difference  between ’power to regulate and develop’ and ’power to tax’.         The primary purpose of taxation is to collect revenue.   Power to tax may be exercised for the purpose of regulating an  industry, commerce or any other activity; the purpose of levying  such tax, an impost to be more correct, is the exercise of  sovereign power for the purpose of effectuating regulation  though incidentally the levy may contribute to the revenue.   Cooley in his work on Taxation (Vol.1, Fourth Edition) deals with  the subject in paragraphs 26 and 27.  "There are some cases in  which levies are made and collected under the general  designation of taxes, or under some term employed in revenue  laws to indicate a particular class of taxes, where the imposition  of the burden may fairly be referred to some other authority  than to that branch of the sovereign power of the state under  which the public revenues are apportioned and collected.  The  reason is that the imposition has not for its object the raising of  revenue but looks rather to the regulation of relative rights,  privileges and duties as between individuals, to the conservation  of order in the political society, to the encouragement of  industry, and the discouragement of pernicious employments.  

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Legislation for these purposes it would seem proper to look upon  as being made in the exercise of that authority which is inherent  in every sovereignty, to make all such rules and regulations as  are needful to secure and preserve the public order, and to  protect each individual in the enjoyment of his own rights and  privileges by requiring the observance of rules of order, fairness  and good neighborhood, by all around him.  This manifestation  of the sovereign authority is usually spoken of as the police  power.  The power to tax must be distinguished from an exercise  of the police power. (State Vs. Tucker, 56 U.S. 516).  The  political power ’is a very different one from the taxing power, in  its essential principles, though the taxing power, when properly  exercised, may indirectly tend to reach the end sought by the  other in some cases."(p.94)  "The distinction between a demand  of money under the police power and one made under the power  to tax is not so much one of form as of substance." (p.95). The  distinction between a levy in exercise of police power to regulate  and the one which would be in nature of tax is illustrated by  Cooley by reference to a license.  He says -  "So-called license  taxes are of two kinds.  The one is a tax for the purpose of  revenue.  The other, which is, strictly speaking, not a tax at all  but merely an exercise of the police power, is a fee imposed for  the purpose of regulation." (p.97)

       "Suppose a charge is imposed partly for revenue and  partly for regulation.  Is it a tax or an exercise of the police  power?  Other considerations than those which regard the  production of revenue are admissible in levying taxes, and  regulation may be kept in view when revenue is the main and  primary purpose.  The right of any sovereignty to look beyond  the immediate purpose to the general effect neither is nor can be  disputed.  The government has general authority to raise a  revenue and to choose the methods of doing so; it has also  general authority over the regulation of relative rights, privileges  and duties, and there is no rule of reason or policy in  government which can require the legislature, when making laws  with the one object in view, to exclude carefully from its  attention the other.  Nevertheless cases of this nature are to be  regarded as cases of taxation. If revenue is the primary purpose,  the imposition is a tax. Only those cases where regulation is the  primary purpose can be specially referred to the police power.     If the primary purpose of the legislative body in imposing the  charge is to regulate, the charge is not a tax even if it produces  revenue for the public." (Cooley, ibid, pp.98-99)    This Court in seven-Judges Bench decision in Synthetics  and Chemicals Ltd. & Ors. Vs.  State of U.P. & Ors. - (1990)  1 SCC 109, agreed that regulation is a necessary concomitant of  the police power of the State.  However, it was an American  doctrine and in the opinion of the Court it was not perhaps  applicable as such in India.  The Court endorsed recognizing the  power to regulate as a part of the sovereign power of the State  exercisable by the competent legislature.  Brushing aside the  need for discussion on the question - whether under the  Constitution the States have police power or not, the Court  accepted the position that the State has the power to regulate.   However, in the garb of exercising the power to regulate, any  fee or levy which has no connection with the cost or expenses of  administering the regulation, cannot be imposed; only such levy  can be justified as can be treated as part of regulatory measure.   Thus, the State’s power to regulate perhaps not as emanation of  police power but as an expression of the sovereign power of the  State has its limitations.  In our opinion, these observations of  the Court lend support to the view which we have formed that a  power to regulate, develop or control would not include within its

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ken a power to levy tax or fee except when it is only regulatory.   Power to tax or levy for augmenting revenue shall continue to be  exercisable by the Legislature in whom it vests i.e. the State  Legislature in spite of regulation or control having been assumed  by another legislature i.e. the Union.  State Legislation levying a  tax in such manner or of such magnitude as can be  demonstrated to be tampering or intermeddling with Center’s  regulation and control of an industry can perhaps be the  exception to the rule just stated.

In Synthetics and Chemicals Ltd. & Ors.  Vs.  State of  U.P. & Ors. - (1990) 1 SCC 109 the question before the seven- Judges Bench was as to the power of State to legislate on  industrial alcohol as a subject.  Entry 8 in List II and Entry 33 in  List III came up for consideration.  Their Lordships noticed the  provisions of Industries (Development and Regulation) Act, 1951  (as amended in 1956), especially Section 18-G thereof, and held  that the provisions evinced clear intention of the Union to occupy  the whole field relating to industrial alcohol and therefore the  State could not claim to regulate it.  The power with regard to  the control of alcoholic industries was considered and their  Lordships concluded that in spite of the Central Legislation  operating in the field the State was left with the following powers  available to legislate in respect of alcohol -  "(a)    It may pass any legislation in the nature  of prohibition of potable liquor referable  to Entry 6 of List II and regulating  powers.

(b)     It may lay down regulations to ensure  that non-potable alcohol is not diverted  and misused as a substitute for potable  alcohol.

(c)     The State may charge excise duty on  potable alcohol and sales tax under Entry  52 of List II.  However, sales tax cannot  be charged on industrial alcohol in the  present case, because under the Ethyl  Alcohol (Price Control) Orders, sales tax  cannot be charged by the State on  industrial alcohol.

(d)     However, in case State is rendering any  service, as distinct from its claim of so- called grant of privilege, it may charge  fees based on quid pro quo.  See in this  connection, the observation of Indian  Mica case, (1971) 2 SCC 236."

It may be seen that the power to levy sales tax on  industrial alcohol was available to the State but for the  provisions of the Ethyl Alcohol (Price Control) Orders on account  of which the State could not charge sales tax on industrial  alcohol.  The State could levy any fee based on quid pro quo.   The seven-Judges Bench decision lends support to the view we  are taking that in the field occupied by the Centre for regulation  and control, power to levy tax and fee is available to the State  so long as it does not interfere with the regulation - the power  assumed and occupied by the Union.

Before a seven-Judges Bench in The Automobile  Transport (Rajasthan) Ltd. Vs. The State of Rajasthan &  Ors., (1963) 1 SCR 491, the question arose if State could make

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laws imposing regulatory restrictions on free trade, commerce  and intercourse guaranteed by Article 301 of Constitution and  whether a State tax could be treated as impeding freedom under  Article 301 of Constitution.  The following statement of law by  majority speaking through S.K. Das, J. (at pp.524-525) is very  much in point for our purpose:- "Such an interpretation  would, in our  opinion, seriously affect the legislative power  of the State Legislatures which power has been  held to be plenary with regard to subjects in  list II.  The States must also have revenue to  carry out their administration and there are  several items relating to the imposition of  taxes in list II.  The Constitution-makers must  have intended that under those items the  States will be entitled to raise revenue for their  own purposes.  If the widest view is accepted,  then there would be for all practical purposes,  an end of State autonomy even within the  fields allotted to them under the distribution of  powers envisaged by our Constitution.  An  examination of the entries in the lists of the  Seventh Schedule to the Constitution would  show that there are a large number of entries  in the State list (list II) and the Concurrent list  (list III) under which a State Legislature has  power to make laws.  Under some of these  entries the State Legislature may impose  different kinds of taxes and duties, such as  property tax, sales tax, excise duty etc., and  legislation in respect of any one of these items  may have an indirect effect on trade and  commerce.  Even laws other than taxation  laws, made under different entries in the lists  referred to above, may indirectly or remotely  affect trade and commerce.  If it be held that  every law made by the Legislature of a State  which has repercussion on tariffs, licensing,  marketing regulations, price-control etc., must  have the previous sanction of the President,  then the Constitution in so far as it gives  plenary power to the States and State  Legislatures in the fields allocated to them  would be meaningless."

Their Lordships also observed (at p.526-527) that the freedom  guaranteed by Article 301 does not mean freedom from taxation.   The power of levying tax is essentially for the very existence of  Government, though its exercise may be controlled by   constitutional provisions made in that behalf.  Power to tax is not  outside constitutional limitations.  It is for Parliament to exercise  power in the field made available to it by Entry 52 and 54 in List  I.  It is also for Parliament to state by law the limitations - and  the sweep thereof - which it may choose to impose on field  available to State for taxation by reference to Entry 50 in List II.   It may not be for Courts to venture into enquiry in just an  individual case to find and hold what tax would hamper mineral  development if Parliament has chosen to observe silence by not  legislating or failed to say something explicit.   

       A reasonable tax or fee levied by State legislation cannot,  in our opinion, be construed as trenching upon Union’s power  and freedom to regulate and control mines and minerals.

India Cement and decisions post India Cement, based

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thereon :

India Cement is clearly distinguishable so far as the  present cases are concerned.  As we have already pointed out it  was a case of cess levied by Sate Legislature on royalty and not  on mineral rights or land and buildings.  That is why the levy  was held ultra vires.  Seervai’s comment and objective criticism  on India Cement is noteworthy (See - ibid, para 22.257 C).   Royalty is income and State Legislatures are not competent to  tax an income.  This single ground was enough to strike down  the levy of cess impugned in India Cement.  Nothing more was  needed.  The Orissa Cement Ltd. (supra) also, as the very  opening part of the report shows, dealt with the levy of a cess by  the State based on the royalty derived from mining lands which  was held to be directly and squarely governed by India Cement  and, therefore, struck down.

       In State of Orissa & Ors. Vs. Mahanadi Coalfields Ltd.  and Ors., 1995 Supp. (2) SCC 686, the impugned levy by the  State Legislature was a tax of Rs.32 per thousand acre on coal  bearing lands.  It was sought to be defended as falling under  Entry 49 or in the alternative under Entry 23 or Entry 50 in List  II.  The attack was that the legislation being one on mineral  lands and mineral rights and the Parliament having enacted the  Mines and Minerals (Development and Regulation) Act, 1957, the  field was entirely covered and the State Legislature was  incompetent to levy the tax.  Reliance was placed on India  Cement,  Orissa Cement and Buxa Dooars Tea Co.Ltd.  (supra).  Only mineral bearing land and coal bearing land were  the subject of the levy of tax.  The three-Judges Bench speaking  through K.S. Paripoornan, J., concluded that the charging  section of the impugned Act imposed a tax on the minerals also,  and was not confined to a levy on land or surface characteristic  of the land.  All non-mineral bearing lands and non-coal bearing  lands were left out of the levy.  The levy was struck down as  levying a tax not on land (related to surface characteristic of the  land) but on minerals and mineral rights.   Goodricke’s case  (supra) was cited before their Lordships and it was observed that  in Goodricke’s case the impugned levy was held to be a tax on  land and that makes all the difference.   

       We find it difficult to subscribe to the reasoning adopted in  Mahanadi Coalfields Ltd..                  Buxa Dooars Tea Co. Ltd. and Ors.  Vs.  State of West  Bengal and Ors. - (1989) 3 SCC 211 is a two-Judges Bench  decision.   Rural employment cess was levied at the rate of Rs.5  per kg. on all dispatches of tea.  The rate was changed from  time to time but that is not very material.  A careful reading of  the report shows that the primary challenge was on the ground  of the impugned cess being violative of Article 14 and 301 of the  Constitution as it had the direct and immediate effect of  impeding the movement of goods throughout the territory of  India.  The challenge was sustained.  Incidentally, and very  briefly, their Lordships have in one paragraph also dealt with the  question of legislative competence of the State Government by  reference to Entry 49 in List II.   Their Lordships have observed,  "if the legislation is in substance legislation in respect of  dispatches of tea, legislative authority must be found for it with  reference to some other entry.  No Entry in Lists II and III is  pertinent.  Moreover, the Union had, in public interest, assumed  control over the tea industry including the tea trade and control  of tea prices."  Therefore, the Court concluded that the  impugned legislation was also void for want of legislative  competence as it pertained to a covered field.  Suffice it to

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observe that to the extent the learned Judges have dealt with  the challenge by reference to legislative competence of the State  Legislature under Entry 49 in List II, there is not much of  discussion and is just incidental and the observations are too  wide to be countenanced. Another distinguishing  feature  common to these decisions is that the distinction and  demarcation of fields of operation between Central and State  Acts by reference to the doctrine of pith and substance seems to  have been not adverted to.

From Baijnath Kadio to Eastern Coalfields         Before we proceed to deal with Goodricke, it will be  necessary to complete the chain of thought by referring to four  decisions and the law which developed therewith between the   years 1970 and 1982 which can be termed a period by itself on  the issues at hand.      

In  Baijnath Kadio Vs. The State of Bihar and Ors.-  (1969) 3 SCC 838, the writ-petitioners were holding mining  leases for minor minerals.  The State of Bihar amended the Bihar  Minor Mineral Concession Rules, 1964, whereby with effect from  27.1.1964 the rates of  dead rent, royalty and surface rent were  revised.  Additional demands were raised.  It was submitted that  in view of the provisions contained in the MMDR Act, 1957  incorporating (vide, Section 2 thereof) a declaration within the  meaning of Entry 54 in List I, it was not competent for the State  Legislature to revise the rates as abovesaid.  This Court held  that the whole of the legislative field relating to minor minerals  was covered by the Central Legislation by virtue of the  declaration made by Section 2 and the enactment of Section 15  in the Act, thereby leaving no scope for the enactment of the  second proviso to Section 10 of the Bihar Land Reforms Act  whereunder the powers to increase the royalty, dead rent and  surface rent were sought to be exercised.  There were pre- existing old leases which could have been modified only by a  legislative enactment made by the Parliament on the lines of  Section 16 of Act No.67 of 1957.  Any attempt to regulate such  old mining leases will fall not in Entry 18 but in Entry 23 of List II  even though the regulation incidentally touches them.  The pith  and substance of the amendment of Section 10 of the Bihar Land  Reforms Act falls within Entry 23 although it incidentally touches  land and not vice versa.  Entry 18 did not come to the rescue of  the State Government and Entry 23 was subject to the  provisions of List I.  The impugned provision and the action  taken thereunder were held ultra vires the Constitution.  The  decisions of this Court in The Hingir-Rampur Coal Co.Ltd. &  Ors. and M/s M.A. Tulloch and Co. were referred to.   However, the law laid down by the Constitution Bench (vide para  13) is significant.  It held :- "..........It is open to Parliament to declare that it  is expedient in the public interest that the  control should rest in Central Government.  To  what extent such a  declaration can go is for  Parliament to determine and this must be  commensurate with public interest.  Once this  declaration is made and the extent laid down,  the subject of legislation to the extent laid  down becomes an exclusive subject for  legislation by Parliament.  Any legislation by  the State after such declaration and trenching  upon the field disclosed in the declaration must  necessarily be unconstitutional because that  field is abstracted from the legislative  competence of the State Legislature."

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[underlining by us]

       H.R.S. Murthy Vs. The Collector of Chittoor and Anr. -  (1964) 6 SCR 666 was a writ petition filed under Article 32 of the  Constitution laying challenge to the validity of notices of demand  for the payment of land cess under the  Madras District Boards  Act, 1920.  The mining lease dated September 15, 1953,  authorised the lessee to work and win iron ore in a tract of land  in Chittoor; dead rent, royalty and surface rent were payable  under the mining lease.  The District Board levied land cess on  the annual rental value of all occupied lands.  The challenge to  the constitutional validity of the land cess was dismissed.  The  Court held:-

(1)     It is therefore not possible to accept the contention, that  the fact that the lessee or licensee pays a royalty on the  mineral won, which is in excess of what he would pay if his  right over the land extended only to the mere use of the  surface land, places it in a category different from other  types where the lessee uses the surface of the land alone.   In each case the rent which a lessee or licensee actually  pays for the land being the test, it is manifest that the land  cess is nothing else except a land tax.

(2)     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 mineral 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 Parliament as regards mineral development.   Our attention was not invited to the provision of any such  law enacted by Parliament.  In the context of Ss.78 and 79  and the scheme of those provisions it is clear that the land  cess is in truth a "tax on lands" within Entry 49 of the  State List.                                 The only decisions referred to in H.R.S. Murthy were  Hingir-Rampur Coal Co.Ltd. & Ors. and M.A. Tulloch.           In State of Haryana and Anr. Vs. Chanan Mal - (1977)  1 SCC 340,  referring to the provisions of the MMDR Act, 1957  and a State enactment of Haryana, (the constitutional validity  whereof was under challenge) the Constitution Bench held that  subject to the overall supervision of the Central Government, the  State Government has a sphere of its own power and can take  legally specified action under the Central Act and rules made  thereunder.  Thus, the whole field of control and regulation  under the provisions  of the Central Act 67 of 1957 cannot be  said to be reserved for the Central Government.   

       Western Coalfields Ltd. Vs. Special Area  Development Authority, Korba and Anr. - (1982) 1 SCC 125  is a Division Bench decision.  The M.P. Municipality Act, a State  enactment, levied property tax payable by the owner of the land  or buildings and could also be recovered from the occupier of the

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land or the building in certain contingencies.  The validity of the  property tax was upheld by reference to Entry 5 (Local  Government) read with Entry 49 (Taxes on lands and buildings)  in List II.  The availability of the MMDR Act, 1957, and the  declaration incorporated in Section 2 thereof did not come in the  way of the validity of the property tax inasmuch as the property  tax levied by the State Government through municipalities had  nothing to do with the development of mines.  The Court opined  that the functions, powers and duties of municipalities did not  become part of the occupied field by virtue of declaration under  Section 2 of the Act No.67 of 1957 and the competence of the  State to enact laws for municipal administration will remain  unaffected by that declaration.  Baijnath Kadio was  distinguished.

Goodricke’s case         Now, we come to Goodricke’s case.  The impugned  provisions were incorporated by the West Bengal Taxation Laws  (Second Amendment) Act 1989 into the West Bengal Primary  Education Act, 1973 and the West Bengal Rural Employment and  Production Act, 1976.  Both the amendments were identical and  have been set out in the earlier part of this judgment.

       While the State sought to justify the levy of impugned cess  by reference to Entry 49 of List II, the writ petitioner laid  challenge to the validity of levy on very many grounds.  It was  submitted, firstly, that to bring the levy within the field of Entry  49 of List II it must be directly upon the land whereas the levy in  question is really a tax on production of tea, a subject covered  by Entry 84 of List I; secondly, that a tax on land must be a  constant figure whereas the impugned levy varies from year to  year based as it is on the quantity of tea produced in a tea  estate in a given year and where there is no production of tea  leaves at all in a particular year, no cess would be payable by  tea estate in that year; thirdly, that the definition of ’tea estate’  further establishes the absence of any nexus between ’cess’ and  the ’land’;  land covered by the factory and building and even  fallow land, is included within the meaning of ’tea estate’ and if  no tea leaves are produced and plucked, there would not be levy  on the estate at all;  and fourthly, that the levy is clearly invalid  in view of the seven-Judges Bench decision of this Court in  India Cement  and the three-Judges Bench decision in Orissa  Cement.  It was urged that the impugned amendment was  brought to remove the defect in the levy pointed out in Buxa  Dooars,  but the flaw was persisting.  Jeevan Reddy, J., spoke  for the three-Judges Bench, placing on record their unanimous  opinion.  The Court noticed, vide para 10,  the real factual  situation as generally obtains about the tea estate.  The  definition of ’tea estate’ as incorporated by the amendment is a  well-understood entity and hence is legitimately and reasonably  capable of being classified as a separate category for the  purpose of taxation and the rate of tax.  The Court, on a near -  exhaustive review of the available decisions on the point, arrived  at a few conclusions which, so far as relevant for our purposes,  are summed up as under: (i) a financial levy must have a mode of  assessment but the mode of assessment does  not determine the character of a tax.  The  nature of machinery for assessment is often  complicated and is not of much assistance  except insofar as it may throw light on the  general character of the tax.  The annual value  is not necessarily an actual income but only a  standard by which income may be measured.   Merely because the same standard or

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mechanism of assessment has been adopted in  a legislation covered by an entry under the  Union List and also by a legislation covered by  an entry in the State List, the latter legislation  cannot be said to have encroached upon the  field meant for the former;

(ii) the subject of tax is different from the  measure of the levy;

(iii) merely because a tax on land or building is  imposed by reference to its income or yield, it  does not cease to be a tax on land or building.   The income or yield of the land/building is  taken merely as a measure of the tax; it does  not alter the nature or character of the levy.  It  still remains a tax on land or building.  No one  can say that a tax under a particular entry  must be levied only in a particular manner.   The legislature is free to adopt such method of  levy as it chooses.  So long as the essential  character of levy is not departed from within  the four corners of the particular entry, the  manner of levying the tax would not have any  vitiating effect;

(iv)  ample authority is available to hold that a  tax on land within the meaning of Entry 49 of  List II can be levied with reference to the yield  or income.  Whether an agricultural land or an  orchard or a tea estate, they do require some  capital and labour to make them yield or to  produce income which yield or income can  without difficulty be taken as measure for  quantifying the tax which would undoubtedly  be a levy on the land;   

(v)  it is not an essence of a tax, nor a  condition of its validity, that the tax must be  constant and uniform for all the years or for a  particular number of years.  The tax on land or  building can be levied and assessed by  reference to previous year’s income or yield.   In short, it is open to the State Legislature to  adopt such formula as it thinks appropriate for  levying the tax and so long as the character of  the tax remains the same as contemplated by  the entry, it does not matter how the tax is  calculated, measured or assessed;

(vi) it is permissible to classify land by  reference to its user as a separate unit for the  purpose of levy of cess.  Tea estate, as a  separate category of land, is a valid  classification;

(vii) the fact that the Tea Act empowers the  Central Government to levy a duty or cess  upon tea or tea leaves for the purposes of that  Act, can in no manner deprive the State  Legislature of its power to tax the land  comprised in a tea estate.  By levying the cess  the State Legislature is not seeking to control  the cultivation of tea but only to levy the tax  on land comprised in a tea estate.  The fact

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that ultimately the tax may have to be borne  by the tea industry is no ground for holding  that the said levy is upon the tea industry.   The State Legislature is not denuded of its  power to levy a tax upon the land or upon a  building merely because such land or building  is held or owned by an industry which is  governed by a central legislation.  

        On applying the abovesaid principles the Court concluded  that taking the quantum of  yield of a tea estate for measuring  the amount of tax is perfectly valid and cannot be equated to the  situation in India Cement.  We may observe that the reasoning  adopted in Goodricke accords with the reasoning in Hingir- Rampur.

Having made an independent review of several judicial  decisions and the several settled legal principles, as dealt with  hereinabove, we are satisfied that the Goodricke’s case (supra)  was correctly decided and the law laid down therein is correct  and supported by authority in abundance.  The distinguishing  features which exclude the applicability of law laid down in India  Cement and Orissa Cement to the fact situations like the ones  we are called upon to deal with, were rightly pointed out in  Goodricke and those very reasons additionally explained by us  do not permit the cases on hand   being ruled by India Cement   and Orissa Cement.

In a nutshell         The relevant principles culled out from the preceding  discussion are summarized as under:- (1)     In the scheme of the Lists in the Seventh Schedule, there  exists a clear distinction between the general subjects of  legislation and heads of taxation.  They are separately  enumerated.   

(2)     Power of ’regulation and control’ is separate and distinct  from the power of taxation and so are the two fields for purposes  of legislation.  Taxation may be capable of being comprised in  the main subject of general legislative head by placing an  extended construction, but that is not the rule for deciding the  appropriate legislative field for taxation between List I and List  II.  As the fields of taxation are to be found clearly enumerated  in Lists I and II, there can be no overlapping.  There may be  overlapping in fact but there would be no overlapping in law. The  subject matter of two taxes by reference to two Lists being  different simply because the methodology or mechanism  adopted for assessment and quantification is similar, the two  taxes cannot be said to be overlapping. This is the distinction  between the subject of a tax and the measure of a tax.

(3)     The nature of tax levied is different from the measure of  tax.  While the subject of tax is clear and well defined, the  amount of tax is capable of being measured in many ways for  the purpose of quantification.  Defining the subject of tax is a  simple task; devising the measure of taxation is a far more  complex exercise and therefore the legislature has to be given  much more flexibility in the latter field.  The mechanism and  method chosen by Legislature for quantification of tax is not  decisive of the measure of tax though it may constitute one  relevant factor out of many for throwing light on determining the  general character of the tax.   

(4)     Entries 52, 53 and 54 in List I are not heads of taxation.  

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They are general entries.  Fields of taxation covered by Entries  49 and 50 in List II continue to remain with State Legislatures in  spite of Union having enacted laws by reference to Entries 52,  53, 54 in List I.  It is for the Union to legislate and impose  limitations on States otherwise plenary power to levy taxes on  mineral rights or taxes on lands (including mineral bearing  lands) by reference to Entry 50 and 49 in List II and lay down  the limitations on State’s power, if it chooses to do so, and also  to define the extent and sweep of such limitations.

(5)     The Entries in List I and List II must be so construed as to  avoid any conflict.  If there is no conflict, an occasion for  deriving assistance from non-obstante clause "subject to" does  not arise.  If there is conflict, the correct approach is to find an  answer to three questions step by step as under:  One -   Is it still possible to effect reconciliation between  two Entries so as to avoid conflict and  overlapping?  

Two -  In which Entry the impugned legislation falls by  finding out the pith and substance of the  legislation?                  and

Three -  Having determined the field of legislation wherein  the impugned legislation falls by applying doctrine  of  pith and substance, can an incidental  trenching upon another field of legislation be  ignored?

(6)     ’Land’, the term as occurring in Entry 49 of List II, has a  wide connotation.  Land remains land though it may be  subjected to different user.  The nature of user of the land would  not enable a piece of land being taken out of the meaning of  land itself.   Different uses to which the land is subjected or is  capable of being subjected provide basis for classifying land into  different identifiable groups for the purpose of taxation.  The  nature of user of one piece of land would enable that piece of  land being classified separately from another piece of land which  is being subjected to another kind of user, though the two pieces  of land are identically situated except for the difference in nature  of user.  The tax would remain a tax on land and would not  become a tax on the nature of its user.

(7)     To be a tax on land, the levy must have some direct and  definite relationship with the land.   So long as the tax is a tax  on land by bearing such relationship with the land, it is open for  the legislature for the purpose of levying tax to adopt any one of  the well known modes of determining the value of the land such  as annual or capital value of the land or its productivity.  The  methodology adopted, having an indirect relationship with the  land, would not alter the nature of the tax as being one on land.

(8)     The primary object and the essential purpose of legislation  must be distinguished from its ultimate or incidental results or  consequences, for determining the character of the levy.  A levy  essentially in the nature of a tax and within the power of State  Legislature cannot be annulled as unconstitutional merely  because it may have an affect on the price of the commodity.  A  State legislation, which makes provisions for levying a cess,  whether by way of tax to augment the revenue resources of the  State or by way of fee to render services as quid pro quo but  without any intention of regulating and controlling the subject of  the levy, cannot be said to have encroached upon the field of

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’regulation and control’ belonging to the Central Government  by  reason of the incidence of levy being permissible to be passed on  to the buyer or consumer, and thereby affecting the price of the  commodity or goods. Entry 23 in List II speaks of 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.  Entries 52 and 54 of List I are both qualified by  the expression "declared by Parliament by law to be expedient in  the public interest".  A reading in juxtaposition shows that the  declaration by Parliament must be for the ’control of industries’  in Entry 52 and ’for regulation of mines or for mineral  development’ in Entry 54.  Such control, regulation or  development must be ’expedient in the public interest’.   Legislation by the  Union in the field covered by Entries 52 and  54 would not like a magic touch or a taboo denude the entire  field forming subject matter of declaration to the State  Legislatures.  Denial to the State would extend only to the  extent of the declaration so made by Parliament.  In spite of  declaration made by reference to Entry 52 or 54, the State  would be free to act in the field left out from the declaration.   The legislative power to tax by reference to Entries in List II is  plenary unless the entry itself makes the field ’subject to’ any  other entry or abstracts the field by any limitations imposable  and permissible.  A tax or fee levied by State with the object of  augmenting its finances and in reasonable limits does not ipso  facto trench upon regulation, development or control of the  subject.  It is different if the tax or fee sought to be levied by  State can itself be called regulatory, the primary purpose  whereof is to regulate or control and augmentation of revenue or  rendering service is only secondary or incidental.

(9)     The heads of taxation are clearly enumerated in Entries 83  to 92B in List I and Entries 45 to 63 in List II.  List III, the  Concurrent List, does not provide for any head of taxation.   Entry 96 in List I, Entry 66 in List II and Entry 47 in List III deal  with fees.  The residuary power of legislation in the field of  taxation spelled out by Article 248 (2) and Entry 97  in List I can  be applied only to such subjects as are not included in Entries 45  to 63 of List II.  It follows that taxes on lands and buildings in  Entry 49 of List II cannot be levied by the Union.  Taxes on  mineral rights, a subject in Entry 50 of List II can also not be  levied by the Union though as stated in Entry 50 itself the Union  may impose limitations on the power of the State and such  limitations, if any, imposed by the Parliament by law relating to  mineral development and to that extent shall circumscribe the  States’ power to legislate.  Power to tax mineral rights is with  the States; the power to lay down limitations on exercise of such  power, in the interest of regulation, development or control, as  the case may be, is with the Union.  This is the result achieved  by homogeneous reading of Entry 50 in List II and Entries 52  and 54 in List I.  So long as a tax or fee on mineral rights  remains in pith and substance a tax for augmenting the revenue  resources of the State or a fee for rendering services by the  State and it does not impinge upon regulation of mines and  mineral development or upon control of industry by the Central  Government, it is not unconstitutional.   

The Result - individual cases (A) Coal Matters         The amendments incorporated by the West Bengal  Taxation Laws (Amendment) Act 1992 w.e.f. 1.4.1992 into the  provisions of the West Bengal Primary Education Act 1973 and  the West Bengal Rural Employment and Production Act 1976  classify the land into three categories: (i) coal-bearing land, (ii)  mineral bearing land (other than coal-bearing land) or quarry

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and (iii) land other than the preceding two categories.  These  three are well-defined classifications by reference to the user or  quality and the nature of product which it is capable of yielding.   The cess is levied on the land.  The method of quantifying the  tax is by reference to the annual value thereof.  It is well-known  that one of the major factors contributing to the value of the  land is what it produces or is capable of producing.  Merely  because the quantum of coal produced and dispatched or the  quantum of mineral produced and dispatched from the land is  the factor taken into consideration for determining the value of  the land, it does not become a tax on coal or minerals.  Being a  tax on land it is fully covered by Entry 49 in List II.  Assuming it  to be a tax on mineral rights it would be covered by Entry 50 in  List II.  Taxes on mineral rights lie within the legislative  competence of the State Legislature "subject to" any limitation  imposed by Parliament by law relating to mineral development.   The Central legislation has not placed any limitation on the  power of the States to legislate in the field of taxation on mineral  rights.  The challenge to constitutional validity of State  legislation is founded on non-availability of legislative field to  State; it has not been the case of any of the writ petitioners that  there are limitations enacted by Central legislation and the State  of West Bengal has breached or crossed those limits. Simply  because incidence of tax is capable of being passed on to buyers  or consumers by the mine owners with an escalating affect on  the price of the coal, it cannot be inferred that the tax has an  adverse effect on mineral development.  Entry 23 in List II  speaks of regulation of mines and mineral developments, subject  to the provisions of List I with respect to regulation and  development under the control of the Union.  The Central  Legislation has taken over regulation and development of mines  and mineral development in public interest.  By reference to  Entry 50 of List II and Entry 54 in List I, the Central legislation  has not cast any limitations on the State Legislature’s power to  tax mineral rights, or land for the matter of that.  The impugned  cess is a tax on coal-bearing and mineral-bearing land.  It can at  the most be construed to be a tax on mineral rights.  In either  case, the impugned cess is covered by Entries 49 and 50 of List  II.  The West Bengal Taxation Laws (Amendment) Act 1992 must  be and is held to be intra vires the Constitution.

       We also hold that  Mahanadi Coalfields was not correctly  decided in as much as India Cement Ltd. and Orissa Cement  Ltd. were applied to the levy of a cess to which they did not  apply.  The learned Judges, deciding Mahanadi Coalfields Ltd.  were, with respect, not right in forming the opinion that the cess  was levied on minerals and mineral rights and not on land and  hence the conclusion reached therein that the State Legislature  did not have the legislative competence and that the State  legislation trenched upon a field already occupied by Mines and  Minerals (Regulation and Development) Act 1957, a Central  Legislation is incorrect.  State of Orissa & Ors.  Vs.  Mahanadi  Coalfields Ltd. and Ors., 1995 Supp. (2) SCC 686, is  overruled.

(B) Tea Matters         Inasmuch as we have held Goodricke Group Ltd. and  Ors. Vs. State of West Bengal and Ors. - (1995) Supp. 1 SCC  707 to have been correctly decided the impugned levy on tea  estates as levied by the West Bengal Taxation Laws (Second  Amendment) Act 1989, is held to be intra vires the Constitution.   However, in brief, we may state that the impugned levy is of  cesses on tea estates i.e. the land forming part of tea estates as  defined in the impugned Act.  The land forming part of the tea  estates is a well-defined classification.  Simply because the

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method for quantifying the tax is by reference to the yield of the  land determinable by taking into account the quantum of tea  produced and dispatched, it does not become a cess on tea or a  tax on production of tea or a tax on income of land.  The Tea Act  of 1953 contains a declaration vide Section 2 thereof that it is  expedient in the public interest that the Union should take under  its control the tea industry. The declaration is in terms of Entry  52 in List I.  Union’s assumption of control of tea as industry and  as being expedient in the public interest, does not amount to  vesting the power to tax or levy fee in the Central Government  by reference to tea or on tea estates. Section 25 of Tea Act  empowers the Central Government to levy and collect excise  duty on tea produces, which on collection shall be credited to the  Consolidated Fund of India.  There is no other provision in Tea  Act empowering levy of any tax or fee on tea or tea bearing  land.  The impugned cess is a tax on tea-bearing land, a well- defined classification and is covered by Entry 49 in List II.  We  uphold the logic and reasoning assigned and conclusions drawn  by this Court in Goodricke on all the counts.

(C)     Brick Earth Matters Brick earth is a minor mineral.  What we have stated about  the impugned cess by reference to coal applies to brick earth as  well.  The field as to taxation cannot be said to have been  covered by Central Legislation by reference to Entry 54 in  Schedule I.  Quantification of levy by reference to quantity of  brick earth dispatched is a methodology adopted for the purpose  of finding out the quantity of brick earth removed from the land.   It has a definite and direct co-relation with the land.  There is no  particular charm about the challenge developed by the writ  petitioners laying emphasis on the meaning of the word  "dispatched".  The gist and substance of what the legislature is  taking into account is the brick earth actually removed.   "Dispatched" has the effect of taking into account the brick earth  "removed" and not simply "moved" and left behind.  The average  quantity of brick earth utilized in making bricks whether on the  brick field itself or on a place nearby, does involve removal - and  consequently dispatch __ of the brick earth from the place where  it was to the place where it is captively consumed in making  bricks.  The fact that methodology for working out the royalty  payable and the cess payable is the same, does not have any  detrimental effect on the constitutional validity of the cess  whether it be treated as one on the land - classified by reference  to its production, i.e., the brick earth or as one on mineral rights  in brick earth. In either case it would be covered by Entries 49 or  50 in List II. None of the pleas raised has any merit.

(D)     Minor Mineral Matters         While narrating the facts, we have quoted in the earlier  part of the judgment Section 35 of the U.P. Special Area  Development Authorities Act, 1986 (SADA Act, for short) which  is the charging section and the Rules framed under the Act.  We  refer to other relevant provisions of the Act in brief.

Section 3 of the SADA Act authorizes the State  Government to declare by notification an area to be a special  development area upon its forming an opinion that any area of  special importance in the State needs to be developed in a  planned manner. The authority is empowered to prepare a  master plan for the special development area, to provide for the  development of lands in the area, to compulsorily acquire land  and so on.  The powers are drastic and all-oriented with the  object of effecting a planned intensive and extensive  development of an area as to which the State Government may  have formed an opinion that it was an area of special

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importance.  Declaring an area as a special development area in  view of its special importance and constituting an authority for  the administration and management of the area entrusted with  the obligation of its development is not a matter of empty   formality.  The empowerment of the authority is accompanied by  an obligation cast on it by the State Government through the  special legislation of fulfilling the object behind the declaration of  special area and constitution of the authority.  The Act has been  given an over-riding effect by virtue of Section 52 thereof.  Not  only the area is taken out of the administration by the other  bodies of local self-government such as municipality or  panchayat, but any other master plan or development plan  formulated by any other authority ceases to apply to such area.

It was contended on behalf of the writ petitioners- appellants that whether a major or a minor mineral, by virtue of  the provisions contained in the MMDR Act, 1957 and U.P. Mine &  Minerals Concession Rules 1963, framed in exercise of the power  conferred by Section 15 of the MMDR Act, the mineral rights in  any land are subject to payment of royalty which is fixed.   Sections 8 and 9 of the MMDR Act confer the power to enhance  or reduce the rate at which     royalty or dead rent shall be  payable in respect of any mineral.  Any cess levied by the State  Government would have the effect of increasing the royalty.   Section 2 of the MMDR Act makes the requisite declaration to the  effect that it is expedient in the public interest that the Union  should take under its control the regulation of mines and the  development of minerals ’to the extent hereinafter provided’.   Such declaration is in the terms contemplated by Entry 54 of List  I.  It was submitted that the levy of cess by the State  Government would be clearly repugnant to the power reserved  by the Constitution and the MMDR Act to be exercised only by  the Central Government and hence the impugned levy of cess is  repugnant to the central legislation.  To test the validity of the  submission we have to examine the real nature of the levy and  find out if such levy encroaches upon the field reserved for  central legislation.

       All the minerals form part of the land.  Minerals are  conceived by the mother earth by the process of nature and  nurtured over innumerable number of years and delivered on  their assuming value and utility for the earthlings. Generally and  broadly speaking - and that would suffice for our purpose, a  mine is an excavation in the earth which yields minerals.   Mineral is something which grows in a mine and is capable of  being won or extracted so as to be subjected to a better or  precious use.  Until extracted, the mineral forms part of the crust  of the earth.  A mineral right, according to Black’s Law Dictionary  (Seventh Edition) is the right to search for, develop, and remove  materials from the land.  It also means the right to receive a  royalty based on the production of minerals which right is usually  granted by a mineral lease.   In both the senses, the right vests  in the owner of the land and is capable of being parted with.

       It is well settled that it is for the legislature to draft a piece  of legislation by making the choicest selection of words so as to  give expression to its intention.  The ordinary rule of  interpretation is that the words used by the legislature shall be  given such meaning as legislature has chosen to assign them by  coining definitions contained in the interpretation clause and in  absence thereof the words would be given such meaning as they  are susceptible of in the ordinary parlance, may be by having  recourse to dictionaries.  However still, the interpretation is the  exclusive privilege of the Constitutional Courts and the Court  embarking upon the task of interpretation would place such

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meaning on the words as would effectuate the purpose of  legislation avoiding absurdity, unreasonableness, incongruity and  conflict.  As is with the words used so is with the language  employed in drafting a piece of legislation.  That interpretation  would be preferred which would avoid conflict between two fields  of legislation and would rather import homogeneity.   It follows  as a corollary of the abovesaid statement that while interpreting  tax laws the Courts would be guided by the gist of the legislation  instead of by the apparent meaning of the words used and the  language employed. The Courts shall have regard to the object  and the scheme of the tax law under consideration and the  purpose for which the cess is levied, collected and intended to be  used.  The Courts shall make endavour to search where the  impact of the cess falls. The subject matter of levy is not to be  confused with the method and manner of assessment or  realisation.

       It is true that once a central legislation declares regulation  of mines and mineral development by law to be expedient in the  public interest, the legislation relating to regulation of mines and  development of minerals shall fall within the sweep of Entry 54  of List I.   The entry has to be liberally and widely interpreted.   Yet it cannot be lost sight of that the entry itself employs an  expression "to the extent to which such regulation and  development under the control of the Union is declared by  Parliament by law" as qualifying the preceding expression stating  the subject __ "regulation of mines and minerals development".   Section 2 of MMDR Act too qualifies the relevant declaration by  suffixing to it the expression "to the extent hereinafter  provided". Section 15 of the Act has excepted and preserved the  power of State Governments to make rules in respect of minor  minerals.   The qualifying words used in Entry 54 of List I and in  Section 2 of the MMDR Act contain an in-built indication that in  spite of an inclination on the part of the Courts to be liberal in  assigning a wide meaning to the scope of the said provisions, the  boundaries of limitation are there and the expanse of these  provisions cannot be so stretched as to strike at the State  Legislations which are adequately accommodated within the field  of an Entry in List II which too shall have to be meaningfully and  liberally construed.

       The MMDR Act enables control over the regulation of mines  and the development of minerals being exercised by the Central  Government through legislation.  The High Court has upheld the  validity of the SADA Act by relating it to Entry 5 in List II which  is ’local government’.  Any local government exercising the  power of governance over a local area shall have to administer,  manage and develop the area lying within its territory which  cannot be done without raising funds.  It is usual for every piece  of legislation giving birth to an institution of local government to  feed it by incorporating provisions conferring power of  generating funds for meeting the expenses of governance.  The  SADA Act intends to achieve a level of local governance which  the usual models of local government such as boards and  municipalities are not considered capable of achieving and that is  why a special development area and a Special Area Development  Authority.  The fund established under the Act meets expenses  of administration needed to be incurred by the authority. The  funds cannot be utilized for any purpose other than the  administration of the Act.  There are pieces of land which though  containing a mine yet fall within the territory of special  development area.  It was pointed out by the respondents before  the High Court that in spite of the Act having been enacted in  the year 1986 the successive State Governments, which had  preceded, did not take care of the legislation and it was only the

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then government which became conscious of its obligations  under the SADA Act and commenced identifying special areas  requiring development such as Sonbhadra. The imposition of  cess envisaged through the SADA Act and the Rules was a step  towards developing the special area.  It is a matter of common  knowledge, and does not need any evidence to demonstrate,  that mining activity carried on the land within the special area  involves extraction, removal, loading-unloading, and  transportation of the minerals accompanied by its natural  consequences entailed on the environment and the infrastructure  such as roads, water and power supply etc. within the special  area.  The impugned cess can, therefore, be justified as a fee for  rendering such services as would  improve the infrastructure and  general development of the area the benefits whereof would be  availed even by the stone crushers.  Entry 66 in List II is  available to provide protective constitutional coverage to the  impugned levy as fee.

       As held in Goodricke Group Ltd., 1995 Supp.(1) SCC  707, which we have held as correctly decided, this Court has  noted the principle of law well established by several decisions  that the measure of tax is not determinative of its essential  character. The same transaction may involve two or more  taxable events in its different aspects. Merely because the  aspects overlap, such overlapping does not detract from the  distinctiveness of the aspects.  In our opinion, there is no  question of conflict solely on account of two aspects of the same  transaction being utilized by two legislatures for two levies both  of which may be taxes or fees or one of which may be a tax and  other a fee falling within two fields of legislation respectively  available to the two.

       As we have pointed out earlier, a cess may be tax or fee.   So far as the present case is concerned, this distinction does not  need any further enquiry by reference to the facts of the case  inasmuch as the impugned cess is constitutionally valid  considered whether a tax or a fee. We do not propose to  continue dealing therewith any more inasmuch as it would be an  exercise in futility.  We would only place on record briefly our  reasons for upholding the validity of the impugned levy whether  a tax or a fee.

       As a tax the impugned levy of cess is clearly covered by  Entry 5 of List II (as the High Court has held, and we add) read    with Entries 49, 50 and 66 of List II.  There is no challenge to  the declaration of the area as a special development area and  the constitution of Special Area Development Authority for the  administration thereof.  In other words, the constitutional  validity of the enactment as a whole and the rules framed  thereunder is not put in issue.  What is under challenge is only  the levy of cess.  There is nothing wrong in the state legislation  levying cess by way of tax so as to generate its funds.  Although  it is termed as a ’cess on mineral right’, the impact thereof falls  on the land delivering the minerals.  Thus, the levy of cess also  falls within the scope of Entry 49 of List II.  Inasmuch as the  levy on mineral rights does not contravene any of the limitations  imposed by the Parliament by law relating to mineral  development, it is also covered by Entry 50 of List II.  The power  to levy any tax or fee lying within the legislative competence of  the State Legislature can be delegated to any institution of local  government constituted by law within the meaning of Entry 5 in  List II.   The Entries 5, 23, 49, 50 and 66 of List II provide  adequate constitutional coverage to the impugned levy of cess.   True it is that the method of quantifying the cess is by reference  to the quantum of mineral produced.  This would not alter the

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character of the levy. There are myriad methods of calculating  the value of the land for the purpose of quantifying the tax  reference whereto has already been made by us in the other part  of this judgment.   Validity of cess upon the land quantified by  reference to the quantity of its produce was held to be a levy on  the land and hence constitutional in Ralla Ram, AIR 1949 FC  81, Moopil Nair, AIR 1961 SC 552 and Ajoy Kumar  Mukherjee, AIR 1965 SC 1561.  It does not become excise duty  on manufacture and production of goods merely on account of  having relation with the quantity of product yielded of the land.   Rather it is a safe, sound and scientific method of determining  the value of the land to which the product relates.  The levy of  cess considered as a tax is constitutionally valid.  

In Western Coalfields Ltd. Vs. Special Area  Development Authority, Korba & Anr., (1982) 1 SCC 125,  the levy of a cess almost similar to the one in issue in the  present case, came up for the consideration of this Court.  The  levy was for the purpose of enabling the municipal  administration to exercise its power and discharge its functions  under the Act.  It was held that the declaration contained in  Section 2 of the MMDR Act does not have the effect of bringing  the powers, duties and functions of the local authority within the  purview of occupied field.  The power to levy tax on lands and  buildings within their jurisdiction by the local authority was  upheld by this Court.

The following observations of Constitution Bench in  Hingir-Rampur Coal Co. squarely apply to SADA Act and SADA  Rules for upholding their constitutional validity -  "............in pith and substance the impugned Act  is concerned with the development of the  mining areas notified under it.  The Central  Act, on the other hand, deals more directly  with the control of all industries including of  course the industry of coal."

"The functions of the Development Councils  constituted under this Act prescribed by  Section 6(4) bring out the real purpose and  object of the Act.  It is to increase the  efficiency of productivity in the scheduled  industry or group of scheduled industries, to  improve or develop the service that such  industry or group of industries renders or could  render to the community, or to enable such  industry or group of industries to render such  service more economically."

"........the object of the (Central) Act is to  regulate the scheduled industries with a view  to improvement and development of the  service that they may render to the society,  and thus assist the solution of the larger  problem of national economy.  It is difficult to  hold that the field covered by the declaration  made by Section 2 of this Act, considered in  the light of its several provisions, is the same  as the field covered by the impugned Act.   That being so, it cannot be said that as a result  of Entry 52 read with Act LXV of 1951 the vires  of the impugned Act can be successfully  challenged."

"Our conclusion, therefore, is that the

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impugned Act is relatable to Entries 234 and  66 in List II of the Seventh Schedule, and its  validity is not impaired or affected by Entries  52 and 54 in List I read with Act LXV of 1951  and Act LIII of 1948 respectively."  

       As stated earlier also, the impugned cess can be justified  as fee as well.  The term cess is commonly employed to connote  a tax with a purpose or a tax allocated to a particular thing.   However, it also means an assessment or levy.  Depending on  the context and purpose of levy, cess may not be a tax; it may  be a fee or fee as well.  It is not necessary that the services  rendered from out of the fee collected should be directly in  proportion with the amount of fee collected.  It is equally not  necessary that the services rendered by the fee collected should  remain confined to the persons from whom the fee has been  collected.  Availability of indirect benefit and a general nexus  between the persons bearing the burden of levy of fee and the  services rendered out of the fee collected is enough to uphold  the validity of the fee charged.  The levy of the impugned cess  can equally be upheld by reference to Entry 66 read with Entry 5  of Schedule II.

       Royalty is not a tax.  The impugned cess by no stretch of  imagination can be called a tax on tax.  The impugned levy also  does not have the effect of increasing the royalty.  Simply  because the royalty is levied by reference to the quantity of the  minerals produced and the impugned cess too is quantified by  taking into consideration the same quantity of the mineral  produced, the latter does not become royalty.  The former is the  rent of the land on which the mine is situated or the price of the  privilege of winning the minerals from the land parted by the  government in favour of the mining lessee.  The cess is a levy on  mineral rights with impact on the land and quantified by  reference to the quantum of minerals produced. The distinction,  though fine, yet exists and is perceptible.                  In our opinion Ram Dhani Singh Vs. Collector,  Sonbhadra & Ors. - AIR 2001 All. 5 has been correctly  decided.  We uphold and affirm the same. End Result          C.A. Nos.1532-33 of 1993 (Coal Matters) are allowed.  The  decision by Calcutta High Court [Kesoram Industries Ltd. (Textile  Division) Vs. Coal India Ltd. - AIR 1993 Calcutta 78] is set aside.   The writ petitions filed in the High Court of Calcutta shall stand  dismissed.         Leave granted in SLP (C) Nos.3986 of 1993, 11596 and  17549 of 1994.         C.A. Nos...............................of 2004 (Ambuja Cement Ltd.  & Anr.  Vs.  State of West Bengal & Ors.) and C.A. Nos.3518- 3519, 5149-54 of 1992, C.A. No.2350 of 1993, C.A. No.7614 of  1994 (Coal Matters) are directed to be dismissed.           W.P.(C) Nos.262 of 1997 (Tea matters) W.P.(C) Nos.515,  641, 642 of 1997, W.P.(C) Nos.347, 360 of 2000, W.P.(C)  Nos.50, 553 of 2000, W.P.(C) Nos.207,288,389 of 2001 and  W.P.(C) No.81 of 2003 are directed to be dismissed.         W.P.(C) No.247 of 1995 and W.P.(C) No.412 of 1995  (Brick Earth Matters) are directed to be dismissed. C.A.Nos.5027 of 2000, C.A.Nos.6643, 6644, 6645, 6646,  6647, 6648, 6649, 6650, 6894 of 2000 and C.A.No.1077 of 2001  (Minor Mineral Matters) are dismissed.  The decision by the  Allahabad High Court  (Ram Dhani Singh  Vs.  Collector,  Sonbhadra & Ors. - AIR 2001 Allahabad 5) is affirmed.

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       It would be useful to notice a few other relevant provisions  of the SADA Act.  The Act provides for the establishment of  Special Area Development Authorities for the planned  development of certain areas of Uttar Pardesh and for matters  ancillary thereto.  The State Government, when it is of the  opinion that any area of special importance in the State needs to  be developed in a planned manner, may, under Section 3 by  issuing a notification, declare such area to be a special  development area.  On such declaration the area is to be  administered by the Special Area Development Authority.  The  functions and the powers of the Authority have been enumerated  under Sections 6 and 7 as under : "6.  Functions of the Authority : - The  functions of the Special Area Development  Authority shall be -  

(i) to promote and secure development in  a planned manner of the special  development area for which it has  been constituted;

(ii) to prepare development plan for the  special development area;

(iii)  to implement the development plan  after its approval by the State  Government;

(iv)  for the purpose of implementation of  the plan, to acquire, hold, develop,  manage and dispose of land and other  property;

(v)   to carry out building, engineering,  mining operations and other  operations and other construction  activity;

(vi)   to execute works in connection with  the supply of water and electricity and  to provide such utilities and amenities  as water, electricity, drainage and the  like;

(vii)  to dispose of sewage and to provide  and maintain other services and  amenities;

(vii)  to provide for the municipal  management of the special  development area in the same  manner as is done by Nagar  Mahapalika under the Uttar Pradesh  Nagar Mahapalika Adhiniyam, 1959;

(ix)  to otherwise perform all such  functions as are necessary or  expedient for the purpose of the  planned development of the special  development area and for purposes

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incidental thereto;

Provided that the functions specified  in Clauses (viii) and (ix) shall not be  performed unless so required by the  State Government."

"7. Powers of the Authority.- The Special  Area Development Authority shall. -  

(a) for the purpose of municipal  administration have the powers which  a Nagar Mahapalika has under the  Uttar Pradesh Nagar, Mahapalika  Adhiniyam, 1959;

(b) for the purpose of taxation have the  powers which a Nagar Mahapalika has  in relation to a city under the Uttar  Pradesh Nagar Mahapalika Adhiniyam,  1959."

Under Section 18, all the money received by the Authority  by way of cess have to be deposited in a fund which fund shall  be applied towards meeting the expenses to be incurred by the  Authority in the administration of the Act and for no other  purpose.

       On behalf of the petitioners reliance was placed on Entries  53 and 54 of List I (Union List) of the Seventh Schedule to the  Constitution for the purpose of submitting that the regulation  and development of mines and minerals was within the  legislative competence of the Parliament which reads as under : "List I - Union List. Entry No.53. Regulation and development of  oilfields and mineral oil resources; petroleum  and petroleum products; other liquids and  substances declared by Parliament by law to  be dangerously inflammable.

Entry No.54. Regulation of mines and minerals  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."

On behalf of the State Government reliance was placed on  Entries 5, 49, 50 and 66 of List II (State List) of the Seventh  Schedule to the Constitution which reads as under : "List II - State List  Entry No.5. Local government, that is to say,  the Constitution and powers of municipal  corporations, improvement trust district  boards, mining settlement authorities and  other local authorities for the purpose of local  self-government or village administration.

Entry No.49.  Taxes on lands and buildings.

Entry No.50. Taxes on mineral rights subject to  any limitations imposed by Parliament by law  relating to mineral development.

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Entry No.66.  Fees in respect of any of the  matters in this List, but not including fees  taken in any Court."

       Having noticed the relevant entries and the statutory  provisions as contained in the Act and the Rules, we may  proceed to examine what the term ’cess’ means.  Straightway  we refer to the decision of this Court in Kunwar Ram Nath and  Ors.  Vs.  The Municipal Board, Pilibhit - (1983) 3 SCC 357,  wherein placing reliance on the Constitution Bench in The  Hingir-Rampur Coal Co., Ltd. and Ors.  Vs.  The State of  Orissa and others - AIR 1961 SC 459, it was held that a ’cess’  may either be a tax or fee.  Where a ’cess’ in a given context is a  tax or a fee depends upon the purpose for which it is levied.  The  primary object and the essential purposes of the levy must be  distinguished from its ultimate or incidental results or  consequences.  Between a tax and a fee there is not generate  difference as both are compulsory exertion of money by public  authorities.  However, a tax is imposed for public purposes and  is not, and need not be supported by any consideration of  service rendered in return; on the other hand, a fee is levied  essentially for purposes rendered and as such there is an  element of quid pro quo between the person who pays the fee  and the public authority which imposes it.  The tax recovered  goes into the consolidated fund which is utilize for all public  purposes whereas a cess levied by way of fee does not become a  part of the consolidated fund; it is earmarked and set apart for  the purposes of services for which it is levied.  This conceptual  distinction between the tax and the fee is to be kept in view but  the fact remains that the scheme of the several entries in the  three Lists empowers the appropriate legislatures to levy taxes  and also empowers specifically the same legislature to levy fees  in respect of the matters covered in the said Lists.  It is the fees  taken in any court which only has been treated as a distinct  Head.  Once we find the impugned cess within the legislative  competence of the State Legislature, it would not be of much  consequence whether it is in the nature of tax or fee.  By a  separate judgment pronounced today in ............... we have set  out and dealt with in framing details several principles of  interpretation of entries contained in the three Lists of the  Seventh Schedule to the Constitution and the powers exercisable  by the Union and the States particularly in relation with the laws  dealing with taxes.  Those principles may be kept in view and we  do not propose to repeat and restate those principles here.   

tagged with the said C.A. Nos.1532-33/93 and others.  These  appeals were heard along with the said appeals, as directed and  listed.  However, we are disposing of the present appeals by a  separate judgment as the facts of the case are little different  though the principles of law governing the decision would almost  be the same.  A reference to the said decision delivered by us is,  therefore, necessary.

Para as deleted by HL in the draft  

(kept for safe side for the time-being)

       Provided that when in the coal-bearing  land referred to in clause (b), there is no  production of coal for more than two  consecutive years, such land shall be  liable for levy of cess in respect of any  year immediately succeeding the said  two consecutive years in accordance with

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clause (a):

Provided further that where no dispatch  of minerals or materials is made during a  period of more than two consecutive  years from the mineral-bearing land or  quarry as referred to in clause (c), such  land or quarry shall be liable for levy of  cess in respect of any year immediately  succeeding the said two consecutive  years in accordance with clause(a)."

       How the abovesaid error has resulted into shaping the  development of case law needs to be noted and dealt with.  In  State of M.P. Vs. Mahalaxmi Fabric Mills Ltd. and Ors. -  1995 Suppl. (1) SCC 642 what was put in issue was the  enhancement of royalty by the Central Government in exercise  of the power conferred by Section 9(3) of the MMRD Act.  Based  on the decision of India Cement cess on coal levied by State  legislation was struck down by this Curt in the case of Orissa  cement.  The State Governments were starved for revenue and  therefore the Central Government stepped in to revise upwards  the rates of royalty to augment the revenue of the States.  In  exercise of its power under Section 9(3) the Central Government  increased the rates of royalty.  The cealing for enhancement  of  rates of royalty was removed by amending Section 9(3).  The  vires of the provision were put in issue.  A bench of three  learned Judges of this Court  decided Mahalaxmi Fabric Mills  Ltd. and Ors.’s case (supra).

P. Kannadasan Vs. TISCO         Our dealing with the available decisions may not be  complete unless we make a reference to P. Kannadasan & Ors.  Vs. State of T.N. & Ors., (1996) 5 SCC 670 and District  Mining Officer & Ors. Vs. Tata Iron and Steel Co. & Anr.,  (2001) 7 SCC 358, the latter being a three-Judge Bench decision  which has over-ruled the former being a decision by two-Judge  Bench.  At the very outset we make it clear that the question  which arose for decision in the said two decisions does not  directly arise for decision in the cases before us.  However, it  becomes necessary to deal with a few principles of constitutional  significance dealt with therein by the two Benches in so far as  relevant for our purpose.  We are not making any detailed  statement of facts and the contentions advanced as it is not  necessary and if necessary the reference can be had to the law  reports of the two decisions.

       Levy of a local cess at the rate of 45 p. on every rupee of  land revenue payable to the government in respect of any land  levied by Section 115 of the Tamil Nadu Panchayat Act 1958 was  declared ultra vires the constitution in India Cement.  Following  the said decision Orissa Cement declared incompetent the  identical levies imposed by the States of Orissa, Bihar and  Madhya Pradesh through State legislations.  These two decisions  had a serious impact on the revenue of several State  governments.  The Parliament stepped in coming to the rescue  of the State governments.  Initially the President of India  promulgated Cess and Other Taxes on Minerals (Validation)  Ordinance 1992 on 15.2.1992, which was recognized by Act  No.16 of 1992 w.e.f. 4.4.1992.  The ordinance and the Central  Act both are brief legislations consisting of three sections merely  the purpose whereof has been to provide constitutionally valid  base for the sustainability of the cess for the period for which the

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State legislations had remained in operation until struck down by  India Cement and Orissa Cement.  In substance, the two  decisions referred to hereinabove which led to the promulgation  of the ordinance and the enactment of the central legislation had  struck down the State legislations by forming an opinion that the  field of legislation having been appropriated to the Union of  India, the States were not competent to enact the laws.  The  ordinance and the Act removed the infirmity and altered the  bases of legislations.  India Cement and Orissa Cement both  have held that the State legislations would have been  constitutionally valid if the subject matter thereof would have  been enacted by the Parliament and that ________ was made  good by promulgation of ordinance and the Act.  Thus, it is not  correct to say that the ordinance and the Act had the effect of  nullifying the judgments of the Courts; rather they adopted the  devise of curing the defect as pointed out by this Court by  removing the flawed foundation and substituting the  constitutionally valid bases for the validity of the same  legislation. The other constitutionally valid devise of legislation  by incorporation was adopted by the Parliament.  The Central  Act did not re-enact of the contents of the struck down State  legislations in the Central Act and instead couched the Central  Act in such language which has effect of all the relevant  provisions of the scheduled State legislations being individually  and specifically enacted by Parliament as being necessarily read  forming part of the contents thereof and having been enacted  with retrospective effect by the Parliament.  the existence of  constitutional power vesting in the Parliament to enact tax laws  having retrospective operation cannot be denied and was not  denied.  The submission that the Central Act was only a piece of  temporary legislation having a limited life to live was rejected  and it was held that the Act, ever since the date of its  enactment, became operative and would continue to remain in  force until the Parliament chose to repeal it.

       The constitutional validity of the same Cess Validation Act  came to be examined once again in TISCO case wherein the  Bench of three learned Judges examined the issue from the point  of view of its applicability in the State of Bihar.  A perusal of the  judgment of this Court in TISCO case shows that the Court has  proceeded on certain premises which, with respect, we find  difficult to sustain.  The Court held that the Parliament never re- enacted the eleven Acts mentioned in the Schedule, but merely  provided the legislative competence for those provisions in those  Acts which related to cesses or taxes on minerals; that the  Validation Act merely had the effect of validating the collections  already made so that the States shall not be burdened with the  liability of refunding the amount already collected under void law  but the Validation Act cannot be construed to have conferred a  right to make levy and collection of cesses or taxes on minerals  which were collectable upto 4.4.1991; and that the Validation  Act was a piece of temporary legislation which did not expressly  conferred a right to levy and collect the cess for any period  subsequent to 4.4.1991.  Suffice it to say that all the three  reasonings, in our humble opinion and with respect to the  learned Judges deciding the case, suffer from in-built fallacy.   Firstly, it is not necessary to examine whether the Central Act is  a temporary or permanent legislation.  The correct approach  should have been to examine the impact and effect of the  validating Act.  Does it give rise to any substantive rights and  obligations?  If yes, the rights and obligations created thereby  would continue to survive till satisfied.  The language of the  validating Act did not create any distinction between the right of  the States to retain the amount of cesses already realised and  the right of the States to collect the cesses which having been

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validated were yet to be collected.  The text of the validating Act  has been reproduced in P. Kannadasan case.  It is significant  to note that TISCO has not struck down the Validation Act as  constitutionally invalid; in spite of upholding the constitutional  validity of the Act as was done by Patna High Court in the  judgment impugned before this Court; all that this Court has  done is to construe the effect of the Validation Act by expressing  an opinion that the amount collected by the States was not liable  to be refunded though fresh notices for collection and levy of  dues in respect of liability accrued till 4.4.1991 could not be  countenanced upon an interpretation of provisions of the  Validation Act.  We find it difficult to countenance the view  taken.  Once the Validation Act has been held to be  constitutionally valid not only the action already taken  thereunder but also the action subsequently taken for enforcing  the rights and obligations incurred prior to the coming into force  of the Act by operation of those laws which were validated would  be constitutionally valid on the language of the Validation Act.   The States were enforcing the liabilities validly incurred by the  persons liable to cesses on behalf of the central government as  the scheme of the MMDR Act 1957 is.  There is nothing like  deliberate and conscience omission of the saving clause by the  Parliament in the Validation Act.  The authority of law in the  States to raise demand and make collection of cess and tax on  minerals under the validated provisions of the State laws clearly  and necessarily follows.  In our opinion, P. Kannadasan was  correctly decided.  Tata Iron and Steel Co. does not lay down  the correct law.

The upshot of the above discussion is that levy of cess is held to  be valid.  The West Bengal Primary Education Act, 1973 and West  Bengal Rural Employment and Production Act, 1976, as amended by  the West Bengal Taxation Laws (Amendment) Act, 1992, with effect  from 1.4.1992 are held intra vires the Constitution.  ’Land’ has  been classified into three categories, i.e.  coal bearing land,  mineral bearing land (other than coal bearing land) or quarry, and  land other than the said two.  The classification into three  categories is by reference to the character, quality and  productivity of the land, i.e. what the land is capable of  delivering.  The three categories of land are well defined  classifications.  The classification serves the purpose sought to  be achieved, that is, by levying cess at different rates  consistently with the value of the land, determinable by the  quality and nature of productivity offered by the land.  What is  won from the land and what it delivers, is capable of being  assessed, in terms of money, by finding out the quantity of coal  or mineral or material extracted and dispatched.  The period of  non-production qualifies for concession.  The mechanism for  assessment of value of land cannot be determinative or decisive of  the nature and character of tax which essentially remains a cess  on land.  The impugned cess successfully withstands the test of  constitutional validity on the principles laid down in Goodricke.   India Cement and Orissa Cement do not apply.

C.A. Nos.1532-33 of 1993 - The State of West Bengal    Vs.  Kesoram Industries Ltd. and Ors., are allowed.  The  impugned judgment of the High Court is set aside.    The writ  petitions filed in the High Court by the respondents are directed  to be dismissed.       

       W.P.(C) No.262 of 1997 - The Terai Indian Planters’  Association & Anr.  Vs.  The State of West Bengal and  Ors., is devoid of any merit.  The challenge, led to the  constitutional validity of levy of cess on tea estates, must be

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repelled in the light of the decision of this Court in Goodricke’s  case (supra) which we have held as laying down the correct  position of law.  The abovesaid writ petition is dismissed.