Supreme Court of India
Mineral Area Development Authority Etc vs M/S Steel Authority Of India on 25 July, 2024
Author: B.V. Nagarathna
Bench: B.V. Nagarathna
Reportable
2024 INSC 554
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE/ORIGINAL JURISDICTION
Civil Appeal Nos. 4056-4064 of 1999
Mineral Area Development Authority & Anr. …Appellants
Versus
M/S Steel Authority of India & Anr Etc. …Respondents
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Civil Appeal No. 7937 of 2019
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Writ Petition (Civil) No. 512 of 2018
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Civil Appeal No. 7938 of 2019
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Civil Appeal No. 7936 of 2019
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Civil Appeal No. 6221 of 2008
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Civil Appeal No. 5250 of 2019
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Writ Petition (C) No. 729 of 2019
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Signature Not Verified
Writ Petition (C) No. 1029 of 2019
Digitally signed by
Sanjay Kumar
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Special Leave Petition (C) No. 16028 of 2021
Date: 2024.07.25
16:20:33 IST
Reason:
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Civil Appeal No. 4286 of 2023
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Civil Appeal No. 5682 of 2007
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Civil Appeal No. 1295 of 2008
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Civil Appeal No. 874 of 2013
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Civil Appeal Nos. 8269-8271 of 2013
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Civil Appeal No. 8268 of 2013
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Civil Appeal No. 8267 of 2013
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Civil Appeal No. 6135 of 2013
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Civil Appeal No. 8272 of 2013
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Civil Appeal No. 9458 of 2013
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Special Leave Petition (Civil) No. 18600 of 2013
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Civil Appeal No. 4332 of 2013
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Civil Appeal No. 5329 of 2002
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Civil Appeal No. 4993 of 2006
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Civil Appeal No. 8273 of 2013
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Civil Appeal No. 8274 of 2013
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Civil Appeal No. 3869 of 2014
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Civil Appeal No. 2632 of 2013
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Civil Appeal No. 14685 of 2015
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Civil Appeal No. 6784 of 2014
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Writ Petition (Civil) No. 376 of 2015
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Civil Appeal No. 10082 of 2016
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Civil Appeal No. 886 of 2017
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Civil Appeal No. 4588 of 2017
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Civil Appeal No. 205 of 2017
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Civil Appeal Nos. 5728-5729 of 2018
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Civil Appeal Nos. 4722-4724 of 1999
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Civil Appeal No. 5333 of 2002
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Civil Appeal Nos. 5335-5336 of 2002
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Civil Appeal No. 5332 of 2002
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Civil Appeal No. 1352 of 2005
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Civil Appeal No. 1883 of 2006
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T.P. (Civil) No. 722 of 2006
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Civil Appeal No. 4745 of 2006
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Civil Appeal No. 4990 of 2006
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Civil Appeal No. 5599 of 2006
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Civil Appeal No. 5649 of 2006
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Civil Appeal No. 378 of 2007
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Civil Appeal No. 665 of 2007
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Civil Appeal No. 1180 of 2007
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T.P. (Civil) No. 481 of 2007
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T.P. (Civil) No. 906 of 2007
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Civil Appeal No. 3401 of 2008
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Civil Appeal No. 3400 of 2008
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Civil Appeal No. 3402 of 2008
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Civil Appeal No. 8311 of 2011
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Civil Appeal No. 4293 of 2012
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Civil Appeal No. 2055 of 2009
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T.P. (Civil) No. 951 of 2006
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Civil Appeal No. 4991 of 2006
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Civil Appeal No. 4992 of 2006
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Special Leave Petition (Civil) No. 763 of 2007
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Special Leave Petition (Civil) No. 15900 of 2007
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Civil Appeal No. 3403 of 2008
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Civil Appeal No. 98 of 2009
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T.P. (Civil) No. 613 of 2009
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T.P. (Civil) No. 626 of 2009
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Civil Appeal No. 4479 of 2010
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Civil Appeal No. 4478 of 2010
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Civil Appeal No. 3643 of 2011
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Civil Appeal Nos. 4710-4721 of 1999
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Civil Appeal No. 2174 of 2009
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Civil Appeal No. 6497 of 2008
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Civil Appeal No. 6498 of 2008
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Civil Appeal No. 6137 of 2008
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Civil Appeal No. 7397 of 2008
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Civil Appeal No. 96 of 2009
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Civil Appeal No. 6499 of 2008
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Civil Appeal No. 97 of 2009
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Special Leave Petition (Civil) No. 26160 of 2008
5
JUDGMENT
Dr Dhananjaya Y Chandrachud, CJI
Table of Contents
A. Background .............................................................................................................. 9
B. Issues ...................................................................................................................... 13
C. Submissions ........................................................................................................... 14
i. Submissions of the petitioners ......................................................................... 14
ii. Submissions of the respondents ...................................................................... 18
D. Distribution of legislative fields relating to mines and minerals........................ 24
E. Underlying constitutional philosophy .................................................................. 29
i. Scheme of distribution of legislative powers and constitutional limitations 29
ii. Interpretation of legislative entries ................................................................... 35
iii. Fiscal Federalism................................................................................................ 41
iv. Natural resources and the public trust doctrine .............................................. 45
F. Whether royalty is tax ............................................................................................ 48
i. Royalty under the MMDR Act ............................................................................. 48
ii. Purpose of Section 9 of the MMDR Act............................................................. 54
iii. Contours of a mining lease ................................................................................ 56
a. Lease and license ............................................................................................. 56
6
b. The nature of a mining lease under the MMDR Act and the Mineral Concession
Rules 1960 ........................................................................................................ 61
iv. Meaning of “royalty” .......................................................................................... 65
v. Characteristics of Tax ........................................................................................ 68
vi. Royalty is not in the nature of tax ..................................................................... 73
a. Prelude to India Cement ................................................................................... 73
b. Divergence between India Cement and Kesoram ............................................. 76
c. Royalty is not a tax ............................................................................................ 80
G. Inter-relationship between Entry 23 of List II and Entry 54 of List I ................... 84
i. Meaning of “regulation of mines” and “mineral development”...................... 84
ii. Analysis of Hingir-Rampur, M A Tulloch, and Baijnath Kedia ......................... 90
iii. Examination of the “extent” of the MMDR Act ................................................. 98
H. Inter-relationship between Entry 50 of List II and Entry 54 of List I ................. 104
i. Taxes on mineral rights .................................................................................... 106
a. Mineral rights duty ........................................................................................... 106
b. Meaning of the expression “mineral rights” ..................................................... 107
c. Taxes on mineral rights ................................................................................... 113
ii. The limitations on the taxing power of the State under Entry 50 of List II .. 116
a. Entry 50 of List II does not constitute an exception to the Sundararamier
principle ........................................................................................................... 117
b. Nature of “any limitation” ................................................................................. 124
c. Scheme of the MMDR Act does not serve as “any limitation” ......................... 129
d. Section 9 does not serve as a limitation on the taxing powers of State........... 134
7
e. “Any limitation” can extend to prohibition ........................................................ 135
f. Impact of taxes on mineral rights on mineral development ............................. 142
I. Scope of Entry 49 ................................................................................................. 146
i. Land System in India ........................................................................................ 146
ii. Tax on land and buildings ................................................................................ 157
a. Principles governing ‘taxes on lands and buildings’ ........................................ 158
a. States can impose tax on mineral bearing land .............................................. 162
iii. Measure of tax................................................................................................... 166
a. Taxing mineral-bearing land ............................................................................ 170
b. Goodricke ........................................................................................................ 176
iv. Measure of tax on mineral-bearing land ......................................................... 180
a. Decoupling of minerals from land .................................................................... 180
b. Minerals as measure of tax on land ................................................................ 188
J. Conclusions .......................................................................................................... 198
8
PART A
A. Background
1. The present batch of appeals bears on the distribution of legislative powers
between the Union and the States on the taxation of mineral rights. The
legislative entry which lies at the core of the present reference is Entry 50 of List
II of the Seventh Schedule to the Constitution. The entry deals with taxes on
mineral rights subject to “any limitations imposed by Parliament by law relating
to mineral development.” Regulation of mines and mineral development is
enumerated under both the Union List (Entry 54 of List I) and the State List (Entry
23 of List II) of the Seventh Schedule. The entrustment of the subject to the State
legislatures under Entry 23 of List II is made subject to the provisions of Entry 54
of List I.
2. Parliament enacted the Mines and Minerals (Development and Regulation) Act,
1957 1 in exercise of its legislative powers under Article 246 of the Constitution.
The subject which the legislation predominantly covers is relatable to Entry 54 of
List I. The MMDR Act is a comprehensive code for the regulation of mines and
development of minerals. Section 9 provides that the holder of a mining lease
shall pay royalty in respect of any mineral removed or consumed from the leased
area at the specified rates. In India Cement Ltd. v. State of Tamil Nadu, 2 a
seven-Judge Bench of this Court held that royalty is tax and the state legislatures
lack competence to levy taxes on mineral rights because the subject-matter is
covered by the MMDR Act. The Court also held that royalty cannot be used by
the State legislature as a measure of tax on mineral-bearing lands under Entry
49 of List II. Later in time, in State of West Bengal v. Kesoram Industries Ltd. 3
1 “MMDR Act”
2 (1990) 1 SCC 12 [34]
3 (2004) 10 SCC 201 [71]
9
PART A
a Constitution Bench of this Court held that the decision in India Cement (supra)
stemmed from an inadvertent error and clarified that royalty is not a tax.
3. In the aftermath of India Cement (supra) and Kesoram (supra), State
legislatures exercised their legislative powers to impose taxes on mineral-
bearing land in pursuance of Entry 49 of List II by applying the mineral value or
royalty as the measure of the tax. 4 States such as Rajasthan 5 and Uttar Pradesh 6
also sought to impose environment and health cess and fees for transporting
coal and coal-dust collected from mines. The constitutional validity of these levies
was challenged before the High Courts on the ground that they were beyond the
legislative competence of the State legislatures. The levies were also assailed
on the ground that they were in violation of the law laid down in India Cement
(supra).
4. One such matter is Civil Appeal No. 4056-64 of 1999, where the petitioners
initially filed writ petitions before the High Court of Judicature at Patna
challenging the validity of the Bihar Coal Mining Area Development Authority
(Amendment) Act 1992 and the Bihar Mineral Area Development Authority (Land
Use Tax) Rules 1994, which levied tax 7 on land being used for mining. Relying
on India Cement (supra), the High Court allowed the petition by holding that the
4 Mineral Area Development Authority v. Steel Authority of India, Civil Appeal No. 4056-64 of 1999; Sanghi
Infrastructures MP Ltd. v. Union of India, Writ Petition (C) No. 512 of 2018.
5 Ambuja Cement v. State of Rajasthan, Diary No. 21291 of 2023; Wolkem Industries v. State of Rajasthan, Civil
Appeal No. 8273 of 2013; Wonder Cement Ltd. v. State of Rajasthan, Civil Appeal No. 4588 of 2017.
6 Kanoria Chemicals v. State of UP, Civil Appeal No. 1295 of 2008; Hindalco Industries Ltd. v. State of UP, Civil
Appeal No. 3869 of 2014.
7 Section 89, Bihar Coal Mining Area Development Authority Act 1986. [It reads:
Levy of Tax on Use of Land for Other Than Agricultural and Residential Purposes –
(1) The Authority shall subject to the provisions of this Act and Rules framed thereunder levy tax, by
notification published in the Official Gazette on land being by any person, group of persons, company, the
Central Government or the State Government, Local or Corporate Body for mining, commercial or
industrial purposes with the prior approval of the State Government.
Provided that the tax so levied shall not exceed Rupees 1.50 per square meter annually for any such land
but such tax shall not be levied on land which is subject to Holding Tax.
(2) The State Government shall, out of the tax so levied and collected, determine the amount to be deposited
into the consolidated Fund of the State Government from time to time.”]
10
PART A
tax was not within the scope of Entry 49 of List II of the Seventh Schedule. The
correctness of the High Court’s decision was assailed before this Court. On 30
March 2011, a Bench of three Judges noticed the divergence between India
Cement (supra) and Kesoram (supra) and referred the following questions to a
Bench of nine Judges to provide a decisive ruling:
a. Whether ‘royalty’ determined under Sections 9/15(3) of the MMDR Act is in
the nature of tax;
b. Can the State Legislature while levying a tax on land under Entry 49 List II of
the Seventh Schedule of the Constitution adopt a measure of tax based on
the value of the produce of land? If yes, then would the constitutional position
be any different insofar as the tax on land is imposed on mining land on
account of Entry 50 List II and its interrelation with Entry 54 List I?
c. What is the meaning of the expression “Taxes on mineral rights subject to any
limitations imposed by Parliament by law relating to mineral development”
within the meaning of Entry 50 of List II of the Seventh Schedule of the
Constitution of India? Does the MMDR Act contain any provision which
operates as a limitation on the field of legislation prescribed in Entry 50 of List
II of the Seventh Schedule of the Constitution of India? In particular, whether
Section 9 of the MMDR Act denudes or limits the scope of Entry 50 of List II?
d. What is the true nature of royalty/ dead rent payable on minerals produced/
mined/ extracted from mines?
e. Whether the majority decision in Kesoram (supra) could be read as departing
from the law laid down in India Cement (supra)?
11
PART A
f. Whether “taxes on lands and buildings” in Entry 49 List II of the Seventh
Schedule to the Constitution contemplate a tax levied directly on the land as
a unit having definite relationship with the land?
g. What is the scope of the expression “taxes on mineral rights” in Entry 50 of
List II of the Seventh Schedule to the Constitution?
h. Whether the expression “subject to any limitation imposed by Parliament by
law relating to mineral development” in Entry 50 of List II refers to the subject
matter in Entry 54 of List I of the Seventh Schedule to the Constitution;
i. Whether Entry 50 of List II read with Entry 54 of List I of the Seventh Schedule
to the Constitution constitute an exception to the general scheme of Entries
relating to taxation being distinct from other Entries in all the three Lists of the
Seventh Schedule to the Constitution as enunciated in M P V Sundararamier
& Co. v. State of Andhra Pradesh8;
j. Whether in view of the declaration under Section 2 of the MMDR Act made in
terms of Entry 54 of List I of the Seventh Schedule to the Constitution
and the provisions of the said Act, the State legislature is denuded of its power
under Entry 23 of List II and/ or Entry 50 of List II; and
k. What is the effect of the expression “subject to any limitation imposed by
Parliament by law relating to mineral development” on the taxing power of the
State legislature in Entry 50 of List II, particularly in view of its uniqueness in
the sense that it is the only entry in all the entries in three Lists (Lists I, II, and
III) where the taxing power of the State legislature has been subjected to “any
limitation imposed by Parliament by law relating to mineral development.”
8 (1958) 1 SCR 1422
12
PART B
B. Issues
5. During the course of the hearing, 9 counsel for the petitioners and respondents
agreed that the main questions that fall for determination by this Court could be
reframed in the following terms:
a. What is the true nature of royalty determined under Section 9 read with
Section 15(1) of the MMDR Act? Whether royalty is in the nature of tax;
b. What is the scope of Entry 50 of List II of the Seventh Schedule? What is
the ambit of the limitations imposable by Parliament in exercise of its
legislative powers under Entry 54 of List I? Does Section 9, or any other
provision of the MMDR Act, contain any limitation with respect to the field in
Entry 50 of List II?
c. Whether the expression “subject to any limitations imposed by Parliament
by law relating to mineral development” in Entry 50 of List II pro tanto
subjects the entry to Entry 54 of List I, which is a non-taxing general entry?
Consequently, is there any departure from the general scheme of
distribution of legislative powers as enunciated in M P V Sundararamier
(supra)?
d. What is the scope of Entry 49 of List II and whether it covers a tax which
involves a measure based on the value of the produce of land? Would the
constitutional position be any different qua mining land on account of Entry
50 of List II read with Entry 54 of List I?
9 Civil Appeal No. 4056-4064 of 1999, Mineral Area Development Authority v. Steel Authority of India, Transcript of
Hearing, 27 February 2024, 8-9.
13
PART C
e. Whether Entry 50 of List II is a specific entry in relation to Entry 49 of List II,
and would consequently subtract mining land from the scope of Entry 49 of
List II?
6. The Union of India has filed an affidavit stating that the issues in this reference
do not involve the interpretation of Entry 53 of List I of the Seventh Schedule
which pertains to oilfields, mineral oil resources, petroleum and petroleum
products. Counsel on both sides have not addressed submissions on any issues
pertaining to the interpretation of Entry 53 of List I. We have accordingly neither
discussed nor considered any issues pertaining to Entry 53 of List I. We have
circumscribed the scope of the reference to the above-mentioned issues referred
to the nine-Judge Bench as reframed in the above terms.
C. Submissions
i. Submissions of the petitioners
7. Mr Rakesh Dwivedi, learned senior counsel, made the following submissions:
a. Royalty is the consideration for parting with the right to work the mine and win
minerals which are vested either in the Government or a private person. Section
9 of the MMDR Act statutorily determines the price to be compulsorily paid by
the lessee to the lessor in lieu of the grant of rights under a mining lease.
Royalty paid by the lessee under Section 9 does not meet either the criteria of
a ‘tax’ or an ‘impost’ under Article 366(28) of the Constitution. Therefore, royalty
is not a tax on either minerals or mineral rights;
14
PART C
b. Entry 49 of List II - “taxes on lands and buildings” - must be construed
expansively because it is not subordinated to any other entry in the Seventh
Schedule. The expression “lands” in Entry 49 has been interpreted to include
all kinds of lands, including mineral-bearing land. Minerals continue to remain
a part of the land until they are extracted. Therefore, the value of minerals can
be used as a measure to tax mineral bearing land;
c. Entry 54 of List I and Entry 23 of List II are general entries relating to the subject
matter of regulation of mines and mineral development. Entry 23 of List II has
been expressly subordinated to the provisions of List I with respect to regulation
and development under the control of the Union. Thus, the subject matter
available to the State legislature under Entry 23 of List II is the residue of what
is left after declaration by Parliament under Entry 54 of List I. Moreover, Entries
54 of List I and 23 of List II, being general entries, do not provide a source of
imposing any kind of tax;
d. The legislative power of the State legislatures to levy tax on mineral rights under
Entry 50 of List II has been made subject to “any limitations imposed by
Parliament by law relating to mineral development.” Parliament has no
legislative competence to tax with respect to any subject matter enumerated in
List II of the Seventh Schedule. Parliament cannot assume to itself the power
to tax mineral rights, but can only impose limitations on the states when they
exercise their powers in pursuance of Entry 50 of List II;
e. The limitations contemplated under Entry 50 of List II have to be express
because they deprive the State legislatures of their plenary power to impose
tax. The MMDR Act does not expressly limit the legislative competence of the
State legislatures to tax mineral rights. Royalty is neither tax, nor an exaction
15
PART C
in the nature of tax. It cannot serve as a limitation envisaged by Entry 50 of List
II;
f. Under Entry 50 of List II, the limitations are required to be imposed “by law”
made by Parliament. They cannot be imposed by a delegate acting under
parliamentary legislation; and
g. Entry 54 of List I read with Entry 50 of List II is not an exception to the principle
laid down in M P V Sundararamier (supra). Entry 54 of List I is a regulatory
entry, while Entry 50 of List II is a taxing entry. The power to impose “any
limitations” under Entry 50 of List II cannot be interpreted so as to bestow upon
Parliament legislative powers to tax mineral rights. There cannot be any overlap
of the power of taxation because the legislative power of Union and States to
tax is mutually exclusive and clearly demarcated under the Seventh Schedule.
8. Mr S Niranjan Reddy, learned senior counsel, made the following submissions:
a. It is a settled law that the rights to sub-soil minerals vest in the title holder of the
land. The ownership to sub-soil minerals generally follows the ownership of the
land, unless the owner of the land is deprived of the same by some valid legal
process;
b. Ordinarily, the land owner, or the mining lessor, contractually requires the
lessee to pay royalty as a compensation for the loss of the value of minerals
from the land. Under Section 9 of the MMDR Act, Parliament has statutorily
capped the amount of royalty that can be contractually collected by the lessor.
Moreover, Section 9(3) of the MMDR Act (which limits the power of the Central
Government to increase the rates of royalty) does not serve as a limitation on
the taxing power of the State legislatures under Entry 50 of List II;
16
PART C
c. The Constitution is cognizant of the fact that the legislative power of the States
to tax mineral rights may impede mineral development. Therefore, the
Constitution has empowered Parliament to limit or restrict the taxing powers of
the State legislatures under Entry 50 of List II by a law relating to mineral
development; and
d. The word “lands” under Entry 49 of List II includes lands of every character. The
measure of a tax cannot determine the nature of tax. The productivity of land
can be used as a measure for levy of taxes on lands. Resultantly, mineral
produced from a land can always be used as a measure to tax lands.
9. Mr Vijay Hansaria, learned senior counsel, made the following submissions:
a. The MMDR Act only deals with the regulation of mines and mineral
development. Further, the legislation does not seek to legislate on the entire
field of mines and minerals, but only to the extent provided. The levies such as
royalty and dead rent payable under the MMDR Act are not in the nature of tax
but only a payment for a right to enjoy the land and the usufruct of the land;
b. Entry 50 of List II, being a taxing entry, has to be construed with clarity and
precision. The expression “law relating to mineral development” occurring in
Entry 50 of List II has to be construed in light of Section 18 of the MMDR Act
which deals with mineral development. Section 18 does not impose any
express limitation on the legislative power of the states to tax mineral rights;
and
c. Parliament does not have the legislative powers to tax minerals rights using its
residuary powers because the subject matter has been expressly enumerated
in the State List.
17
PART C
10. Ms Sansriti Pathak, learned counsel, made the following submissions:
a. The State, being the proprietor of minerals, can receive royalty for parting
with its mineral rights and can also levy tax on the same minerals in the
capacity of the sovereign; and
b. The expression “any limitations” appearing in Entry 50 of List II cannot be
construed to mean prohibition. Parliament can only limit the exclusive
legislative powers of the State legislature to tax minerals, but cannot prohibit
them.
ii. Submissions of the respondents
11. Mr R Venkataramani, the learned Attorney General for India, made the following
submissions:
a. The grant of permission to undertake any activity in relation to a mineral is
based on certain terms and conditions prescribed under the MMDR Act. The
consideration for the grant of such permission is royalty, which in essence is
the demand for parting with the privilege of working the mineral;
b. It is immaterial whether royalty is designated as a tax. Any levy relating to
mineral development, in so far as it is in relation to mineral rights, will serve as
a limitation on the taxing powers of the State legislature under Entry 50 of List
II;
c. Both Entry 54 of List I and Entry 50 of List II constitute a family of entries. Taxes
on minerals rights must be understood as such levies, charges, impositions or
demands that are related to mineral development. Entry 50 of List II cannot be
a source of authority for imposing any levy, charge, impost, or demand which
18
PART C
is either unconnected with mineral development or in relation to any other alien
purpose, such as education cess;
d. The MMDR Act contemplates all manner of levies, charges, imposts, or
demands that can be legitimately provided for having a nexus with mineral
rights. Therefore, the provisions of the MMDR Act will be treated as a limitation
on the power of the States to demand or impose similar levies, imposts or
demands of the same nature. Although Entry 50 of List II is a taxing entry, it will
be limited by a law relating to mineral development enacted under a general
entry, that is, Entry 54 of List I; and
e. Entry 49 of List II cannot include any matter in relation to mineral rights
activities. Any levy with reference to the value of mineral produced from a
mineral bearing land will be treated as a levy in relation to mineral rights.
12. Mr Tushar Mehta, the learner Solicitor General of India, made the following
submissions:
a. The only pertinent issue in this reference is whether the State Government can
impose levies under Entry 50 of List II over and above the amount of royalty
received by them under the MMDR Act. The State legislature’s competence to
tax mineral rights under Entry 50 does not extend to taxing other aspects such
as mining activities and minerals produced;
b. The Central Government fixes the rates of royalty to ensure harmonized
development of minerals in India. The MMDR Act exhausts the field of statutory
charges and levies on minerals and thereby denudes the power of the State
legislature to impose any levy relating to mineral development. The MMDR Act
19
PART C
occupies the entire field of legislation covered by both Entries 23 and 50 of List
II;
c. In the context of mineral-bearing lands, the words “lands” used in Entry 49 of
List II can only mean the surface of the land. It cannot be interpreted
expansively to include sub-soil minerals because the subject matter of mines
and minerals is covered by Entry 54 of List I and Entries 23 and 50 of List II. If
mineral produce or mineral rights are used as a measure for taxation of lands
under Entry 49 of List II, it will impact the Union’s powers to legislate under
Entry 54 of List I to limit the taxes on mineral rights in the manner contemplated
in Entry 50 of List II; and
d. Any levy imposed by the States with reference to the value of minerals
produced is in pith and substance a tax on mineral rights under Entry 50 of List
II. Since subject-matter of mineral rights covered by Entry 50 of List II is limited
by a parliamentary law, giving an expansive reading to Entry 49 of List II by
interpreting lands to include mineral deposits will lead to an overlap between
the two entries.
13. Mr Harish Salve, learned senior counsel, made the following submissions:
a. Entry 50 of List II is sui generis because it is the only legislative entry which
limits the taxing power of the State legislatures by reference to a general law;
b. The MMDR Act is a complete code on all aspects relating to regulation of mines
and development of minerals. All mineral rights are granted according to the
provisions of the central legislation regardless of whether that the minerals vest
in the State Government;
20
PART C
c. The important issue in this reference pertains to the nature of “any limitations”
mentioned under Entry 50 of List II. The State legislature’s power under Entry
50 of List II is excluded if taxes on mineral rights become incompatible with
mineral development as contemplated by a regulatory law enacted under Entry
54 of List I. Any levy by State legislatures under Entry 50 of List II impinges
upon mineral development;
d. Royalty belongs to the same genus as a tax on mineral rights in the sense that
both are exactions by the sovereign in exercise of their statutory powers. The
expression “taxes on mineral rights” has a very narrow focus and has to be
interpreted accordingly. In a constitutional sense, the expression “tax on
mineral rights” connotes that exaction which gives the States the share of the
mineral produced. The royalty payable under Section 9 of the MMDR Act meets
that definition;
e. The expression “mineral development” used in Entry 50 of List II has to be
traced to the entire architecture of the MMDR Act. Therefore, the entirety of the
MMDR Act serves as a limitation on the taxing powers of the State legislatures
under Entry 50 of List II. Further, other provisions of the MMDR Act cover the
taxing powers of the State legislature by satisfying the threshold of “any
limitation” under Entry 50 of List II;
f. The tax on mineral rights can only be a tax on an owner (who is a private
person) of minerals seeking to monetize the mineral resources. Resultantly, the
State Government can exercise its legislative powers under Entry 50 of List II
only in situations where the mineral rights vest in private persons; and
g. The measure of tax must have a nexus with the nature of tax. In India, all
minerals vest in the State. Ownership of land does not give the owner the right
21
PART C
to the sub-soil minerals. Therefore, a tax on mineral bearing land cannot be
imposed on the owner on the basis of the value of the sub-soil minerals.
14. Dr A M Singhvi, learned senior counsel, made the following submissions:
a. Royalty and dead rent are compulsory imposts under the MMDR Act, and not
a result of negotiations leading to a contractual agreement. Royalty meets the
criteria of tax under Article 366(28) of the Constitution;
b. The legislative declaration under Section 2 of the MMDR Act denudes the
States of any power to tax mineral rights under Entry 50 of List II. Even if the
legislative declaration does not ipso facto exclude the legislative competence
of the State legislatures under Entry 50 of List II, the MMDR Act contains
specific provisions such as Sections 9, 9A, and 9B imposing taxes on mining
lessees which occupy the field of taxation of mineral rights;
c. The express language of Entry 50 of List II suggests that the taxing power of
the State legislature is subordinated by a legislation made under Entry 54 of
List I. This necessarily implies that Entry 54 of List I read with Entry 97 of List I
empowers Parliament to tax mineral rights; and
d. Entry 54 of List I read with Entry 97 of List I implies a sui generis and complete
code on the legislative subject of regulation of mines and mineral development
and taxation of minerals and mineral rights. Therefore, Entry 54 of List I and
Entry 50 of List II constitute an exception to the principle laid down in M P V
Sundararamier (supra).
15. Mr Darius Khambata, learned senior counsel, made the following submissions:
a. The limitations imposed by Parliament under Entry 50 of List II need not be
express, they can also be implied. Therefore, once Parliament imposes
22
PART C
charges or levies under a law relating to mineral development, it occupies the
entire field pertaining to the subject-matter of Entry 50 of List II; and
b. The MMDR Act is a complete code on the regulation of mineral development,
including the field of taxation or exactions on minerals and mineral rights. The
scheme of the MMDR Act is such that Parliament not only imposes a tax on
mineral rights, but also curtails the powers of the State legislature under Entry
50 of List II.
16. Mr A K Ganguly, learned senior counsel, submitted that minerals cannot
constitute as a measure for tax on land because they cease to be a part of land
once extracted.
17. Mr S K Bagaria, learned senior counsel, submitted that the totality of levies
pertaining to minerals and mineral rights are comprised in Sections 9, 9A, 9B,
and 9C of the MMDR Act which leave nothing for the State legislature to tax
under Entry 50 of List II. Moreover, the expression ‘tax on mineral rights’ under
Entry 50 of List II will not empower State legislatures to levy tax on minerals.
18. Mr Arvind Datar, learned senior counsel, made the following submissions:
a. Since Entry 50 of List II is “subject to” any limitations imposed by Parliament by
law relating to mineral development, the legislative power of the State
legislature to tax mineral rights must yield to parliamentary legislation, that is,
the MMDR Act. The taxing powers under Entry 50 of List II are made subject to
a law made by Parliament to maintain uniformity and promote mineral
development; and
b. The scope of taxes on mineral rights under Entry 50 of List II is limited and only
entails a taxation on the activity of excavation and mining. This has already
23
PART D
been accounted for under the MMDR Act. The taxes on minerals produced is
akin to an excise duty and can only be levied under Entry 84 of List I, and the
taxes on sale of minerals can be levied under Entry 54 of List II.
19. Mr Sujit Ghosh, learned senior counsel, submitted that the sovereign right of the
State legislature can be curtailed by Parliament in the interests of mineral
development. Counsel further contended that the ‘aspect’ of taxation of mineral
rights has been taken over by Parliament by virtue of Section 9 of the MMDR
Act.
20. Ms Aishwarya Bhati, the Additional Solicitor-General of India, submitted that the
taxing powers of the State legislatures under Entry 50 of List II is not eclipsed by
a taxing power of Parliament, but by a regulatory power. The learned ASG also
emphasized that the concept of inter-generational equity has to be borne in mind
by this Court to balance the legislative power of the State legislatures to tax
mineral rights against the need for the development of minerals.
D. Distribution of legislative fields relating to mines and minerals
21. A mineral is an inorganic substance found either on or under the surface of the
earth. 10 Minerals are natural and non-renewable resources. They serve as vital
raw materials for the core sectors of the economy. India produces a diversity of
minerals such as coal, iron-ore, bauxite, manganese and chromite. Many
industries, especially those critical to the infrastructure sector such as power,
10 Ramanatha Aiyar Advanced Law Lexicon (Volume 3) 3543; In Banarsi Dass Chadha v. Lt Governor, Delhi
Administration, (1978) 4 SCC 11 [4]. (Justice O Chinappa Reddy, on behalf of a three-Judge Bench observed: “The
word “mineral” is not a term of Article. It is a word of common parlance, capable of a multiplicity of meanings
depending upon the context. For example, the word is occasionally used in a very wide sense to denote any
substance that is neither animal nor vegetation. Sometimes it is used in a narrow sense to mean no more than
precious metals than gold and silver. Again, the word “minerals” is often used to indicate substances obtained from
underneath the surface of the earth by digging or quarrying.”); V P Pithupitchai v. Special Secretary to the
Government of TN, (2003) 9 SCC 534.
24
PART D
steel, cement, and aluminum, are heavily dependent on minerals. For example,
coal is an essential raw material for several key industries such as iron, steel,
and cement, which in turn are basic ingredients for almost all manufacturing
industries and physical infrastructure.
22. Most of the minerals are spatially located in a few mineral rich states, namely,
Andhra Pradesh, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Madhya
Pradesh, Orissa, Rajasthan, and West Bengal. 11 Since mineral resources are a
shared inheritance of the people, it has always been the imperative of the Indian
state to ensure equitable distribution of mineral wealth to sub-serve the common
good. 12 Considering the socio-economic importance of mineral resources to
economic development, the Constitution has emphasized that the state shall play
an important role in facilitating and regulating mining activities.
23. The history of the distribution of legislative powers relating to the regulation of
minerals and development of mineral rights could be traced to the Government
of India Act 1915-19 13. Section 45A of the GOI Act 1915 provided for the
classification of subjects in relation to the functions of government as central and
provincial subjects for the purpose of distinguishing the functions of the
Governor-General in Council and the Indian Legislature from those of the local
governments and local legislatures. Pursuant to Section 45A and Section 129A
(which empowered the Governor-General to make further provisions for the
regulation of certain matters by rules), the Governor-General prescribed the
Devolution Rules. The Devolution Rules prescribed the distribution of the
11 Ligia Norohna et al, ‘Resource Federalism in India: The Case of Minerals’ (2009) 44(8) Economic and Political
Weekly 51, 52.
12 Government of India, Ministry of Mines, ‘National Mineral Policy 2019’
13 “GOI Act 1915”
25
PART D
subject-matter of the regulation of mines and mineral resources in the following
manner:
“Part I Central Subjects
25. Control of mineral development in so far as such
control is reserved to the Governor General in
Council under rule made or sanctioned by the
Secretary of State, and regulation of mines.
Part II Provincial Subjects
24. Development of mineral resources which are
Government property; - subject to rules made or
sanctioned by the Secretary of State, but not
including the regulation of mines.”
24. The primary aim behind the introduction of the Devolution Rules was to transfer
certain responsibilities to provincial legislative assemblies. 14 However, the
colonial state reserved to itself almost the entirety of the subject matter relating
to mineral development and regulation of mines. The provincial legislatures were
given limited power to the extent of development of mineral resources which
were Government property. The Government of India Act 1935 15 retained the
distribution of legislative powers between the Centre and Provinces. Section 100
of the GOI Act 1935 demarcated the legislative powers of the Federal and
Provincial Legislatures. 16 The relevant entries relating to mines and mineral
development were as follows:
14 See Debates in the House of Commons on the Government of India Act 1919 (3rd December 1919)
15 “GOI Act 1935”
16 GOI Act 1935, Section 100. (It read:
Subject matter of Federal and Provincial Laws:
(1) Notwithstanding anything in the two next succeeding subsections, the Federal Legislature has and a Provincial
Legislature has not, power to make laws with respect to any of the matters enumerated in List I in the Seventh
Schedule to this Act (hereinafter called the “Federal Legislative List”).
26
PART D
“List I. – Federal Legislative List
36. Regulation of mines and oilfields and mineral
development to which such regulation and
development under a Federal control is declared by
Federal law to be expedient in the public interest.
List II. – Provincial Legislative List
23. Regulation of mines and oilfields and mineral
development subject to the provisions of List I with
respect to regulation and development under
Federal control.
44. Taxes on mineral rights, subject to any limitations
imposed by any Act of the Federal Legislature
relating to mineral development.”
25. During the debates in the House of Commons on the above entries, the then
Solicitor General stated that the provinces could enact their own regulations if
there was any “inaction” by the Federal Legislature. 17 Thus, legislative power in
relation to regulation of mines and mineral development was accorded to both
the Federal and Provincial Legislatures. However, the subject matter in the
Provincial Legislative List was made subject to the provisions of the Federal
Legislative List. The Dominion Legislature enacted the Mines and Minerals
(2) Notwithstanding anything in the next succeeding sub-section, the Federal Legislature, and subject to the
preceding sub-section, a Provincial Legislature also, have power to make laws with respect to any of the matters
enumerated in List III in the said Schedule (hereinafter called the “Concurrent Legislative List”).
(3) Subject to the two preceding sub-sections, the Provincial Legislature has, and the Federal Legislature has not,
power to make laws for a Province or any part thereof with respect to any of the matters enumerated in List II in
the said Schedule (hereinafter called the “Provincial Legislative List”).
(4) The Federal Legislature has power to make laws with respect to matters enumerated in the Provincial
Legislature List except for a Province of any part thereof.”)
17 Government of India Bill, Seventh Schedule (Legislative Lists) Hansard (Volume 301) (13 May 1935). [The
Solicitor General said: “If there is inaction at the Centre the Provinces can go ahead with their own regulations and
developments, but to the extent to which the Centre desires and declares by law that there shall be central
regulations and control, then the subject comes out of the purely restricted Provincial field and becomes a subject
of control at the Centre.”]
27
PART D
(Regulation and Development) Act 1948 in pursuance of the subject contained
in Entry 36 of the Federal Legislative List.
26. Entry 44 of the Provincial Legislative List enumerated the subject matter of taxes
on mineral rights, but made the taxing power of the Provinces subject to any
legislation relating to mineral development enacted by the Federal Legislature.
This scheme of the distribution of legislative powers with respect to the subject-
matter of mines and mineral development as well as the taxation of mineral rights
is reflected in the Constitution.
27. The Seventh Schedule to the Constitution enumerates the following entries
pertaining to regulation of mines and mineral development and the taxation of
mineral rights:
“List I – Union List
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.
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.
50. Taxes on mineral rights subject to any limitation
imposed by Parliament by law relating to mineral
development.”
28
PART E
28. Although the above entries are substantially similar to the scheme under the GOI
Act 1935, one of the differences lies in the removal of “oil fields” from Entry 54 of
List I and Entry 23 of List II. The regulation and development of oil fields is now
enumerated under Entry 53 of List I. 18 The other difference is that while the GOI
Act 1935 required a declaration by Federal law, the Constitution now requires a
declaration by Parliament. The entry pertaining to taxes on mineral rights is
largely similar to Entry 44 of the Provincial Legislative List, except for the fact
that Entry 44 provided for imposition of “any limitations” by “any Act” enacted by
the Federal Legislature relating to mineral development, while Entry 50 of List II
does not include the expression “any Act” enacted by Parliament. Before we
delve into the intricacies of the interpretation of the legislative entries, we need
to bear in mind the constitutional philosophy underlying the Indian federal setup.
E. Underlying constitutional philosophy
i. Scheme of distribution of legislative powers and constitutional
limitations
29. Part XI of the Constitution deals with the relations between the Union and the
States. Article 245 provides that subject to the provisions of the 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. 19
The power to enact laws is inherently related to the sovereignty of the Union and
State legislatures in their respective fields. 20 While the sovereign legislative
18 Entry 53 of List I, Seventh Schedule, Constitution of India. [It reads: “53. Regulation and development of oil fields
and mineral oil resources; petroleum and petroleum products; other liquids and substances declared by Parliament
by law to be dangerously inflammable.”]
19 Article 245, Constitution of India
20 Jindal Stainless Steel v. State of Haryana, (2017) 12 SCC 1 [617]
29
PART E
powers of Parliament and the State legislatures are plenary, they are subject to
well-defined constitutional limitations. The language of Article 245 makes the
exercise of legislative powers expressly subject to the provisions of the
Constitution. Therefore, laws made by a legislature may be void not only for the
lack of legislative power in respect of the subject-matter, but also for
transgressing constitutional limitations. 21 It is the duty of constitutional courts to
resolve disputes regarding a breach of constitutional limits by the Union and
State legislatures. 22
30. The scheme of distribution of legislative powers between Parliament and the
State legislatures is embodied in Article 246. Article 246 is similar to Section 100
of the GOI Act 1935. Article 246 deals with the subject matter of laws made by
Parliament and the Legislatures of States and is set below:
“246. Subject-matter of laws made by Parliament
and by the Legislatures of States –
(1) Notwithstanding anything in clauses (2) and (3),
Parliament has exclusive power to makes laws with
respect to any of the matters enumerated in List I in
the Seventh Schedule (in this Constitution referred
to as the “Union List”).
(2) Notwithstanding anything in clause (3),
Parliament and, subject to clause (1), the Legislature
of any State also, have the power to make laws with
respect to any of the matters enumerated in List III
in the Seventh Schedule (in this Constitution referred
to as the “Concurrent List”)
(3) Subject to clauses (1) and (2), the Legislature of
any State has exclusive power to make laws for such
State or any part thereof with respect to any of the
21 H M Seervai, Constitutional Law of India, Volume 3 (4th edn.) [22.6] 2306; State of Kerala v. Mar Appraem Kuri
Company Ltd., (2012) 7 SCC 106, [41].
22 State of West Bengal v. Committee for Protection of Democratic Rights, (2010) 3 SCC 571
30
PART E
matters enumerated in List II in the Seventh
Schedule (in this Constitution referred to as the
“State List”)
(4) Parliament has power to make laws with respect
to any matter for any part of the territory of India not
included in a State notwithstanding that such matter
is a matter enumerated in the State List.”
31. Article 246 confers exclusive power on Parliament to make laws with respect to
any of the matters enumerated in List I (the Union List) of the Seventh Schedule.
The exclusive power of the State legislatures with respect to the matters
enumerated in List II is subject to the exclusive legislative powers of Parliament.
In Hoechst Pharmaceuticals v. State of Bihar, 23 this Court culled out the
following principles underlying Article 246:
a. Parliament has exclusive power to make laws with respect to the matters
enumerated in List I;
b. The non-obstante clause in Article 246(1) provides for predominance or
supremacy of the Union legislature;
c. The legislative powers of the Union legislature is not encumbered by anything
contained in Articles 246(2) and 246(3) for these clauses are expressly limited
and made subject to the non-obstante clause in Article 246(1);
d. The State legislature has exclusive power to make laws with respect to any
of the matters enumerated in List II;
e. The exclusive power of the State legislature to legislate with respect to any
of the matters enumerated in List II has to be exercised subject to Article
23 (1983) 4 SCC 45
31
PART E
246(1), that is, the exclusive power of Parliament to legislate with respect to
matters enumerated in List I;
f. Consequently, in case of any conflict between an entry in List I and an entry
in List II which is not capable of reconciliation, the power of Parliament to
legislate with respect to a matter enumerated in List I must supersede pro
tanto the exercise of power of the State legislature; and
g. Both Parliament and State legislatures have concurrent powers of legislation
with respect to any of the matters enumerated in List III, the law enacted by
Parliament prevailing in the event of any inconsistency or conflict.
32. Article 245 (read with Article 246) is the source of the legislative powers of
Parliament and the State legislatures. The entries in the Seventh Schedule
delineate the subject matter over which the appropriate legislature can enact
laws. The entries are legislative heads and not the source of legislative powers. 24
A legislation could be composite in nature, drawing upon several entries in a
particular list. 25 Such a legislation is referred to as a “ragbag” legislation.
33. Article 254 clarifies that if the law made by a State legislature is repugnant to any
provisions of a law made by Parliament with respect to any of the matters
enumerated in List III, the law made by Parliament would prevail and the law
made by the State legislature would be void to the extent of the repugnancy. The
issue of repugnancy arises only when both the legislatures are competent to
legislate on the subject with respect to List III. 26 The issue of repugnancy does
not arise if the legislations enacted by Parliament and the State legislatures deal
24 Calcutta Gas Company (Proprietary) Ltd v. State of West Bengal, 1962 Supp (3) SCR 1, [8]
25 Ujagar Prints (II) v. Union of India, (1989) 3 SCC 488 [53]; State of West Bengal v. Committee for Protection of
Democratic Rights, (2010) 3 SCC 571 [27].
26 Ch Tika Ramji v. State of U P, 1956 SCC OnLine SC 9 [26]; State of Maharashtra v. Bharat Shanti Lal Shah,
(2008)
32
PART E
with separate and distinct legislative subject matters. By virtue of Article 248,
Parliament has exclusive legislative powers to make laws with respect to any of
the matters not enumerated in List II or List III. 27 However, how should courts
deal with a situation where two legislations, enacted by Parliament and State
legislature in pursuance of their respective legislative powers, appear to conflict
with each other? The answer lies in Article 246 itself.
34. Article 246 incorporates the principle of federal supremacy. 28 In Hoechst
Pharmaceuticals (supra), this Court held that the words “notwithstanding
anything contained in clauses (2) and (3)” in Article 246(1) and the words “subject
to clauses (1) and (2)” in Article 246(3) embody that principle. The principle
postulates that in case of an inevitable conflict between Union and State powers,
the Union’s power of legislation over a subject enumerated in List I shall prevail
over the State powers of legislation over a subject enumerated in List II and III.
However, it is also settled that this principle cannot be resorted to unless there is
an irreconcilable direct conflict between the entries in the Union and State Lists. 29
Such a conflict must be an actual one and not a mere seeming conflict between
the two entries in two lists. 30
35. Hoechst Pharmaceuticals (supra) laid down the following principles to resolve
any direct conflict between the entries in List I and List II: (i) in case of seeming
conflict, the two entries should be read together without giving a narrow and
restricted reading to either of them; (ii) an attempt should be made to see whether
the two entries can be reconciled so as to avoid a conflict of jurisdiction; and (iii)
no question of conflict arises between two Lists if the impugned legislation in pith
27 Article 248, Constitution of India.
28 Kishori Shetty v. The King, (1949-50) 11 FCR 650
29 State of Kerala v. Mar Appraem Kuri Co. Ltd, (2012) 7 SCC 106 [39]
30 Offshore Holdings (P) Ltd. v. Bangalore Development Authority, (2011) 3 SCC 139 [99]
33
PART E
and substance appears to fall exclusively under one list and the encroachment
upon the other list is incidental.
36. Articles 245 and 246 embody the essence of Indian federalism. The division of
legislative powers between Union and States is an emanation of the federal
project. 31 This division also serves as a constitutional limitation on legislative
powers. Parliament cannot entrench upon the plenary power of the State
legislatures in the ordinary course, except where the Constitution itself
specifically allows it. 32 The appropriate legislature must possess legislative
competence to enact a law on the subject matter it seeks to legislate.
37. With respect to the powers of taxation, Article 265 provides that no tax shall be
levied or collected except by authority of law. In Mafatlal Industries v. Union of
India, a nine-Judge Bench of this Court held that the “law” mentioned under
Article 265 refers to a valid law whose validity has to be determined with
reference to other provisions in the Constitution. 33 Therefore, with respect to
taxation laws particularly, there is a constitutional requirement that the law
imposing tax must be in conformity with the provisions of the Constitution,
particularly Part III dealing with the fundamental rights. This is also a
constitutional limitation because the appropriate legislature has to ensure that
the law is in accord with the principles of equality and non-discrimination. Any
31 Constituent Assembly Debates, Vol. 11 (25 November 1949). [Dr. B R Ambedkar – “As to the relation between
the Centre and the States, it is necessary to bear in mind the fundamental principle on which it rests. The basic
principle of Federalism is that the Legislative and Executive authority is partitioned between the Centre and the
States not by any law to made by the Centre but by the Constitution itself. This is what the Constitution does. The
States under our Constitution are in no way dependent upon the Centre for their legislative or executive authority.
The Centre and the States are co-equal in this matter. It is difficult to see how such a Constitution can be called
centralism. It may be that the Constitution assigns to the Centre too large field for the operation of its legislative
and executive authority than it to be found in any other federal Constitution. It may be that the residuary powers
are given to the Centre and not to the States. But these features do not form the essence of federalism. The chief
mark of federalism as I said lies in the partition of the legislative and executive authority between the Centre and
the Units by the Constitution. This is the principle embodied in our Constitution.”]
32 See Articles 249, 250, and 252, Constitution of India.
33 (1997) 5 SCC 536 [25].
34
PART E
legislation enacted by the legislature in excess of its constitutional powers is
void. 34
ii. Interpretation of legislative entries
38. The structure of the legislative entries in the three Lists of the Seventh Schedule
follows an express and deliberate pattern. The entries are classified into general
and taxing entries. 35 In the Union List, entries 1 to 81 enumerate general subject
matters, while entries 82 to 92-C pertain to the powers of taxation. Similarly,
entries 1 to 45 in the State List enumerate the general entries and entries 46 to
63 provide for taxing entries. The legislature does not derive the power to tax
from the general entries - taxation is considered to be a distinct matter for
purposes of legislative competence. The distinction between the general and
taxing entries was explained by this Court in M P V Sundararamier (supra) in
the following manner:
“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 by 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. Thus, entry 22 in List I is “Railways”, and
Entry 89 is “Terminal taxes on goods or passengers,
carried by railway, sea, or air; taxes on railway fares
and freights”. If Entry 22 is to be construed as
involving taxes to be imposed, then Entry 89 would
be superfluous. Entry 41 mentions “Trade and
commerce with foreign countries; import and export
across customs frontiers”. If these expressions are
to be interpreted as including duties to be levied in
respect of that trade and commerce, then Entry 83
which is “Duties of customs including export duties”
would be wholly redundant. Entries 43 and 44 relate
34 R M D Chamarbaugwalla v. Union of India, 1957 SCC OnLine SC 11 [12]
35 R Abdul Quader & Co. v. STO, (1964) 6 SCR 867, [8]
35
PART E
to incorporation regulation and winding up of
corporations. Entry 85 provides separately for
Corporation tax. Turning to 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. Entry
18, for example, is “Land” and Entry 45 is “Land
Revenue”. Entry 23 is “Regulation of mines” and
Entry 50 is “taxes on mineral rights”. The above
analysis – and it is not exhaustive of the Entries
in the Lists – leads to the interference that
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. […]
To sum up: […] (2) Under the scheme of the
Entries in the Lists, taxation is regarded as a
distinct matter and is separately set out.”
(emphasis added)
39. The above position of law has been expressly affirmed by the nine-Judge Bench
of this Court in Jindal Stainless Ltd v. State of Haryana. 36 Thus, it is an
accepted principle that the subject matter of taxation is dealt with under distinct
entries and, therefore, cannot be traced to a non-taxing entry. The taxing powers
of Parliament and the State legislatures are mutually exclusive and clearly
demarcated. There can be no overlap between the taxing powers of the Union
and the States. Entries relating to taxing powers must be construed with clarity
and precision to maintain exclusivity and a construction of a taxation entry which
may lead to overlapping must be eschewed. 37 If a taxing power is enumerated
within a particular legislative list, it is automatically excluded from the purview of
36 Jindal Stainless Steel (supra) [120], [237.5], [639]
37 Godfrey Phillips India Ltd. v. State of UP, (2005) 2 SCC 515 [46]
36
PART E
subject-matters in other legislative lists. The residuary power of Parliament also
includes the power of making any law imposing a tax not mentioned in either List
II or List III.
40. The legislative fields or entries in the Seventh Schedule have used general words
to define and delineate the legislative powers of Parliament and State
legislatures. The rule that words should receive their ordinary, natural, and
grammatical meaning applicable to statutes also applies to the entries contained
in the Seventh Schedule. 38 It is also a well-accepted principle that the entries
should not be read in a narrow or pedantic sense but must be given their broadest
meaning and the widest amplitude because they are intrinsic to a machinery of
government. 39 The ambit of the entries extends to all ancillary and subsidiary
matters which can fairly and reasonably be said to be comprehended in them. 40
Since the Seventh Schedule uses general terms, there is always a possibility of
an overlap and conflict between two or more entries.
41. Many entries in the Seventh Schedule may appear to overlap because of the
language used in the entries. The necessary corollary to the scheme of
legislative distribution is that that any invasion by Parliament in the field assigned
to the States and vice versa is a breach of the Constitution. 41 Even though the
Constitution distributes legislative powers between the Union and the States,
there have been situations where a legislation purporting to deal with a subject
in one list, touches on a subject in another list. To remedy such situation, the
doctrine of pith and substance is used to examine whether the legislature has
38 Navinchandra Mafatlal v. Commissioner of Income Tax, Bombay City, (1954) 3 SCC 623
39 Hans Muller of Nurenburg v. Superintendent, Presidency Jail (1955) 1 SCR 1284; Elel Hotels & Investments Ltd
v. Union of India, (1989) 3 SCC 698; State of Rajasthan v. G Chawla, 1958 SCC OnLine SC 33 [8].
40 United Provinces v Atiqa Begum, (1940) 2 FCR 110; Express Hotels (P) Ltd. v. State of Gujarat, (1989) 3 SCC
677; Sardar Baldev Singh v. CIT, 1960 SCC OnLine SC 147 [20]
41 Dr. B R Ambedkar, CAD Volume 7 (4 November 1948).
37
PART E
the competence to enact a law with regard to either of the three lists under the
Seventh Schedule of the Constitution. 42 There may arise situations where a
legislature may frame a law that in substance and reality transgresses its
legislative competence. Such a piece of legislation is called “colourable
legislation” because the legislature veils its transgression by making it seem as
if the legislation is within its legislative competence. 43 To examine whether the
legislature has transgressed its legislative competence, the substance of the
legislation is material. If the subject-matter is in substance beyond the legislative
powers of the legislature, the form in which the law is clothed would not save it
from the vice of unconstitutionality. 44
42. The Constitution has used specific expressions to resolve potential overlaps or
conflicts between and among the entries in the three Lists. The entries in the
Seventh Schedule have used different phraseologies to either subject or restrict
their scope and ambit. Some of the legislative entries in the State List have been
made subject to broad or specific limitations or restrictions with respect to the
entries in the Union List or Concurrent List. This would emerge from the
tabulation set out below:
Phraseology used Entries in State List
Subject to the provisions of any law made 37
by Parliament
Subject to the provisions of entries in List I 2, 17, 22, 24, 33
Subject to a particular field of legislation in 23
List I
Subject to the provisions of entries in List III 26, 27, 57
Subject to the provisions of List I and List III 13
Subject to any limitations imposed by 50
Parliament by law
Other than 7, 12, 32, 63
Not including 1, 51, 54, 66
42 A L S P P L Subrahmanyan Chettiar v. Muthuswami Goundan, (1940) 2 FCR 188; A S Krishna v. State of Madras,
1957 SCR 399 [8];
43 K C Gajapathi Narayan Deo v. State of Orissa, (1953) 2 SCC 178 [11]
44 K C Gajapathi Narayan Deo (supra) [12]
38
PART E
43. The above table is an indication of the extent to which the legislative powers of
the States have been restricted, limited, or altogether precluded. The use of the
expression “other than” or “not including” serves the purpose of redacting from
the ambit of the legislative power of the States to the extent suggested. Where
the Constitution intends to limit or preclude the legislative powers of the State to
a particular extent, it has used specific terminologies such as “other than” and
“not including”.
44. Where the entries have used the phrase “subject to”, the legislative power of the
State is made subordinate to Parliament with respect to either the Union List or
the Concurrent List. The expression “subject to” conveys the idea of a provision
yielding place to another provision or other provisions to which it is made
subject. 45 Therefore, where the Constitution intends to displace or override 46 the
legislative powers of the States, it has used specific terminology – “subject to”.
However, the Constitution has also indicated the extent to which a particular
legislative entry under List II is subordinated. For instance, the subjection is either
with respect to provisions of List I or List III, or it can also be to the extent of “any
limitations” imposed by Parliament by law. Thus, it is imperative that the entries
in List II must be read and interpreted in their proper context to understand the
extent of their subordination to Union powers.
45. There are numerous entries in the State List where the Constitution has imposed
no restrictions on the exercise of the legislative powers of the States. 47 With
45 South India Corporation (P) Ltd. v. Secretary, Board of Revenue, (1964) 4 SCR 280 [19]
46 State of Bihar v. Kameshwar Singh, (1952) 1 SCC 528. [“18. […] It was said that the words “subject to the
provisions of List III Entry 42” must be taken to mean that the law-making power under Entry 36 could only be
exercised subject to the two conditions as to public purpose and payment of compensation, both of which are
referred to in Entry 42. Those words, in my opinion, mean no more than that any law made under Entry 36 by a
State Legislature can be displaced or overridden by the Union Legislature making a law under Entry 42 of List III.”]
47 See Entries 4, 5, 6, 8, 9, 10, etc., List II, Seventh Schedule, Constitution of India.
39
PART E
respect to such entries, the absence of any express limitations indicates that the
Constitution did not intend to fetter the legislative powers of the States.
46. In addition to the above terminologies, the entries in the Seventh Schedule also
indicate the manner in which a restriction or limitation can be imposed on the
legislative powers of the State. This assumes clarity from the following tabulation:
Phraseology Used Entries
Declared by or under law 23, 27, 67 of List I
Declared by Parliament by law 24, 52, 53, 54, 56, 62, 63, 64 of List I
Imposed by Parliament by law 50 of List II
47. The Constitution deploys three expressions to signify the manner in which the
legislative power could be exercised by Parliament – “declared by or under law”,
and “declared by Parliament by law”, and “imposed by Parliament by law” The
difference in the character of these provisions can be gathered from the
Constitution (Seventh Amendment) Act 1956 which substituted the expression
“declared by Parliament by law” with “declared by or under law made by
Parliament” in Entry 67 48 of the Union List. The object of the amendment was to
enable the delegate under the statute to make the required declaration. 49 The
expression “by law” means that the legislative power should be effectuated
through the provisions of a statute. In comparison, “by or under law” means that
the legislative intent could be effectuated either through the provisions of the
48 Entry 67, List I, Seventh Schedule, Constitution of India. [It reads – “Ancient and historical monuments and
records, and archaeological sites and remains, declared by or under law made by Parliament to be of national
importance.”]
49 Constitution (Seventh Amendment) Act, 1956, State of Objects and Reasons – “Clause 24 – Entry 67 of the
Union List refers to “ancient and historical monuments and records, and archaeological sites and remains, declared
by Parliament by law to be of national importance. A large number of ancient monuments, archaeological sites, etc.
have been declared to be of national importance by an Act of Parliament. It requires another Act of Parliament to
make the slightest alteration in, or addition to, the lists in that Act, which seems to be and unduly cumbrous
procedure. It is, therefore, proposed to amend the entry substituting for the words “declared by Parliament by law”,
the words “declared by or under law made by Parliament”. The same amendment is also proposed to be made in
connected provisions, entry 12 of the State List, entry 40 of the Concurrent List and article 49.”
40
PART E
statute or by any subordinate authority vested with powers in that behalf by the
statute. 50 It is important to note that Entry 50 of List II use the expression “by law
relating to mineral development”. We will have to bear the meaning of the
expression “by law” in mind to give an appropriate interpretation to the entry.
iii. Fiscal Federalism
48. Federalism is one of the basic features of the Indian Constitution. 51 Federalism
embodies a division of powers between the units of the federation, that is, the
Union and the States. Indian federalism is defined as asymmetric because it tilts
towards the Centre, producing a strong Central Government. Yet, it has not
necessarily resulted in weak State governments. 52 The Indian States are
sovereigns within the legislative competence assigned to them. The delicate
balance of power is secured by constitutional courts by interpreting the scheme
of distribution of powers. 53 In S R Bommai v. Union of India, 54 Justice B P
Jeevan Reddy observed that the courts should be circumspect in adopting an
approach or interpretation which may have an effect of whittling down the powers
reserved to the States:
“276. The fact that under the scheme of our
Constitution, greater power is conferred upon the
Centre vis-à-vis the States does not mean that
States are mere appendages on the Centre. Within
the sphere allotted to them, States are supreme. The
50 In Dr Indramani Pyarelal Gupta v. W R Natu, (1963) 1 SCR 721 a Constitution Bench of this Court explained the
difference between “by law” and “under law” in the following terms: “15. […] The meaning of the word “under the
Act” is well known. “By” an Act would mean by a provision directly enacted in the statute in question and which is
gatherable from its express language or by necessary implication therefrom. The words “under the Act” would, in
that context, signify what is not directly to be found in the statute itself but is conferred or imposed by virtue of
powers enabling this to be done; in other words; bye-laws made by a subordinate law-making authority which is
empowered to do so by the parent Act. The distinction is thus between what is directly done by the enactment and
what is done indirectly by a subordinate law-making authority which is empowered to do so by the parent Act.”
51 Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225 [582]
52 Granville Austin, Cornerstone of a Nation (OUP, 1966) 187
53 In re, Special Reference No. 1 of 1964, (1965) 1 SCR 413; Jindal Stainless Steel (supra) [612]
54 (1994) 3 SCC 1
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PART E
Centre cannot tamper with their powers. More
particularly, the courts should not adopt an
approach, an interpretation, which has the effect of
or tends to have the effect of whittling down the
powers reserved to the States. […]”
49. In a federal form of government, each federal unit should be able to perform its
core constitutional functions with a certain degree of independence. The
Constitution has to be interpreted in a manner which does not dilute the federal
character of our constitutional scheme. 55 The effort of the constitutional court
should be to ensure that State legislatures are not subordinated to the Union in
the areas exclusively reserved for them. 56
50. In Union of India v. Mohit Minerals Private Limited, 57 this Court recognized
fiscal federalism as an important attribute of Indian federalism. Fiscal federalism
is concerned with the assignment of functions to different levels of government
and devolution of appropriate fiscal instruments to carry out these functions. 58 In
India, these fiscal instruments typically take the form of tax and debt instruments.
Similar to the division of constitutional powers and responsibilities, the
Constitution has also shared tax-raising responsibilities between the Union and
the States. 59
51. The Constitution is cognizant of the imbalance between resources at the disposal
of states and the Union. The Constitution remedies the imbalance by way of
intergovernmental distribution 60 and grants. 61 One of basic features of fiscal
federalism is that both the Union government and the State governments ought
55 Jindal Stainless Steel (supra) [85].
56 Jindal Stainless Steel (supra) [615].
57 (2022) 10 SCC 700 [56]
58 Wallace E Oates, ‘An Essay on Fiscal Federalism’ (1999) 37(3) Journal of Economic Literature 1120, 1121.
59 The legislative power of Parliament to tax is enumerated in entries 82 to 92B of List I. Similarly, the legislative
power of state is enumerated is enumerated in entries 46 to 62 of List II.
60 Article 270(2), Constitution of India
61 Articles 273 and 275, Constitution of India
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PART E
to have adequate fiscal resources to discharge their constitutional
responsibilities. List I and List II of the Seventh Schedule contain various subject-
matters under which Parliament and the State legislatures can respectively levy
taxes. The purpose of such a distribution is to entrust adequate fiscal powers
with the legislatures to raise revenues to meet the growing fiscal expenditures
and rein in the fiscal deficit. The legislatures can formulate the principles
underlying any taxing legislation, define the taxing event or the charge of tax as
well the mode and manner of its implementation.
52. The subjects in respect of which the framers of the Constitution desired that there
should be uniformity of law throughout the country have been enumerated under
the Union List, while matters which may require laws to be made having regard
to the particular needs and peculiar problems of each State have been placed
under the State List. 62 For instance, the State legislatures can tax the
consumption or sale of electricity. Although electricity is an important raw material
for many industries, the States are allowed to determine the rates of the levy by
taking into consideration the particular needs of the State. By laying down a
heterogenous distribution of legislative powers, the Constitution underscores that
the asymmetry of our federation is an integral aspect of our federal form of
governance.
53. Dr B R Ambedkar in his treatise on the evolution of provincial finances in colonial
India observed that the cornerstone of the financial relationship between the
Federal and State governments was characterized by separation of sources and
contributions from the yield. 63 Any dilution in the taxing powers of the State
62 Khazan Chand v. State of Jammu and Kashmir, (1984) 2 SCC 456 [14]
63 Dr. B R Ambedkar, The Evolution of Provincial Finance in British India: A Study in the Provincial Decentralization
of Imperial Finance’ (1923) 152-171.
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PART E
legislatures will necessarily impact their ability to raise revenues, which in turn
will impede their ability to deliver welfare schemes and services to the people.
The ability of the State Governments to invest in physical infrastructure, health,
education, human capacity, and research and development is directly co-related
to the raising of government revenues. 64 Constitutional courts have to be
cognizant of this context while adjudicating on issues affecting the taxing powers
of the State legislatures.
54. While speaking of fiscal federalism in the context of mineral resources, we have
to be mindful of the fact that not all states are equally endowed with mineral
resources. States such as Chhattisgarh, Jharkhand, and Orissa have greater
reserves of mineral resources. Resultantly, the contribution of the mining sector
in the state domestic product is higher for these states. 65 Despite the abundance
of mineral wealth, many of these states lag economically and suffer from, what
many economists refer to as, “resource curse”. 66 For instance, mineral rich states
such as Jharkhand, Chhattisgarh, and Orissa have lower per capita incomes
than the national averages. 67 Taxation is among the important sources of
revenue for these States, impacting on their ability to deliver welfare schemes
and services to the people. Fiscal federalism entails that the power of the States
to levy taxes within the legislative domain carved out to them and subject to the
64 ‘State Finances: A Study of Budgets of 2023-2024, Revenue Dynamics and Fiscal Capacity of Indian States’
Reserve Bank of India (December 2023) 28.
65 Ligia Noronha, et al, ‘Resource Federalism in India: The Case of Minerals’ (2009) 44(8) Economic and Political
Weekly 51, 53.
66 Economic Survey 2016-2017, Ministry of Finance, Government of India (January 2017) 292. (“Resource curse”
refers to the phenomenon of economies with abundant natural resources having the tendency to grow less rapidly
than resource-scarce economies.”)
67 Ministry of Statistics and Programme Implementation, State-wise date on per capita income’ (24 July 2023) <
https://www.pib.gov.in/PressReleasePage.aspx?PRID=1942055>
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PART E
limitations laid down by the Constitution must be secured from unconstitutional
interference by Parliament.
iv. Natural resources and the public trust doctrine
55. The public trust doctrine is founded on the principle that certain resources are
nature’s bounty which ought to be reserved for the whole populace, for the
present and for the future. 68 Since these resources are intrinsically important to
every person in society, the State acts as a public trustee to safeguard them. In
M C Mehta v. Kamal Nath, 69 Justice Kuldip Singh observed that the State is the
trustee of all natural resources which are by nature meant for public use and
enjoyment. The learned Judge further observed that the State has a legal duty
to protect natural resources which cannot be converted into private ownership.70
The environment and natural resources are national assets and subject to
intergenerational equity. 71 The public trust doctrine looks beyond the needs of
the present generation and obligates the State to protect natural resources for
future generations as well. 72
56. While dealing with the allocation of spectrum in Centre for Public Interest
Litigation v. Union of India, 73 this Court held the State should distribute natural
resources in consonance with the principles of equality and public trust to ensure
against action detrimental to public interest. The public trust doctrine imposes
restrictions and obligations on the government to protect long-established public
68 Joseph L Sax, ‘The Public Trust Doctrine in Natural Resource Law: Effective Judicial Intervention’ (1970)
Michigan Law Review 471, 484.
69 (1997) 1 SCC 388 [34]
70 ibid
71 M C Mehta v. Union of India, (2009) 6 SCC 142 [45]
72 T N Godavarman Thirumulpad v. Union of India, (2006) 1 SCC 1 [89]
73 (2012) 3 SCC 1
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PART E
rights over short-term private rights and private gain. 74 However, the obligation
extends to every person who exercises rights over natural resources to use them
without impairing or diminishing the rights of people and long term interests in
that property or resource. 75 In Reliance Natural Resources Ltd. v. Reliance
Industries, 76 in the context of Article 297 77 of the Constitution, this Court held
that the nature of the word “vest” must be seen in the context of the public trust
doctrine. 78
57. The principle which emanates from the above discussion is that the State holds
all natural resources, including minerals, as a trustee of the public and must deal
with them in a manner consistent with the nature of such a trust. 79
58. The Central Government or the State Government may not always be the
“owner” of the underlying minerals. But the Constitution empowers both
Parliament (under Entry 54 of List I) and the State legislatures (under Entry 23
of List II) to regulate mines and mineral development, the entrustment to the
State being subject to the power of Parliament to regulate the domain. The
Constitution has entrusted the Union and the States with the responsibility to
regulate mines and mineral development in consonance with the principles of the
public trust doctrine and sustainable development of mineral resources. Under
the MMDR Act, the Central Government, acting as a public trustee of minerals,
regulates prospecting and mining operations in public interest. 80 In the process,
the legislation seeks to increase awareness of the compelling need to restore the
74 Fomento Resorts & Hotels Ltd. v. Minguel Martins, (2009) 3 SCC 571 [55]
75 Fomento Resorts & Hotels Ltd. (supra) [55]
76 (2010) 7 SCC 1 [114]
77 Article 297, Constitution of India.
78 Reliance Natural Resources Ltd. (supra) [122]
79 Natural Resources Allocation, In re, Special Reference No. 1 of 2012, (2012) 10 SCC 1 [88]
80 State of Rajasthan v. Gotan Lime Stone Khanji Udyog (P) Ltd. (2016) 4 SCC 469 [29]; Orissa Mining Corporation
Ltd. v. Ministry of Environment & Forests, (2013) 6 SCC 476 [58].
46
PART E
serious ecological imbalance and protect against damage being caused to the
nature. 81 In Pradeep S Wodeyar v. State of Karnataka, 82 one of us (Justice D
Y Chandrachud) observed that the essence of the MMDR Act is to “protect
humankind and every species whose existence depends on natural resources
from the destruction which is caused by rapacious and unregulated mining.” The
Court noted that the restrictions under Section 4 of the MMDR Act are intrinsically
meant to protect the environment and communities who depend on the
environment.
59. The principle that the Union and State Governments act as public trustees of
mineral resources has been incorporated in the MMDR Act. Section 4-A
empowers the Central Government to prematurely terminate a prospecting
license, exploration license, or mining lease, after consultation with the State
Government in the interests of (i) the regulation of mines and mineral
development; (ii) preservation of the natural environment; (iii) control of floods;
(iv) prevention of pollution; (v) avoiding danger to public health or
communications; (vi) ensuring the safety of buildings, monuments or other
structures; (vii) conservation of mineral resources; and (viii) maintaining safety in
the mines or for such other purposes. 83 Moreover, the MMDR Act now mandates
grant of mining leases, 84 exploration licences, 85 and composite licences 86 in
respect of notified minerals through the process of auction. The Central
Government is empowered to prescribe the terms and conditions subject to
81 State (NCT of Delhi) v. Sanjay, (2014) 9 SCC 772 [32]
82 (2021) 19 SCC 62 [49.3]
83 See State of Haryana v. Ram Kishan, (1988) 3 SCC 416 [7]. [This Court observed that Section 4-A “was enacted
with a view to improve the efficiency in this regard and with this view directs consultation between the Central
Government and the State Government. The two governments have to consider whether premature termination of
a particular mining lease shall advance the object or not, and must, therefore, take into account all considerations
relevant to the issue, with reference to the lease in question.”]
84 Section 10B, MMDR Act
85 Section 10BA, MMDR Act
86 Section 11, MMDR Act
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PART F
which the auction shall be conducted.
60. The regulatory regime under the MMDR Act recognizes the important role of the
state in regulating mines and mineral development. This emerges from the stand
point of the following perspectives: (i) the State is a public trustee of natural
resources, including minerals; (ii) pursuant to its role as a public trustee, the State
has been empowered to regulate prospecting and mining operations; (iii) the
provisions of the statute reflect the priority of the state to regulate mining and
related activities to ensure sustainable mineral development. (iv) prospecting
and mining operations may be carried out by both the government as well as
private lessees bearing in mind the public interest; and (v) the Government has
to ensure that mineral concessions are granted in a fair and transparent manner.
61. Having encapsulated the broad drift of the constitutional and statutory provisions,
we now deal with the issues arising in this reference in the ensuing segments.
F. Whether royalty is tax
i. Royalty under the MMDR Act
62. The MMDR Act was enacted by Parliament in exercise of its legislative power
derived from Article 246 read with Entry 54 of List I. The Act seeks to provide for
the regulation of mines and development of minerals under the control of the
Union. Section 2 contains a declaration in terms of Entry 54 of List I, providing
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.”87 The declaration indicates that Parliament intends to take
87 Section 2, MMDR Act.
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PART F
the regulation of mines and development of mines under the control of the Union
to the extent indicated in the statute.
63. Chapter II of the MMDR Act deals with general restrictions on undertaking
prospecting and mining operations. Section 4 provides that no person shall
undertake any reconnaissance, prospecting or mining operations in any area
except under and in accordance with the terms and conditions of a
reconnaissance permit; prospecting licence; exploration licence; or mining lease
granted under the Act. It also provides that no mineral concession shall be
granted otherwise than in accordance with the provisions of the Act and the rules
made under it.
64. Section 9 deals with royalties in respect of mining leases. Section 9(1) provides
that the holder of a mining lease granted before the commencement of the Act
shall, notwithstanding anything contained in the instrument of lease or in any law
in force at the commencement of the statute, pay royalty in respect of any mineral
removed or consumed by him or by his agent, manager, employee, contractor or
sub-lessee from the leased area after such commencement, at the rates of
royalties prescribed under the Second Schedule. The non-obstante clause is
only applicable to mining leases granted before the commencement of the
MMDR Act.
65. Section 9(2) provides that the holder of a mining lease granted after the
commencement of the MMDR Act is also liable to pay royalty in respect of any
mineral removed or consumed by him or by his agent, manager, employee,
contractor or sub-lessee from the leased area at the rate specified in the Second
Schedule. Section 9(3) empowers the Central Government to amend the Second
Schedule to enhance or reduce the rate at which royalty shall be payable in
49
PART F
respect of minerals enumerated in the Second Schedule. However, it also
provides that the enhancement in the rate of royalty in respect of any mineral
shall not be done more than once during any period of three years. The then
Minister of Mines and Oil (Mr K D Malviya) stated during the Lok Sabha debate
preceding the passage of the Bill that the purpose of capping further increases
in the rates of royalty was to ensure financial security to the private sector. 88
66. The rates of royalty payable in respect of minerals in the Second Schedule of the
MMDR Act are computed either on an ad valorem basis at a specified percentage
of the average sale price or at specific rates on per tonnage basis. While Section
9 authorizes the charging of royalty, the Second Schedule provides the method
of computation. The rate of royalty and method of computation differ from mineral
to mineral. This Court has held that the Second Schedule has to be read as a
part and parcel of Section 9. 89
67. The process of mining generally involves two stages: (i) extraction of the ores
(also known as run-of-mine mineral) from the earth; and (ii) mineral beneficiation
which entails separating the mineral from their ores. Rule 64-B of the Mineral
Concession Rules 1960 provides for charging of royalty in case of minerals
subjected to processing. It provides that if the processing of run-of-mine mineral
is carried out within the leased area, royalty shall be chargeable on the
processed mineral removed from the leased area. In case run-of-mine mineral is
removed from the leased area to a processing plant located outside the leased
88 Mr K D Malviya, Lok Sabha Debates, Volume X (9th December to 21st December 1957) 7123. (The Minister
stated: “We gave consideration to the question of what should be the minimum time which could give a sense of
security to the private sector, so that they could invest their money and have a fairly reasonable view of their
investment and production programmes. Suppose we took powers to reduce or increase the royalties every six
months, it will make the position very insecure from their point of view. As long as we want a mixed pattern of
economy to go on and the private sector to flourish, surely my hon friend does not expect me to put a sense of
insecurity in the mind of the private sector, when every six months they will have to ask “look here. Are you going
to increase the royalty or are you going to decrease it’ What are you going to do?”.)
89 National Mineral Development Corporation Ltd. v. State of M P, (2004) 6 SCC 281 [23]
50
PART F
area, the royalty shall be chargeable on the unprocessed run-of-mine mineral
and not the processed product. Thus, royalty is payable on removal of the mineral
from the boundaries of the leased area. 90 Rule 64D of the Mineral Concession
Rules 1960 deals with the manner of payment of royalty on minerals on ad
valorem basis.
68. Section 9A deals with payment of dead rent by the lessee. It provides that the
holder of a mining lease shall pay to the State Government dead rent at such
rate as may be prescribed in the Third Schedule. However, where the holder of
the mining lease also becomes liable to pay royalty under Section 9, such person
shall be liable to pay either royalty or dead rent, whichever is higher. The dead
rent is calculated on a rate per hectare basis as specified under the Third
Schedule. Section 9A was inserted by an amendment in 1972 with a two-fold
purpose, namely to: (i) provide a statutory basis for calculation of dead rent; and
(ii) prohibit the Central Government from enhancing the rate of dead-rent more
than once during any period of three years. 91
69. Section 9B provides for establishment of the District Mineral Foundation 92 in any
district to work for the interest and benefit of persons and areas affected by
mining related operations. The purpose of Section 9-B and the object of the DMF
is to further the cause of social justice for those affected by mining related
operations, such as tribals who may be dislocated or displaced from their
habitat. 93 Section 9B(5) provides that the holder of a mining lease shall pay, in
addition to the royalty paid under Section 9, an amount which is equivalent to
such percentage of the royalty as may be prescribed by the Central Government.
90 Tata Steel Ltd. v. Union of India, (2015) 6 SCC 193 [71]
91 D K Trivedi & Sons v. State of Gujarat, 1986 Supp SCC 20 [45].
92 “DMF”
93 Federation of Indian Mineral Industries v. Union of India, (2017) 16 SCC 186 [43]
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PART F
70. Section 9C provides for the establishment of a non-profit autonomous body
called the National Mineral Exploration Trust 94 for the purposes of regional and
detailed exploration in such manner as may be prescribed by the Central
Government. Section 9C(4) mandates the holder of a mining lease to pay a sum
equivalent of two percent of the royalty paid in terms of Section 9 to the Trust.
The purpose of creating the NMET is to use the funds accrued from mining lease-
holders for encouraging exploration.
71. Section 13 authorizes the Central Government to make rules regulating the grant
of mineral concessions in respect of minerals and for purposes connected
therewith. Section 13(2) lists various matters in respect of which the Central
Government can make rules. A similar power is vested with the State
Government under Section 15 to make rules with respect to minor minerals.
Section 25 empowers the Government to recover rent, royalty, tax, fee or other
sum due to the Government under the Act as arrears of land revenue.
72. The Central Government has framed the Mineral Concession Rules 1960 in
exercise of the powers conferred by Section 13. Rule 31 of the Mineral
Concession Rules 1960 provides that the lease deed shall be executed between
the lessor and lessee in terms of the Form K. According to the recitals of Form
K, the State Government executes the lease deed in favor of the lessor “in
consideration of the rents and royalties, covenants and agreement by and in
these presents and the Schedule hereunder written reserved and contained and
on the part of the lessee/lessees to be paid observed and performed.” Further,
all the mine beds/ veins/ seams with respect to specified minerals lying and being
in or under lands are demised by the State Government to the lessee together
94 “NMET”
52
PART F
with the liberties, powers, and privileges to be exercised or enjoyed in connection
with the demise. The recitals indicate that the lease deed serves as a statutory
agreement between the State Government, being the lessor, and the lessee.
73. Part V of Form K deals with rents and royalties reserved by the lease and
specifies the rate and mode of payment of dead rent, royalty, surface rent, and
the water rate. This part mandates the lessee to pay royalty to the State
Government at the rates prescribed by the Central Government in the Second
Schedule to the Act. 95 Part VI contains provisions relating to rents and royalties
and provides for the mode of computing royalty:
“Mode of computation of royalty
2. For the purposes of computing the said royalties
the lessee/lessees shall keep a correct account of
the mineral/minerals produced and dispatched. The
accounts as well as the weight of the
mineral/minerals in stock or in the process of export
may be checked by an officer authorized by the
Central or State Government.”
74. Part VII contains the covenants of the lessee/lessees. The lessee undertakes to
pay the rent, water rate, and royalties specified under Parts V and VI in addition
to the payment of taxes, rates, assessments and impositions being in the nature
of public demands from time to time. Party VIII contains the covenants of the
State Government. It provides that a lessee paying the rents, water rate, and
95 Mineral Concession Rules 1960, Form K, Part V. It reads:
[“Rate and mode of payment of royalty
3. Subject to the provisions of clause 1 of this Part, the lessee/lessees shall during the subsistence of this lease
pay to the State Government at such times and in such manner as the State Government may prescribe royalty in
respect of any mineral/minerals removed by him/them from the leased area at the rate for the time being specified
in the Second Schedule to the Mines and Minerals (Development and Regulation) Act, 1957”]
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PART F
royalties may quietly hold and enjoy the rights and premises during the term of
the lease deed without unlawful interruption from the State Government.
ii. Purpose of Section 9 of the MMDR Act
75. The regime of mineral licensing prior to the enactment of the MMDR Act was
governed by the Mines and Minerals (Regulation and Development) Act 1948 96
read with the Mineral Concession Rules 1948. Under the previous regime, all
grants and permissions (such as prospecting licences97 and mining leases98)
were approved and issued by the State Government. The Industrial Policy
Resolution of 1956 proposed an active role for the State in setting up new
industrial undertakings to achieve “planned and rapid development.” 99 Minerals
such as coal, lignite, mineral oils, iron ore, copper, zinc, and atomic minerals
were exclusively reserved for the State, while the private sector was allowed to
participate along with the public sector in case of minor minerals. The MMDR Act
was enacted in pursuance of the above goals stated in the Industrial Policy
Resolution. Another important consideration behind the enactment of the MMDR
Act was to revise old and outmoded mining lease agreements and allow the
private sector reasonable encouragement to develop mines and minerals. 100
Through the MMDR Act, both the Central Government, and in case of minor
minerals, the State Government, have been assigned a greater responsibility of
development of minerals in India. This classification between major and minor
96 “MMRD Act 1948”
97 Rule 13, Mineral Concession Rules 1948. [It read: “13. Restrictions on grant of prospecting licence – (1) No
prospecting license shall be granted to any person unless he holds a certificate of approval from the State
Government concerned. […]”; Rule 17, Mineral Concession Rule 1948. It reads: “17. State Government may grant
or refuse a license – (1) Subject to the provisions of rule 13, the State Government may grant or refuse the license.”]
98 Rule 26, Mineral Concession Rules 1948. [It read: “26. Restrictions on grant of mining leases – (1) No mining
lease shall be granted to any person unless he holds a certificate of approval from the State Government concerned
or is covered by Rule 12.”]
99 Cabinet Secretariat, Industrial Policy Resolution (30 April 1956)
100 Mr J R Mehta, Lok Sabha Debates, Volume X (9th December to 21st December 1957) 7111.
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PART F
minerals was primarily done considering the export trade, the earning of foreign
exchange, economic development, and industrial progress. 101
76. An important distinction between the MMRD Act 1948 and the MMDR Act which
replaced it is that the former did not contain a provision similar to Section 9 of the
subsequent legislation. Nevertheless, provisions pertaining to royalty were
included in the Mineral Concession Rules 1948 as part of the essential conditions
of a mining lease. 102 At the introduction of the Mines and Minerals (Regulation
and Development) Bill in Parliament the then Minister of Mines explained the
legislative intent in the following terms:
“The existing Act did give authority to the
Government through rules to modify the rates and
the quantum of royalty that was to be charged by the
State Government. We have taken this opportunity
to put a maximum limit also. With regard to the time
also, at that time there was no limit and it could not
be changed so long as the agreement lasted. But
now considering all the conditions that prevail
these days, we thought that the Government
should have the right to examine the whole
structure of the rates of royalty and see whether
it was desirable to introduce a change in the
royalty by way of either an increase or a
decrease. If it was considered desirable to
increase it, the Government would recommend
an increase. If it was desirable to reduce it, a
reduction might be made.” 103
(emphasis added)
101 Ibid, 7124
102 Rule 41, Mining Concession Rules 1948.
103 Lok Sabha Debates, Volume VIII (11th November to 22nd November, 1957, Third Session) 395.
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PART F
77. The Minister further stated that allowing State Governments to fix the rates of
royalty “will not be a healthy feature for trade in that particular commodity.” 104
Section 9 sought to remedy the disparity of royalty rates across India. 105
78. Rates of royalty were primarily governed by the terms of lease prior to the
enactment of the MMDR Act. Once a mining lease was entered into between a
lessor and lessee, the rates of royalty would remain static during the subsistence
of the lease. Section 9 of the MMDR Act has enabled the Central Government to
examine the rates of royalty in respect of all minerals and modulate them
periodically after taking into consideration various factors, including the
uniformity of mineral prices. The primary reason for empowering the Central
Government to fix the rate of royalty could be traced to the Industrial Policy
Resolution which underscored the active and predominant role of the State in
organizing and utilizing mineral resources. The State Governments were not
empowered to determine royalty in order to maintain a uniform regime of royalty
across India. This was intended to promote domestic industry and maintain
competitive commodity prices in the international market. 106
iii. Contours of a mining lease
a. Lease and license
79. Article 31A of the Constitution was inserted by the Constitution (First
Amendment) Act 1951 to deal with the saving of laws providing for acquisition of
estates:
104 Ibid, 462
105 K P Varghese v. ITO, (1981) 4 SCC 173 [8]. It was observed that “[…] the speech made by the Mover of the Bill
explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the
mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted.”
106 Lok Sabha Debates, Volume VIII (11th November to 22nd November, 1957, Third Session) 463
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PART F
“31A. Saving of law providing for acquisition of
estates, etc –
Notwithstanding anything contained in article 13, no
law providing for –
[…]
(e) the extinguishment or modification of any
rights accruing by virtue of any agreement, lease
or licence for the purpose of searching for or
winning, any mineral or mineral oil, or the
premature termination or cancellation of any
such agreement, lease or licence,
shall be deemed to be void on the ground that it is
inconsistent with, or takes away or abridges any of
the rights conferred by article 14 or article 19.”
(emphasis added)
80. In Gujarat Pottery Works v. B P Sood, Controller of Mining Leases for
India, 107 a Constitution Bench of this Court held that the object of Article 31-
A(1)(e) was to make laws providing for the extinguishment or modification of
leases in connection with mineral rights immune from the provisions of Articles
14, 19, and 31.
81. The expressions ‘lease’ and ‘licence’ have been used in the context of mining
operations in the Constitution and in the MMRD Act. Therefore, it is important to
understand the meaning of these expressions in their general legal sense to
appreciate their application to mineral operations.
107 (1967) 1 SCR 695
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PART F
82. A “lease” connotes a transfer of a right of enjoyment in immoveable property for
a certain time in lieu of consideration. 108 Section 105 of the Transfer of Property
Act 1882 defines a lease of immoveable property as a transfer of a right to enjoy
such property, made for a certain time, express or implied, or in perpetuity, in
consideration of a price paid or promised, or of money, a share of crops, service
or any other thing of value, to be rendered periodically or on specified occasions
to the transferor by the transferee, who accepts the transfer on such terms. 109
The provision defines ‘lessor’, ‘lessee’, ‘premium’, and ‘rent’. The “transferor is
called the lessor, the transferee is called the lessee, the price is called the
premium, and the money, share, service or other thing to be so rendered is called
the rent.” This Court has interpreted the expression “rent” widely to mean any
payment for the use or occupation of land or building including the payment by a
lessee in respect of the use or occupation of any land or building. 110
83. According to Section 3(26) of the General Clauses Act 1897, immoveable
property is defined to include land, benefits to arise out of land, and things
attached to the earth, or permanently fastened to anything attached to the
earth. 111 Section 2(6) of the Registration Act defines immoveable property to
include land, buildings, hereditary allowance, rights of way, lights, ferries,
fisheries, or any other benefit to arise out of land, and things attached to earth,
or permanently fastened to anything which is attached to the earth, except for
standing timber, growing crops, and grass. 112 A mineral is also a benefit arising
out of land. The right to carry out mining operations to extract minerals under a
108 Mulla on the Transfer of Property Act 1882 (13th edn)
109 Section 105, Transfer of Property Act 1882
110 State of Punjab v. British India Corporation, (1964) 2 SCR 114 [15]
111 Section 3(26), General Clauses Act 1897.
112 Section 2(6), Registration Act 1908
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PART F
mining lease has been held by this Court to be a right to enjoy immoveable
property within the meaning of Section 105. 113
84. The expression “licence” is defined in the Indian Easements Act 1882 as follows:
“52. “License” defined. - Where one person grants
to another, or to a definite number of other persons,
a right to do, or continue to do, in or upon the
immoveable property of the grantor, something
which would, in the absence of such right, be
unlawful, and such right does not amount to an
easement or an interest in the property, the right is
called a licence.” 114
85. In Associated Hotels of India Ltd v. R N Kapoor, 115 Justice K Subba Rao (as
the learned Chief Justice then was) observed that a lease creates an interest in
property, while a licence only permits another to make use of the property, whose
legal possession continues to remain with the owner. A lease envisages and
transfers an interest in the demised property creating a right in rem in favour of
the lessee, while a licence only makes an action lawful which without it would be
unlawful. 116
86. Under the MMDR Act, a “prospecting licence” is granted for the purpose of
undertaking prospecting operations. 117 Prospecting operations are defined to
mean any operations undertaken for the purpose of exploring, locating, or
proving a mineral deposit. 118 Chapter III of the Mineral Concession Rules 1960
113 State of Karnataka v. Subhash Rukmayya Guttedar, 1993 Supp (3) SCC 290 [6]; Sri Tarkeshwar Sio Thakur jiu
v. Dar Dass Dey, (1979) 3 SCC 106 [37].
114 Section 52, Indian Easements Act 1882
115 (1960) 1 SCR 368, [28]. [“28. […] The following propositions may, therefore, be taken as well established: (1)
To ascertain whether a document creates a licence or lease, the substance of the document must be preferred to
the form; (2) the real test is the intention of the parties – whether they intended to create a lease or a licence; (3) if
the document creates an interest in the property, it is a lease; but, if it only permits another to make use of the
property, of which the legal possession continues with the owner, it is a licence; and (4) if under the document a
party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances
may be established which negative the intention to create a lease.”]
116 Mangal Amusement Park Private Ltd. v. State of Madhya Pradesh, (2012) 11 SCC 713 [15].
117 Section 3(g), MMDR Act
118 Section 3(h), MMDR Act
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PART F
deals with the grant of prospecting licences in respect of land in which the
minerals vest in the government. Form F contained in the Mineral Concession
Rules 1960 states that under a prospecting licence, the State Government grants
to the licesee the sole rights to enter upon lands and to search, win, carry away
or dispose of minerals won. Rule 14 read with Schedule III allows the prospecting
licensee to win and carry away a limited quantity of minerals in lieu of the
payment of specified royalty. Under a prospecting licence, the licensee does not
get an interest in the land or in the minerals contained therein. The licensee is
only allowed to carry away a limited quantity of minerals after payment of
specified royalty. 119 Even a prospecting licensee has to pay royalty to the State
Government for carrying away the minerals won during prospecting operations.
87. A “mining lease” is defined under the MMDR Act to mean a lease granted for the
purpose of undertaking mining operations and includes a sub-lease granted for
such purpose. 120 The expression “mining operations” has been defined to mean
any operations undertaken for the purpose of winning any mineral. The
expression “winning” has been explained by this Court to mean getting or
extracting minerals from the mines. 121 In Sri Tarkeshwar Sio Thakur Jiu v. Dar
Dass Dey & Co, 122 Justice R S Sarkaria observed that the expression “mining
operations” is expansive, so as to comprehend every activity by which the
mineral is extracted or obtained from the earth irrespective of whether such
119 Mineral Concession Rules 1960, Schedule III
120 Section 3(c), MMDR Act
121 Gujarat Pottery Works v. B P Sood, (1967) 1 SCR 695 [18]; Bhagwan Dass v. State of Uttar Pradesh, (1976) 3
SCC 784 [13]. [Justice Y V Chandrachud (as the learned Chief Justice then was) observed: “In any case, the
definition of mining operations and minor minerals in Section 3(d) and (e) of the Act of 1957 and Rule 2(5) and (7)
of the Rules of 1963 shows that minerals need not be subterranean and that mining operations cover every
operation undertaken for the purpose of “winning” any minor mineral. “Winning” does not imply a hazardous or
perilous activity. The word simply means “extracting a mineral” and is used generally to indicate any activity by
which a mineral is secured. “Extracting”, in turn, means, drawing out or obtaining. A tooth is ‘extracted’ as much as
is fruit juice and as much as a mineral. Only, that the effort varies from tooth to tooth, from fruit to fruit and from
mineral to mineral.”]
122 (1979) 3 SCC 106 [15]
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PART F
activity is carried out on the surface or in the bowels of the earth. Section 3(fa)
defines “production” or any derivative of the word “production” to mean the
winning or raising of mineral within the leased area for the purpose of processing
or dispatch. The expression “dispatch” has been defined to mean the removal of
minerals or mineral products from the leased area and to include the
consumption of minerals and mineral products within such area. 123 It is worth
noting that royalty is payable under Section 9 on the removal or consumption of
minerals by the lessee in the leased area. Thus, essentially royalty is payable on
the dispatch of minerals from the leased area.
88. This segment indicates that under a lease deed for mining operations, the owner
transfers the interest in the minerals to the lessee in lieu of the payment of rent,
which usually takes the form of royalty. To answer whether this payment is akin
to a tax, we must understand the nature of a mining lease under the MMDR Act.
b. The nature of a mining lease under the MMDR Act and the Mineral
Concession Rules 1960
89. The MMDR Act and the Mineral Concession Rules 1960 detail the procedure for
the grant of mining leases in three situations: first, where the minerals vest in the
government; 124 second, where the minerals vest in a person other than the
government; 125 and third, where the minerals vest partly in the government and
partly in a private person. 126 Chapter IV of the Mineral Concession Rules 1960
(containing Rules 22 to 40) deals with the grant of mining leases in respect of
land in which the minerals vest in the government. Rule 22(1) provides that an
123 Section 3(aa), MMDR Act
124 Chapters II, III, IV, and IVA of Mineral Concession Rules 1960
125 Chapter V, Mineral Concession Rules 1960
126 Rule 53, Mineral Concession Rules 1960
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PART F
application for the grant of a mining lease in respect of land in which the minerals
vest in the government shall be made to the State Government. Rule 27 provides
the conditions which are applicable to mining leases under Chapter IV. Rule
27(1)(c) provides that the lessee shall pay either dead rent or royalty (whichever
is higher) to the State Government. 127 Rule 27(1)(d) deals with payment of
surface rents, water rents, etc. by the lessee to the State Government. 128 Rule
27(2) allows the State Government to include such other conditions as it may
deem necessary in regard to matters enumerated therein. Rule 27(3) allows the
State Government, either with the previous approval of the Central Government
or at the instance of Central Government, to impose such further conditions as
may be necessary in the interests of mineral development.
90. Chapter V (containing Rules 41 to 52) deals with the procedure for obtaining
prospecting licences or mineral lease in respect of land in which the minerals
vest in a person other than the Government. Unlike Rule 22(1), the provisions of
Chapter V do not require the lessee to make an application to the State
Government. Rule 45 pertains to the conditions of mining leases with respect to
minerals vesting in private persons. The relevant part of Rule 45 is produced
below:
“45. Conditions of mining lease – Every mining lease
shall be subject to the following conditions –
(i) the provisions of clauses (b) to (l) and (p) to (i) of
sub-rule (1) of Rule 27 shall apply to such leases
with the modification that in clauses (c) and (d) for
127 Rule 27(c), Mineral Concession Rules 1960.
128 Rule 27(d), Mineral Concession Rules 1960
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PART F
the words “State Government” the word “lessor”
shall be substituted;
[…]
(iii) the lease may contain such other conditions, not
being inconsistent with the provisions of the Act and
these rules, as may be agreed upon between the
parties;
(iv) if the lessee makes any default in payment of
royalty as required by Section 9 or commits a breach
of any of the conditions of the lease, the lessor shall
give notice to the lessee requiring him to pay the
royalty or remedy the breach, as the case may be,
within sixty days from the date of the receipt of the
notice and if the royalty is not paid or the breach is
not remedied within such period, the lessor without
prejudice to any proceeding that may be taken
against the lessee determine the lease;
(v) the lessee may determine the lease at any time
by giving not less that one year’s notice in writing to
lessor.”
91. Rule 45(i) provides that certain specific conditions which apply under Rule 27 to
mining leases in respect of minerals which vest in the Government are also
applicable to leases of minerals vesting in private persons. While under Chapter
IV the State Government can stipulate additional conditions, Rule 45(iii) of
Chapter V provides that the lease may contain such other conditions, not being
inconsistent with the provisions of the MMDR Act and the Mineral Concession
Rules, as may be agreed upon between the parties. If the lessee of a mining
lease granted under Chapter IV, were to default in the payment of royalty or dead
rent or commit a breach of any conditions of the lease the State Government is
empowered to determine the lease. In case of a lease governed by Chapter V,
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PART F
the lessor is empowered to determine the mining lease if the lessee defaults in
payment of royalty or commits a breach of any of the conditions of the lease.
These differences indicates that in case of a mining lease under Chapter V of
Mineral Concession Rules: (i) the State Government is not the lessor (that is the
proprietor of the minerals who is a private person); and (ii) royalty, dead rent, and
other rents are to be payable to the lessor and not the State Government.
92. In State of Meghalaya v. All Dimasa Students Union, 129 this Court held that:
(i) Chapter V of the Mineral Concession Rules has to be treated to be dealing
with minerals owned by private persons; (ii) a mining lease granted according to
Chapter V of the Mining Concession Rules 1960 is a mining lease granted by the
owner of the minerals and not the State Government; and (iii) no authority can
grant a mining lease in respect of minerals which vest with private owners without
the authority of such owners.
93. The right of proprietors to grant leases and receive royalty stems from the
proprietary interest in the immovable property including the minerals. The MMDR
Act regulates the exercise of the proprietary rights in the minerals in the larger
public interest. 130 The statute specifies the terms of the lease, but the lease deed
is ultimately entered between the State Government (or the private person, as
the case may be) and the lessee. Similarly, the rates of royalty are fixed by the
Central Government under Section 9, but royalty is received by the mining lessor,
that is the State Government or a private person.
129 (2019) 8 SCC 177 [129]-[130]
130 Monnet Ispat & Energy Ltd (supra) [138]
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PART F
iv. Meaning of “royalty”
94. At the outset we clarify that in this reference, we are dealing with ‘royalty’ in the
context of the MMDR Act. Royalty is generally understood as compensation paid
for rights and privileges enjoyed by the grantee. It has its genesis in the
agreement entered into between the grantor and grantee. In Inderjeet Singh
Sial v. Karam Chand Thapar, 131 this Court observed that royalty is equivalent
to the expression “jura regalia” or “jura regia”. Jura regalia is defined as royal
prerogatives or rights. 132 For centuries, gold and silver mines (also called as royal
metals) in the United Kingdom were treated as belonging to the Crown. Royal
metals could be mined only after payments in the form of royalties were made to
the Crown. The use of the word “royalty” underwent change in the United
Kingdom with the decentralization of the sovereignty which was absorbed by the
landowners. 133 Land ownership was concentrated in the hands of landowners,
who conceded the right to work mines to lessees in return for consideration
which took the form of dead-rent and royalties. 134
95. This Court has had occasion to analyze the meaning of the expression “royalty”
in its decisions. In H R S Murthy v. Collector of Chittoor, 135 a Constitution
Bench observed that royalty connotes a payment made for materials or minerals
won from land. In D K Trivedi v. State of Gujarat, 136 the distinction between
“royalty” and “dead rent” was explained thus:
“39. In a mining lease the consideration usually
moving from the lessee to the lessor is the rent
131 (1995) 6 SCC 166.
132 Ramanatha Aiyar, Advanced Law Lexicon (Volume 3) 2789.
133 J U Nef, The Rise of the British Coal Industry (Routledge, 1966)
134 Royal Commission on Mining Royalties, Final Report of the Royal Commission Appointed to Inquire into the
Subject of Mining Royalties (1893) 4.
135 (1964) 6 SCR 666 [6]
136 1986 (Supp) SCC 20
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PART F
for 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 or as not to yield enough
return to the lessor in the shape of royalty. In order
to ensure for the lessor a regular income,
whether the mine is worked or not, a fixed
amount is provided to be paid to his 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. […]”
(emphasis added)
96. Minerals are exhaustible and finite resources. Each quantity of mineral removed
leads to the depletion of the mineral stock of the mine. 137 Under a mining lease,
a lessee acquires a right or interest in minerals. This right or interest allows the
lessee to extract minerals and consume them. Royalty is a payment made by the
lessee to the lessor or proprietor of the minerals for the removal of minerals.
Royalty also serves to compensate the lessor for the degradation of the value of
the mine because of the extraction of minerals. 138
97. In Bherulal v. State of Rajasthan, 139 a Division Bench of the Rajasthan High
Court explained the concept of royalty in the following terms:
137 W R Sorley, ‘Mining Royalties and their Effect on the Iron and Coal Trades’ (1889) 52(1) Journal of Royal
Statistical Society 60, 66
138 Ibid.
139 1956 SCC OnLine Raj 9 [8]
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PART F
“8… In Wharton’s Law Lexicon, ‘royalty’ is defined as
“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 on or other weight raised.” The
present case is of the third kind, namely payment
to the owner of minerals for the right of working
the same. This payment is based on the produce,
and the rate is fixed as so much per ton or other
weight. It is clear that royalty has nothing to do
with where the purchaser is taking the mineral,
or to whom he is going to sell it, whether at the
place where the mine is situated or at some place
hundreds of miles away. […] It is clear, therefore,
that royalty is a charge by the owner of minerals
from those to whom he gives the concession to
remove them, and the charge is on production,
the rate being fixed according to weight.”
(emphasis added)
98. The essential characteristics of royalty are that (i) it is a consideration or payment
made to the proprietor of minerals, either the government or a private person; (ii)
it flows from a statutory agreement (a mining lease) between the lessor and the
lessee; (iii) it represents a return for the grant of a privilege (to the lessee) of
removing or consuming the minerals; and (iv) it is generally determined on the
basis of the quantity of the minerals removed.
99. In comparison, dead rent acts as a deterrent against a leaseholder cornering a
mining lease and keeping the mineral resources idle. 140 Similar to royalty, dead
rent is also a statutory imposition and an integral part of the mining lease, but it
generally does not serve as a consideration for the removal or consumption of
minerals. The dead rent is determined on the basis of the area of land covered
by the lease. Imposition of dead rent ensures that the proprietor obtains a fixed
140 Government of India, Ministry of Mines, ‘Mineral Royalties’ 27 (January 2011)
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PART F
rent from the lessee even if the mine remains unworked. Therefore, dead rent is
not in addition to royalty but an alternative.
100. If royalty is a consideration paid by the lessee to the lessor as part of the terms
of a mining lease, can this payment be considered in the nature of tax? This is
the next issue for our consideration.
v. Characteristics of Tax
101. Taxation is a mode of raising revenue to fund public expenditure. The power of
taxation is an essential and inherent attribute of sovereignty. 141 In the decision of
the US Supreme Court in McCulloch v. Maryland, 142 Chief Justice John
Marshall described the sovereign right of taxation thus:
“It is admitted that the power of taxing the people and
their property is essential to the very existence of
Government, and may be legitimately exercised on
the objects to which it is applicable, to the utmost
extent to which the Government may choose to carry
it. The only security against the abuse of this power
is found in the structure of the Government itself. In
imposing a tax, the legislature acts upon its
constituents. This is, in general, a sufficient security
against erroneous and oppressive taxation.”
102. Taxes are monetary burdens or charges imposed by legislative power upon
persons, or property to raise revenues. 143 The government needs requisite funds
to discharge its primary governmental functions. 144 No responsible government
can function and achieve its welfare objectives without levying and collecting
taxes. 145 The objects to be taxed can be taxed by the legislature according to the
141 Thomas Cooley, The Law of Taxation (4th edn, 1924) 149
142 17 U.S. 316 (1819)
143 Amrit Banaspati Co. Ltd. v. State of Punjab, (1992) 2 SCC 411 [10]
144 Dena Bank v. Bhikabhai Prabhudas Parekh & Co., (2000) 5 SCC 694 [8]
145 Jindal Stainless Steel [112.2]
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PART F
exigencies of its needs so long as they happen to be within the legislative
competence of the legislature. 146 Although the power of taxation is pervasive and
an incidence of sovereignty, it is subject to well-defined constitutional limitations.
103. In Matthews v. Chicory Marketing Board, 147 Latham CJ defined “tax” as a
“compulsory exaction of money by a public authority for public purposes,
enforceable by law, and … not a payment for services rendered.” In
Commissioner, Hindu Religious Endowment, Madras v. Sri Lakshmindra
Thirta Swamiar of Sri Shirur Mutt, 148 this Court relied on the above elucidation
to enumerate the following essential characteristics of a tax:
“44. […] It is said that the essence of taxation is
compulsion, that is to say, it is imposed under
statutory power without the taxpayer’s consent and
the payment is enforced by law. The second
characteristic of tax is that it is an imposition made
for public purpose without reference to any special
benefit to be conferred on the payer of the tax. This
is expressed by saying that the levy of tax is for the
purposes of general revenue, which when collected
forms part of the public revenues of the State. As the
object of a tax is not to confer any special benefit
upon any particular individual, there is, as it is said,
no element of quid pro quo between the taxpayer
and the public authority. Another feature of taxation
is that as it is a part of the common burden, the
quantum of imposition upon the taxpayer depends
generally upon his capacity to pay.”
104. A tax has the following essential characteristics: (i) it is a compulsory exaction of
money by a public authority; (ii) it is imposed under statutory power without the
consent of the tax payer; (iii) the demand is enforceable by law; (iv) it is an
imposition made for public purposes to meet the general expenses of the state
146 Rai Ramkrishna v. State of Bihar, (1964) 1 SCR 897 [12]
147 60 CLR 263
148 (1954) 1 SCC 412
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PART F
without reference to any special benefit to be conferred on the payer of the tax;
and (v) it is part of the common burden. 149
105. Article 366(28) defines “taxation” to include “the imposition of any tax or impost,
whether general or local or special.” This Court has interpreted the word “tax” in
its widest amplitude to include all money raised by taxation. 150 In Jindal
Stainless Steel (supra), one of us (Justice D Y Chandrachud) held that the
expression “any tax” means “any levy which the State is constitutionally
competent to legislate.” 151
106. One of the issues debated in the reference pertains to the meaning of the word
“impost.” Thomas Cooley in the Law of Taxation defines “imposts” to mean “any
tax, tribute, or duty.”152 This Court has generally construed the expression
“imposts” to include taxes 153 and fees154 realizable by the authority of law. 155 In
CIT v. McDowell and Co. Ltd., 156 this Court held that the term “impost” means
compulsory levy and that “tax” in its wider sense includes all imposts. 157 In
McDowell (supra), the assesse sought to claim a deduction under Section 43-
B(a) of the Income Tax Act 1961 on the payment of bottling fees made to the
State Government under the Rajasthan Excise Act 1950. Section 43-B(a)
allowed a deduction in respect of any sum payable by the assessee by way of
tax, duty, cess or fee, by whatever name called, under any law for the time being
in force. The issue before the two-Judge Bench was whether bottling fees
149 See Mahant Sri Jagannath Ramanuj Das v. State of Orissa, (1954) 1 SCC 455 [11]
150 D G Gose and Co. (Agents) (P) Ltd. v. State of Kerala, (1980) 2 SCC 410 [5].
151 Jindal Stainless Steel (supra) [730.1]
152 Thomas Cooley, The Law of Taxation (4th edn, 1924) 74
153 Sea Customs Act, S 20(2), In re, 1963 SCC OnLine SC 40 [37] (Held that customs duty or excise duty was an
impost within the meaning of Article 366(28));
154 CCE v. Chhata Sugar Co. Ltd., (2004) 3 SCC 466 [36] (It was observed that an impost can be either a tax or
fee.)
155 Indian Banks’ Association v. Devkala Consultancy Service, (2004) 11 SCC 1 [18]
156 (2009) 10 SCC 755 [22]
157 Reiterated in Jindal Stainless Steel (supra) [20], [395]
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chargeable from the assessee amounted to a tax, duty, cess, or fee. The two-
Judge Bench formulated the characteristics of imposts thus:
“21. “Tax”, “duty”, “cess” or “fee” constituting a class
denotes various kinds of imposts by State in its
sovereign power of taxation to raise revenue for the
State. Within the expression of each specie each
expression denotes different kind of impost depending
on the purpose for which they are levied. The power can
be exercised in any of its manifestation only under any
law authorising levy and collection of tax as envisaged
under Article 265 which uses only the expression that no
“tax” shall be levied and collected except authorized by
law. In its elementary meaning conveys that to support
a tax legislation action is essential, it cannot be levied
and collected in the absence of any legislative sanction
by exercise of executive power of State under Article 73
by the Union or Article 162 by the State.
22. Under Article 366(28) “Taxation” has been defined to
include the imposition of any tax or impost whether
general or local or special and tax shall be construed
accordingly. “Impost” means compulsory levy. The well-
known and well-settled characteristic of “tax” in its wider
sense includes all imposts. Imposts in the context have
following characteristics:
(i) The power to tax is an incident of sovereignty.
(ii) “Law” in the context of Article 265 means an Act
of legislature and cannot comprise an executive
order or rule without express statutory authority.
(iii) The term “tax” under Article 265 read with Article
366(28) includes imposts of every kind viz. duty,
cess or fees.
(iv) As an incident of sovereignty and in the nature
of compulsory exaction, a liability founded on
principle of contract cannot be a “tax” in its
technical sense as an impost, general, local or
special.”
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107. The Court held in McDowell (supra) that bottling fees are a payment made by
the assessee to the State Government “as consideration for acquiring the
exclusive privilege”158 The payment was held to be neither a fee nor a tax but
consideration for the grant of approval by the government to contract on the
exclusive right to deal in bottling liquor. Therefore, bottling fees were held not to
fall within the purview of Section 43-B(a).
108. The expression “tax” under Article 265 includes every kind of impost in the form
of a compulsory exaction. An impost is a compulsory exaction. The power to levy
an impost is an incident of sovereignty. A liability arising out of contract cannot
be termed as an impost or tax. A consideration paid under a contract to the State
Government for acquiring exclusive privileges and rights with respect to a
particular activity cannot be termed as an “impost” or “tax” under Article 366(28).
109. The government may demand payments in the nature of a price or consideration
for parting with its exclusive privilege to carry on activities of a particular
description. Well-known examples involving the parting of the exclusive privilege
by the government include telecommunication activities and the manufacture
and sale of intoxicants. The price paid for parting with an exclusive privilege
vesting in government is neither a tax nor a fee. 159 In State of Punjab v. Devans
Modern Breweries, 160 the issue before a Constitution Bench was whether the
levy of an import fee by the state on potable liquor manufactured in other states
was beyond the legislative competence of the state legislature. Justice R C
Lahoti (as the learned Chief Justice then was) speaking for the majority,
158 McDowell and Co. Ltd. (supra) [17]
159 Har Shankar v. Excise and Taxation Commissioner, (1975) 1 SCC 737 [56]; State Bank of India v. Jage Ram,
(1980) 3 SCC 599 [20]; Government of Andhra Pradesh v. Anabeshahi Wine and Distilleries Pvt Ltd., (1988) 2 SCC
25 [6]
160 (2004) 11 SCC 26
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observed that the State Government has unfettered power to regulate the import
of intoxicants in exercise of its regulatory powers. The learned Judge held that
the levy was neither a tax nor a fee, but “simply a levy for the act of granting
permission or for the exercise of power to part with the privilege.”161 The
expression “impost” cannot hence be extrapolated to mean a price levied by the
State for granting permission to part with its exclusive privilege. Imposts are such
levies that are in the nature of tax.
110. The basic issue for determination is whether royalty payable under Section 9 of
the MMDR Act is in the nature of a tax or impost. The need to decide the issue
of “whether royalty is tax” arises in the backdrop of the divergence of opinion in
the decisions in India Cement (supra) and Kesoram (supra).
vi. Royalty is not in the nature of tax
a. Prelude to India Cement
111. Whether ‘royalty is a tax’ had been adjudicated upon by several High Courts
before the issue reached this Court for decision in India Cement (supra). There
was a divergence of view among the High Courts. A few High Courts had held
that royalty is not a tax but a consideration for parting with the exclusive privilege
over mineral rights. Others had held that royalty was a compulsory exaction, and
hence a tax. In its decision in India Cement (supra) this Court referred to them,
without actually analyzing their rationale.
112. In Laddu Mal v. State of Bihar, 162 the petitioners challenged the notices issued
to them by the Assistant Mining Officer, demanding payment of royalty for a
161 Devans Modern Breweries (supra) [113]
162 1965 SCC OnLine Pat 30
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period from 1958 to 1964 under the Bihar Minor Mineral Concession Rules 1964.
The Division Bench of the Patna High Court held that royalty is a levy in the
nature of tax because of its compulsory nature. Royalty was held to be a
compulsory exaction because it was imposed under a statute and because in the
event of non-payment, it was recoverable as arrears of land revenue. However,
it was held that the demand of royalty prior to 1964 when the Bihar Minor Mineral
Rules came into effect was without the authority of law.
113. In Laxminarayana Mining Co. v. Taluk Development Board, 163 licence fees
levied on persons engaged in mining under the provisions of the Mysore Village
Panchayats and Local Board Act 1959 were challenged before the Mysore High
Court. Justice E S Venkataramiah (as the learned Chief Justice then was) held
that the State legislature had no legislative power to impose the levy since its
subject matter was covered by the MMDR Act. The High Court also held that the
levy was in substance a tax on mineral rights. 164 In the context of Entry 50 of List
II, the High Court observed that: (i) tax on mineral rights includes royalty payable
on extracted minerals; (ii) mineral rights and mining activities which are carried
out in exercise of mineral rights are indistinguishable; (iii) Parliament has
occupied the entire subject matter of the regulation of mines and mineral
development as well as tax on mineral rights by virtue of the legislative
declaration under the MMDR Act; and (iv) the provisions of the MMDR Act
pertaining to the levy, fixation and collection of royalty (Section 9) as well as its
recovery as arrears of land revenue (Section 25) suggest that the expression
“royalty” under Section 9 connotes the levy of a tax. The essence of the High
Court’s decision was that since royalty is in the nature of a tax on mineral rights
163 1972 SCC OnLine Kar 80
164 Laxminarayana Mining Co. (supra) [17]
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and is covered by Parliamentary legislation, the legislative power of the State
legislature to levy taxes on mineral rights stands excluded.
114. The contrary view of other High Courts (footnoted below) was that royalty is not
a tax. 165 We will not refer to all the decisions adopting that view, to avoid
multiplicity, except for the decision of the Punjab and Haryana High Court in Dr.
Shanti Swaroop Sharma v. State of Punjab. 166 In that case, the petitioners
challenged the demand of royalty by the State Government under the Punjab
Minor Mineral Concession Rules 1964. The petitioners contended that royalty,
being a tax, cannot be levied under delegated legislation. The High Court
rejected the contention holding that: (i) royalty is a share of produce or profit paid
to the owner of land for granting the privilege of producing minerals; (ii) mere
occupation of land containing minor minerals does not make the occupier liable
to pay royalty; (iii) the liability to pay royalty arises only when a lessee extracts
minerals in pursuance of a mining lease; (iv) royalty cannot be termed as a
compulsory exaction because the compulsion to pay royalty arises out of the
contractual conditions of the mining lease and not through the force of law; (v)
the fact that the State Government can recover royalty as arrears of land revenue
does not give it a character of tax because other dues such as moneys due under
contract and fees can be recovered in the same manner. The High Court
disagreed with the decision of the Patna High Court in Laddu Mal (supra). This
165 Saurashtra Cement & Chemical Industries Ltd. v. Union of India, 1979 SCC OnLine Guj 23 (Gujarat High Court
held that royalty payable under Section 9 was not a tax. Therefore, Parliament had legislative competence to
prescribe royalty under the MMDR Act in pursuance of its regulatory powers under Entry 54 of List I); Laxmi
Narayan Agarwalla v. State of Orissa, 1983 SCC OnLine Ori 16 (The Orissa High Court disagreed with the decisions
in Laddu Mal (supra) and Laxminarayana Mining Co. (supra). It was held if royalty is held to be tax, Section 9 would
have to be invalidated because Parliament has no legislative power to impose tax under Entry 54 of List I.)
166 AIR 1969 Punj and Har 79
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PART F
judicial canvas was available before the seven-Judge Bench in India Cement
(supra).
b. Divergence between India Cement and Kesoram
115. In India Cement (supra), the seven Judge Bench was called upon to determine
the validity of the Madras Panchayat Act 1958. Section 115 of the Act levied a
local cess on land revenue payable to government. An explanation to the
provision stated that land revenue included royalty. Thus, the impugned provision
considered royalty as part of land revenue. The issue was whether the State
legislature could levy cess on royalty once Parliament had taken control of the
regulation of mines and development of minerals under the MMDR Act.
116. The State’s justification proceeded on the following entries: (i) Entry 45 of List II
- land revenue; (ii) Entry 49 of List II - taxes on lands and buildings; (iii) Entry 50
of List II - taxes on mineral rights; and (iv) Entry 66 read with Entry 23 of List II -
levy of fees. Justice Sabyasachi Mukharji (as the learned Chief Justice then was)
writing for the majority, observed that the cess was levied essentially on royalty
and not on land revenue, both of which are distinct concepts. The State’s
recourse to Entry 45 of List II was negatived. With respect to Entry 49 of List II,
Justice Mukharji observed that royalty is directly relatable to the minerals
extracted and therefore would only be relatable to Entries 23 and 50 of List II,
and not Entry 49 of List II. 167 Therefore, the statutory provision was in pith and
substance held to be a tax on royalty and not on land. The decision in H R S
Murthy (supra), according to which cess paid on royalty has a direct relationship
with land and only a remote relationship with minerals, was overruled. A detailed
167 India Cement (supra) [33]
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analysis pertaining to Entry 49 of List II has been undertaken in a later segment
of this judgment.
117. On Entries 23 and 66 of List II, Justice Mukharji observed that the legislative
power of the State legislature to levy fees is denuded by the enactment of the
MMDR Act by Parliament. Finally, on Entry 50 of List II, Justice Mukharji observed
that the bar provided in Section 9(3) on the enhancement of royalty specified
under the Second Schedule also applies to the state legislature. Imposition of
cess on royalties was held to have the effect of amending the Second Schedule
and was held ultra vires Section 9(3). Section 9 was regarded to be a limitation
on the taxing power of the State legislature under Entry 50 of List II. 168 Moreover,
the Court held that the field is covered by the MMDR Act and hence the legislative
power of the state stands denuded. 169 Paragraph 34 of the judgment sets out
the conclusions:
“34. 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.”
(emphasis added)
168 India Cement (supra) [32]
169 India Cement (supra) [33]
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PART F
118. In a concurring opinion, Justice G L Oza held that royalty is not a unit of charge
merely on land, but on labour and capital as well. Resultantly, imposition of cess
on royalty was held not to be a levy or tax on land in terms of Entry 49 of List II.
Justice Oza suggested that the cess could have been saved, if it was levied on
surface rent or dead rent. In his view, surface rent or dead rent is relatable to
land, hence a cess on surface rent or dead rent would fall within the purview of
Entry 49 of List II.
119. In Raojibhai Jivabhai Patel v. State of Gujarat, 170 a three judge Bench of this
Court referred to India Cement (supra) to reiterate that royalty levied on
extracted mineral is in the nature of tax. In a series of subsequent decisions,
particularly in Orissa Cement Ltd v. State of Orissa 171 and Saurashtra Cement
& Chemical Industries Ltd. v. Union of India, 172 this Court followed India
Cement (supra). In State of M P v. Mahalaxmi Fabric Mills Ltd, 173 this Court
rejected the submission that paragraph 34 of India Cement (supra) contained a
“typographical error”. However, a divergence in opinion on whether royalty is in
the nature of tax emerged.
120. In Quarry Owners Association v. State of Bihar, this Court held that royalty
“does not constitute usual tax as commonly understood” but includes return for
the consideration for parting with the property. 174 In Kesoram (supra), a
Constitution Bench had to decide on the validity of a cess levied by the State on
coal-bearing land. The measure of the cess was relatable to the quantity of
minerals produced from land. Whether royalty is a tax was not directly in issue.
170 1989 Supp (2) SCC 744
171 (1991) Supp 1 SCC 430 [36]
172 (2001) 1 SCC 91
173 1995 Supp (1) SCC 642 [12]
174 Quarry Owners Association v. State of Bihar, (2000) 8 SCC 655 [34].
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In fact, Justice Lahoti, speaking for the majority, held that India Cement (supra)
was distinguishable because in that case cess was levied on royalty and not on
mineral rights or lands. However, the learned Judge felt “constrained” and “duty-
bound” to point out a typographical error in the majority opinion in India Cement
(supra) to prevent any “adverse impact on subsequent judicial pronouncements”.
Paragraph 34 of India Cement (supra) was held to contain a typographical error,
which Justice Lahoti explained thus:
“57. 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 the
judgment. This is clear from reading the judgment in
its entirety. Vide paras 22 and 31, which precede
para 34 abovesaid, 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
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List II which enables the State to 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.”
121. The decision in Kesoram (supra) analyzed the nature of royalty to hold that
royalty is not a tax, but a payment made to the owner of land who may be a
person and may not necessarily be the state. 175 It held that India Cement (supra)
was caused by “an apparent typographical error or inadvertent error” and should
not be understood as a correct declaration of law. Kesoram (supra) also
expressed its disagreement with Mahalaxmi Fabric Mills (supra) to the extent it
had held that there was no “typographical error” in India Cement (supra).
Importantly, Kesoram (supra) concurred with India Cement (supra) on the
aspect that cess on royalty is beyond the legislative competence of the state
legislatures. 176
122. The divergence on the point of law between India Cement (supra) and Kesoram
(supra) is apparent and pertains to whether or not royalty is a tax. For the reasons
to follow, we are of the opinion that royalty does not meet the characteristic
requirements of a tax.
c. Royalty is not a tax
123. On first principles, royalty is a consideration paid by a mining lessee to the lessor
for enjoyment of mineral rights and to compensate for the loss of value of
minerals suffered by the owner of the minerals. The marginal note to Section 9
states that royalties are “in respect of mining leases.” The liability to pay royalty
175 Kesoram (supra) [71]
176 Kesoram (supra) [115].
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arises out of the contractual conditions of the mining lease. 177 A failure of the
lessee to pay royalty is considered to be a breach of the terms of the contract,
allowing the lessor to determine the lease and initiate proceedings for recovery
against the lessee.
124. Section 9 of the MMDR Act statutorily regulates the right of a lessor to receive
consideration in the form of royalty from the lessee for removing or carrying away
minerals from the leased area. Prior to the enactment of the MMDR Act, such a
condition was treated as part of a mining lease. The object of empowering the
Central Government to specify rates of royalty for major minerals was to ensure
a certain level of uniformity in mineral prices in view of the domestic and
international market.
125. The fact that the rates of royalty are prescribed under Section 9 of the MMDR
Act does not make it a “compulsory exaction by public authority for public
purposes” because: (i) the compulsion stems from the contractual conditions of
the mining lease agreed between the lessor and lessee; (ii) the demand is not
made by a public authority, but the lessor (which can either be the State
Government or a private party); and (iii) the payment is not for public purposes,
but a consideration paid to the lessor for parting with their exclusive privileges in
the minerals. Moreover, the fact that Section 25 allows recovery of royalty due to
the Government under the MMDR Act or “under the terms of the contract” as
arrears of land does not make royalty “an impost enforceable by law.” Section 25
is a standard recovery provision allowing the government to recover any dues
payable to it, flowing from statute or the terms of a contract. Pertinently,
177 See Rules 27 and 45, Mineral Concession Rules 1960
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contractual payments due to the government cannot be deemed to be a tax
merely because the statute provides for their recovery as arrears.
126. There are major conceptual differences between royalty and a tax: (i) the
proprietor charges royalty as a consideration for parting with the right to win
minerals, while a tax is an imposition of a sovereign; (ii) royalty is paid in
consideration of doing a particular action, that is, extracting minerals from the
soil, while tax is generally levied with respect to a taxable event determined by
law; 178 and (iii) royalty generally flows from the lease deed as compared to tax
which is imposed by authority of law.
127. Under the MMDR Act, the Central Government fixes the rates of royalty, but it is
still paid to the proprietor by virtue of a mining lease. In case the minerals vest in
the government, the mining lease is signed between the State Government (as
lessor) and the lessee in pursuance of Article 299 of the Constitution. Through
the mining lease, the government parts with its exclusive privilege over mineral
rights. A consideration paid under a contract to the State Government for
acquiring exclusive privileges cannot be termed as an impost. Since royalty is a
consideration paid by the lessee to the lessor under a mining lease, it cannot be
termed as an impost.
128. This Court has held that royalty is not a tax, in several decisions. In State of H P
v. Gujarat Ambuja Cement Ltd, 179 a three judge Bench of this Court held royalty
not to be a tax. The subsequent decision in Indsil Hydro Power & Manganese
Ltd. v. State of Kerala 180 brought out the distinction between tax and royalty in
the following terms:
178 Goodyear India Ltd v. State of Haryana, (1990) 2 SCC 71 [27]
179 (2005) 6 SCC 499
180 (2021) 10 SCC 165 [56]
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PART F
“56. Thus, the expression “royalty” has consistently
been construed to be compensation paid for rights
and privileges enjoyed by the grantee and normally
has its genesis in the agreement entered into
between the grantor and the grantee. As against tax
which is imposed under a statutory power without
reference to any special benefit to the conferred on
the payer of the tax, the royalty would be in terms of
the agreement between the parties and normally has
direct relationship with the benefit or privilege
conferred upon the grantee.”
129. The principles applicable to royalty apply to dead rent because: (i) dead rent is
imposed in the exercise of the proprietary right (and not a sovereign right) by the
lessor to ensure that the lessee works the mine, and does not keep it idle, and in
a situation where the lessee keeps the mine idle, it ensures a constant flow of
income to the proprietor; (ii) the liability to pay dead rent flows from the terms of
the mining lease; 181 (iii) dead rent is an alternate to royalty; if the rates of royalty
are higher than dead rent, the lessee is required to pay the former and not the
latter; and (iv) the Central Government prescribes the dead rent not in the
exercise of its sovereign right, but as a regulatory measure to ensure uniformity
of rates.
130. In view of the above discussion, we hold that both royalty and dead rent do not
fulfil the characteristics of tax or impost. Accordingly, we conclude that the
observation in India Cement (supra) to the effect that royalty is a tax is incorrect.
181 Rules 27 and 45, Mineral Concession Rules 1960
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G. Inter-relationship between Entry 23 of List II and Entry 54 of List I
131. The subject of regulating mines and mineral development is enumerated in Entry
23 of List II. However, Parliament can under Entry 54 of List I bring the regulation
of mines and mineral development under its control to the extent that such control
is declared by Parliament by law to be expedient in the public interest. Entry 54
of List I has three pre-requisites: (i) Parliament must make a law; (ii) the law must
contain a legislative declaration that it is in the public interest to bring the
regulation of mines and mineral development under its control; and (iii) the law
must lay down the extent to which Parliament desires to control the field relating
to the regulation of mines and mineral development. Entry 54 of List I exclude
the legislative power of the state legislature under Entry 23 of List II to the extent
to which the Parliamentary law covers the field. The interrelationship between
Entry 54 of Union List and Entry 23 of State List has been dealt with by this Court
in numerous decisions, which will be discussed in the following segments.
i. Meaning of “regulation of mines” and “mineral development”
132. Entry 54 of List I and Entry 23 of List II are general or regulatory entries dealing
with the same subject matter, namely of “regulation of mines and mineral
development.” These entries deal with regulation of two aspects: (i) regulation of
mines; and (ii) mineral development. By making Entry 23 of List II subordinate to
Entry 54 of List I, the Constitution tilts the balance of legislative powers with
respect to the regulation of mines and mineral development in favor of the Union.
133. Before delving further into the inter-relationship between the two entries, we
deem it necessary to define the subject matter of the entries. The subject-matter
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of the entries has to be understood from both the text and the context in which
the words have been used.
134. The expression “regulation” generally means to manage the governance of an
enterprise by means of rules or laws. 182 In K Ramanathan v. State of Tamil
Nadu, 183 this Court explained the meaning of the power to regulate in the
following terms:
“19. It has often been said that the power to regulate
does not necessarily include the power to prohibit,
and ordinarily the word “regulate” is not synonymous
with the word “prohibit”. This is true in a general
sense and in the sense that mere regulation is not
the same as absolute prohibition. At the same time,
the power to regulate carries with it full power over
the thing subject to regulation and in absence of
restrictive words, the power must be regarded as
plenary over the entire subject. It implies the power
to rule, direct and control, and involves the adoption
of a rule or guiding principle to be followed, or the
making of a rule with respect to the subject to be
regulated. The power to regulate implies the power
to check and may imply the power to prohibit under
certain circumstances, as where the best or only
efficacious regulation consists of suppression. It
would therefore appear that the word “regulation”
cannot have any inflexible meaning as to exclude
“prohibition”. It has different shades of meaning and
must take its colour from the context in which it is
used having regard to the purpose and object of the
legislation, and the Court must necessarily keep in
view the mischief which the legislature seeks to
remedy.”
135. The word “regulate” is of wide import and the breadth of its meaning depends on
the context in which it is used. This Court has construed the power to regulate to
include the power to: (i) grant or revoke a permission or licence including
182 Ramanatha Aiyar Advanced Law Lexicon (Volume 3) 4778.
183 (1985) 2 SCC 116 [19]
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incidental or supplemental powers; 184 (ii) prohibit depending upon the context
and circumstance; 185 (iii) control or adjust by rule or to subject to governing
principles; 186 and (iv) issue directions. 187 Thus, the expression “regulation”
appearing in Entry 54 of List I and Entry 23 of List II must also receive a wide
meaning, in keeping with the principle that the words used in the legislative
entries must be interpreted broadly.
136. A “mine” is generally defined as an excavation in the earth for the purpose of
obtaining minerals. 188 The expression was defined under the Mines Act 1952 to
primarily mean any excavation for the purposes of searching for or obtaining
minerals 189 and to include the place where such excavation is carried on. 190 The
184 State of Tamil Nadu v. Hind Stone, (1981) 2 SCC 205 [10]; State of Uttar Pradesh v. Maharaja Dharmander
Prasad Singh, (1989) 2 SCC 505 [52]
185 Talcher Municipality v. Talcher Regulated Market Committee, (2004) 6 SCC 178 [14]; Union of India v. Asian
Food Industries Ltd, (2006) 13 SCC 542 [43]
186 UP Coop. Cane Unions Federations v. West UP Sugar Mills Association, (2004) 5 SCC 430 [20]; Balmer Lawrie
& Company Limited v. Partha Sarathi Sen Roy, (2013) 8 SCC 345 [24]
187 Subramanian Swamy v. State of Tamil Nadu, (2014) 5 SCC 75 [67]
188 Lord Provost and Magistrates of Glasgow v. Faire, (1888) [L.R] 13 App. Cas. 657
189 Section 2(j) “mine” means any excavation where any operation for the purpose of searching for or obtaining
minerals has been or is being carried on and include –
(i) All borings, bore holes, oil wells and accessory crude conditions plants, including the pipe conveying
mineral oil within the oil fields;
(ii) All shafts, in or adjacent to and belonging to a mine, whether in the course of being sunk or not;
(iii) All levels and inclined planes in the course of being driven;
(iv) All open cast workings;
(v) All conveyers or aerial rope-ways provided for bringing into or removal from a mine of minerals or
other articles or for the removal of refuse therefrom;
(vi) All adits, levels, planes, machinery, works, railways, tramways and sidings in or adjacent to and
belonging to a mine;
(vii) All protective works being carried out in or adjacent to a mine;
(viii) All workshops and stores situated within the precincts of a mine and under the same management
and used primarily for the purposes connected with that mine or a number of mines under the same
management;
(ix) All power stations, transformer sub-substations, convertor stations, rectifier stations and accumulator,
storage stations for supplying electricity or mainly for the purpose of working the mine or a number
of mines under the same management;
(x) Any premises for the time being used for depositing sand or other material for use in a mine or for
depositing refuse from a mine or in which any operations in connection with such sand, refuse or
other material is being carried on, being premises exclusively occupied by the owner of mine;
(xi) Any premises in or adjacent to and belonging to a mine on which any process ancillary to the getting
dressing or preparation for the sale of minerals or of coke is being carried on.
190 Offshore Areas Mineral (Development and Regulation) Act 2002. Section 4(k) defines “mine” to mean “any place
in the offshore area wherein any exploration or production operation is carried on, together with any vessel,
erection, appliance, artificial island or platform and premises in the offshore area used for the purposes of
exploration, winning, treating or preparing minerals, obtaining or extracting any mineral or metal by any mode or
method, and includes any area covered by a composite licence, or an exploration licence, or a production lease
where exploration or production operation has been, or is being, or may be, carried on under the provisions of this
Act.
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Occupational Safety, Health and Working Conditions Code 2020 191 has adopted
a similar definition of mine under Section 2(1)(zl). The Working Conditions Code
also defines “minerals” to mean all substances which can be obtained from the
earth by mining, digging, drilling, dredging, hydraulicing, quarrying or by any
other operation and to include mineral oils. 192 These definitions are indicative of
the fact that: (i) the expression “mines” includes both the process by which
minerals are extracted from the earth as well as the place where such extraction
takes place; and (ii) minerals are obtained from the mine by the process of
mining.
137. The expression “regulation of mines” can be understood in the backdrop of above
discussion to mean the management of both the process of extracting minerals
as well the place where such minerals will be extracted from sub-surface levels.
The MMDR Act gives shape and meaning to the expression “regulation of mines
and mineral development” through its provisions and the subordinate rules. To
that effect, we find provisions under the MMDR Act pertaining to prospecting or
mining operations under lease or licence, 193 restrictions on the grant of mineral
concessions, 194 periods for which prospecting licences 195 or mining leases 196
may be granted or renewed, and royalties in respect of mining leases. 197 Chapter
III deals with the procedure for obtaining mineral concessions in respect of land
in which the minerals vest in the government. Chapter IV empowers the
government to frame rules for regulating the grant of mineral concessions.
Chapter V deals with the special powers of Central Government to undertake
191 “Working Conditions Code 2020”
192 Section 2(1)(zm), Working Conditions Code 2020.
193 Section 4, MMDR Act
194 Section 5, MMDR Act
195 Section 7, MMDR Act
196 Section 8, MMDR Act
197 Section 9, MMDR Act
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prospecting or mining operations in respect of lands in which the minerals vest
in the Government of a State or any other person. 198 Thus, Chapters II to V of
the MMDR Act invariably deal with aspects regulating the place of extraction of
minerals and the process by which mines are worked. These provisions govern
aspects such as conceding land to a person for carrying out mining operations
(mining concession) or granting licences for working mines and winning minerals,
which are integral to the concept of “regulation of mines”. The fixation of rates of
royalty under Section 9 read with the Second Schedule is also covered within the
scope of “regulation of mines and mineral development.”
138. Entry 54 of List I and Entry 23 of List II do not use the expression “minerals”
simpliciter. The entries use the term “mineral development”. In Premium
Granites v. State of Tamil Nadu, a two judge Bench observed that the MMDR
Act and the rules framed thereunder furnish the scope and purport of the word
“mineral development.”199 In that case, it was held that the scientific exploitation
of minerals without waste is a part of “mineral development” as envisaged by the
MMDR Act and the rules. In Quarry Owners Association (supra) a two-Judge
Bench defined the ambit of the expression “regulation of mines and mineral
development”, observing:
“31. […] The word “regulation” may have a different
meaning in different context but considering it in
relation to the economic and social activities
including the development and excavation of mines,
ecological and environmental factors including
States’ contribution in developing, manning and
controlling such activities, including parting with its
wealth, viz. the minerals, the fixation of the rate of
royalties would also be included within its meaning.”
198 Section 17, MMDR Act
199 (1994) 2 SCC 691 [48]
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139. In Tata Iron & Steel Co. Ltd. v. Union of India, 200 it was held that the concept
of “mineral development” can include captive mining, an assessment of its
requirement by different industries and equitable distribution of mining leases.
Tata Iron & Steel (supra) was decided in the context of the unamended Section
8(3) of the MMDR Act which allowed the Central Government to renew mining
leases “in the interests of mineral development.”
140. As a concept, mineral development is a term of wide import. It encompasses
exploitation of minerals, reduction of wastage in the beneficiation process,
regulation of mining activities for ecological and environmental factors and
equitable distribution of mineral resources and mining leases. Mineral
development has been expressly recognized in Chapter VI of the MMDR Act.
Section 18(1) mandates the Central Government to take all such steps as may
be necessary by making rules for the conservation and systematic development
of minerals in India and for the protection of the environment by preventing or
controlling any pollution which may be caused by prospecting or mining
operations. Section 18(2) indicates that the Central Government may make rules
on matters pertaining inter alia to regulation of mining operations in any area;
regulation of the excavation or collection of minerals from any mine; development
of mineral resources in any area; regulation of arrangement of storage of
minerals; and regulation of prospecting operations, disposal or discharge of
waste slime or tailing arising from mining operations. In terms of Section 18,
Parliament has framed the Mineral Conservation and Development Rules 2017
to provide a framework for conservation of minerals, systematic and scientific
mining, development of minerals and protection of the environment. 201
200 (1996) 9 SCC 709 [64]
201 Mineral Conservation and Development Rules 2017
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141. The expression “mineral development” has also been understood under the
MMDR Act in a comprehensive manner, to include all activities and transactions
relating to the working of mines, extracting of minerals, their storage and
disposal, as well as the conservation of the environment. Having established the
meaning and scope of the subject-matter in Entry 54 of List I and Entry 23 of List
II, we now analyze the inter-relationship between the two entries in greater detail.
ii. Analysis of Hingir-Rampur, M A Tulloch, and Baijnath Kedia
142. In Hingir-Rampur Coal Co. Ltd. v. State of Orissa, 202 writ petitions were filed
before this Court challenging the Orissa Mining Areas Development Fund Act
1952 203 which levied cess on the petitioner’s colliery. The petitioner argued that
the cess levied under the Orissa Act was beyond the legislative competence of
the State legislature because it was in reality a levy of excise duty on the coal
produced. In the alternative, it was argued that the cess was relatable to Entry
23 of List II which would be ultra vires having regard to the provisions of Entry 54
of List I read with the MMRD Act 1948, which was the applicable legislation at
the time. The respondent state sought to repel the petitioner’s contention by
arguing that the cess was a fee relatable to Entries 23 and 66 of List II whose
validity is not affected by Entry 54 of List I read with the MMRD Act. Thus, this
Court was called upon to decide two issues: (i) whether the impugned levy was
in the nature of a fee relatable to Entries 23 and 66 of List II; and (ii) the legislative
competence of the State legislature to impose the levy in view of Entry 54 of List
I read with the MMRD Act.
202 (1961) 2 SCR 537
203 “Orissa Act”
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143. The Orissa Act provided that the rate of the levy shall not exceed five percent of
the valuation of minerals at the pit’s mouth. The statute further provided that the
proceeds of the cess recovered shall be utilized to meet the expenditure for
providing amenities such as communications, water supply and electricity for the
better development of the mining areas and improve the welfare of labour and
persons residing or working in the mining areas. This Court analyzed the scheme
of the Orissa Act to observe that it was enacted for the purpose of the
development of mining areas in the State. It was held that the cess was in the
nature of a fee because: (i) it had an element of quid pro quo; (ii) it was collected
into a specific fund; (iii) its application was regulated by a statute and confined to
its purposes; and (iv) there was a definite co-relationship between the impost
and the purpose of the legislation which was to render service to the notified
area. 204
144. Having established that the cess was in the nature of a fee, the next issue before
this Court was whether the State legislature had the competence to impose the
levy in view of Entry 54 of List I read with the MMRD Act 1948. Justice P B
Gajendragadkar (as the learned Chief Justice then was) writing for the majority,
explained the inter-relationship between Entry 54 of List I and Entry 23 of List II
in the following terms:
“24. […] 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
204 Hingir-Rampur (supra) [19]
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Entry 54, and if the said declaration covers the field
occupied by the impugned Act the impugned Act
would be ultra vires, not because of any repugnance
between the two statutes but because the State
Legislature had no jurisdiction to pass the law. The
limitation imposed by the latter part of Entry 23 is a
limitation on the legislative competence of the State
Legislature itself. This position is not in dispute.”
145. This Court held that the test to determine the legislative competence of the state
legislature in respect of a particular subject-matter relating to regulation of mines
and mineral development is whether that matter is covered by the legislative
declaration in the MMRD Act 1948. This Court examined the provisions of the
MMRD Act 1948 which contained a legislative declaration under Section 2. 205
Section 6 of the MMRD Act 1948 empowered the Central Government to make
rules for the conservation and development of minerals. Section 6(2) empowered
Parliament to make rules in respect of several subject matters, including the levy
and collection of royalties, fees or taxes in respect of minerals mined, quarried,
excavated or collected. In this respect, the observations made by Justice
Gajendragadkar are relevant and extracted below:
“Section 6 of the Act, however, empowers the
Central Government to make rules by notification in
the Official Gazette for the conservation and
development of minerals. Section 6(2) lays down
several matters in respect of which rules can be
framed by the Central Government. This power is,
however, without prejudice to the generality of
powers conferred on the Central Government by
Section 6(1). Amongst the matters covered by
Section 6(2) is the levy and collection of royalties,
fees or taxes in respect of minerals mined, quarried,
excavated or collected. It is true that no rules have
in fact been framed by the Central Government in
regard to the levy and collection of any fees; but, in
205 Section 2, MMRD Act 1948. [It read: “2. Declaration as to expediency of control by Central Government:- It is
hereby declared that it is expedient in the public interest that the Central Government should take under its control
the regulation of mines and oilfields and the development of minerals to the extent hereinafter provided.”]
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our opinion, that would not make any difference. If it
is held that this Act contains the declaration referred
to in Entry 23 there would be no difficulty in holding
that the declaration covers the field of conservation
and development of minerals, and the said field is
indistinguishable from the field covered by the
impugned Act. What Entry 23 provides is that the
legislative competence of the State Legislature is
subject to the provisions of List I with respect to
regulation and development under the control of the
Union, and Entry 54 in List I requires a declaration
by Parliament by law that regulation and
development of mines should be under the control of
the Union in public interest. Therefore, if a Central
Act has been passed for the purpose of
providing for the conservation and development
of minerals, and if it contains the requisite
declaration, then it would not be competent to
the State Legislature to pass an Act in respect of
the subject-matter covered by the said
declaration. In order that the declaration should
be effective it is not necessary that rules should
be made or enforced; all that this required is a
declaration by Parliament that it is expedient in the
public interest to take the regulation and
development of mines under the control of the
Union. In such a case the test must be whether
the legislative declaration covers the field or not.
Judged by this test there can be no doubt that
the field covered by the impugned Act is covered
by the Central Act 53 of 1948.”
(emphasis added)
146. The test laid down by this Court in Hingir-Rampur (supra) is whether the
legislative declaration under a Parliamentary law enacted in pursuance of Entry
54 of List I covers the subject-matter. If the subject matter is covered by the
legislative declaration, the legislative competence of the States with respect to
that subject-matter is pro tanto denuded. Applying this test, it was held that the
subject-matter of the levy of fees for conservation and development of minerals
was covered by the MMRD Act 1948.
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147. The next issue before this Court was whether the declaration contained in the
MMRD Act was constitutionally valid in view of Entry 54 of List I. The MMRD Act
1948 was a pre-constitutional legislation enacted by the Dominion Legislature
governed by the GOI Act 1935. It was held that even though the state legislation
covered the same field as the MMRD Act, the legislative declaration made under
the MMRD Act did not constitutionally amount to the requisite declaration by
Parliament in terms of Entry 54 of List I. 206 Therefore, this Court concluded that
the limitation imposed by Entry 54 of List I did not impair the legislative
competence of the State to enact the legislation under Entry 23 read with Entry
66 of List II. In view of the conclusion reached, the majority opined that it was
unnecessary to consider the validity of the Orissa Act in terms of Entry 50 of List
II. 207
148. Justice Wanchoo recorded his dissent from the opinion of the majority by holding
that the cess in question was a duty of excise falling squarely within Entry 84 of
List I, 208 and consequently, beyond the legislative competence of the State
legislature. The learned Judge held that the cess was levied at a rate not
exceeding five percent of the value of the minerals at the pit’s mouth on all
extracted minerals. Since all the extracted minerals were goods produced, a cess
on the value of such extracted minerals was held to constitute excise duty. 209
Unlike the majority opinion, Justice Wanchoo dealt with the issue of the
206 Hingir-Rampur (supra) [35] [“35. […] We reach this position that the field covered by Act 53 of 1948 is
substantially the same as the field covered by the impugned Act but the declaration made by Section 2 of the said
Act does not constitutionally amount to the requisite declaration by Parliament, and so the limitation imposed by
Entry 54 does not come into operation in the present case.”]
207 Hingir-Rampur (supra) [37]
208 Entry 84, before the Constitution (One Hundred and First Amendment) Act 2016, read as follows:
“84. Duties of excise on tobacco and other goods manufactured or produced in India except –
(a) Alcoholic liquors for human consumption;
(b) Opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet
preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.”
209 Hingir-Rampur (supra) [47]
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legislative competence of the State legislature to impose the cess in view of Entry
50 of List II. The learned Judge held that the cess was not a tax on mineral rights,
but rather a tax on minerals actually produced, and therefore not covered by
Entry 50 of List II.
149. In State of Orissa v. M A Tulloch, 210 a Constitution Bench was concerned with
the validity of the same Orissa Act which was under consideration in Hingir-
Rampur (supra). The respondents challenged the demand for the payment of
fees made by the State Government for the period from July 1957 to March 1958
under the Orissa Act for being ultra vires. It must be noted that the MMDR Act
was brought into force as and from 1 June 1958. The Constitution Bench
analyzed the relevant constitutional and statutory provisions, and precedent to
reiterate the following principles of law:
(i) The power of the State to enact legislation on the subject matter of
“mines and mineral development” under Entry 23 of List II is plenary and
subject to the provisions of Entry 54 of List I;
(ii) Section 2 of the MMDR Act contains the requisite legislative declaration
in terms of Entry 54 of List I. To the extent to which the Union
Government has taken the regulation of mines and development of
minerals under its control, so much was withdrawn from the ambit of the
power of the State legislature under Entry 23 of List II. The legislation of
the State enacted under Entry 23 of List II would, to the extent of that
“control”, be superseded or be rendered ineffective; 211
210 (1964) 4 SCR 461
211 M A Tulloch (supra) [5]
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(iii) The legislative power of the state remains intact beyond the “extent” of
the MMDR Act. Therefore, the crucial enquiry has to be directed to
ascertain the “extent” of the Parliamentary legislation;
(iv) Where a competent legislature with superior legislative powers
expressly or impliedly evinces by its legislation an intention to cover the
whole field, the enactments of the other legislature whether passed
before or after would be superseded on the ground of repugnance. 212
Section 18(1) evinces the Parliamentary intention to cover the entire field
relating to conservation and development of minerals. Therefore, the fact
that the Central Government has not framed any regulation along the
lines of the Orissa Act was not relevant; and
(v) The declaration under Section 2 of MMDR Act has taken over the entire
field of conservation and development of minerals. Resultantly, the
particular subject matter would be subtracted from the scope and ambit
of Entry 23 of List II and the State legislature would also lose the
legislative competence to levy a fee under Entry 66 of List II. 213
150. In M A Tulloch (supra), the Constitution Bench held that the legislative
competence of the States to levy fees under Entry 66 of List II is also affected to
the extent to which the subject-matter of regulation of mines and mineral
development is taken over by the Parliamentary declaration under Entry 54 of
List I.
151. The third major decision dealing with the inter-relationship between Entry 54 of
List I and Entry 23 of List II is Baijnath Kedia v. State of Bihar. 214 In that case,
212 M A Tulloch (supra) [14]
213 M A Tulloch (supra) [15]
214 (1969) 3 SCC 838
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an amendment to the Bihar Land Reforms Act 1950 and the rules pertaining to
the modification of the terms and conditions of leases of minor minerals were
challenged. Having held that it was bound by Hingir-Rampur (supra) and M A
Tulloch (supra), the issue before this Court was the extent to which the
declaration by Parliament left any scope for the state legislature. The Court
observed that by the legislative declaration under Section 2 read with Section 15,
the whole of the field relating to minor minerals came within the jurisdiction of
Parliament and no scope was left for the State legislature. Although Section 15
allowed the State legislature to make rules, it did not create a scope for legislation
at the state level. 215 Consequently, it was held that the amendment to the Bihar
Act was without jurisdiction. In Hingir-Rampur (supra) and M A Tulloch (supra),
it was held that the whole field of conservation and development of minerals was
covered by the MMDR Act. In Baijnath Kedia (supra), it was held that the field
of minor minerals was covered by the central legislation, thereby depriving the
state legislation of its plenary legislative power under Entry 23 of List II to that
extent.
152. The Solicitor General has relied on the above decisions to submit that the
consequence of the whole of the legislative field being occupied by Parliament
under the MMDR Act is that the state legislatures possess only such powers as
are expressly conferred on them by Parliament. The propositions put forth by the
Solicitor General can be encapsulated as follows:
a. Hingir-Rampur (supra) shows that the subject-matter of statutory levies
pertaining to minerals is covered by the legislative declaration. Although
215 Baijnath Kedia (supra) [21]
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the MMDR Act does not contain a provision similar to Section 6 of the
MMRD Act 1948, it provides for statutory levies such as royalty and
dead-rent. Thus, Parliament has covered the subject-matter of statutory
levies relating to mineral rights and the state legislature has no power to
impose a levy in the form of taxes on mineral rights under Entry 50 of
List II;
b. M A Tulloch (supra) held that a Parliamentary legislation enacted under
Entry 54 of List I also impacts the independent legislative powers of
States with respect to Entry 66 of List II. This reasoning will be applicable
to Entry 50 of List II with greater force, more so, because this entry is
expressly subject to any law made by Parliament relating to mineral
development; and
c. In Baijnath Kedia (supra) there were no express provisions under the
MMDR Act limiting the state legislature from enacting legislation relating
to leases of minor minerals, but this Court held that such a limitation was
implied. Similarly, the Parliamentary law, the MMDR Act, impliedly
excludes the legislative competence of the state with respect to Entry 50
of List II.
153. The above arguments will be dealt with in the ensuing segment relating to the
interpretation of Entry 50 of List II.
iii. Examination of the “extent” of the MMDR Act
154. The respondents submit that the MMDR Act is a complete code and occupies
the entire field relating to regulation of mines and mineral development, leaving
nothing for the state legislature under Entry 23 of List II. It was also submitted
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that the scope of the MMDR Act and the rules made under it has to be given an
exhaustive interpretation because they were enacted in the “public interest.” The
Solicitor General recounted the following public interest considerations
underpinning the MMDR Act: (i) provision of national legal landscape for
protection, exploration, and extraction of minerals; (ii) ushering a uniform
structure of regulation and development of minerals; and (iii) ensuring sustained
development of the mineral sector at the national level to ensure availability of
domestic minerals to industries.
155. The MMDR Act and the Mineral Concession Rules 1960 comprise of a complete
code, containing exhaustive provisions in respect of the grant and renewal of
prospecting licenses and mining leases in lands belonging to government as well
as lands belonging to private persons. 216 Section 2 of the MMDR Act declares
that the Union is acting in public interest to take under its control the regulation
of mines and development of minerals to the extent provided. In State of Tamil
Nadu v. Hind Stone, 217 the Court observed that “[t]he public interest which
induced Parliament to make the declaration contained in Section 2 of the Mines
and Minerals (Regulation and Development) Act, 1957, has naturally to be the
paramount consideration in all matters concerning the regulation of mines and
the development of minerals.”
156. In Bharat Coking Coal Ltd. v. State of Bihar, 218 the issue before a two judge
Bench was whether the State Government had legal authority to execute leases
in favor of the respondents for collection of slurry on payment of royalty. This
Court held that the state legislature lacked authority in law to regulate the
216 State of Assam v. Om Prakash Mehta, (1973) 1 SCC 584 [12];
217 (1981) 2 SCC 205 [6]
218 (1990) 4 SCC 557
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disposal of slurry. Section 18 of the MMDR Act was held to cover the field of the
disposal of waste of a mine (including coal slurry), thereby denuding the
legislative power of the state legislature with respect to that subject matter. It was
further held that once the state legislature’s power under Entry 23 of List II is
denuded, the State Government ceases to have any executive authority in the
matter relating to the regulation of mines and mineral development in view of
Article 162 of the Constitution. 219 Thus, both the legislative and the executive
powers of the State were held to be taken away to the extent to which the MMDR
Act covered the subject matter dealing with regulation of mines and mineral
development. 220
157. This Court has to give credence to the public interest considerations
underpinning the MMDR Act while interpreting its scope and ambit. The
expression “public interest” occurring in both Entry 54 of List I and Section 2 of
the MMDR Act indicates that the provisions of the legislation do not merely cover
the interests of private individuals (such as owners of private property or holders
of mining leases) relating to the regulation of mines and mineral development.
The public interest underpinning the MMDR Act synonymizes with the collective
welfare of the people and is informed by the dictates of the public trust
doctrine. 221 At the same time, the underlying public interest has to be construed
in view of the entire legislative scheme, purpose, and object of the enactment. 222
219 Article 162, Constitution of India. [It reads:
162. Extent of executive power of State – Subject to the provision of this Constitution, the executive power of a
State shall extend to the matters with respect to which the Legislature of the State has power to make laws:
Provided that in any matter with respect to which the Legislature of a State and Parliament have power to make
laws, the executive power of the State shall be subject to, and limited by, the executive power expressly conferred
by this Constitution or by any law made by Parliament upon the Union or authorities thereof.”]
220 Sandur Manganese & Iron Ores Ltd v. State of Karnataka, (2010) 13 SCC 1 [39]
221 Sayyed Ratanbhai Sayeed v. Shirdi Nagar Panchayat, (2016) 4 SCC 631
222 Meerut Development Authority v. Association of Management Studies, (2009) 6 SCC 171 [67]
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158. The latter part of Entry 23 of List II makes the entry “subject to the provisions of
List I with respect to regulation and development under the control of the Union.”
Entry 54 of List I provide that Parliament can regulate 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.” The text of Entry 54 of List I indicates that besides declaring that it is
taking under its control any subject relating to the regulation of mines and mineral
development, Parliament has to specify the extent to which the Parliamentary
regulation is deemed expedient in the public interest. The legislative domain of
the States under Entry 23 of List II is excluded only to the extent of the field
covered by the provisions of the MMDR Act. The expression “to the extent
provided” refers to the subject matter or fields covered by the Parliamentary
legislation.
159. During the proceedings of the Constituent Assembly pertaining to present Entry
23 of List II, Mr Brajeshwar Prasad moved a motion to move the entire field of
“regulation of mines and mineral development” under the Union List. He
reasoned that mines constitute a vital subject and should remain a subject under
the Union List. 223 Consequently, a motion was moved to transfer Entry 23 of List
II (which was draft Entry 28 of List II then) to the Union List. However, the
amendment was negatived by the Assembly. 224 This indicates that the
Constituent Assembly deemed it necessary that state legislatures must also have
223 Constituent Assembly Debates, Volume IX, 898 (31st August 1949). [Mr. Brajeshwar Prasad explained his aim
in introducing the motion in the following words: “My whole aim in moving this amendment is to make redundant
entry 28, of List II. I am clear in my own mind that Mines constitute a vital subject as important as Defence, Foreign
Affairs and Communications. I am of opinion that if the system of defence is going to be organized on sound line
then Mines must remain a Central subject. I do not want to give the Provinces the power even to “regulate mines
and oil fields and mineral development subject to the provisions of List I” as has been provided for in entry 28 of
List II.”]
224 Constituent Assembly Debates, Volume IX, 898 (2nd September 1949)
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necessary legislative powers with respect to the regulation of mines and mineral
development. The legislative field of the states would stand abstracted once
Parliament makes a declaration evincing an intent to takeover the regulation and
development of mines and specifies the extent to which control of the field by the
Union is deemed to be in the public interest.
160. The requirement of a legal declaration under Entry 54 of List I serves twofold
purposes: first, it enables a clear demarcation of the subject matter under the
control of Parliament and determines the extent of such control; and second, it
enshrines the precept of the rule of law where the basis for trenching upon the
legislative powers of the State has to be found in a law made by Parliament. The
Parliamentary enactment through which legislative control is being assumed by
the Union, to the exclusion of state legislatures, cannot be abstract, vague, and
general. While Parliament has the power to denude the field given to the states
under Entry 23 of List II by making a declaration in the law which it enacts
pursuant to the field reserved by Entry 54 of List I, the law enacted by Parliament
must specify the field of regulation and development which it has taken over, and
the extent to which the control of the Union is deemed to be in the public interest.
161. The use of the expression “to the extent” under Entry 54 of List I carries the
consequence that the Parliamentary legislation has to specify the subject matter
or field over which it seeks to legislate. In M A Tulloch (supra), this Court held
that the intention of the legislation to occupy a particular subject matter has to be
gathered from the words of the provisions. 225 As a consequence, the coverage
of the fields by Parliament has to be express. The ambit of the MMDR Act has to
225 M A Tulloch (supra) [14]. [It reads: “14. […] In the present case, having regard to the terms of Section 18(1) it
appears clear to us that the intention of Parliament was to cover the entire field and thus to leave no scope for the
argument that until the rules were framed, there was no inconsistency and no supersession, of the State Act.”]
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be determined from the express words used in the provisions and not by mere
implications or inference. This legal principle has already been accepted by this
Court. 226
162. In Ishwari Khetan Sugar Mills v. State of Uttar Pradesh, 227 a Constitution
Bench was called upon to interpret the ambit of Entry 52 of List I and Entry 24 of
List II. The Industries (Development and Regulation) Act 1951 228 was enacted by
Parliament to assume control over specified industries in pursuance of Entry 52
of List I. Section 2 of the IDR Act contained the legislative declaration to the effect
that the Union shall take under its control the industries specified in Schedule I.
The majority, speaking through Justice D A Desai, observed that the legislative
declaration under the IDR Act has the effect of denying the legislative powers to
the state legislature under Entry 24 of List II. 229 Therefore, it was held that the
legislative declaration contained under Section 2 of the IDR Act has to be
construed strictly. The Court held that the legislative competence of state
legislature would be eroded only to the extent to which control was assumed by
the Union in terms of the legislative declaration under the IDR Act. A legislative
declaration which has the impact of denuding or depriving the legislative power
of the state legislature has to be construed strictly.
163. The inter-relationship between Entry 54 of List I and Entry 23 of List II can be
formulated as follows:
(i) The state legislatures possess plenary legislative power in respect of
regulation of mines and mineral development under Entry 23 of List II;
226 Ishwari Khetan Sugar Mills v. State of Uttar Pradesh, (1980) 4 SCC 136; Rajasthan Roller Flour Mills Association
v. State of Rajasthan, 1994 Supp (1) SCC 413 [14]
227 (1980) 4 SCC 136
228 “IDR Act”
229 Ishwari Khetan Sugar Mills (supra) [11]
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(ii) Entry 23 of List II is, however, subject to the operation of Entry 54 of
List I;
(ii) The field under Entry 23 of List II is subordinated to the extent to which
Parliament has brought under its control the regulation of mines and
development of minerals under the MMDR Act;
(iii) The expression of the legislative intention to cover a particular field
relating to mines and mineral development excludes or denudes the
legislative powers of the State with respect to that particular field; and
(iv) Parliamentary intention to cover a particular field relating to the
regulation of mines and mineral development and the extent to which
control of the Union is regarded to be in the public interest has to be
ascertained from the language of the statute.
Keeping these principles in mind, we now move on to analyzing the inter-
relationship between Entry 54 of List I and Entry 50 of List II.
H. Inter-relationship between Entry 50 of List II and Entry 54 of List I
164. The respondents contend that the legislative declaration contained under
Section 2 along with the other provisions of the MMDR Act serves as a “limitation”
on the legislative powers of state legislatures to tax minerals under Entry 50 of
List II. The main thrust of the argument of the respondents is that anything
encompassed in a “law relating to mineral development” serves as a limitation
on the field of taxation under Entry 50 of List II. Moreover, it was submitted that
the MMDR Act leaves no legislative room for the state legislature in respect of
the subject matter of mines and mineral development, including taxes on mineral
rights. On the contrary, the petitioners submit that the MMDR Act can only have
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the effect of abstracting the State’s legislative field with respect to Entry 23 of List
II. It was further contended that the MMDR Act does not contain any provision
limiting the field of the states with respect to the taxation of mineral rights.
165. To recap, Entry 50 of List II reads thus:
“Taxes on mineral rights subject to any limitations
imposed by Parliament by law relating to mineral
development.”
Entry 50 of List II has two elements: (i) the legislative field governing taxes on
mineral rights is given exclusively to the states; (ii) the field given to the states is
subject to any limitations imposed by Parliament by law relating to mineral
development. Entry 50 of List II is a taxing entry. The limitations on the field
created by Entry 50 of List II is however, contemplated to be created by a law
which relates to mineral development. The legislative competence of Parliament
to enact a “law relating to mineral development” can be traced to Entry 54 of List
I, which is a general entry. Therefore, the taxing powers of the state with respect
to mineral rights under Entry 50 of List II can be restricted by Parliament by its
regulatory power under Entry 54 of List I.
166. To delve into the inter-relationship between Entry 54 of List I and Entry 50 of List
II, we have to primarily address the following questions: (i) what is a tax on
mineral rights; (ii) whether Entry 50 of List II is an exception to the general rule
laid down in M P V Sundararamier (supra); (iii) what is the nature of the
limitations envisaged by the Constitution on the taxing powers of the state; and
(iv) whether the MMDR Act imposes limitations on the taxing powers of the state.
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i. Taxes on mineral rights
a. Mineral rights duty
167. The expression “taxes on mineral rights” was originally used in the GOI Act 1935.
The Constitution uses a similar expression. Therefore, it is important to
understand the context in which the term “taxes on mineral rights” (in its myriad
forms) came to occupy the discourse.
168. Under the law in England, landlords would receive royalties for exercising their
mineral rights or assigning them to other persons or lessees. 230 However, in the
latter part of the nineteenth century and the early twentieth century, it was
recognized that landlords received the benefits of royalty often at the cost of the
welfare of the miners. The Royal Commission on Mining Royalties narrated in its
report of 1893 that:
“[W]itnesses examined on behalf of the working
miners expressed the opinion that royalties and
wayleaves, where fixed in amount, are often so high
that in depressed times, when coal falls greatly in
price, the royalty owner continues to receive his full
royalty, whilst the miner suffers from a reduction in
wages, or a closing of mines; their efforts to avert
any reduction sometimes taking the form of a
strike.” 231
To counter the appropriation of royalties by landowners, the lawmakers decided
to levy tax on royalties received by them 232 with a view to increase revenue
generation and enhance the welfare measures for miners. 233
230 Lloyd George, ‘The Budget, The Land and The People: The New Land Value Taxes Explained and Illustrated’
(2nd edn, 1909) 48.
231 Royal Commission on Mining Royalties, Final Report of the Royal Commission appointed to inquire into the
subject of mining royalties (1893) 14.
232 Lloyd George (n 230) 51
233 Mr. Lloyd George (Hansard, Volume 11) 28 September 1909
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169. The Parliament in England imposed a mineral rights duty by Finance Act 1910.
Section 20 imposed a duty “on the rental value of all rights to work minerals and
of all mineral way leaves” at the rate of “one shilling for every twenty shillings of
that rental value.” The rental value was calculated in the following manner: (i)
where the right to work the minerals was the subject of a mining lease, the
amount of rent paid in the last working year; (ii) where minerals were being
worked by the proprietor, an amount fixed by the Commissioners of Inland
Revenue as equivalent to rent; and (iii) in case of mineral wayleave, the amount
of rent paid by the working lessee in the last working year. Lloyd George, the
Chancellor of the Exchequer, stated while introducing the legislative proposal
that the duty on mineral rights imposed “tax upon royalties and way-leaves
actually received by the owners of those rights.” 234 The Chancellor further
clarified that the mineral rights duty was introduced as part of taxes on land. 235 It
was in this context that the concept of taxes on mineral rights was introduced in
England and was later entrenched in the colonial regime by the GOI Act 1935.
b. Meaning of the expression “mineral rights”
170. The Constitution does not define “mineral rights”. The expression has not been
defined in the MMDR Act or the rules framed under it. Though the expression
“mineral rights” is used in Entry 50 of List II, it does not find mention in any of the
other related legislative entries – Entry 54 of List I and Entry 23 of List II. The
expression has to be given its ordinary and natural meaning by adopting an
interpretative approach which eschews rigidity. Mineral rights are inextricably
234 Hansard, Volume 11, 22 September 1909
235 Hansard, Volume 35, 5 March 1912
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connected to property. Any understanding of “mineral rights” must be prefaced
on an understanding of the basics of property law.
171. In a regime of private property, the rules governing access to and control of
resources are organized around the idea that resources are on the whole
separate objects belonging to particular individuals. 236 These resources can
comprise of immovable and movable property, both corporeal and incorporeal.
In a social order based on private property, an owner’s decision of the manner in
which they put the resource to use is generally upheld by society as final. 237 A
person who owns a resource has the right to determine its use. The ownership
of a resource also precludes the claims of other persons or individuals with
respect to that particular resource. 238
172. In the context of land, it is well-established that the ownership of land includes
the ownership of underlying minerals, unless the right to minerals has been
expressly reserved by law. 239 Therefore, an owner of land has rights to the
surface of the land and to sub-soil resources. 240 Surface rights are rights to the
surface of the land and include the right to use land, construct buildings, install
machinery and equipment, and plant trees or dig wells. Surface rights can also
be sold or transferred to another person. The right to minerals entails the right to
monetize mineral resources by either consuming them or selling them to third
parties. The right to minerals emanates from the concept of the ownership of
property.
236 Jeremy Waldron, ‘What is Private Property?’ (1985) 5(3) Oxford Journal of Legal Studies 313, 327.
237 Ibid, 327.
238 James Y Stern, ‘The Essential Structure of Property Law’ (2017) 115(7) Michigan Law Review 1167, 1176.
239 Thressiamma Jacob v. Geologist, Department of Mining & Geology, (2013) 9 SCC 725
240 State of West Bengal v. Union of India, (1964) 1 SCR 371 [18]
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173. Counsel have drawn attention to dictionary meanings attributed to “mineral
rights”. Black’s Law Dictionary defines “mineral right” as “an interest in minerals
in land, with or without ownership of the surface of the land; a right to take
minerals or a right to receive royalty.”241
174. Corpus Juris Secundum defines the term “mineral right” as follows:
“It is the right or title to all, or to certain specified,
minerals in a given tract. It is a broader term and is
more inclusive than the term “oil and gas”, and it has
been held that, in the light of the surrounding facts
and circumstances under which it is used, it may not
be necessarily include the right to oil and gas.” 242
175. In Pennsylvania Coal Co. v. Mahon, 243 the US Supreme Court observed that
the right to coal consists of the right to mine it. Entry 50 of List II uses the
expression “mineral rights” in the plural. It hence envisages a bundle of rights
associated with the ownership of minerals. The owner of minerals may transfer
the rights to the minerals to another person. Once transferred, the lessee stands
in the shoes of the owner/ lessor by acquiring his interest in the minerals,
according to the terms and conditions of the agreement. Usually, the right to mine
includes two related activities: (i) excavation of minerals; and (ii) removal or
consumption of the extracted minerals. The process of excavating minerals
generally entails the right to enter upon and occupy the land for the purpose of
working the mines to extract minerals. The removal or consumption of minerals
allows the lessee to monetize the extracted minerals.
176. The meaning of the expression “mineral rights” has been discussed in a few
judicial decisions in India. In a decision of the Calcutta High Court rendered in
241 Black’s Law Dictionary (6th edn,1990) 995
242 Corpus Juris Secundum (Volume 58) 15
243 260 US 393 (1922)
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1905, it was held that grant of mineral rights “must be taken to carry as incident
to it the power not only to go upon the land and work the minerals known to be
underground but to go to the land and conduct the ordinary preliminary
operations by boring or otherwise to ascertain (when it is not known) if there are
minerals underground.” 244 In Tata Chemicals Ltd. v. State of Gujarat, 245 the
Gujarat Mineral Rights Tax Act 1985 imposed a tax on the mineral rights of
holders of mining leases in respect of minerals specified in the Schedule. 246 A
Division Bench of the Gujarat High Court, speaking through Justice A M Ahmadi
(as the learned Chief Justice then was) repelled the challenge to the validity of
the legislation. The Court drew a distinction between mining rights and mineral
rights thus:
“51. [a] mining right is a right to enter upon and
occupy land for the purpose of working it with a view
to obtaining the minerals deposited therein whereas
a mineral right is a right or title to all or to certain
specified minerals in a given tract. It is, therefore,
clear that a person having a mining right is entitled
to work the mine with a view to winning the minerals
deposited therein but unless he is given a right to
remove or consume the mineral, he cannot do so. It
is the latter right which is known as the mineral right
which the impugned legislation seeks to tax.”
The Gujarat High Court held that a mining right is a right to enter upon and
occupy land for the purpose of working. A mineral right is a right or title to certain
specified minerals in a given tract. Therefore, the High Court followed the
244 Kumar Ramessur Malia v. Ram Nath Bhattacharjee, 1905 SCC OnLine Cal 55
245 1988 SCC OnLine Guj 13
246 Section 3, Gujarat Mineral Rights Tax Act 1985. Section 3 reads: “On and from the commencement of this Act,
there shall be levied and collected a tax on mineral rights at such rates not exceeding the maximum specified in
Column 2 of the Schedule against minerals specified in column 1 of that Schedule as the State Government may,
from time to time by notification in the Official gazette, fix.”
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principle that a lessee acquires mineral rights if the lessor grants them the
permission to remove minerals from the leased area.
177. In his dissenting opinion in Kesoram (supra), Justice S B Sinha sought to draw
a distinction between “minerals” and “mineral rights” by observing that mineral
rights “cannot be construed as mineral already extracted as contradistinguished
from being capable of extraction or otherwise in a state or form when embedded
in the earth.” 247 The learned Judge observed that when a mineral is extracted, it
may be a culmination of the right to deal in the mineral but the mineral rights
would not include a right to dispatch extracted minerals. Justice Sinha observed
that the right to receive royalty is also a mineral right. According to him mineral
rights extend till the extraction of minerals from the earth and do not include the
right to dispatch the extracted minerals. There is a fallacy in Justice Sinha’s
observations. Statutorily, royalty is a consideration by the lessee to the lessor for
winning the minerals and removing them from the leased area. Section 9 of
MMDR Act imposes royalty on removal or consumption of minerals by lessee.
Royalty, is paid on dispatch of minerals. Thus, mineral rights do not culminate
with the extraction of minerals, but include the right to dispatch the extracted
minerals as well.
178. The Constitution is a living organic document and must be interpreted in that
spirit. 248 Enumerated legislative powers ought to be interpreted with a wide and
liberal spirit to ensure that the legislatures have the requisite authority to legislate
and to allow the executive to govern. The expression “mineral rights” must be
construed in this spirit to ensure that the taxing powers of the State under Entry
247 Kesoram (supra) [400]
248 Saurabh Chaudri v. Union of India, (2003) 11 SCC 146 [71]; Navtej Singh Johar v. Union of India, (2018) 10
SCC 1 [95].
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50 of List II are not unnecessarily curtailed. The natural meaning of the
expression “mineral rights” will include the entire bundle of rights that follow
ownership of minerals, including rights which can be transferred to a lessee
through a mining lease. These rights will include the right to extract minerals by
working the mines, winning the minerals, and monetizing the minerals obtained
by removing or consuming them.
179. The breadth and scope of mineral rights has also been recognized under the
MMDR Act. In a situation where the minerals vest with the State by operation of
law, the right to those minerals also vests with the State. However, the State can
assign or transfer its mineral rights by way of a mining lease to a lessee. This
has been contemplated by the Mineral Concession Rules read with Form K. In
Part I of Form K, the Government grants its mineral rights to the lessee, including
liberties, powers, and privileges. However, it is important to note that the lessee
is only granted rights in the minerals specified in Part I of Form K. The
Government can reserve to itself the right to work the other minerals found in the
same demised land or to grant a lease to a separate person to work and remove
these other minerals. 249 Part II of Form K of the Mineral Concession Rules 1960
enumerates the liberties, powers, and privileges of the lessee. It provides that
the lessee has the liberty and power at all times during the term of demise to
enter upon the land demised and search, mine, bore, dig, drill, win, work, dress,
249 Part IV, Form K, Mineral Concession Rules 1960. [“1. Liberty and power for the State Government, or to any
lessee or persons authorized by it in that behalf to enter into and upon the said lands and to search for, win, work,
dig, get, raise, dress, process, convert and carry away minerals other than the said minerals and any other
substances and for those purposes to sink, drive, make, erect, construct, maintain and use such pits, shafts,
inclines, drifts, levels and other lines, waterways, airways, water courses, drains, reservoirs, engines, machinery,
plant, buildings, canals, tramways, railways, roadways, and other works and conveniences as may be deemed
necessary or convenient.
Provided that in the exercise of such liberty and power no substantial hindrance or interference shall be caused to
or with the liberties, powers and privileges of the lessee/lessees under these presents and that fair compensation
(as may be mutually agreed upon or in the event of disagreement as may be decided by the State Government)
shall be made to the lessee/ lessees for all loss or damage sustained by the lessee/ lessees by reason or in
consequence of the exercise of such liberty and power.”]
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process, convert, carry away, and dispose of the minerals. Part II of Form K
further provides that a lessee has liberty and power to use the demised land to
sink pits, 250 use machinery equipment 251 construct buildings, roadways, and
railways, 252 to beneficiate any ore produced from the lands and carry away such
beneficiated ore, 253 and clear undergrowth and brushwood and utilize any trees
or timber standing or found on the demised lands.
180. Having explained the scope of the expression “mineral rights”, the next issue
pertains to the scope and ambit of “taxes on mineral rights.”
c. Taxes on mineral rights
181. The respondents have contended that the meaning of the term “taxes on mineral
rights” must be derived from the related entries in List II, namely Entries 45 and
49. It was contended that since the incidence of the tax imposed in light of Entries
45 and 49 is on the owner of land, the incidence of tax on mineral rights is also
on the owner of land, that is the private lessor. On the contrary, the petitioners
have refuted the respondent’s submission on the ground that the tax under Entry
50 of List II can also be applied with respect to lessees who hold the land or
building on lease from the Government.
182. Conceptually, a tax has four elements – (i) the nature of the tax which prescribes
the taxable event attracting the levy; (ii) the person who is liable to pay tax; (iii)
the rate at which the tax is paid; and (iv) the measure or value to which the rate
will be applied for computing the liability. 254
250 Form K, Part II, Rule 2, Mineral Concession Rules 1960
251 Rule 3, Mineral Concession Rules 1960
252 Rule 4, Mineral Concession Rules 1960
253 Rule 8(a), Mineral Concession Rules 1960
254 Govind Saran Ganga Saran v. CST, 1985 Supp SCC 205 [6]; Mathuram Agrawal v. State of M P, (1999) 8 SCC
667 [12]; Union of India v. Mohit Minerals (P) Ltd., (2022) 10 SCC 700 [97]
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183. The subject matter of taxation has been exhaustively enunciated in the Union
and State Lists in the Seventh Schedule of the Constitution. 255 The occurrence
of the taxable event creates or attracts the liability to tax. 256 For example, In re
Sea Customs Act, S.20(2), 257 this Court held that in the case of excise duties,
the taxable event is the manufacture of goods and the duty is not directly on the
goods but the manufacture thereof. Thus, the activity of the manufacture of
goods attracts the liability for the levy of excise duties.
184. The incidence of taxation pertains to the manner in which the burden of tax would
fall on a person. 258 The incidence of tax was exemplified by the decision of this
Court in State of Karnataka v. Drive-In Enterprise. 259 While dealing with the
validity of an entertainment tax imposed by the State of Karnataka, it was held
that since an entertainment necessarily requires a person who is entertained,
the incidence of the tax is on the persons entertained. The incidence of tax is
relatable to the person who bears the ultimate burden of the tax.
185. The subject matter of Entry 50 of List II is “taxes on mineral rights.” As discussed
in the above segment, ‘mineral rights’ is a comprehensive term to mean the
bundle of rights with respect to minerals. The taxable event under Entry 50 of
List II would relate to the exercise of mineral rights.
186. In his dissenting opinion in Hingir-Rampur (supra), Justice Wanchoo observed
that taxes on mineral rights would mean taxes on the right to extract minerals
and not taxes on the minerals actually extracted. He opined that a tax on mineral
rights would be confined, for example, to taxes on leases of mineral rights and
255 Chhotabhai Jethabhai Patel and Co. v. Union of India, 1962 Supp (2) SCR 1 [68]
256 Goodyear India Ltd. v. State of Haryana, (1990) 2 SCC 71
257 (1964) 3 SCR 787 [23]
258 Godfrey Phillips India Ltd v. State of UP, (2005) 2 SCC 515 [47]
259 (2001) 4 SCC 60 [13]
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on premium or royalty for that. In the process, Justice Wanchoo differentiated
between taxes on minerals produced and taxes on mineral rights. According to
this view, the process of working mines to extract minerals has to necessarily
precede the production of minerals. The process of working mines, according to
the learned Judge, attracts liability under “taxes on mineral rights”, while taxes
on minerals extracted form part of taxes on goods produced, in the nature of
duties of excise.
187. The working of a mine can be undertaken either by the owner or by another to
whom the right to work the mine has been granted by a mining lease. In the latter
case, the lessee has to pay royalty to the lessor as a consideration for removing
or consuming the minerals from the leased area. The right to receive royalty is
an integral part of the mineral rights of the lessor. However, as discussed in the
segments above, royalty is not a tax. Therefore, royalty would not be
comprehended within the meaning of the expression “taxes on mineral rights.”
The scope of taxes on mineral rights includes taxes on the right to extract
minerals. Taxes on mineral rights also take within their fold other aspects relating
to the exercise of mineral rights such as working the mines and dispatching
minerals from the leased area. However, the legislature has to ensure that the
exercise of the taxing powers relatable to the field under Entry 50 of List II does
not foray into a duty of excise or a tax on the sale of minerals.
188. The taxable event with respect to taxes on mineral rights will be the exercise of
mineral rights. The incidence of the tax on mineral rights depends upon who is
exercising the right. We do not agree with the respondents that the incidence of
a tax on mineral rights would necessarily have to be on the owner of the land. A
tax under Entry 49 of List II is not only levied on the owner of the land, but also
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an occupier. 260 Similarly, a tax on mineral rights could be levied on any person
who has an interest in the minerals.
189. The measure of tax is a matter of legislative policy. The legislature can select any
measure of tax to compute liability, as long as it has a reasonable nexus with the
nature of the tax. Hence, it is for the legislature to devise an appropriate measure
of tax to compute the tax liability, provided the measure has a nexus with the
nature of levy, that is a tax on mineral rights.
ii. The limitations on the taxing power of the State under Entry 50 of
List II
190. Entry 50 of List II is unique because though it is a taxing entry, it is made subject
to “any limitations imposed by Parliament by law relating to mineral
development.” Thus, the taxing power of the state is capable of being controlled
by a non-fiscal enactment by Parliament relating to the development of minerals.
This seems to recognize that a fiscal imposition in the nature of a tax on mineral
rights by a state may impact on the development of minerals. That is why the
former has been made subject to a law relatable to mineral development enacted
by Parliament.
191. The common thread between Entry 54 of List I and Entries 23 and 50 of List II is
the use of the phrase “mineral development”. Entry 54 of List I and Entry 23 of
List II deal with the same subject matter namely, of the regulation of mines and
mineral development, where the latter is subordinated to the former to the extent
to which Parliament brings the field under its control. In the above segments, we
have analyzed the decisions of this Court in Hingir-Rampur (supra), MA Tulloch
260 See Anant Mills Co. Ltd. v. State of Gujarat (1975) 2 SCC 175
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(supra), and Baijnath Kedia (supra) where it was held that Entry 23 of List II is
pro tanto excluded to the extent to which the Parliamentary legislation enacted
in terms of Entry 54 of List I covers the field.
a. Entry 50 of List II does not constitute an exception to the
Sundararamier principle
192. The position which was enunciated in M P V Sundararamier (supra) and
accepted in Jindal Stainless Ltd (supra) is that the field of taxation is distinct
from the general subjects of legislation in the Union and State lists of the Seventh
Schedule. The issue which needs to be addressed is whether Entry 50 of List II
is an exception to the position which has been laid down in M P V
Sundararamier (supra) in view of the fact that the ambit of a taxing entry is
sought to be restricted by a regulatory entry. A related issue is whether
Parliament has the legislative competence to tax mineral rights under its
residuary powers.
193. The decision in Hoechst Pharmaceuticals (supra) interpreted the relationship
between Entry 54 of List II and Entry 92A of List I. Entry 54 of List II, before
amendment, was subject to the provisions of Entry 92A of List I. 261 The entry was
substituted by the Constitution (One Hundred and First Amendment) Act 2016.
The Bihar Finance Act 1981 levied a surcharge on dealers. The law was made
pursuant to the field of legislation in Entry 54 of List II. The Act prohibited dealers
from collecting surcharge. It was contended that the prohibition on dealers
recovering the surcharge was inconsistent with the Drug (Price Control) Order
261 Entry 54 of List II, before substitution by the Constitution (One Hundred and First Amendment) Act 2016 read:
“54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List
I)
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1979 issued under the Essential Commodities Act, which allowed the
manufacturer or producer of drugs to pass on the liability to pay sales tax. The
Essential Commodities Act was enacted for the regulation, production, supply,
distribution and pricing of essential commodities and is relatable to Entry 33 of
List III. 262 One of the issues before this Court was whether the State power to tax
the sale of goods under Entry 54 of List II could be encroached upon by a law
made by Parliament with respect to one of the matters enumerated in List III.
194. This Court referred to M P V Sundararamier (supra) to reiterate that: (i) taxation
is considered to be a distinct matter for purposes of legislative competence; (ii)
the power to tax cannot be deduced from a general legislative entry; (iii) the
taxing powers of the Union and the States are mutually exclusive without any
overlap; and (iv) this is also evident from the fact that there is no taxing entry in
List III. The Court held that a law made by Parliament under a general entry, that
is, Entry 33 of List III, cannot intrude into the plenary power of the state legislature
to levy taxes on the sale or purchase of goods under Entry 54 of List II. Further,
it was held that the 1981 Act and the Control Order operated in separate and
distinct fields without inconsistency or overlap.
195. The decision in Hoechst Pharmaceuticals (supra) is an authority for the
following legal propositions: (i) the principle of federal supremacy will not apply
where there is no direct conflict between the legislative powers of Union and
States; (ii) Parliament cannot acquire legislative competence with respect to
subject matters of taxation enumerated under List II under the guise of regulatory
262 Entry 33, List III, Seventh Schedule, Constitution of India. (It reads:
[“33. Trade and commerce in, and the production, supply and distribution of –
(a) the products of any industry where the control of such industry by the Union is declared by Parliament by
law to be expedient in the public interest, and imported goods of the same kind as such products; […]”]
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entries; and (iii) since taxing entries are mutually exclusive, the principle of
federal supremacy is not generally applicable with respect to taxing entries under
Lists I and II.
196. Entry 54 of List I is a regulatory entry dealing with the regulation of mines and
mineral development. The regulatory entries in Lists I and II of the Seventh
Schedule are distinct from taxing entries. Though the power to levy taxes is an
incident of sovereignty, it is subject to constitutional limitations. Giving an
extended interpretation to general entries to include the power of taxation will
grant arbitrary and unconstitutional authority to the Union and States. Since Entry
54 of List I is a general entry, it will not include the power of taxation.
197. The subject of Entry 54 of List I is “regulation of mines and mineral development”.
In contrast, the subject of Entry 50 of List II is “taxes on mineral rights”. Each of
these terms has a specific connotation. Whereas Entry 54 of List I encompass a
broad subject matter covering the regulation of mines and mineral development,
the taxing entry in Entry 50 of List II is confined to mineral rights. Entry 23 of
List II also encompasses the “regulation of mines and mineral development” as
a legislative field for the states. Since Entry 54 of List I also deals with the
“regulation of mines and mineral development”, the states’ domain under Entry
23 of List II is subject to the limitations created by Entry 54 of List I. Despite the
positioning of Entry 23 in List II, the Constitution has specifically enumerated the
taxing field with respect to mineral rights in Entry 50 of List II. Taxation of mineral
rights is hence, traceable to Entry 50 of List II. If the framers had intended that
the field of taxing mineral rights would be subsumed in the general entry covering
the regulation of mines and mineral development, namely, Entry 23 of List II,
there would have been no reason to provide for a specific taxing entry on mineral
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rights in Entry 50 of List II. Therefore, just as the field of taxing mineral rights
does not fall under Entry 23 of List II, it does not fall under Entry 54 of List I which
uses similar language and is not a taxing entry. While the imposition of taxes on
mineral rights is a field entrusted to the State legislatures in List II, it is subject to
a law enacted by Parliament on mineral development. While the imposition of
taxes on mineral rights is a field exclusively entrusted to the State legislatures
(and not to Parliament) in the State List, Parliament can while making provisions
in a law relating to mineral development make provisions which ensure that the
exercise of the taxing power by the states does not adversely affect the
development of minerals. This power of Parliament to impose limitations or
conditions which ensure that that the exercise of the taxing power of the states
does not impede mineral development distinct from the power to tax mineral
rights which is entrusted to the state legislatures.
198. If Parliament has no legislative competence to tax mineral rights under Entry 54
of List I, can it make use of its residuary powers to gain legislative competence?
The answer has to be in in the negative. Article 246 exclusively empowers the
state legislatures to make laws with respect to entries in List II, which includes
taxes on mineral rights. Article 248 provides that the residuary powers of
Parliament shall include the power of making any law imposing a tax not
mentioned in either the State List or Concurrent List. Under Entry 97 of List I
Parliament can make a law with respect to any other matter not enumerated in
List II or List III including any tax not mentioned in either of those Lists.
199. During the debates in the Constituent Assembly, Dr. B R Ambedkar explained
that the purpose of Entry 97 of List I is to include “anything not included in List II
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or List III.” 263 In International Tourist Corporation v. State of Haryana, 264 this
Court held that it is necessary to establish the legislative incompetence of the
State legislature before Parliament can claim exclusive legislative competence
by resorting to the residuary power. A matter can be brought under Entry 97 only
if it is not enumerated in List II or List III and in the case of a tax if it is not
mentioned in List II. Importantly, it was also observed that the residuary powers
of the Union cannot be interpreted so expansively as to whittle down the power
of the State legislatures. A subject can be brought under Entry 97 of List I only if
it is not enumerated in either List II or List III. 265
200. In Province of Madras v. Boddu Paidanna, 266 Chief Justice Maurice Gwyer
speaking for the Federal Court observed that “[i]t is natural enough, when
considering the ambit of an express power in relation to an unspecified residuary
power, to give a broad interpretation to the former at the expense of the latter.”
The enumeration of taxes on mineral rights in List II is a constitutional
entrustment to the states. This Court is bound to abide by the constitutional
distribution of legislative powers. The distribution also subserves the principles
of fiscal federalism.
201. In Mahalaxmi Fabric Mills (supra), 267 the constitutional validity of Section 9(3)
of the MMDR Act and a notification fixing new rates of royalty was in question.
The Central Government sought to increase the rate of royalty to compensate
the state, which had suffered financial losses as a result of the invalidation of the
cess imposed by it by the decision in India Cement (supra). The notification was
263 Constituent Assembly Debates, Volume 9 (1 September 1949)
264 (1981) 2 SCC 318 [6-A]
265 See All India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527 [46]
266 (1942) 4 FCR 90
267 1995 Supp (1) SCC 642
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challenged before the High Court of Madhya Pradesh for excessively increasing
the rates of royalty by 400 per cent to 2000 per cent as compared to the royalty
fixed in 1981 on various varieties of coal. The High Court held that the notification
was outside the purview of Section 9(3) of the MMDR Act. Against the decision
of the High Court, appeals were filed before this Court. The main contention of
the petitioners was that since royalty is a tax, as held in India Cement (supra),
Entry 54 of List I is a general entry and did not empower Parliament to impose
the tax.
202. This Court held that once Parliament enacts a law under Entry 54 of List I and
occupies the field in connection with the regulation of mines and mineral
development, the state legislature will lose legislative competence with respect
to both Entries 23 and 50 of List II. Further, it was observed that since royalty is
a tax, the legislative competence of Parliament to enact Section 9 of the MMDR
Act could be traced to both Entries 54 and 97 of List I. 268
203. The decision in Mahalaxmi Fabric Mills (supra) was followed by a two judge
Bench in Saurashtra Cement (supra). 269 In State of Orissa v. Mahanadi
Coalfields Ltd., 270 a three judge Bench held that the MMDR Act has made
exhaustive provisions for “all kinds of taxation on minerals and mineral rights –
tax, royalty – fee – dead rent, etc.” which denudes the state legislature of the
power to enact any law or to impose any tax or other levy with reference to Entry
23 or Entry 50 of List II.
204. As discussed in the above segments, the field of tax on mineral rights vests with
the state legislature. Parliament cannot impose a tax on mineral rights under
268 Mahalaxmi Fabric (supra) [14]
269 (2001) 1 SCC 91 [11]
270 1995 Supp (2) SCC 686.
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Entry 54 of List I. Parliament cannot resort to its residuary powers to tax mineral
rights when the subject matter is specifically enumerated in Entry 50 of the State
List. The fixation of the rates of royalty under Section 9 can be validly traced to
Entry 54 of List I because royalty is not a tax. The fixation of the rates of royalty
falls with the regulatory powers of Parliament under Entry 54 of List I. The
decisions in Mahalaxmi Fabric Mills (supra), Saurashtra Cement (supra), and
Mahanadi Coalfields (supra) do not reflect the correct position of law.
205. Entry 50 of List II is not an exception to the Sundararamier principle which is
that taxing entries are enumerated separately from the general entries in Lists I
and II of the Seventh Schedule. The field of taxation cannot be derived from
regulatory legislative entries and has to be derived from a specified taxing entry.
This principle has now been well-entrenched in our constitutional
jurisprudence. 271 A legislature has incidental and subsidiary powers with respect
to a legislative entry. However, the power to tax is neither incidental nor
subsidiary to the power to legislate on a particular matter in the nature of a
regulatory entry. 272
206. Entry 50 of List II is subordinated only to the extent of any limitations that may
be imposed by Parliament by law relating to mineral development. Unless
Parliament imposes a limitation, the plenary power of the state legislature to levy
taxes on mineral rights is unaffected.
207. The question of an overlap between the taxing entry and general entry does not
arise because Parliament cannot impose taxes on minerals under Entry 54 of
List I. There is no direct conflict between the taxing powers of the States under
271 Federation of Hotel & Restaurant Association of India v. Union of India, (1989) 3 SCC 634 [74]; State of
Karnataka v. State of Meghalaya, (2023) 4 SCC 416 [66]
272 State of Mysore v. D Cawasji and Co, (1970) 3 SCC 710 [8]
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Entry 50 of List II and the regulatory powers of the Union. Resultantly, the
principle of federal supremacy has no application in the instant case. Hence,
while Entry 50 of List II is sui generis, it does not constitute an exception to the
position of law laid down in M P V Sundararamier (supra).
b. Nature of “any limitation”
208. Having established that the state legislature has exclusive power to enact laws
relating to taxes on mineral rights under Entry 50 of List II the next issue is to
determine the nature of the limitations that Parliament can constitutionally
impose on the exercise of the taxing powers of the states. To recap, the latter
part of Entry 50 of List II has three elements: (i) any limitations; (ii) imposed by
Parliament by law; and (iii) relating to mineral development. As held in above
segments, the element of “law relating to mineral development” can be traced to
Entry 54 of List I. Parliament has enacted the MMDR Act in pursuance of Article
246 read with Entry 54 of List I.
209. In respect to the first element, the petitioners have argued that Parliament has
not expressly imposed any limitation under the MMDR Act on the taxing powers
of the state under Entry 50 of List II. On the contrary, the respondents argue that
the overall scheme of the MMDR Act in itself constitutes a limitation on the taxing
powers of the state under Entry 50 of List II.
210. There is a significant distinction as regard the nature of the restraints imposable
by Parliament on the legislative field of the states to regulate mines and the
development of minerals, as contrasted with the Parliamentary restraints
contemplated on the taxing power of the states over mineral rights. In relation to
the former, this distinction emerges from the language of Entry 54 of List I and
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Entry 23 of List II. As regards the latter, the language of Entry 50 of List II needs
analysis for this purpose. We will take up the regulatory power of the states over
mines and mineral development under Entry 23 of List II. Entry 23 of List II is
expressly subject to the provisions of List I with respect to regulation and
development under the control of the Union. The expression “subject to”
indicates that the Constitution subordinates Entry 23 of List II to the entries in List
I with respect to regulation and development under the control of the Union. In
other words, where there is an entry in List I relating to regulation and
development under the control of the Union, Entry 23 of the State list has to yield
to it. Entry 54 of List I is one such entry, which envisages the regulation of mines
and mineral development. Entry 54 of List I is conditioned by three requirements
– (i) a declaration by Parliament by law; (ii) envisaging that control of the Union
is expedient in the public interest; and (iii) an indication by Parliament in the law
of the extent of the control by the Union. Once these three conditions are fulfilled,
the field for the states is abstracted away to the extent that is envisaged in the
Parliamentary law. The relationship between Entry 23 of List II and Entry 54 of
List I is that the latter results in a denudation of the legislative field of the states
to the extent envisaged by Parliament by law. The expression ‘extent’ leaves it
entirely to Parliament to determine whether the extent of the control by the Union
is to be total or partial. The denudation of the legislative field of the states follows
such a declaration by Parliament and the extent would be determined by the
provisions of the law (the MMDR Act) enacted by Parliament.
211. We may now contrast this with Entry 50 of List II. Entry 50 of List II gives the
legislative field of taxing mineral rights to the states. But while doing so, it makes
it subject to limitations imposed by Parliament by law relating to mineral
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development. The words “subject to” appear in both Entry 23 and in Entry 50 of
List II. They are words which indicate primacy of Parliament. But in Entry 50 of
List II, the Constitution envisages that the field of taxing mineral rights which is
given to the states will be subject to (i) limitations; (ii) imposed by a law of
Parliament relating to mineral development. The expression “regulation of mines”
does not find place in Entry 50 of List II (as it does in Entry 23 of List II). Moreover,
the law by Parliament relating to mineral development may impose limitations.
Entry 50 of List II does not result in the field of taxing mineral rights being
conferred on Parliament. This is clear also because there is no specific entry in
List I giving the field of taxing mineral rights to the Union. The field of taxing
mineral rights is exclusive to the states and continues to remain with them but
the field is subject to the limitations imposed by Parliamentary law relating to
mineral development. Parliament can determine whether, and if so, how the
taxing power of the states over mineral rights should be limited in order to ensure
that it does not impede or retard mineral development. If Parliament does so and
indicates the nature of the limitations, the states are bound to abide by them
while exercising the taxing power over mineral rights. The authority to impose a
tax on mineral rights remains with the states but is subject to the limitations
envisaged by a law enacted by Parliament in relation to the development of
minerals. Under Entry 23, the regulatory power of the State is denuded by
Parliament, while in case of Entry 50 the legislative field assigned to the states
to tax mineral rights is only limited.
212. The supremacy of Parliament is one of the fundamental features of the English
legal system. Our constitutional democracy envisages the supremacy of the
Constitution. The subjection of all constitutional authorities to the mandate of a
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written Constitution is the fundamental feature of our Constitution. 273 This Court
in In re Powers, Privileges and Immunities of State legislature, Special
Reference No. 1 of 1964 274 observed that the supremacy of the Constitution is
fundamental to the existence of the federal unit and of the member States as a
protection against destruction or impairment of the delicate balance of power.
The Constitution is the source of the legislative powers of both Union and the
states. Any limitation on the exercise of plenary powers has to be situated within
the Constitution and not beyond.
213. In Umeg Singh v. State of Bombay, 275 a Constitution Bench held that any
limitation on the legislative power of the state legislature must be express:
“13. […] The legislative competence of the State can
only be circumscribed by express prohibition
contained in the Constitution itself and unless and
until there is any provision in the Constitution
expressly prohibiting legislation on the subject either
absolutely or conditionally, there is no fetter or
limitation on the plenary powers which the State
Legislature enjoys to legislate on the topics
enumerated in the Lists 2 and 3 of the Seventh
Schedule to the Constitution. […]”
“14. The fetter or limitation upon the legislative
power of the State Legislature which had plenary
powers of legislation within the ambit of the
legislative heads specified in the Lists 2 and 3 of the
Seventh Schedule to the Constitution could only be
imposed by the Constitution itself and not by any
obligation which had been undertaken by either the
Dominion Government or the Province of Bombay or
even the State of Bombay. Under Article 246 the
State Legislature was invested with the power to
legislate on the topics enumerated in Lists 2 and 3
of the Seventh Schedule to the Constitution and this
power was by virtue of Article 245(1) subject to the
provisions of the Constitution. The Constitution itself
273 Kalpana Mehta v. Union of India, (2018) 7 SCC 1 [218]
274 (1965) 1 SCR 413 [39]
275 (1955) 2 SCR 164
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laid down the fetters or limitations on this power e.g.
in Article 303 or Article 286(2). But unless and until
the court came to the conclusion that the
Constitution itself had expressly prohibited
legislation on the subject either absolutely or
conditionally the power of the State Legislature to
enact legislation within its legislative competence
was plenary. Once the topic of legislation was
comprised within any of the entries in the Lists 2 and
3 of the Seventh Schedule to the Constitution the
fetter or limitation on such legislative power had to
be found within the Constitution itself and if there
was no such fetter or limitation to be found there the
State Legislature had full competence to enact the
impugned Act no matter whether such enactment
was contrary to the guarantee given, or the
obligation undertaken by the Dominion Government
or the Province of Bombay or even the State of
Bombay.”
214. In Firm Bansidhar Premsukhdas v. State of Rajasthan, 276 this Court reiterated
Umeg Singh (supra) by observing that the legislative competence of Parliament
or of the State legislature can only be circumscribed by express prohibition
contained in the Constitution. It was further observed that unless there is a
provision in the Constitution expressly prohibiting legislation on the subject either
absolutely or conditionally, there is no fetter or limitation on the plenary powers
which the legislature is endowed with for legislating on the topics enumerated in
the relevant Lists.
215. Any limitation on the plenary legislative powers of either the Union or the States
with respect to a subject in the relevant Lists must be express and specified by
the Constitution.
276 1966 Supp (SCR) 81 [7]
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c. Scheme of the MMDR Act does not serve as “any limitation”
216. The Union has argued that (i) the MMDR Act occupies the entirety of the subject
matter pertaining to mineral development, leaving no scope for the State
legislatures to legislate under Entry 50 of List II; (ii) the MMDR Act abstracts the
legislative powers of the States under Entry 50 of List II; (iii) the MMDR is a
complete code with respect to the regulation of mines and mineral development
and no part of the field is left for the States to legislate including on taxation of
mineral rights.
217. The respondents have drawn our attention to the following architecture of the
MMDR Act to press the point that the states have been deprived of legislative
control in respect of mineral development:
a. Although the State Government is the owner of minerals, the MMDR Act
defines the rights which can be created in those minerals. Section 4 provides
that no person can undertake prospecting or mining operations except in
accordance with the terms and conditions of the license or lease, as the case
may be. The form of license and lease agreements is stipulated under the
Mineral Concession Rules. The grant of mineral rights is governed by the
terms and conditions laid down under Form K of the rules. The State
Government cannot change or modify the terms of the prospecting license or
mining lease. The proviso to Section 5(1) states that the State Government
shall not grant any mineral concession except with the previous approval of
the Central Government. Any mineral concession granted in contravention of
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the provisions of the MMDR Act is void. 277 Moreover, Section 21 entails penal
sanctions for contravention of Section 4;
b. The Central Government prescribes the fiscal exactions (such as royalty,
dead rent, and surface rent) for the grant or creation of mineral rights. Section
9 empowers the Central Government to fix the rate of royalties. Section 25
deals with the recovery of unpaid rent, royalty and tax as arrears of land
revenue; and
c. The MMDR Act governs all aspects relating to both major minerals and minor
minerals. Under Section 13, the Central Government is empowered to make
rules on all or any matter relating to the grant of mineral concessions.
Although Sections 14 and 15 allow the State Government to make rules in
respect of minor minerals, the field of minor minerals is covered by the MMDR
Act leaving no scope for the state legislature to legislate. In case the Central
Government undertakes prospecting or mining operations, Section 17(3)
specifies the levies it is bound to pay. Further, the State Government cannot
reserve any area under Section 17A without the approval of the Central
Government. The Central Government is also empowered to issue directions
to the State Government for the conservation of mineral resources or on any
policy matter in the national interest. Section 18 empowers only the Central
Government to take any measure necessary for mineral development.
218. Two issues have to be addressed: (i) whether the MMDR Act fulfils the
requirement of “any limitation” under Entry 50 of List II; and (ii) whether the
MMDR Act contains any provision limiting the taxing powers of the states under
Entry 50 of List II.
277 Section 19, MMDR Act
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219. The MMDR Act lays down the means and processes by which the rights to mines
and minerals may be exercised or granted by the owner of mineral rights. It is
true that the MMDR Act largely denudes the states of their legislative powers with
respect to regulation of mines and mineral development under Entry 23 of List II.
However, the expression in Entry 50 of List II demonstrates that: (i) Parliament
can limit the legislative power of the States to tax minerals; and (ii) the limitation
has to be imposed “by law” relating to mineral development.
220. The MMDR Act has a centralizing tendency because the Central Government is
tasked with important responsibilities such as setting out the terms and
conditions of mining leases, fixing the rates of royalty and issuing guidelines to
State Governments in respect of conservation of minerals. This drift towards the
Central Government stems from the fact that the principal aim of the MMDR Act
is development and conservation of minerals. 278 Minerals being a natural and
scarce resource, their exploitation has to be scientific and judicious. The MMDR
Act enumerates rules and regulations to ensure that the exploration, extraction,
and exploitation of minerals follow standards of conservation and sustainability.
The Indian State is the trustee of all natural resources, including minerals. 279
Therefore, it is a constitutional duty of the State to protect minerals and ensure
their exploitation in public interest.
221. By authorizing the Central Government to lay down the terms of mining leases
and grant approval to concessions, the MMDR Act seeks to ensure that there is
uniformity in the terms for working of mines and extraction of minerals. Uniformity
in the terms and conditions of mining leases, rates of royalty, and in the policy
approach towards conservation of minerals reduces indiscriminate exploitation
278 Hind Stone (supra) [10]
279 See M C Mehta v. Kamal Nath, (1997) 1 SCC 388
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of mineral resources and promotes mineral development. The fact that the State
Government cannot alter the clauses in the mining lease cannot be understood
to mean that all the powers of the State with respect to regulation of mines and
mineral development as well as the power to tax mineral rights have been
extinguished.
222. Entry 50 of List II provides that the legislative power of States to tax mineral rights
is subject to any limitations imposed by Parliament by law relating to mineral
development. A plain reading of the phrase makes it clear that the taxing power
is subject to “any limitations” and not a “law relating to mineral development.” If
the Constitution intended to restrict the taxing powers under Entry 50 of List II
with respect to a parliamentary law, it would not have used the expression “any
limitations.” It could have used phraseology such as for example, “Taxes on
mineral rights subject to any law relating to mineral development made by
Parliament.” Parliament has to ‘impose’ the limitations. That is, Parliament has
to expressly specify the limitations by the authority of law. Thus, under Entry 50
of List II the taxing power of the State is subject to the extent that Parliament
imposes any limitations “by law” relating to mineral development.
223. The phrase “by law” is also important because it indicates the manner in which
Parliament can impose limitations. The expression “by law” means that the
legislative power should be effectuated through the provisions of a statute. The
purport of including the phrase “by law” in Entry 50 of List II is to indicate that
Parliament has to specify the extent to which it is seeks to limit the taxing powers
under Entry 50 of List II.
224. Parliament can impose limitations under Entry 50 of List II by means of statutory
provisions. There is no specific provision in the MMDR Act which imposes
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limitations on the power of the States to tax mineral rights. The scheme of the
MMDR Act cannot by a process of stretched construction be read to limit the
taxing powers of States under Entry 50 of List II.
225. The respondents have referred to Entry 54 of List I to contend that once
Parliament enacts a law relating to mineral development, its consequences on
the taxing powers of the state legislature under Entry 50 of List II can be implied.
In this connection, reference was made to Kesavananda Bharati v. State of
Kerala, 280 where it was held that powers and limitations could be implied from
necessity or from the scheme of the Constitution. Moreover, reference was made
to the decision in Kalpana Mehta v. Union of India, 281 to contend that the
Constitution must be interpreted in a manner that leads to the discovery of
“constitutional silences or abeyances.” Therefore, it was contended that Entry 50
of List II contemplates an implicit denudation of legislative powers of States once
a law relating to mineral development was enacted by Parliament under Entry 54
of List I.
226. The theory of implied limitations was adopted in Kesavananda Bharati (supra)
to iterate that the basic structure doctrine serves as an implied limitation on the
power of Parliament to amend the Constitution. 282 The power of Parliament to
amend the Constitution was subjected to the basic structure doctrine. The
doctrine of implied limitations is not applicable in the present case in view of the
fact that Entry 50 of List II specifies the nature of the limitation and the manner
in which it can be imposed. The implication that any law enacted by Parliament
280 (1973) 4 SCC 225 [210]
281 (2018) 7 SCC 1
282 See I R Coelho v. State of Tamil Nadu (2007) 2 SCC 1
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under Entry 54 of List I will impliedly denude the powers of the state legislature
under Entry 50 of List II will usurp the taxing powers of the States.
227. The principle of constitutional silences has generally been used to step in where
the Constitution is silent or where there is a legislative vacuum. 283 Entry 50 of
List II is clear in its terms – a limitation can be imposed by Parliament by law
relating to mineral development. In the face of an express constitutional
provision, there is no scope for this Court to use this doctrine to limit the
legislative powers of the State.
228. In P Kannadasan v. State of Tamil Nadu, 284 a two judge Bench held that
Parliament has denuded the States of their power to levy taxes on minerals by
making the declaration contained in Section 2 of the MMDR Act. It was further
observed that State legislatures cannot levy any tax or cess on minerals so long
as the declaration in Section 2 stands. The observations in P Kannadasan
(supra) are contrary to the legislative scheme discussed above.
d. Section 9 does not serve as a limitation on the taxing powers of State
229. Having noticed that the scheme of the MMDR Act does not in itself serve as a
limitation on the field of taxation under Entry 50 of List II, we now proceed to
examine whether the statute contains any provision imposing “any limitations” on
it. The respondents contend that Sections 9, 9A, 9B, and 9C expressly impose
limitations as contemplated under Entry 50 of List II. We have held in the previous
segments of this judgment that royalty is not in the nature of tax but a
consideration which is paid to the proprietor for the extraction and removal of
mineral under the terms of the mining lease. The MMDR Act empowers the
283 Vishaka v. State of Rajasthan, (1997) 6 SCC 241; Anoop Baranwal v. Union of India; (2023) 6 SCC 161
284 (1996) 5 SCC 670 [35]
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Central Government to specify the rates of royalty under Section 9 read with the
Second Schedule. These powers could be validly traced to Entry 54 of List I as
they are comprehended within the regulation of mines.
230. Since royalty payable under Section 9 is not a tax on mineral rights, any limitation
on the enhancement of the rates of royalty is not the imposition of a tax under
Entry 50 of List II. While royalty flows from the exercise of proprietary rights, taxes
flow from the sovereign’s right to tax persons, objects and transactions. Section
9 does not expressly impose any limitations on the powers of the State to tax
mineral rights. Section 9(3) limits the power of the Central Government to
enhance royalty more than once in three years. This limitation does not govern
taxes on mineral rights.
231. Dead rent under Section 9A is a price paid by the lessee to the lessor for not
working the mines and is paid in alternative to royalty. The payments under
Sections 9B and 9C are made as additional royalties and are used for specific
purposes. Payment under Section 9B is made to the District Mineral Foundation
constituted by the State Government. Similarly, payment under Section 9C is
made to the trust created by the Central Government for funding the agencies
specified in Section 4(1). The payments under Sections 9B and 9C do not
amount to a tax on mineral rights. Sections 9, 9A, 9B, and 9C do not impose any
limitations on the taxation powers of the state legislatures under Entry 50 of List
II.
e. “Any limitation” can extend to prohibition
232. In Jindal Stainless Steel (supra), one of us (Justice D Y Chandrachud)
observed that curtailment of legislative powers vested in the State may take
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place through: (i) abstraction; (ii) eclipse; and (iii) limitations or restrictions. 285
The expression “any limitations” finds mention in Entry 50 of List II in the context
of taxes on mineral rights. In its ordinary sense, the expression “limitation” means
a restriction or containment. 286 The Constitution uses the word “limitations” in two
provisions – Article 134(2) and Entry 50 of List II of the Seventh Schedule. Article
134 deals with the appellate jurisdiction of Supreme Court in criminal matters.
Article 134(2) provides that Parliament may by law confer on the Supreme Court
any further powers to entertain and hear appeals from any judgment, final order
or sentence in a criminal proceeding of a High Court in the territory of India
subject to such conditions and limitations as may be specified in such law.
233. The use of the expression “any” before “limitations” under Entry 50 of List II
indicates that the scope of the limitations is expansive and includes “all” 287 or
“every” 288 limitation that could be imposed by Parliament by law relating to
mineral development. The expression “any” has to be construed in its context,
taking into consideration the scheme, purpose, and subject matter of the
enactment, 289 or in this case, the scheme of distribution of legislative powers
under the Constitution. The expression “any limitations” is indicative of the fact
that Parliament has been provided with ample legislative freedom to conceive
limitations or restrictions on the legislative powers of the State to tax minerals.
234. Apart from Entry 50 of List II, Entry 57 of List II is the other taxing entry in List II
which is subordinate to another entry. It provides for taxes on vehicles, whether
mechanically propelled or not, suitable for use on roads, including tramcars and
285 Jindal Stainless Steel (supra) [626]
286 Ramanatha Aiyar, Advanced Law Lexicon (Volume 3) 3254
287 LDA v. M K Gupta, (1994) 1 SCC 243 [4]
288 Raj Kumar Shivhare v. Directorate of Enforcement, (2010) 4 SCC 772 [24]
289 Vivek Narayan Sharma v. Union of India, (2023) 3 SCC 1 [132]
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is “subject to the provisions of Entry 35 of List III.” Entry 35 of List III deals with
mechanically propelled vehicles including the principles on which taxes on such
vehicles are to be levied.
235. In State of Assam v. Labanya Probha Devi, 290 a Constitution Bench of this
Court explained the inter-relationship between Entry 57 of List II and Entry 35 of
List III in the following terms:
“11. […] The two entries deal with two different
matters though allied ones – one deals with taxes on
vehicles and the other with the principles on which
such taxes are to be levied. When two entries in the
Constitution, whether in the same List or different
Lists, deal with two subjects, if possible, an attempt
shall be made to harmonize them rather than to bring
them into conflict. Taxes on vehicles in their ordinary
meaning connote the liability to pay taxes at the rates
at which the taxes are to be levied. On the other
hand, the expression “principles of taxation” denotes
rules of guidance in the matter of taxation. We,
therefore, hold that the amending Acts do not come
into conflict with the existing law in respect of any
principles of taxation, but only deal with a subject-
matter which is exclusively within the legislative
competence of the State Legislature. In this view,
there is no scope for the application of Article 254 of
the Constitution.”
236. In Sharma Transport v. Government of AP, 291 a three judge Bench held that
the exercise of authority by Parliament under Entry 35 of List III will not deprive
the State legislature of its exclusive legislative powers referable to Entry 57 of
List II:
“11. Power to levy taxes on vehicles, whether
mechanically propelled or not vests solely in the
State Legislature, though it may be open to
Parliament to lay down the principles on which the
taxes may be levied on mechanically propelled
290 (1967) 3 SCR 611
291 (2002) 2 SCC 188
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vehicles in the background of Entry 35 of List III. To
put it differently, Parliament may lay down the
guidelines for the levy of taxes on such vehicles, but
the right to levy such taxes vests solely in the State
Legislature. No principles admittedly have been
formulated by Parliament. In that sense, the
Government of India’s communication dated 30-08-
1993 does not in any sense violate the power of the
State Legislature or its delegate to levy or exempt
taxes from time to time.”
237. Both Entries 50 and 57 of List II are subject to other legislative entries, but with
a distinction: Entry 50 specifically uses the word “subject to any limitations” while
Entry 57 uses the expression “subject to the provisions”. Under Entry 50,
Parliament can impose “any limitations” on the taxing powers of the State, while
under Entry 57 read with Entry 35 of List III, Parliament can only prescribe the
principles on the basis of which the State can levy taxes on mechanically
propelled vehicles. Therefore, Parliament cannot impose any limitation on the
field of taxation reserved to the States under Entry 57 of List II, but can lay down
guidelines. In contrast, Entry 50 allows Parliament to impose any limitations on
the field reserved to the State to tax mineral rights.
238. In Jindal Stainless Steel (supra), one of us (Dr Justice D Y Chandrachud)
described the nature of the limitations which may be imposed to contain the
legislative powers vested in the State:
“626.3. The third source of constitutional
containment on the legislative power of a State is in
the form of limitations of which clause (3) of Article
286 provides an illustration. Under clause (3),
Parliament provides the restrictions and conditions
in regard to “the system of levy, rates and other
incidents of tax” upon which a law enacted by a State
providing for a tax on the nature specified in sub-
clauses (a) and (b) is subject. Sub-clause (a) deals
with tax on the sale or purchase of goods declared
to be of special importance in inter-State trade or
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commerce by a law enacted by Parliament. Sub-
clause (b) deals with a tax on the sale or purchase
of goods failing under sub-clauses (b), (c) and (d) of
Article 366(29-A). Among other things, a tax on
contract for hire purchase and involving transfer of
the right to use goods is subject to the restrictions
and conditions which are provided by a law enacted
by Parliament in regard to the system of levy, rates
and other incidents of tax.”
239. Before its omission, Article 286(3) empowered Parliament to specify by law
restrictions and conditions on any law of a State levying tax on the sale or
purchase of goods. 292 In Rajasthan Rollers Flour Mills Association v. State of
Rajasthan, 293 a two-Judge Bench of this Court held that a limitation imposed by
a law enacted under Article 286(3) is a restriction upon the plenary power of the
State to levy tax on the sale/ purchase of goods and must be construed “strictly.”
It was further held that the restrictions imposed by Parliament upon the legislative
power of the States must be specified by the law. 294
240. In its textual sense, the verb ‘to limit’ means to restrict or constrain. The
respondents submit that the word “any limitation” can be interpreted in a manner
bestowing absolute authority on Parliament to limit the field of taxation of the
state legislature under Entry 50 of List II. However, we need to understand the
purport of the expression “limitations” not only in its literal sense, but also IN the
constitutional sense.
292 Article 286(3) before omission read:
“(3) Any law of a State shall, in so far as it imposes, or authorizes the imposition of, -
(a) A tax on the sale or purchase of goods declared by Parliament by law to be of special importance in
inter-State trade or commerce; or
(b) A tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-
clause (c) or sub-clause (d) of clause (29A) of article 366,
be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of tax as
Parliament may by law specify.”
293 1994 Supp (1) SCC 413 [14]
294 Rajasthan Rollers Flour Mills Association (supra) [21]
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241. The common thread running between Entry 54 of List I and Entries 23 and 50 of
List II is mineral development. The concept of mineral development is closely
associated with proper and sustainable exploitation and utilization of mineral
resources. Mineral resources are important for the economic development of the
nation, considering the fact that they are used as raw materials in many
industries. The Constitution had this aspect in mind when it empowered
Parliament to bring under its control regulation of mines and mineral
development. The rationale was that the Central Government will ensure uniform
regulatory standards for mineral operations, especially with respect to major
minerals. Moreover, it was envisaged that the Central Government could take
effective steps to ensure uniform standards of exploration and extraction of
minerals with a view to ensuring their sustainability and conservation. The phrase
“through a law relating to mineral development” appearing in Entry 50 of List II
indicates that Parliament can limit the field of taxation only in the interests of
mineral development. It was in this perspective that the Constitution empowered
Parliament to impose “any limitations” on the legislative field of States to tax
mineral rights through a law relating to mineral development.
242. The MMRD Act 1948 was in place when the Constituent Assembly was debating
the incorporation of Entry 50 in List II. The framers of the Constitution were aware
of the legislative history of the subject of mines and minerals and were aware as
to how the Dominion Legislature had interpreted the legislative entries pertaining
to regulation of mines and minerals and taxation of mineral rights under the GOI
Act 1935. 295 The Constituent Assembly negatived the proposal to transfer the
entirety of Entry 50 of List II to List I. 296 The Constitution did not or could not
295 D K Trivedi (supra) [31]
296 Constituent Assembly Debates (2nd September 1949)
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visualize the effect of taxes on mineral rights on mineral development. Therefore,
it left it to the legislative wisdom of Parliament to identify the taxes on mineral
rights levied by States may impede mineral development. If Parliament considers
that taxes on mineral rights indeed impede mineral development, it can adopt
suitable legislative policies to impose limitations on the field of taxation.
243. The legislative subject entrusted to the States to tax mineral rights rests upon the
necessity of raising revenues. As discussed in the above segments, Parliament
does not possess the legislative field to tax mineral rights either under Entry 54
of List I, being a general entry, or under the residuary powers. The legislative
domain to tax mineral rights vests with the State. The legislative power of
Parliament to impose “any limitations” is traced to Article 246(1) read with Entry
54 of List I. Parliament can impose limitations, and not levy taxes on mineral
rights itself. The subject of taxing mineral rights continues to remain with the
States. This understanding also ensures that there is no overlap or conflict
between the powers of Union and the taxing field of the States.
244. As held in Jindal Stainless Steel (supra), 297 the Constitution understands the
expression “limitations” as restrictions, conditions, 298 or principles. 299 However,
does the expression “any limitations” include the power to prohibit States from
taxing mineral rights? We are of the opinion that the answer must be in the
affirmative. Under Entry 50 of List II, the Constitution specifically uses the phrase
“any limitations”. The framers of the Constitution intended to empower
Parliament to impose “all” and “every” possible limitation on the taxing powers of
the State in the interests of mineral development, which may include even a
297 Jindal Stainless Steel [626.3]
298 Article 286(3) (omitted by Constitution (One Hundred and First Amendment) 2016
299 Article 286(2), Constitution of India; Entry 35 of List II, Seventh Schedule, Constitution of India
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“prohibition.” It had become clear during the course of the hearings, that counsel
on both sides largely agreed that Parliament can impose “any limitations”
including prohibiting the State legislatures from taxing minerals. 300 The crux of
the issue pertained to the manner in which Parliament can impose the limitations,
which we have already considered in the above segments.
245. The overall scheme of Article 246 read with Entry 54 of List I and Entry 50 of List
II makes it clear that Parliament, in the interests of mineral development, can
impose “any limitations.” The purport of the expression “any limitations” is wide
enough to include the imposition of restrictions, conditions, principles, as well as
prohibition. Parliament has the constitutional power to determine whether and if
so the manner in which limitations may be imposed.
f. Impact of taxes on mineral rights on mineral development
246. The respondents have contended that any levy of taxes on mineral rights by the
States under Entry 50 of List II will be against mineral development. Minerals are
necessary for economic development. Proper extraction and utilization of mineral
resources fulfils the needs of both the domestic industry as well as the demands
of the international market. 301 The Constitution requires the State to discharge
an active role in promoting the development of minerals by adopting a slew of
regulatory measures both at the Union and State levels. In other words, the
constitutional endeavor of development of minerals proceeds on the basis of co-
operative federalism, where both the Union and the States have certain duties
and responsibilities. These responsibilities take the form of development of
infrastructure, facilitation of exploration and mining activities, conservation of
300 Supreme Court of India, Record of Proceedings, Civil Appeal No. 4056-4064/1999 (14 March 2023) 54.
301 National Mineral Policy 2019, 4
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minerals, and collection of taxes and fees. 302 The National Mineral Policy 2019
recommends greater thrust on conservation of minerals, development of
scientific methods of mining, human resource development, and protection of
environment to meet the requirements of environmentally sustainable mining
operations.
247. In India, mining activities are carried out by both the public and private sectors.
The Government is required to raise revenues not only to meet the above-
mentioned objectives, but also to fund public sector undertakings, such as
Mineral Exploration Corporation of India. Additionally, mining activities cannot be
carried out without the existence of public order or the lack of a functioning legal
system to ensure adherence to contractual obligations. In Jindal Stainless Steel
(supra), one of us (Dr Justice D Y Chandrachud) observed that every law which
imposes a tax cannot be regarded as a hindrance to trade, commerce, and
intercourse. It was observed:
“631. […] Neither trade nor commerce can flourish
amidst violence, unrest and social disorder. Taxes
provide revenue for the State to sustain manifold
activities which are geared to providing conditions of
social order. The State provides infrastructure both
tangible and intangible. Tax revenues form an
essential part of the requirements necessary for the
States to govern. Taxes are required by Article 265
to be imposed by a law enacted by Parliament or the
State Legislatures. Without the power to raise
revenues, the ability of the State to create conditions
requisite for trade and commerce to exist would be
denuded. Hence, as a matter of first principle it
cannot be postulated that taxation in whatever form
is a burden on trade, commerce and intercourse and
that every tax necessarily hinders trade. Such a wide
construction cannot be accepted simply because by
raising revenues through means of taxation, the
State provides a political and legal order based on
302 ibid
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the rule of law where contractual transactions can be
executed effectively. The extreme position that every
law which imposes a tax is to be regarded as a
hindrance to trade, commerce and intercourse is
unsustainable.”
248. It cannot be assumed that any tax levied by the State legislature under Entry 50
of List II will be ipso facto against mineral development. It is now a well-
established principle that an increase in the rate of tax on a particular commodity
cannot per se be said to impede free trade and commerce in that commodity. 303
In his dissenting opinion in Kesoram (supra), Justice Sinha observed that a tax
on minerals rights, which is over and beyond what is provided under the MMDR
Act, will lead to an increase in the price of the mineral commodity making it
unremunerative. The learned Judge observed that this defeats the purpose of
the MMDR Act. The Union of India in its affidavit submitted:
“A non-harmonized fiscal regime, with varied levies
across States, would result in a scenario where
industries located in States with lesser mineral
deposits would be forced to procure mineral raw
materials at higher prices from States endowed with
rich mineral deposits, placing the latter category of
States at a significant economic advantage that
would come at the cost of the national interest in
maximizing economic development from the nation’s
mineral wealth […] Therefore a uniform levy of
royalty prescribed by the Govt. of India under the
MMDRA levels the playing field, thereby promoting
the domestic industry across the nation in a manner
which is equitable, while at the same time ensuring
revenue generation for the States.”
It is true that uniformity of prices of mineral commodities ensures the objective of
mineral development as envisaged under the MMDR Act. Levy of a tax on
303 Vrajilal Manilal & Co. v. State of M P, 1986 Supp SCC 201 [20]; State of Kerala v. A B Abdul Kadir, (1969) 2 SCC
363 [9]; Jindal Stainless Steel (supra) [634].
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mineral rights by the State legislatures may lead to an increase in the prices of
the mineral commodity in India. There may arise a situation where a state having
the highest reserves of a particular mineral decides to levy a high rate of tax on
mineral rights. This may not only distort the market for that particular mineral, but
have a cascading effect on allied industries. It is exactly to counteract any
adverse impact on the development of minerals in India that the Constitution has
empowered Parliament under Entry 50 of List II to impose limitations on the basis
of which the State legislature can tax mineral rights. If this is the constitutional
intendment, it is Parliament which has the responsibility to ensure that there is
no adverse effect on development of mineral rights. The legislative powers
granted to the State legislatures cannot be whittled down impliedly based on the
presumption that all taxes on mineral rights imposed by the State will have
adverse economic consequences on mineral development. The Constitution has
with foresight visualized this and empowered Parliament to impose “any
limitations” on the subject of taxing mineral rights under Entry 50 of List II.
249. It was contended by the respondents that States already have multiple revenue
streams arising from the mining and minerals sector. They are: (i) royalty and
dead rent payable under Section 9 and 9A of the MMDR Act respectively; (ii)
contributions to the District Mineral Foundation under Section 9B; and (iii) auction
premium received from successful bidders for mineral blocks for mines allocated
under the Mineral (Auction) Rules 2015. The above levies are statutorily
collected and the revenue flows to the State as part of the regime for mineral
development in place under the MMDR Act. All of these levies, which are
statutory in nature, cannot impliedly limit the legislative power of the state
legislature to levy a tax on mineral rights. The States have a constitutional and
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sovereign authority to exercise their taxing powers, within the bounds of the
Constitution, to raise adequate revenues for the welfare of the people.
I. Scope of Entry 49
i. Land System in India
250. The issue is whether the State legislatures are competent to levy a tax on
mineral-bearing land as a unit under Entry 49 of List II. A connected issue is
whether mineral produce or royalty can be used as the measure to tax mineral-
bearing lands.
251. The general rule in England was that the rights of an owner of land extended to
everything in, on, or over land. The position has been explained in Megarry &
Wade on The Law of Real Property304:
“There is an ancient maxim: cujus est solum, ejus est
usque ad coelum et ad inferos, meaning that the
owner of the soil is presumed to own everything “up
to the sky and down to the centre of the earth.” It has
been criticized, but it is a presumption that remains
firmly part of English law “encapsulating, in simple
language, a proposition of law which has
commanded general acceptance.” Above the
surface, the development of powered flight has
made it impossible to apply the presumption literally.
An owner’s rights in the airspace above the land
extend only to such height as is necessary for the
ordinary use and enjoyment of the land and
structures upon it. As regards right beneath the
surface, the maxim applies and the owner is
presumed to own the minerals beneath. For practical
purposes the rights downwards are unlimited.”
“An owner can divide the land horizontally or in any
other way. He or she can dispose of minerals under
the surface, or top floor of a building, so as to make
them separate properties. But unless some contrary
304 Megarry and Wade, The Law of Real Property (9th edn, Sweet and Maxwell)
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intention is shown a grant will normally pass the
owner’s whole interest in space above and below the
land, so that, for example, a lease will give the tenant
the right to the airspace above the land let.”
The position under the common law in England is that the owner of land is entitled
to all mines and minerals underlying the land which they own, subject to certain
exceptions. 305
252. The colonial regime in India followed a pattern at variance to that prevailing under
English law on land ownership and mineral rights. Initially, the colonial state
asserted that the soil belonged to the sovereign. 306 Acting on the view that it was
the proprietor of the soil, the colonial state, under Lord Cornwallis as Governor-
General, confirmed proprietary rights to soil, including mineral rights, to the
zamindars by way of a permanent settlement in territories under British control
in India. For instance, the Madras Permanent Settlement Regulation XXV of
1802 vested “the proprietary rights of the soil” in the zamindars and in their heirs
and successors. 307 The regulations also allowed the zamindars to alienate or
dispose of their proprietary rights in their zamindaris. 308 Colonial courts
305 Megarry and Wade (supra). [“Although prima facie a tenant in fee simple is entitled to all mines and minerals
under the land, this is subject to some exceptions. Thus at common law, as modified by statute, the Crown is
entitled to all gold and silver mines; and under the Petroleum Act 1998 petroleum existing in its natural condition in
strata is vested in the Crown. Licences for extraction (including fracking) can be granted under the Petroleum Act
1998. Under the Coal Act 1938 all interests in coal (except interests arising under a coal mining lease) were vested
in the Coal Commission in return for compensation. These interests (including coal-mining leases) were vested
subsequently in the National Coal Board, then in the British Coal Corporation, and finally, (following the privatization
of coal industry) in the Coal Authority. That body has extensive powers to license coal-mining operations.”]
306 S Sundararaja Iyengar, Land Tenures in the Madras Presidency (1921) 25
307 Section 2, Regulation XXV of 1802. [It read: 2. Assessment on all lands liable to revenue. Proprietary right
vested in zamindars – In conformity to these principles, an assessment shall be fixed on all lands liable to pay
revenue to the Government; and, in consequence of such assessment, the proprietary right of the soil shall become
vested in the zamindars or other proprietors of land, and in their heirs and lawful successors for ever.”]
308 Section 8, Regulation XXV of 1802. [It read: 8. Proprietors of land may transfer proprietary right in whole or part
of their zamindaries. Restrictions under which such transfer is to be made – Proprietors of land shall be at free
liberty to transfer without the previous consent of the Government, or of any other authority, to whomever they may
think proper, by sale, gift or otherwise, their proprietary right in the whole of in any part of their zamindaris; such
transfers of land shall be valid and shall be respected by the Courts of Judicature and by the officers of the
Government; provided they shall not be repugnant to the Muhammadan or to the Hindu laws, or to the regulations
of the Government. But unless such sale, gift, or transfer shall have been regularly registered at the office of the
Collector, and unless the public assessment shall have been previously determined and fixed on such separated
portion of land by the Collector, such sale, gift, or transfer shall be of no legal force or effect, nor shall such
transaction exempt a zamindar from the payment of any part of the public land-tax assessed on the entire zamindari
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recognized that the zamindars were presumed to be the owners of mineral rights
in the absence of evidence that they had parted with them. 309 Similarly, in the
case of inam lands, it was held that the right of the inamdars to the sub-soil
minerals was to be inferred from the express words of the grants. 310
253. In 1813, the Court of Directors of the East India Company prohibited the
government from introducing permanent settlements any further and ordered
introduction of the ryotwari system in all unsettled lands in the provinces. 311
Thereafter, the colonial state introduced the ryotwari system of land settlement
in India. Under it the ryots were treated as proprietors of land with attendant rights
and liabilities such as payment of assessment directly to government. 312 The
ryots were granted pattas which essentially served as evidence of the
possession of the land. Thus, the pattadars used to hold lands on lease from the
Government.
254. S Sundararaja Iyengar in his treatise on Land Tenures in the Madras Presidency
noted that in 1882 the Government declared that it had no proprietary right in the
soil. 313 The conclusions drawn by the revenue after full enquiry are instructive
and are reproduced below:
“(1) that the State cannot, without violating the rule
and practice dating from time immemorial, assert in
this Presidency an exclusive right to minerals in
unoccupied lands, but that it is fully entitled to a
share in such products as in any other produce of
the land; (2) that subject to the payment of a stated
previously to such transfer, but the whole zamindari shall continue to be answerable for the total land-tax, in the
same manner as if no such transaction had occurred.”]
309 See Durga Prasad Singh v. Braja Nath Bose, 1912 SCC Online PC 9.
310 Secretary of State for India in Council v. Srinivasa Chariar, 1920 SCC OnLine PC 89; State of A P v. Duvvuru
Balarami Reddy, 1962 SCC OnLine SC 182 [9]
311 S Sundararaja Iyengar, Land Tenures in the Madras Presidency (1921) 120, 151
312 Gopalan v. State of Madras, (1958) 2 MLJ 117; S Sundararaja Iyengar (supra) 153. [“The distinguishing feature
of this system is that the state is brought into direct contact with the owner of the land and collects its revenues
through its own servants without the intervention of an intermediate agent such the zemindar or farmer, and its
object is the creation of peasant proprietors. All the income derived from extended cultivation goes to the state.”]
313 S Sundararaja Iyengar (supra) 28.
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proportion of the produce to meet the necessities of
the administration, the proprietary right of the ryot in
the soil of his holding is absolute and complete; (3)
that he is able to able to mortgage, sell, devise or
otherwise alienate the land; (4) that, on these
principles, property has been changing hands from
time immemorial, and for the Government to put
forward a claim now, which has never been asserted
and which does not rest in law, practice or precedent,
would undoubtedly raise a feeling or distrust and
discontent which would take long to allay; (5) that it
would be straining the State’s privileges to attach the
condition of recognition of any exclusive right to
minerals on the terms on which lands may be newly
occupied, although in the interests of the general
public, it may in particular instances be justifiable to
do so, in view to the development of the ascertained
mineral resources; and (6) that as regards the vast
bulks of the land occupied or likely to be occupied for
cultivation, such reservation would be absolutely
objectless and would only have the effect of creating
widespread distrust in the minds of the people.”314
255. The Board of Revenue recognized the rights of zamindars to the minerals,
through Standing Orders. The Standing Orders also governed the rights of the
ryotwari pattadars with respect to minerals. For example, Resolution No. 277 of
1888 315 declared that the State “lays no claim to minerals” in estates held on
sanads of permanent settlement, enfranchised inam lands, etc. Moreover, for
ryotwari lands it was declared that the right of the State in minerals is limited “to
share in the produce of the minerals worked, commuted in a money payment, if
thought necessary, by Government, in like manner with and in addition to the
land assessment.” Thus, the colonial state did not claim subsoil rights with
respect to lands held under permanent settlements, and only a limited right in
314 ibid.
315 See Dalmia Cement (Bharat) Ltd. v. State of TN, (2014) 2 SCC 279 [30]
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lands held under ryotwari pattas. This system of law continued until
Independence and even thereafter.
256. The regulation of mines and mineral development before Independence was
governed by executive rules. In 1913, Rules for the grant by local governments
of licences to prospect for minerals and of mining leases in British India were
made by Resolution No. 7552-7581-121 dated 15 September 1913. 316 Under
these Regulations, prospecting licenses 317 could only be granted with respect to
minerals which were owned by the Government. 318 The rules also required the
licencee to pay royalty at a rate specified in Schedule A of the Regulations. The
Madras Mining Manual of 1929 contained rules regarding mining and quarrying
applicable to the Madras Presidency. Chapter V of the Madras Mining Manual
stated that the State’s right to minerals varied according to the tenure on which
the land was held. The Madras Mining Manual classified the land into three
groups:
Group A – Lands in which the State claimed no right to minerals. These included:
(a) estates held on sanads of permanent settlement; (b) land held on title-deeds
issued under the Waste Land Rules before 7th October 1879 in which no
reservation was made of the right of the State to minerals; and (c) lands held on
inam tenure.
Group B – Lands in which the State claimed a share in minerals which included:
(a) lands occupied for agricultural purposes under the ryotwari grants; (b) private
316 “1913 Regulations”
317 Rule 13, 1913 Rules. [It read: “13. A licence to prospect for minerals, called hereinafter a prospecting licence,
shall confer on the licensee the sole right, subject to the conditions contained in the licence, to mine, quarry, bore,
dig and search for, win, work and carry away any specified minerals or, in the event of no minerals being specified,
all minerals lying, or being within, under or throughout the land specified in the licence.”]
318 Rule 14, 1913 Rules. [It read: “14. A prospecting licence shall be granted only in respect of land in which the
mines or minerals are the property of the Government.”]
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janmam lands in Malabar and the Nilgiri; and (c) certain lands held under inam
tenure.
Group C – Lands in which the State claimed full rights in minerals which included
unreserved lands and forest lands reserved under the Madras Forest Act 1882.
257. The Dominion Legislature was aware of the above classification of land, which it
loosely incorporated under the Mineral Concession Rules 1949 enacted under
Section 5 of the MMRD Act. Chapter III and VI of the Mineral Concession Rules
1949 provided for the grant of prospecting licences and mining leases
respectively in land in which the minerals belonged to Government. Chapter V
dealt with the grant of mineral concessions by private persons. The Concession
Rules of 1949 did not contain any provisions dealing with minerals, in respect of
lands where the minerals were shared by both the Government and private
persons by. The Mineral Concession Rules of 1949 left out lands occupied under
ryotwari tenure from their purview.
258. The Mineral Concession Rules 1960 adopted the categorization of land as in the
Madras Mining Manual, namely, lands in which minerals vested in government;
lands in which minerals vested in a person other than government; and lands in
which minerals vested partly in government and partly in private persons. The
first category mostly pertained to situations where the land vested with the state
by virtue of it being unoccupied or land legislation vesting title to minerals with
the State Government. The second category pertained to situations where the
State Government had not divested the landowner of their rights in the sub-soil
minerals. The third category applied to intermediary tenures such as ryotwari
lands where the minerals were shared by both the government and private
persons.
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259. In Raja Anand Brahma Shah v. State of U P, 319 a Constitution Bench accepted
that the English system of ownership of lands applied in India, observing that the
owner of the surface of land is entitled ex jure to everything beneath the land. It
was further observed that a transfer of the right to the surface conveys the right
to the minerals underneath unless there is an express or implied reservation in
the grant of land. In Thressiamma Jacob v. Geologist, Department of Mining
and Geology, 320 a three-Judge Bench of this Court had to determine whether
the holder of jenmon rights owned the mineral wealth lying beneath the soil. The
Court traced the history of land tenures in India to hold that the ownership of
minerals normally follows the ownership of land, unless the owner is deprived of
it by a valid legal process.
260. The legislative power of States to enact land legislation can be traced to Entry
18 of List II which empowers the State legislatures to legislate with respect to
matters dealing with “land, that is to say, rights in or over land, land-tenures
including the relation of landlord and tenant, and the collection of rents.” Similarly,
Entry 42 of List III deals with “acquisition and requisitioning of property.”
261. After Independence, the State legislatures enacted land reform legislation
divesting land owners of their sub-soil rights, including rights in the minerals. For
instance, Section 48 of the Maharashtra Land Revenue Code 1966 declared that
the right to all minerals found either on the surface or underground vest in the
State Government which shall have all powers necessary for the proper
enjoyment of such rights. 321
319 1966 SCC OnLine SC 89 [13]
320 (2013) 9 SCC 725
321 Section 48, Maharashtra Land Revenue Code 1966
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262. Many states also enacted laws divesting zamindars and inamdars of their
proprietary rights. For example, the Uttar Pradesh Zamindari Abolition and Land
Reforms Act 1950 vested all the rights of the proprietors in the sub-soil including
mines and minerals with the State Government. 322 The Maharashtra Personal
Inams Abolition Act 1953 abolished inam rights, but saved the rights of the
inamdars and jagirdars to mines and minerals. In 1985, the State legislature
enacted a law323 vesting all the rights of inamdars and jagirdars to mines and
minerals in the State Government. The law sets out the following reasons behind
divesting the inamdars and jagirdars of their mineral rights:
“WHEREAS, pursuant to the national policy of bringing
the actual cultivator into direct relation with the
Government, series of land tenure abolition laws for
abolition of the intermediary rights, Jagirs and inam
tenures have had been enacted, the rights of
Inamdars and Jagirdars to mines and minerals have
had been specifically saved, thereby allowing such
existing rights to survive particularly where the inams
are grants of soil;
AND WHEREAS, the mines and minerals available in
these inam lands are being exploited in the State by
such Inamdars for individual gains without being
liable to pay any royalty to the State Government and
in a manner highly detrimental and prejudicial to
public interest;
AND WHEREAS, with a view to prevent such
exploitation of mines and minerals for individual
gains by a few Inamdars and also to prevent the
huge loss of royalty by the State Government and to
give effect to the policy of the State Government
towards securing that the ownership and control of
the material resources of the community are so
distributed as best to subserve the common good
and that the operation of the economic system does
322 Section 6, UP Zamindari Abolition and Land Reforms Act 1950
323 Maharashtra Abolition of Subsisting Proprietary Rights to Mine and Minerals in Certain Lands Act 1985.
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not result in the concentration of wealth and means
of production to the common detriment;”
The above extract from the Preamble to the statute indicates that the inamdars
and jagirdars had title to the minerals granted to them under inam tenure until
the State enacted a law to divest them of their mineral rights. Since the inamdars
and jagirdars owned the minerals till 1985, they exploited them for their personal
gain without paying royalty to the State Government. This also indicates that the
rights to mines and minerals continued to remain vested in private landowners
long after India gained Independence and the divesting of their mineral rights
happened in this case by the operation of legislation enacted by the State.
263. The decision in Thressiamma Jacob (supra) held that the MMDR Act does not
declare the proprietary rights of the state in mineral wealth, nor does it contain a
provision for divesting the owner of a mine of proprietary rights. 324 Rights in
minerals generally follow ownership of the land. The right of an owner of land
extends to the sub-soil, including the minerals found underneath the soil, which
continues until the State deprives the owner by a valid legal process. Importantly,
Section 16(1)(b) of the MMDR Act also recognizes that the rights to minerals
does not automatically vest in the State Government. 325
264. Article 297 vests the proprietary rights in minerals within the territorial waters and
the continental shelf in the Union Government. The provision reads:
“297. Things of value within territorial waters or
continental shelf and resources of the exclusive
economic zone to vest in the Union –
324 Thressiamma Jacob (supra) [55]
325 Section 16, MMDR Act.
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(1) All lands, minerals and other things of value
underlying the ocean within the territorial waters, or
the continental shelf, or the exclusive economic
zone, of India shall vest in the Union and be held for
the purpose of the Union.
(2) All other resources of the exclusive economic
zone of India shall also vest in the Union and be held
for the purposes of the Union.
(3) The limits of the territorial waters, the continental
shelf, the exclusive economic zone, and other
maritime zones, of India shall be such as may be
specified, from time to time, by or under any law
made by Parliament.”
265. Parliament has enacted the Offshore Areas Mineral (Development and
Regulation) Act 2002 326 to provide for development and regulation of mineral
resources in the territorial waters, continental shelf, exclusive economic zone,
and other maritime zones of India. Section 2 contains a legislative declaration to
the effect that the Union is taking under its control the regulation of mines and
mineral development in offshore areas to the extent provided under the statute.
Similar to the MMDR Act, Chapter II of the OAMDR Act lays down general
provisions for acquisition of operating rights in offshore areas. However, unlike
the MMDR Act which empowers the State Government to grant mineral
concessions, 327 the OAMDR Act mandates the Central Government to grant the
operating rights. 328 This difference is a result of the fact that the subsoil minerals
are statutorily vested in the States, while the Constitution mandates the vesting
326 “OAMDR Act”
327 Section 5, MMDR Act
328 Section 6, OAMDR Act
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of offshore minerals in the Union. Section 16 of the OAMDR Act deals with
payment of royalty to the Central Government. The provision reads as follows:
“16. Royalty – (1) A lessee shall pay royalty to the
Central Government in respect of any mineral
removed or consumed from the area covered under
his production lease, at the rate for the time being
specified in the First Schedule in respect of that
mineral.
(2) The Central Government may, by notification in
the Official Gazette, amend the First Schedule so as
to enhance or reduce the rate at which royalty shall
be payable in respect of any mineral with effect from
such date as may be specified in the notification:
Provided that the Central Government shall not
enhance the rate of royalty in respect of any mineral
more than once during any period of three years.”
266. As held in the above segments, royalty is paid to the proprietor of the minerals
for the exercise of mineral rights. Minerals found in offshore areas are
constitutionally vested in the Central Government. Therefore, the Central
Government can statutorily and contractually demand royalty from lessees for
removal or consumption of such minerals. In comparison, subsoil minerals can
either be legally vested in the States or continue to remain vested with private
landowners. Resultantly, the payment of royalty under Section 9 of the MMDR
Act is paid either to the State Government or private landowner, as the case may
be.
267. Section 3 of the Haryana Minerals (Vesting of Rights) Act 1973 allowed the State
Government to acquire the rights to minerals in any land. In State of Haryana v.
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Chanan Mal, 329 where the validity of Section 3 was assailed, it was argued that
the State legislative power to enact the legislation was curtailed by the operation
of the MMDR Act. This Court noted that in Section 16(1)(b) of the MMDR Act
Parliament has contemplated legislation by the States for vesting of lands
containing mineral deposits in the State Government. The Court held that the
MMDR Act deals with the regulation of rights to mining without intending to
“trench upon powers of State legislatures under Entry 18 of List II read with Entry
42 of List III.” 330 Chanan Mal (supra) lays down the principle that the decision of
the States to acquire title to minerals does not fall foul of the MMDR Act because
the latter does not control the ownership of minerals.
268. The above discussion leads to two conclusions. First, the owner of a land can be
divested of sub-soil rights in minerals only through a valid process of law, which
has generally taken the shape of land reform legislation enacted by State
legislatures. Second, the MMDR Act does not vest the ownership of minerals or
mineral rights in the State. It regulates the exercise of rights to minerals which
may be owned either by Government, private persons, or by both the
Government and private persons.
ii. Tax on land and buildings
269. Entry 42 of the Provincial Legislative List in the Government of India Act 1935,
read as follows:
“42. Taxes on lands and buildings, hearths and
windows”
329 (1977) 1 SCC 340
330 Chanan Mal (supra) [38]
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The Draft Constitution prepared by Shri B N Rau, the Constitutional Adviser
adopted the above provision in draft Entry 43 of the Provincial Legislative List. 331
The Expert Committee on Financial Provisions suggested the deletion of the
words “hearths and windows” from draft Entry 43 of the Provincial Legislative List
on the ground that such taxes were not likely to be levied. The Committee
observed that they would anyway be covered by the word “buildings.” 332 The
recommendation of the Expert Committee was accepted by the Drafting
Committee. 333
a. Principles governing ‘taxes on lands and buildings’
270. The interpretation of the word “lands” has been considered by this Court in
several decisions. In Raja Jagannath Baksh Singh v. State of Uttar
Pradesh, 334 the provisions of the UP Large Land Holdings Tax Act 1957 were
challenged for falling beyond the legislative competence of the State legislature.
It was contended that the expression “lands” under Entry 49 of List II does not
include agricultural land. Rejecting this contention, Justice P B Gajendragadkar
(as the learned Chief Justice then was) speaking for the Constitution Bench held
that the word “lands” is wide enough to include all lands, agricultural or otherwise.
In Anant Mills Co. Ltd. v. State of Gujarat, 335 this Court held that the word
“lands” includes not only the face of the earth, but everything under or over it,
and has in its legal signification an indefinite extent upward and downward. The
above decisions are authority for the proposition that the ambit of the word
331 B Shiva Rao, ‘The Framing of India’s Constitution: A Study’ (1966, Volume 3) 181
332 B Shiva Rao (Volume 3) 269
333 B Shiva Rao (Volume 3) 502
334 (1963) 1 SCR 220
335 (1975) 2 SCC 175
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“lands” under Entry 49 of List II comprises: (i) all types of lands; and (ii) covers
everything under or over land.
271. In Ajoy Kumar Mukherjee v. Local Board of Barpeta, 336 the constitutionality of
an annual tax levied by local boards for the use of land for the purpose of holding
markets was challenged before a Constitution Bench. Speaking for the Bench,
Justice K N Wanchoo held that the tax was on land used for a market, and not
on the market held on land. The Court held that the use to which the land is put
can be taken into account while imposing a tax on the land within the meaning
of Entry 49 of List II. 337 Further, it was observed that the incidence of tax was on
the owner or occupier of the land, and not any other person who may come to
the market to transact. In conclusion, it was held that the tax was a tax on land,
though its incidence depended upon the use of the land as a market. In
Government of A P v. Hindustan Machine Tools Ltd., 338 it was held that the
State legislature can tax buildings as a unit under Entry 49 of List II, but not the
machinery and furniture contained in the building. In Ahmedabad Municipal
Corporation v. GTL Infrastructure Ltd., 339 this Court held that the word
“buildings” has to be interpreted dynamically to extend to all ancillary and
subsidiary matters. Consequently, it was held that the State legislature has the
legislative power to tax mobile towers under Entry 49 of List II. The principle
which emanates from the above decisions is that a tax levied on the activity or
service rendered on or in connection with lands and buildings does not fall within
the description of taxes on lands and buildings under Entry 49 of List II. However,
336 (1965) 3 SCR 47
337 Ajoy Kumar Mukherjee (supra) [4]; See Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial & Investment Corp,
(2021) 20 SCC 657 [46]
338 (1975) 2 SCC 274 [17]
339 (2017) 3 SCC 545 [29]
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the legislature may take into account the use of land or buildings for determining
the incidence or measure of tax levied under Entry 49 of List II.
272. Further, it is now well-established that a levy of tax on lands and buildings is not
concerned with the division of interest or ownership in the units of lands and
buildings. 340 In Sudhir Chandra Nawn v. WTO, 341 a Constitution Bench which
dealt with the constitutional validity of Wealth Tax Act 1957, explained the scope
of Entry 49 of List II by observing that the tax on lands and buildings is directly
imposed on lands and buildings or both as units, and bears a definite relation to
it. The decision holds that the State legislature may adopt the annual or capital
value of lands and buildings for determining the incidence of tax levied under
Entry 49 of List II.
273. In Second Gift Tax Officer, Mangalore v. D H Nazareth, 342 this Court dealt with
whether Parliament was competent to enact the Gift Tax Act under its residuary
powers. In that case, the owner of a coffee plantation had made a gift of coffee
plantations by a registered gift deed to his sons. The government demanded gift
tax on the transfer of land title. It was contended that taxes on lands and buildings
under Entry 49 of List II also cover taxes in respect of gift on lands and buildings.
It was further submitted that since the legislative power of taxing gift of land is
traceable to Entry 49 of List II, Parliament could not have taken recourse to its
residuary powers. Chief Justice M Hidayatullah, speaking for the Constitution
Bench, held that the impugned levy was not a tax directly imposed upon lands
and buildings, but a tax upon the transmission of title by gift. The value of lands
340 Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd., (1969) 2 SCC 55; Shri Prithvi
Cotton Mills Ltd. v. Broach Borough Municipality, (1969) 2 SCC 283 [5]
341 (1968) 69 ITR 897
342 (1970) 1 SCC 749 [10]
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and buildings was held to be a measure of the value of gifts. Therefore, it was
held that Parliament was competent to enact the levy.
274. In D G Gose and Co (Agents) Pvt Ltd v. State of Kerala, 343 the validity of the
Kerala Building Tax Act 1975 was challenged on the ground of being a tax on the
capital value of the assets of an individual under Entry 86 of List I. The
Constitution Bench held that a tax on buildings was a direct tax on the assessee’s
buildings as such, and was not a personal tax without reference to any particular
property. It was further held that a State legislature while imposing a tax under
Entry 49 of List II may decide how best to levy it.
275. In view of the above discussion, we can summarize 344 the following principles for
a tax under Entry 49 of List II:
(i) The expression “lands” means all kinds of lands irrespective of the use to
which the land is put;
(ii) The expression “lands” includes not only the surface but everything under
and over the surface;
(iii) A tax on lands and buildings is a tax on lands and buildings as units;
(iv) The expression ‘tax on lands and buildings as a unit’ is used to distinguish
composite taxes which involve imposition of tax cumulatively on all assets
such as under Entry 86 of List I;
(v) The tax is not a tax on totality, that is, it is not a composite tax on the value
of all lands and buildings;
(vi) The tax is not concerned with the division of interest in the building or land;
343 (1980) 2 SCC 410
344 See Union of India v. H S Dhillon, (1971) 2 SCC 779 [74]
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(vii) A tax levied on the activity or service rendered on or in connection with lands
and buildings does not fall within the description of taxes on lands and
buildings under Entry 49 of List II;
(viii) The use to which the land is put does not affect the competence of the State
legislature to tax it; and
(ix) The legislature may take into account the use of land for determining the
measure of taxation under Entry 49 of List II.
a. States can impose tax on mineral bearing land
276. A state does not have to tax everything in order to tax something. The legislature
has a wide discretion is selecting the persons or objects it wants to tax depending
upon social, economic, and administrative considerations. 345 This discretion
flows from the fact that a legislature which is competent to levy a tax must
inevitably be given full freedom to determine “which articles should be taxed in
what manner and at what rate.”346 The power to levy a tax includes ancillary
powers such as the power to fix the rate, prescribe machinery for the recovery of
tax, prevent tax evasion, appoint authorities for collecting taxes, and prescribe
the procedure for determining the amount of taxes payable by any individual. 347
This Court has generally adopted the approach of giving wide latitude to the
legislature in matters of tax and economic regulations, 348 provided the law is
reasonable 349 and avoids clear and hostile discrimination against particular
persons or classes. 350
345 East India Tobacco Company v. State of Andhra Pradesh, 1962 SCC OnLine SC 145; Hiralal Rattanlal v. State
of U P, (1973) 1 SCC 216 [20].
346 Khyerbari Tea Co. Ltd. v. State of Assam, (1964) 5 SCR 975 [44]
347 Khyerbari Tea Co. Ltd. (supra) [19]; Union of India v. A Sanyasi Rao, (1996) 3 SCC 465 [16]
348 R K Garg v. Union of India, (1981) 4 SCC 675 [8]
349 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [343]
350 Federation of Hotel & Restaurant Association of India v. Union of India, (1989) 3 SCC 634 [46]
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277. The power to levy a tax on lands necessarily entails the power to classify lands
sought to be taxed depending upon their use and productivity. A flat tax on all
lands, irrespective of their use or productivity, may place an unequal burden on
owners and occupiers of land. The need to provide a reasonable classification of
lands for the purposes of the levy of taxes under Entry 49 of List II emanates
from Article 265 of the Constitution which provides that the States shall not levy
taxes except by “authority of law”. The expression “law” appearing in Article 265
has been interpreted to mean a valid law which conforms to the other provisions
of the Constitution, including Article 14. 351 Consequently, the legislature is
competent to classify properties into categories and tax them differently. In
adjudicating the validity of the taxing statutes, this Court has held that the power
of the legislature to classify is of “wide range and flexibility” so that it can adjust
its system of taxation in all proper and reasonable ways. 352
278. The expression “lands” includes lands of every description. A land may be put to
use for growing tea leaves or extracting minerals. But what Entry 49 of List II
contemplates is the levy of tax on land as a unit, irrespective of the use to which
it is put. Therefore, the State legislature is competent while designing the levy
under Entry 49 of List II to tax lands which comprise of mines and quarries. In
other words, mineral-bearing land also falls within the description of “lands” under
Entry 49 of List II.
279. The State legislature has wide discretion to classify lands and levy taxes on them
under Entry 49 of List II. This is also evident from the decision of this Court in
Spencer & Co. v. State of Mysore, 353 where excess land appurtenant to a
351 K T Moopil Nair v. State of Kerala, 1960 SCC OnLine SC 7 [7]
352 Khandige Sham Bhat v. Agricultural Income Tax Officer Kasargod, 1962 SCC OnLine SC 15 [7]
353 (1971) 2 SCC 217
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building was treated as a separate class. This was challenged. Although land
appurtenant to a building such as gardens or grounds were treated as part of the
building, any such land which exceeded thrice the area of the building was
treated as a separate class. Chief Justice S M Sikri, speaking for the Constitution
Bench, held that the State legislature has the right to classify lands for the
purpose of levying taxes:
“13. […] It seems to us that in cities like Bangalore,
where land is scarce, excessive use of land as
gardens and grounds is not in the public interest and
the Legislature can validly tax the excess land on a
different and higher basis. It may in a particular case
cause hardship but the Legislature cannot be denied
the right to classify the lands in such a manner.
Three times the area occupied by a building is not a
small area and we are unable to hold that his figure
is not reasonable.”
280. In their natural state, minerals or ores are part of the earth and remain embedded
there unless extracted. It is also established that “lands” include everything over
and below the surface. Therefore, constitutionally speaking sub-soil minerals
also form part of land. The subject of taxation in Entry 49 of List II is land as a
unit. The subject of tax in Entry 50 of List II is the mineral rights. Hence, there is
a distinction between the legislative field in in the two entries. Ultimately, however
it must be borne in mind that both Entries 49 and 50 fall within List II and are
hence within the domain of the State legislatures. If the tax is relatable to Entry
50 of List II, the tax on mineral rights must be consistent with any limitations
which Parliament imposes in a law relating to mineral development. The
interrelationship between Entry 50 of List II with List I, particularly Entry 54 of that
list has been examined in an earlier segment.
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281. The legislative competence of the States to tax lands under Entry 49 of List II will
not be affected by the MMDR Act. In Western Coalfields Ltd. v. Special Area
Development Authority, 354 the vires of a provision conferring powers on the
Municipal Councils and Municipal Corporations to levy tax on lands and buildings
was challenged. The provision was argued to be invalid because it allowed the
municipalities to tax lands covered by coal mines, which were the subject of
legislation by Parliament under the MMDR Act and the Coal Mines
(Nationalisation) Act 1973 355. Chief Justice Y V Chandrachud, speaking for the
majority, rejected the contention on the ground that the tax on lands and buildings
had “nothing to do with the development of mines” and, therefore, did not conflict
with the power of the Central Government to regulate and develop mines under
the Coal Mines Act. 356 In the context of the legislative declaration contained in
Section 2 of the MMDR Act, the learned Chief Justice observed that though “on
account of that declaration, the legislative field covered by Entry 23 List II may
pass on to Parliament by virtue of Entry 54 List I, the competence of the State
Government to enact laws for municipal administration will remain unaffected by
that declaration.” Significantly, the Court observed that the declaration in Section
2 of the MMDR Act does no result in the invalidation of every State legislation
relating to mines and minerals.
282. The principle which emanates from Western Coalfield Ltd (supra) is that the
legislative declaration under the MMDR Act will only affect the legislative power
of the State with respect to Entry 23 of List II to the extent the Parliamentary
legislation covers the subject-matter. The legislative powers of the State with
354 (1982) 1 SCC 125
355 “Coal Mines Act”
356 Western Coalfields Ltd (supra) [28].
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respect to other subjects under List II, including taxes on lands and buildings, will
not be affected or controlled by the MMDR Act. Therefore, the legislative powers
of the States to levy a tax falling under Entry 49 of List II remains unaffected.
iii. Measure of tax
283. Among its elements a tax has to provide for the charge of tax, the incidence of
tax, the measure of the tax and will contain provisions in the nature of the
machinery for assessment and recovery. In Rai Ramkrishna v. State of
Bihar, 357 a Constitution Bench of this Court observed as follows:
“12. […] The objects to be taxed so long as they
happen to be within the legislative competence of
the legislature can be taxed by the legislature
according to the exigencies of its needs, because
there can be no doubt that the State is entitled to
raise revenue by taxation. The quantum of tax levied
by the taxing statute, the conditions subject to which
it is levied, the manner in which it is sought to be
recovered, are all matters within the competence of
the legislature, […]”
284. It now a well-settled principle that the determination of the principles for
assessing the amount of tax is within the legislative domain. 358 The quantification
or measurement of liability is done on the basis of the procedures laid down by
the competent legislature. 359 In situations where the legislature selects one
method out of the many available for assessing tax, the courts should not strike
down the levy on the ground that the legislature should have adopted another
method unless the method is capricious, fanciful, arbitrary or clearly unjust. 360
357 (1963) SCC OnLine SC 31
358 S Kodar v. State of Kerala, (1974) 4 SCC 422 [10]
359 Shaktikumar M Sancheti v. State of Maharashtra, (1995) 1 SCC 351 [3]
360 Khandige Sham Bhat v. Agricultural Income Tax Officer, Kasargod, 1962 SCC OnLine SC 15 [10]
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Although the liability may be quantified or measured in many ways, there is a
clear distinction between the subject matter of a tax and the standard by which
the amount of tax is measured.
285. The pith and substance or true nature and character of the legislation must be
determined with reference to the legislative subject matter and the charging
section. 361 The charging section levying a tax and defining the persons who are
liable to pay the tax constitute the core of a taxing statute. 362 The distinction
between the nature of tax and measure of tax can be gathered from the decision
of this Court in Sainik Motors, Jodhpur v. State of Rajasthan. 363 In that case,
the petitioners challenged the levy of taxes on passengers and goods by the
State legislature. The charging section provided that the tax was “in respect of
all passengers carried and goods transported by motor vehicles at such rate not
exceeding one-eight of the value of the fare or freight.” This Court held that the
tax was on passengers and goods which could be traced to Entry 56 of List II of
the Seventh Schedule. As regards the measure of the levy, it was held that that
the measure was furnished by the amount of the fare and freight charged.
286. It is a settled position that the measure of tax is not a true test of the nature of
tax. 364 The standard adopted as a measure of tax may be a relevant
consideration in determining the nature of tax, but is not conclusive. In Sir
Byramjee Jeejeebhoy v. The Province of Bombay, 365 the Bombay Provincial
Legislature levied ‘urban immovable property tax’ at ten percent of the annual
letting value of lands and buildings. The Bombay High Court upheld the validity
361 Federation of Hotel & Restaurant Association of India v. Union of India, (1989) 3 SCC 634 [37]
362 B Shama Rao v. Union Territory of Pondicherry, 1967 SCC OnLine SC 29
363 (1962) 1 SCR 517
364 R R Engineering Co. v. Zilla Parishad, Bareilly, (1980) 3 SCC 380 [16]
365 1942 SCC OnLine Bom 30
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of the levy. Justice Broomfield observed that the power to impose taxes on lands
and buildings meant the power to impose taxes on persons, owners, or occupiers
as the case may be in respect of these properties. Justice Harilal Kania (as the
learned Chief Justice then was) observed that the adoption of the annual letting
value as the standard for fixing the tax rate did not necessarily make it a tax on
income. The learned Judge further observed that the standard on which the tax
is levied does not determine the nature of the tax.
287. In Ralla Ram v. The Province of East Punjab, 366 the issue that fell for
consideration of the Federal Court was whether the provisions of the Punjab
Urban Immoveable Property Tax Act 1940 were ultra vires the legislative powers
of the Provincial Legislature. Section 3 of the legislation levied a tax on lands and
buildings at a rate not exceeding twenty percent of the annual value. It was
contended that the levy was in substance a tax on income since the measure
adopted, that is the annual value of lands and buildings, was also used to
calculate income from property. Justice Fazl Ali observed that annual value is not
necessarily actual income, but only a standard by which income may be
measured. The learned Judge analyzed the substance of the impugned levy to
observe that the legislation used annual value merely for the purpose of
determining the value of the property to be taxed. The Court observed that if a
tax is levied on property, it would not be irrational to correlate it to the value of
the property and to make some kind of annual value the basis of the tax without
intending to tax income. The levy was held to be in pith and substance a tax on
land and buildings even though the basis of the tax was similar to the one
adopted to measure income.
366 1948 SCC OnLine FC 9
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288. From the above discussion, we can derive the following principles: (i) the
incidence of a tax on lands and buildings will likely be on the owner or occupier,
as the case may be; (ii) the legislature may adopt a suitable measure for levying
the tax on lands and buildings under Entry 49 of List II; and (iii) the measure
adopted by legislature does not determine the nature of the tax.
289. In recent decades, this Court has held that there ought to be a “nexus” between
the nature of tax and the measure of tax. In Union of India v. Bombay Tyre
International Ltd., 367 the issue before a three-Judge Bench of this Court was
whether the value of an article for the purposes of excise duty must be
determined exclusively with reference to the manufacturing cost and
manufacturing profit of the manufacturer or the entire wholesale price 368 charged
by the manufacturer. The assesses contended that only the measure of
manufacturing cost and profit create a direct and immediate nexus between the
levy and the manufacturing activity. It was further urged that the post-
manufacturing expenses and profits ought to be necessarily excluded to
preserve the nexus between the nature of tax and the assessment of tax. This
Court traced the line of precedent on the measure of tax to observe that a broad
standard of reference may be adopted for the purpose of determining the
measure of the levy. It was held that any standard which maintains a nexus with
the essential character of the levy can be regarded as a valid basis for the
measure of the levy. In CCE v. Grasim Industries Ltd., 369 a Constitution Bench
reiterated that there must be a “reasonable nexus” between the nature of tax and
367 (1984) 1 SCC 467 [14]
368 The wholesale price actually charged by the manufacturer consisted of not merely the manufacturing costs and
manufacturing profit but included, in addition, a whole range of expenses and an element of profit (conveniently
referred to as “post-manufacturing expenses” and “post-manufacturing profit”) arising between the completion of
the manufacturing process and the point of sale by the manufacturer.
369 (2018) 7 SCC 233
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the measure of the levy. It was further observed that the measure cannot be
controlled by the rigors of the nature of tax.
290. The discussion above indicates that the nexus between the measure and levy of
tax need not be “direct and immediate”. The nexus has to be “reasonable” and
must have some relationship with the nature of levy. The reasonability of the
nexus will largely depend upon the nature of the tax and the means available
with the legislature to design the measure of the tax. Since the measure of the
levy is a matter of legislative policy and convenience, 370 the reasonability of the
nexus between the measure and tax has to be determined by the courts on a
case-to-case basis. While doing so, the Court will bear in mind the fundamental
principle that the legislature possesses a broad discretion in matters of fiscal
levies.
a. Taxing mineral-bearing land
291. The tax on lands and buildings under Entry 49 of List II is often measured with
respect to the income derived from the land or building sought to be taxed. The
income derived from land or building is normally measured in terms of the annual
value. Section 23 of the Income Tax Act provides that the annual value of property
shall be deemed to be the sum for which the property might reasonably be
expected to let from year to year. 371 Thus, where a land or building is let, the
valuation is based on the rent at which it is let. 372
292. In K T Moopil Nair v. State of Kerala, 373 Chief Justice B P Sinha observed that
a tax on land or land revenue is assessed on the actual or potential productivity
370 Express Hotels (P) Ltd. v. State of Gujarat, (1989) 3 SCC 677 [25]
371 Section 23, I T Act 1961
372 Patel Gordhandas Hargovindas v. Municipal Commissioner, 1963 SCC OnLine SC 57 [10]
373 1960 SCC OnLine SC 7 [8]
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of the land sought to be taxed. The decision noted that a tax has reference to the
income actually made or which could have been made. Thus, the principle
emanating from this decision is that a tax under Entry 49 of List II may be levied
on the actual or potential productivity of the land. In State of Kerala v. Haji K
Kutty Naha, 374 there was a challenge to the Kerala Buildings Act 1961 which
levied tax on buildings in the state based on the floor area. This Court observed
that the legislature did not take into consideration factors such as the class to
which the building belonged, the nature of construction, the purpose for which it
was used, its situation and capacity for profitable user and other relevant
circumstances which had a bearing on matters of taxation. It was held that the
statute was unconstitutional for treating dissimilar objects similarly. Haji K Kutty
Naha (supra) recognized that a tax on lands and buildings must be measured by
taking into consideration relevant factors related to the use of the lands or
buildings. 375
293. In Spencer & Co. (supra), the validity of a property tax assessed at 0.4 percent
of the market value was challenged before this Court. It was urged that the levy
of the property tax on vacant lands was unconstitutional because it was levied
without any relation to the actual or potential income of the land. The Constitution
Bench rejected the contention on the grounds that the market value of the land
always bears a “definite relationship” to the actual or potential income being
derived or derivable from the land.
294. The measure for taxing land may bear a reasonable relationship to the actual or
potential productivity of land. Measures such as annual value or market value
provide a proximate basis to measure the income derived from land. If the State
374 (1969) 1 SCR 645
375 Also see New Manek Chowk Spg. & Wvg. Mills v. Ahmedabad Municipality, 1967 SCC OnLine SC 116 [13]
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legislature utilizes the income derived from the land as a measure to quantify a
tax on land, it does not trench upon the legislative domain of Union to tax income.
The income merely serves as the measure to calculate the levy of taxes on
land. 376 Having looked at the general principles relating to the measure of tax on
land, we now look at specific decisions pertaining to taxation of mineral-bearing
land.
295. In H R S Murthy (supra), the validity of a land cess under the Madras District
Boards Act 1920 was in issue. The cess was levied on the annual rent value of
all occupied lands and the tax was measured on the basis of “two annas in the
rupee of the annual rent value of all such lands in the district.” In case of lands
held directly from the Government, the annual rent value was defined as the
assessment, lease amount, royalty or other sum payable to Government.
Justice N Rajagopala Ayyangar, speaking for the Constitution Bench
distinguished the decisions in Hingir-Rampur (supra) and M A Tulloch (supra)
on the ground that the land cess: (i) was not concerned with the development of
mines and minerals; (ii) was not collected for development of mining areas, but
for the safety, health, convenience, and education of the inhabitants in the local
area; and (iii) there was nothing in common between the impugned levy and the
MMDR Act. Therefore, it was held that the operation of MMDR Act did not
exclude the legislative competence of the State to levy the cess.
296. The petitioners argued in H R S Murthy (supra) that (i) the cess was payable
only when the mining lessee paid royalty to the lessor; (ii) when no minerals were
extracted, no royalty was payable; and (iii) the cess in effect was a tax on mineral
rights. These contentions were rejected because: (i) the levy was in nature and
376 Ahmedabad Municipal Corporation v. GTL Infrastructure Limited, (2017) 3 SCC 545 [19]
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substance a tax on land; (ii) the levy had a remote relationship to mining and to
the mineral won from the mine under a contract by which royalty was payable on
the quantity of mineral extracted, which did not make it a tax on either the
extraction of mineral or on the mineral rights; and (iii) the rent value of a land held
under lease is calculated on the basis of the lease amount. In case of a land held
under a mining lease, the rent value will include the surface rent, dead rent as
well as the royalty payable by the lessee or occupier for the use of the property.
The decision in H R S Murthy (supra) supports the position that royalty can be
used as a measure to tax mineral bearing land.
297. The issue of taxing mineral bearing land under Entry 49 of List II also came up
before this Court in India Cement (supra). To recap, in India Cement (supra)
local cess levied by the State legislature was measured with respect to the land
revenue payable to the Government. The definition of land revenue included
royalty. Therefore, the issue before the seven-Judge Bench was whether the levy
of cess on royalty was valid. Speaking for the majority, Justice Sabyasachi
Mukharji observed that the cess was not on land but on royalty. The conclusion
rested on the following reasons: (i) since royalty is income arising from land, it is
not directly connected to the land; (ii) if royalty is the basis of taxation, no tax can
be levied if no mining activities are carried on; and (iii) royalty cannot be used as
a measure under Entry 49 of List II because it is exclusively relatable to Entry 50
of List II. Justice Mukharji held that H R S Murthy (supra) was “not a correct
approach” to the issue. The decision in India Cement (supra) was followed by a
three-Judge Bench in Orissa Cement (supra).
298. In Orissa Cement (supra), Section 5(1) of the Orissa Cess Act 1962 provided
that the cess shall be assessed on the annual value of all lands calculated in the
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manner as provided. Section 5(2) provided for the levy of cess in case of mineral
bearing land thus:
“5. (2) The rate per year at which such cess shall be
levied shall be –
In case of lands held for carrying on mining
operations in relation to any minerals, such per
centum of the annual value as the State Government
may, by notification, specify from time to time in
relation to such mineral;”
The “annual value” was defined in Section 7. And sub-section 3 provided that in
case of lands held for carrying on mining operations, annual value shall be the
royalty or as the case may be, the dead rent payable by the person carrying on
mining operations to the government, or the Pit’s mouth value wherever it has
been determined.
299. Speaking for the three-Judge Bench, Justice S Ranganathan observed that there
is a difference in principle between a tax on royalties derived from land and a tax
on land measured by reference to the income derived from land. The Court
observed that the levy was not measured by income derived by the assessee
from land, as was the case with lands other than mineral lands, but by royalty
paid in respect of the land by the assessee to the lessor. The Court relied on
India Cement (supra) to hold that royalty cannot be used as a measure to tax
mineral-bearing land:
“33. […] But the question, what is it that is really
being taxed by the legislature? So far as mineral-
bearing lands are concerned, is the impact of the tax
on the land or on royalties? The change in the
scheme of taxation under Section 7 in 1976; the
important and magnitude of the revenue by way of
royalties received by the State; the charge of the
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PART I
cess as a percentage and, indeed, as multiples of
the amount of royalty; and the mode and collection
of the cess amount along with the royalties and as
part thereof are circumstances which go to show that
the legislation in this regard is with respect to royalty
rather than with respect to land.”
300. In Federation of Mining Associations of Rajasthan v. State of Rajasthan, 377
a three-Judge Bench relied on India Cement (supra) and Orissa Cement
(supra) to declare that the State legislature did not have competence to a levy
tax on mineral bearing land on the basis of the royalty derived from the land.
301. In the aftermath of the decision in Orissa Cement (supra), the State legislature
of Orissa enacted the Orissa Rural Employment, Education and Production Act
1992 to increase the income of the State and compensate the loss faced by the
exchequer. The legislation levied a cess on “all lands”. Land was defined to mean
“land of whatever description […] and includes all benefits to arise out of lands.”
In Mahanadi Coalfields (supra) this Court held that since ‘minerals’ are benefits
arising out of land, the charging section imposed a tax on minerals. 378 The levy
was held in substance to be on mineral rights under Entry 50 of List II. It was
observed that since the MMDR Act provides for “all kinds of taxation on minerals
and mineral rights,” the State legislature was not competent to levy the tax under
Entry 50 of List II.
302. The decisions rendered in above judgments, ranging from India Cement (supra)
to Mahanadi Coalfields (supra), proceed on two premises: first, the MMDR Act,
by providing for all levies with respect to taxation of minerals and mineral rights,
completely excludes the legislative competence of the States to tax mineral-
377 1992 Supp (2) SCC 239 [5]
378 Mahanadi Coalfield Ltd. (supra) [19]
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bearing land; and second, royalty is not directly connected to land and cannot be
used as a measure to tax mineral-bearing land. The first premise has been
answered in the earlier segments of this judgment. The MMDR Act does not
serve as a limitation on the legislative competence of the States to tax mineral
rights under Entry 50 of List II. Moreover, as held in Special Areas Development
Authority (supra), the MMDR Act does not impede the legislative competence
of the States with respect to legislative entries under List II, including the power
to levy taxes on mineral-bearing lands under Entry 49 of List II. The second
assumption is also wrong for the reasons we will discuss in the ensuing
segments.
b. Goodricke
303. Apart from income, the quantum of yield or produce of the lands may also be
used to measure the amount of tax. In Buxa Dooars Tea Co. Ltd. v. State of
West Bengal, 379 the levy of ‘rural employment cess’ on tea estates under the
West Bengal Rural Employment and Production Act 1976 was challenged. 380
The measure of tax of the levy was based on the quantity of tea dispatched from
the estate. The issue before a two-Judge Bench was whether the levy was in
respect of tea estates or on the dispatch of tea. The Court held that the measure
of the levy defined in terms of the weight of the tea dispatched from the estate
had no nexus with the nature of the tax, that is, a tax on land estates. Therefore,
it was held that what the legislation really contemplated was a levy on dispatches
of tea.
379 (1989) 3 SCC 211
380 “1976 Act”
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PART I
304. In view of Buxa Dooars Tea (supra), the State legislature enacted the West
Bengal Taxation Laws (Second Amendment) Act 1989 to amend the Act of 1976.
The amendment provided that the rural employment cess would be levied
annually on a tea estate at a rate of twelve paise for each kilogram of green tea
leaves produced at the estate. In comparison with the previous provision which
measured the tax on the basis of the quantity of tea dispatched, the measure of
the cess in the amended provision was the production of green leaves.
305. The amended provision was challenged before this Court in Goodricke Group
Ltd v. State of West Bengal. 381 The primary issue before this Court was whether
the impugned levy was a levy on lands within the meaning of Entry 49 of List II
of the Seventh Schedule. Justice B P Jeevan Reddy, speaking for the three-
Judge Bench, observed that the income or yield of a land or building can be taken
as a measure of the tax on land and buildings. Hence, the measure of the tax
based on the yield from the land was held to be valid:
“20. […] In the case before us, the cess is no doubt
calculated on the basis of the yield – for every
kilogram of tea leaves produced in a tea estate, a
particular cess is levied. But that is a well-accepted
mode of levy of tax on land. The tax is upon the land
– upon the “tea estate” which is classified as a
separate category, as a separate unit, for the
purpose of levy and assessment of the said cess
quantified on the basis of the quantum of produce of
the tea estate. It cannot be characterised as a tax on
production for that reason. […]”
381 1995 Supp (1) SCC 707
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306. In Goodricke (supra), the petitioners relied on India Cement (supra) and Orissa
Cement (supra) to urge that there has to be a direct connection between the land
and the levy. The two decisions were distinguished on the following rationale:
“21. […] The basis of the judgment – and the ratio of
the decision – in our respectful opinion is that it was
case where the tax was measured not with reference
to or on the basis of the income or yield of the land
but with reference to the amount of royalty payable
by the lessee to his lessor. It was for this reason that
the tax was held to be not upon the land. Royalty is
a matter of agreement between the lessor and the
lessee; it may also be determined by a statutory
provision. But royalty is not a produce of the land;
royalty is not the income of the land nor is the royalty
the yield of the land – and that is the distinction.”
307. It is important to note the above observation to the effect that royalty is not the
produce, income, or yield of the land. Royalty is paid by a lessee to the lessor as
consideration for the exercise of mineral rights. However, does this preclude the
State legislature from using royalty as a measure of taxes on mineral-bearing
land? We will deal with this issue in greater detail in a later part of the judgment.
308. Another argument which was addressed in Goodricke (supra) was that no land
cess can be levied if there is no yield from the tea estate. Justice Jeevan Reddy
negatived this contention by observing that a tea estate will not yield produce if
it is not properly tended and nurtured. However, an ordinary prudent owner or
occupier of a tea estate would take care to properly nurture of the estate. When
tax is measured on the basis of the quantum of production, there is a probability
that the tax collected would vary depending upon the amount produced.
However, the learned Judge observed that uniformity of taxation is not an
essential condition. Goodricke (supra) adopted the standard of an ordinary
prudent person to infer that the tea estate will generally be properly nurtured.
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When the yield from land is used as a measure of the tax on land, the tax is
essentially assessed on the actual or potential productivity of the land. The
majority in Kesoram (supra) approved Goodricke (supra). We will deal with the
relevance of the reasoning in Goodricke (supra) in the context of mineral-
bearing land in the following segment.
309. The other issue in Goodricke (supra) was the effect of the declaration in Section
2 of the Tea Act 1953 on the competence of the State legislature to levy the land
cess. Parliament had enacted the Tea Act in pursuance of Entry 52 of List I of the
Seventh Schedule. Section 2 declares that the Union is taking under its control
the tea industry in the public interest. Section 25 imposes a duty of excise on all
tea produced in India at a rate not exceeding fifty paise per kilogram as the
Central Government may notify. 382 The proviso to Section 25(1) empowers the
Central Government to prescribe different rates of cess for different varieties or
grades of tea. The issue was whether the levy under Section 25 (which is
measured on the basis of the quantum of tea produced) denuded the State
legislature of the competence to impose a cess on land adopting the same
measure.
310. The Court observed that both the levies are different – while excise duty is on
the produce of the land, land cess is a tax on land. Section 25 of the Tea Act
382 Section 25, Tea Act 1953. [It reads:
“25. Imposition of cess on tea produced in India – (1) There shall be levied and collected as a cess for the purposes
of this Act a duty of excise on all tea produced in India at such rate not exceeding fifty paise per kilogram as the
Central Government may, by notification in the Official Gazette, fix:
Provided that different rates may be fixed for different varieties or grades of tea having regard to the location of,
and the climatic conditions prevailing in, the tea estates or garden producing such varieties or grades of tea and
any other circumstances applicable to such production.
(2) The duty of excise levied under sub-section (1) shall be in addition to the duty of excise leviable on tea under
the Central Excises and Salt Act, 1944 (1 of 1944), or any other law for the time being in force.
(3) The provisions of the Central Excises and Salt Act, 1944 (1 of 1944), and the rules made thereunder, including
those relating to refund and exemption from duty, shall, so far so may be, apply in relation to the levy and collection
of the duty of excise under this section as they apply in relation to the levy and collection of the duty of excise on
tea under the said Act.”]
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enacted by Parliament was held not to deprive the State legislature of its power
to levy a tax on lands comprised in a tea estate. The declaration in Section 2 of
the Tea Act was held not to affect the legislative competence of the State
legislature to levy land cess since it did not seek to control the cultivation of tea
but sought to tax tea estates. The land cess was construed not to be on the tea
industry, but a cess on land comprised in tea estates.
311. The decision indicates that the field reserved to the States under Entry 49 of List
II is to impose a tax on land as a unit, without seeking to control the activity or
use taking place on the land which is taxed. Similarly, a tax on mineral-bearing
land is a tax on the land as a unit; it does not seek to control the mining activity
which takes place on the land. Therefore, there is no conflict between the taxing
field of the States under Entry 49 of List II to levy a on tax mineral-bearing land
and the power of Union to regulate mines and mineral development under the
legislative head of Entry 54 of List I.
iv. Measure of tax on mineral-bearing land
a. Decoupling of minerals from land
312. The respondents contend that the value of minerals cannot be used as a
measure of tax on land because minerals are effectively decoupled from mineral-
bearing lands by land reform legislation enacted by the States. It was submitted
that the decoupling occurred when the minerals were legally vested in the State.
Consequently, it was submitted that since the right to minerals vests with the
State, the value of minerals cannot be used as a measure to tax land. Another
interesting point of submission on behalf of the respondents was that when the
State transfers the mineral rights to the lessee under a mining lease, the lessee
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acquires the right to the minerals only upon their extraction and payment of
royalty.
313. The petitioners rebut the above submissions of the respondents by arguing that
there is no provision under the MMDR Act providing for notional segregation of
minerals from land. It was contended that the land and minerals remain legally
and naturally intertwined until the minerals are extracted from the land in exercise
of mineral rights. The decoupling occurs only when a lessee exercises their
mining rights to work the mines and win the sub-soil minerals. Moreover, it was
submitted that under a mining lease, the lessee is granted a lease of the demised
area along with the mineral rights. The logical corollary to the petitioners’
argument is that the lessee acquires the rights to the minerals at the signing of
the mining lease and therefore, the value of minerals can be validly used as a
measure for taxing mineral bearing land.
314. In view of the above submissions, the first issue that we need to address is
whether a mining lease also comprises a lease of land along with the mineral
rights. Section 3(ac) of the MMDR Act defines “leased area” to mean the area
specified in the mining lease within which the mining operations can be
undertaken and includes the non-mineralised area required and approved for
activities falling under the definition of “mine”. There are other provisions under
the MMDR Act which also deal with mineral bearing land. Section 6 prescribes
the maximum area with respect to which a mineral concession may be granted.
Thus, determination and ascertainment of land area is the first step towards the
grant of a mineral concession. 383 Section 9 fixes the rate of royalty in respect of
383 See Kaviraj Basudevanand v. Mahant Harihar Gir, (1974) 2 SCC 514 [9]. [This Court held that the mining lease
will have to conform to the provisions of Section 6 of the MMDR Act regarding the maximum area for which the
mining leave will have effect.]
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any mineral removed or consumed by the lessee or their agent from the leased
area. Section 9-A envisages the payment of dead rent “for all the areas included
in the instrument of lease.” Thus, dead rent is relatable to the area specified in
the mining lease. Section 11(10) requires the holder of a composite licence to
submit a report to the State Government specifying the area required for mining
lease and the State Government shall grant mining lease for such area. The
above provisions indicate that the leased area forms an integral part of a mining
lease. However, the position becomes clearer when we look at the provisions of
the Mineral Concession Rules.
315. Rule 31 of the Mineral Concession Rules requires a mining lease to be executed
in terms of Form K or in a form as near thereto as circumstances of each case
may require. The preamble to Form K grants and demises unto the lessee all
“those the mines beds/veins seams” with respect to the specified mineral situated
lying and being in or under the lands referred to in Part I. Part I details the area
of the lease and its description. The mining lease makes it evident that the
demise is for the minerals and not the area of land in which the minerals are
found. There may arise situations where the lands may be owned by private
individuals, but the minerals are vested in the State. To remedy such situations,
Rule 72 of the Mineral Concession Rules mandates the holder of a mining lease
to pay annual compensation to the occupier of the surface rights. The provision
states that in case of agricultural land, the amount of annual compensation shall
be worked out on the basis of the average annual net income from the cultivation
of similar land for the previous three years. In case of non-agricultural land, the
amount of annual compensation shall be worked out on the basis of the average
annual letting value.
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316. Under the scheme of the MMDR Act, the mining lease holder is required to obtain
the surface rights where the land is not owned by them. For instance, Rule 22 of
the Mineral Concession Rules deals with the applications for grant of mining
leases. Rule 22(3)(h) requires the applicant for grant of mineral rights to submit
a statement in writing stating that they have obtained surface rights over the area
or have obtained the consent of the owner for starting mining operations in case
the lessee is not the owner. 384 A similar pre-condition has been laid down with
respect to the grant of a prospecting licence. 385 Further, Rule 27(1)(t) requires
the mining lessee to pay to the occupier of the surface of the land such
compensation as may become payable under the Mineral Concession Rules.
Importantly, Rule 36 states that the boundaries of the area covered by a mining
lease shall run vertically downwards below the surface towards the centre of the
earth. Thus, the sub-soil activities are spatially restricted by the surface area.
317. The government can acquire surface rights for public purposes, including mining,
and lease it to the lessee. The acquisition of surface rights by the Government
takes place in accordance with the land acquisition legislations. For example, the
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation
and Resettlement Act 2013 empowers the Government to acquire land in any
area for any public purpose. 386 In case the owner is a private person, the surface
right could be granted to the mining lessee by virtue of a separate lease deed.
384 Rule 22(3)(h), Mineral Concession Rules 1960. It reads: “(h) a statement in writing that the applicant has, where
the land is not owned by him, obtained surface rights over the area or has obtained the consent of the owner for
starting mining operation.
Provided further that the consent of the owner for starting mining operations in the area or part thereof may be
furnished after the execution of the lease deed but before entry into the said area;
Provided also that no further consent would be required in the case of renewal where consent has already been
obtained during grant of the lease.”
385 Rule 9(2)(g), Mineral Concession Rules 1960.
386 See Sections 11 and 12, Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and
Resettlement Act 2013.
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The rights to the surface will generally be concomitant with the rights to the
minerals.
318. The issue of severance between surface rights and mineral rights came up
before a Constitution Bench of this Court in Burrakur Coal Co. Ltd. v. Union of
India 387 in the context of the Coal Bearing Areas (Acquisition and Development)
Act 1957. 388 The Coal Bearing Areas Act was enacted by Parliament to establish
public control over the coal mining industry and its development by providing for
the acquisition by the State of unworked land containing or likely to contain coal
deposits or of rights in or over such land. Section 4 allows the Central
Government to issue a preliminary notification giving notice of its intention to
prospect for coal with respect to a particular land in any locality. Once the
notification is issued under Section 4, any prospecting licence or mining lease
with respect to that land ceases to have effect. Sections 7 and 9 empower the
Central Government to acquire whole or part of any lands in which coal is
obtainable. On the publication of the declaration of acquisition under Section 9,
the land or the rights in or over the land vest absolutely in the Central
Government free from all encumbrances. 389 Section 13 pertains to the grant of
compensation for cessation of prospecting licenses and acquisition of mining
leases by the Central Government under Section 4. Thus, under the Coal
Bearing Areas Act, the Central Government acquires the surface rights to the
coal bearing lands.
319. In Burrakur Coal (supra), the petitioners challenged a notification issued by the
Central Government under Section 4 of the Coal Bearing Area Act for violation
387 AIR 1961 SC 954
388 “Coal Bearing Areas Act”
389 Section 10, Coal Bearing Areas (Acquisition and Development) Act 1957
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of fundamental rights. The main thrust of the petitioner’s submissions was that a
notification under Section 4 cannot be issued with respect to mines which have
been ‘worked’ by the lessees. The petitioners also contended that since Section
13 does not provide for compensation for minerals lying underground, Parliament
could not have enacted the law for acquiring the mines which are being worked
or already worked in the past. Speaking for the Bench, Justice J R Mudholkar
addressed the petitioner’s contentions as follows:
“17. […] According to Mr. Das if we have understood
him right, when a person has acquired land either as
an owner or as a lessee carrying with it the right to
win minerals and has opened in that land mines
which he worked for sometime, there takes place a
severance between the right to the surface and right
to the minerals and that consequently such person
will thereafter be holding the minerals as a separate
tenement, that is, something apart from the land
demised and this separate tenement cannot be
acquired under the terms of the present Act or, if it
can be so acquired, it has to be specifically
compensated for. Reference to the several
provisions of the Act and in particular to those of
Section 13 indicates, according to the learned
counsel, the limited scope of the Act. It is difficult to
appreciate the contention that merely because
the owner or lessee of a land had opened mines
on that land, a severance is effected between the
surface and the underground minerals. It may be
that a trespasser by adverse possession for the
statutory period can acquire rights to
underground minerals. It may also be that if that
happens the surface rights would become
severed from the mineral rights as a result of
which the minerals underground would form a
separate tenements. It is, however, difficult to
see how the owner or the lessee of land who has
right to win minerals can effect such severance
between the mineral rights and surface rights by
opening and operating the mines of that land.
For, even while he is carrying on mining
operations he continues to enjoy the surface
rights also. We cannot, therefore, accept the
contention that there was any severance of the
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mineral rights and surface rights in either of
these two cases.”
(emphasis added)
320. A mining lease contemplated under the MMDR Act relates to the mining rights
and mineral rights. It does not grant surface rights to the mining lessee. However,
surface rights are essential to begin any mining operations. In fact, obtaining of
the surface rights by a mining lessee over the area where mining operations will
be conducted is a prerequisite condition for grant of both a prospecting licence
as well as a mining lease. The lessee requires access to the surface rights to
effectively exercise their mining rights and privileges enumerated under Part II of
Form K. Moreover, as held in Burrakur Coal (supra), the mining lessee requires
enjoyment of surface rights to effectively carry out the mining operations. There
cannot be any severance between the two during the continuance of the mining
operations.
321. The more important question is when do the mineral rights transfer to the lessee?
Since Independence, State legislatures have enacted a spate of land reform laws
vesting the right to mines and minerals in the State Government. 390 Through the
instrument of a mining lease, the State Government transfers its rights in the sub-
soil minerals to the lessee for the period of the lease. The nature of the leasehold
rights accruing to the lessee can be determined on the basis of the Transfer of
Property Act. A right to carry on mining operations in land to extract a specified
mineral and to remove and appropriate that mineral is a “right to enjoy
immoveable property” within the meaning of Section 105 of the Transfer of
390 Gujarat Land Revenue Code 1879, Section 69A; Madhya Pradesh Land Revenue Code 1959, Section 247;
Chhattisgarh Land Revenue Code 1959, Section 247, Goa, Daman and Diu Land Revenue Code 1968, Section
36.
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Property Act. 391 In case of a mining lease, the property can be enjoyed by
working the mine as indicated in Section 108 of the Transfer of Property Act.
322. Section 110 of the Transfer of Property of Act deals with the exclusion of the day
on which the term of the lease commences. It provides that where the time limited
by a lease of immoveable property is expressed as commencing from a particular
day, in computing that time such day shall be excluded. It further provides that in
situations where the lease does not mention the day of commencement, the time
limited by the lease commences from the day of the making of the lease. The
model mining lease under Form K specifies the day from which the mineral rights
are granted and demised unto the lessee. Thus, the transfer of right to enjoy the
property under a mining lease commences from the specified day of
commencement. Resultantly, the rights and interests in the minerals specified in
the mining lease are transferred from the State Government to the lessee on the
specified day of the commencement of the lease deed.
323. Once the interest in the minerals is transferred under a mining lease, the lessee
acquires the right to work the mine and win the minerals. It is through this process
of working the mine and winning of minerals that minerals are extracted or
obtained from the earth irrespective of whether such activity is carried out on the
surface or in the bowels of the earth. 392 Although the title to minerals vests in the
State Government, the mining lease transfers the interest in the mineral from the
State Government to the mining lessee. During the whole process, the minerals
continue to remain embedded in the earth, either over or above. Thus, there is
no decoupling of minerals from land. It is well established that tax on land can
also be imposed on an occupier. When a mining lease is granted, the lease
391 Sri Tarkeshwar Sio Thakur Jiu (supra) [37]
392 Sri Tarkeshwar Sio Thakur Jiu (supra) [15]
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holder necessarily has to occupy the surface rights of the area specified in the
lease. Resultantly, the leaseholder has rights to both the minerals and surface
during the subsistence of the mining lease.
324. We do not agree with the respondent’s submission that the mineral rights are
transferred from the State to the mining lessee only upon the extraction of
minerals. Once the lease deed is signed, the interest in the minerals is
transferred from the State Government (in case the minerals vest in the State
Government) to the lessee. The interest of the lessee in the minerals continues
until the determination of the lease deed. It is only upon the exercise of mineral
rights by the lessee, that is removal or consumption of minerals, that the lessee
is required to pay royalty. Thus, the transfer of interest in the minerals is distinct
from the exercise of the mineral rights. In view of the above discussion, it is clear
that minerals are “decoupled” from land only upon the exercise of mineral rights
by the lessee.
b. Minerals as measure of tax on land
325. Entry 49 of List II enumerates taxes on lands and buildings in the legislative field
of the State legislatures. As mentioned in the above segments, the word “lands”
is a comprehensive term which includes mineral bearing land. If the State can
tax mineral bearing land, the concomitant issue pertains to the measure of the
tax. One of the arguments which directly or indirectly flows from the respondents
is that since royalty is measured on the basis of the quantity of minerals produced
or mineral value, the State cannot be allowed to use minerals produced as the
measure to tax mineral-bearing land.
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326. To understand the practice of valuation of mineral-bearing land, a reference to
the English law is useful. In England, a rate has been historically assessed on
the occupier of lands for beneficial occupation. Rating is a tax on the occupation
of lands and is levied on the basis of the value of the occupation of the
hereditament (the single unit of rateable property). 393 The standard or the
measure is the means of finding out the value of the occupation for the purposes
of assessment. 394 The rateable value of hereditaments is statutorily determined
as the amount equal to the rent at which it is estimated that the hereditament
might reasonably be expected to let from year to year. The object is to ascertain
the rent which might reasonably be expected for the hereditament on a statutory
basis. 395 In case of mineral hereditaments, royalty payment constitutes evidence
of rental value for rating purposes. 396 Mineral royalties are regarded as rents for
the purpose of assessing mineral hereditaments.
327. Royalty is not a tax but a statutory consideration payable by the lessee to the
lessor for the exercise of mineral rights. The specification of rates of royalty with
respect to major minerals under the MMDR Act limits the powers of the State
Government in terms of Entry 54 of List I read with Entry 23 of List II. However,
Entry 49 of List II is not restricted or subjected in its operation by any other entry
– the State legislature can tax any lands including mineral bearing lands. If the
Constitution does not impose any express limitations on the taxing powers of the
State to tax mineral bearing lands, it would not be constitutionally permissible for
the Court to read in an implied restriction. The power of taxation is plenary and
exclusive. The division of legislative powers between the Union and States
393 Peter Brown and Patrick Bond, ‘Rating Valuation: Principles and Practice) (3rd edn, Elsevier) 13.
394 Assessment Committee of the Metropolitan Borough of Poplar v. Roberts, [1922] 2 AC 93
395 Peter Brown and Patrick Bond (supra n 393) 284.
396 Section 5, Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989.
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represents the essence of fiscal federalism. Reading any implied limitation or
restriction on the legislative power of the State legislature to tax mineral bearing
land under Entry 49 of List II will be against the grain of the Constitution.
328. After the decision in Goodricke (supra) in particular, it is now well established
that the income or yield of land can be adopted as a measure of tax. The
assessment of tax on land depends upon the actual or potential productivity of
the land sought to be taxed. In case of tea estates, the productivity is measured
on the basis of the quantity of tea leaves produced. As a corollary, the productivity
of mineral bearing land can be measured on the basis of the minerals
produced. 397 In Goodricke (supra), this Court observed that royalty is a matter
of agreement between the lessor and the lessee or determined by a statutory
provision. Further, it was observed that “royalty is not the produce of the land;
royalty is not the income of the land nor is the royalty yield of the land.” In this
segment, we analyze whether royalty could be used as a measure to tax mineral-
bearing land.
329. The rates of royalty are generally calculated on per tonnage basis or ad valorem
basis on the basis of the laid down formula. In case of the former, royalty is
determined on the basis of the following formula –
Royalty = quantity of mineral removed or dispatched * specified rate of royalty
in rupees
397 Union of India v. Pramod Gupta, (2005) 12 SCC 1 [75]. [In this case, Justice S B Sinha, writing for a two-Judge
Bench, observed that “[m]ineral bearing land, thus, contain mineral as the product of nature.”]
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The formula for calculation of royalty on minerals on ad valorem basis is as
follows:
Royalty = sale price of mineral (grade wise and State-wise) published by the
Indian Bureau of Mines * Rate of royalty (in percentage) * total quantity of
mineral grade produced or dispatched
330. The above formula shows that royalty is calculated on the basis of the quantity
of minerals extracted or removed. 398 The yield from mineral bearing land is
nothing but the quantity of mineral produced. Royalty is per se not the yield from
a mineral bearing land, but the yield (mineral produced) is the important factor in
determination of the rate of royalty. Moreover, royalty can be considered as an
income if it is paid to a private landowner. 399 In case the minerals are vested in
the State, the royalty is paid to the State Government, and hence assumes the
form of non-tax revenues. Therefore, royalty is relatable to the yield of the
mineral-bearing land as well as the income in case the minerals vest in a private
person. To this extent, we clarify the reasoning of this Court in Goodricke
(supra).
331. In India Cement (supra), it was held that royalty cannot be a measure for tax on
land because it is indirectly connected with land. 400 In our opinion, this holding is
not correct in view of the fact that royalty is directly relatable to the yield of the
mineral bearing land. Royalty is calculated on the basis of the output of the
mineral produced. Since the yield of the land is directly connected to the land, a
rate fixed on the basis of the yield cannot be said to be indirectly connected to
398 Indian Bureau of Mines, ‘Mineral Royalties’ (2011) 4.
399 H M Seervai, Constitutional Law of India, Volume 3 (4th edn.) 2468.
400 India Cement (supra) [23]
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PART I
the land. Similarly, Orissa Cement (supra) held that since royalty is not an
income derived from land, it cannot be used to measure the tax on land. 401
Royalty may not be an income in all aspects, but it is directly relatable to the yield
of the land. The yield can be adopted as the basis for levy of tax on land. The
decision in Orissa Cement (supra) has followed a narrow approach to the
concept of royalty. Therefore, we hold that the yield of a mineral bearing land,
either in terms of the quantity of mineral produced, or in terms of the rates of
royalty, can be used as a measure to tax the mineral bearing land under Entry
49 of List II.
332. The next submission of the respondents is that a tax measured on the basis of
the minerals produced or mineral value is covered by Entry 50 of List II and not
under Entry 49 of List II. It is a settled principle of law that Entry 49 of List II
contemplates a levy of tax on lands and buildings as units. Once the legislature
classifies a particular category of land as a separate unit for the purposes of the
levy of tax on land, the yield comprised in such unit can validly constitute the
basis for the levy and assessment. 402 Resultantly, if the State legislature has
classified mineral bearing land as a separate unit for the purposes of levy of tax
on land, the minerals produced or any other measure directly connected to the
minerals produced can be used as a measure to quantify the tax.
333. In Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic
Co. Ltd, 403 the Madras Urban Land Tax Act 1966 levied a tax on urban land on
the basis of the market value of the land. One of the contentions of the assesses
was that the legislation was in substance a tax on the capital value of the assets
401 Orissa Cement (supra) [30]
402 Goodricke Group Ltd. (supra) [32]
403 (1969) 2 SCC 55
192
PART I
under Entry 86 of List I and hence beyond the legislative competence of the State
legislature. The Court held that Entry 86 of List I does not prohibit the State
legislature from taxing capital value of lands and buildings under Entry 49 of List
II. It was further held that: (i) the tax under Entry 86 of List I proceeds on the
principle of aggregation of assets and is imposed on the totality of the value of
all assets bearing no definable relationship to lands and buildings which may or
may not form a component of the total assets of the assessee; and (ii) Entry 49
of List II contemplates a levy which is a tax directly on lands and buildings as
units. The Court held:
“4. […] For the purpose of levying tax under Entry
49, List II the State Legislature may adopt for
determining the incidence of tax the annual or the
capital value of the lands and buildings. But the
adoption of the annual or capital value of lands and
buildings for determining tax liability will not make
the fields of legislation under two entries
overlapping. The two taxes are entirely different in
their basic concept and fall on different subject-
matters.”
Thus, a measure which is relatable to another taxing entry in List I or List II can
also be used as a measure to tax lands under Entry 49 of List II, provided there
is a reasonable nexus between the measure and the levy. The mere fact that the
legislature uses mineral rights or mineral produced as a measure of taxation
under Entry 49 of List II does not give such tax the color of taxes on mineral rights
or mineral produced. It still continues to remain a tax on mineral-bearing land as
a unit.
334. It is true that the rate of royalties will vary with the output of minerals. In such a
situation, it might be argued, there is a possibility that if royalty is a measure of
tax on land, no tax can be levied if no mining activities is carried on. As discussed
193
PART I
in the above segments, royalty is directly related to the mineral output and is an
indicator of the actual productivity of a mineral bearing land. It is ordinarily
expected that a prudent holder of a mining lease will exercise their mineral rights
to the fullest extend in accordance with the terms and conditions of the mining
lease. The machinery selected by the legislature to assess the tax cannot
determine the true nature of the tax. The issue of selecting the appropriate
measure of tax is a matter of fiscal policy. 404 Sometimes, the method selected by
the legislature to measure a tax may be imperfect, but that does not imply
unconstitutionality.
335. It was further contended that since Entry 50 of List II is a special entry, the use
of minerals produced or mineral value as a measure of tax under Entry 49 of List
II will lead to overlap between the two entries. The issue for consideration is
whether the limitations imposed by Parliament in a law relating to mineral
development, which bears on the legislative field under Entry 50 of List II would
also impact the field reserved to the State legislature under Entry 49 of List II.
336. The respondents have relied on a three-Judge Bench decision in State of Bihar
v. Indian Aluminium Company, 405 to strongly contend that a tax on lands
cannot include tax on removal or excavation of land. In that case, the State
Government levied a tax called the Bihar Restoration and Improvement of
Degraded Forest Land Tax on excavational activities. The amount of tax was
relatable to the extent to which the land was ‘voided’. The impugned legislation
defined “void” to mean any area of leftover forest land from where soil, mineral
or rock or anything being fastened with the earth has been removed for non-
forest purpose, transported or dumped at a place other than the place from where
404 P M Ashwathanarayana Setty v. State of Karnataka, 1989 Supp (1) SCC 696 [84]
405 (1997) 8 SCC 360
194
PART I
the same was taken. This Court relied on Orissa Cement (supra) and Mahanadi
Coalfields (supra) to hold that the tax was outside the ambit of Entry 49 of List
II. It was held:
“15. Applying the ratio of the aforesaid decisions to
the facts of the present case we find that the position
is no different. Entry 49 of List II has been interpreted
to mean the levy of tax directly on land as a unit. The
land has been regarded as meaning the land on
surface and also below the surface. Therefore, in
order that a tax can be levied under Entry 49 of
List II it is essential that ‘land’ as a unit must exist
on which the tax is imposed. In the instant case
the tax is, in effect, being levied not on land but
on the absence of land. The levy is on the void
which has been created. The forest land which is
being used is not subjected to tax. The Schedule to
the Act itself shows that the assessment of tax is on
excavation and use of forest land for non-forest
purpose. The Schedule further says that the rate of
tax to be levied, in the case of mining or excavation
varies with the extent of the land voided. In case the
land has been rehabilitated no tax is to be levied.
The tax is levied in effect on the activity of the
removal or excavation of land. In other words the
tax is squarely on the activity of mining because
it is under the mining lease that mechanized and
non-mechanized excavation as well as
underground excavation takes place and this is
what is referred to in column 1 of the Schedule
to the Act while determining the amount of tax
leviable. Levy in other words is on the activity of
removal of earth and not on the land itself and is,
therefore, outside the ambit of Entry 49 of List II.”
(emphasis added)
337. The tax in Indian Aluminium Company (supra), was held not to be a tax on
land, but a tax on the absence of land. It was further observed that since the levy
was not a tax on land, Goodricke (supra) had no application because in that
case the levy was on tea estates as a unit.
195
PART I
338. The true nature of a tax has to be gathered from the charging section. In Indian
Aluminium Company (supra), the charging section provided that the tax was
levied “for mechanical and biological reclamation of forest land and for
rehabilitation so that the land is reclaimed as far as possible.” Importantly, the
provision further provided that “every occupier responsible for creating void/
voids by indulging in any developmental activities including mining” shall be liable
to pay the tax. The charging section clearly indicates that the object of the levy
was to tax the activity by the occupier of “creating void/voids”. The measure of
the tax, therefore, was based on the area of the land voided. It was not a tax on
lands as a unit. Thus, this Court held that the levy was not a tax on land under
Entry 49 of List II, but rather on the activity of extraction. However, this decision
is not relevant for our purposes because the true nature of the levy in that case
did not pertain to taxes on lands.
339. Both the entries 49 and 50 of List II deal with distinct subject matters. Both the
entries operate in different fields without any overlap. The fact that mineral value
or mineral produced is used as a measure under Entry 50 of List II does not
preclude the legislature from using the same measure for taxing mineral bearing
land under Entry 49 of List II. As Justice Ayyangar observed in H R S Murthy
(supra), using royalty as a measure of tax on lands “does not stamp it as a tax
on either the extraction of the mineral or on the mineral right.” The doctrine of
generalia specialibus non derogant has no application in the instant case
because Entries 49 and 50 of List II operate in different fields. Though Parliament
can limit the taxing field entrusted to the State under Entry 50 of List II through a
law relating to mineral development, the limitation operates on the field of taxing
mineral rights. Such a limitation cannot operate on Entry 49 of List II because
196
PART I
there is no specific stipulation under the Constitution to that effect. The nature of
taxes under both the entries, that is Entries 49 and 50 of List II, are distinct. The
Constitution envisages the imposition of limitations by Parliament on the
legislative field of the state of taxes on mineral rights, and not taxes on lands.
340. There may arise situations where two taxes levied under different legislative
entries may be based on the same measure. In Federation of Hotel &
Restaurant Association of India v. Union of India, 406 it was held that the fact
that two different taxes use the same measure does not make them identical.
341. In view of the above discussion, we conclude that mineral value or mineral
produce could be used as a measure of the tax on land under Entry 49 of List II.
The fact that Entry 50 of List II pertains to taxes on mineral rights would not
preclude the State legislature to use the measure of mineral value or mineral
produce under Entry 49 of List II. The State legislature has legislative discretion
to determine the appropriate measure for the purposes of quantifying taxes, so
long as there is a reasonable nexus between the measure and the nature of the
tax. The measure does not determine the nature of the tax. The words “lands”
under Entry 49 of List II includes mineral bearing land. The mineral produce is
the yield from a mineral bearing land. Since royalty is determined on the basis of
the mineral produce, royalty can also be used as a measure to determine the tax
on royalty. The fact that the State legislature uses mineral produce or royalty as
a measure does not overlap with Entry 50 of List II.
406 (1989) 3 SCC 634
197
PART J
J. Conclusions
342. In view of the above discussion, we answer the questions formulated in the
reference in terms of the following conclusions:
a. Royalty is not a tax. Royalty is a contractual consideration paid by the mining
lessee to the lessor for enjoyment of mineral rights. The liability to pay royalty
arises out of the contractual conditions of the mining lease. The payments made
to the Government cannot be deemed to be a tax merely because the statute
provides for their recovery as arrears;
b. Entry 50 of List II does not constitute an exception to the position of law laid
down in M P V Sundararamier (supra). The legislative power to tax mineral
rights vests with the State legislatures. Parliament does not have legislative
competence to tax mineral rights under Entry 54 of List I, it being a general
entry. Since the power to tax mineral rights is enumerated in Entry 50 of List II,
Parliament cannot use its residuary powers with respect to that subject-matter;
c. Entry 50 of List II envisages that Parliament can impose “any limitations” on the
legislative field created by that entry under a law relating to mineral
development. The MMDR Act as it stands has not imposed any limitations as
envisaged in Entry 50 of List II;
d. The scope of the expression “any limitations” under Entry 50 of List II is wide
enough to include the imposition of restrictions, conditions, principles, as well
as a prohibition;
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PART J
e. The State legislatures have legislative competence under Article 246 read with
Entry 49 of List II to tax lands which comprise of mines and quarries. Mineral-
bearing land falls within the description of “lands” under Entry 49 of List II;
f. The yield of mineral bearing land, in terms of the quantity of mineral produced
or the royalty, can be used as a measure to tax the land under Entry 49 of List
II. The decision in Goodricke (supra) is clarified to this extent;
g. Entries 49 and 50 of List II deal with distinct subject matters and operate in
different fields. Mineral value or mineral produce can be used as a measure to
impose a tax on lands under Entry 49 of List II;
h. The “limitations” imposed by Parliament in a law relating to mineral
development with respect to Entry 50 of List II do not operate on Entry 49 of
List II because there is no specific stipulation under the Constitution to that
effect; and
i. The decisions in India Cement (supra), Orissa Cement (supra), Federation
of Mining Associations of Rajasthan (supra), Mahalaxmi Fabric Mills
(supra), Saurashtra Cement (supra), Mahanadi Coalfields (supra), and P
Kannadasan (supra) are overruled to the extent of the observations made in
the present case.
199
PART J
343. The Registry is directed to take administrative directions from Hon’ble Chief
Justice of India for placing the matters before an appropriate Bench.
..….…….……………………………………CJI
[Dr Dhananjaya Y Chandrachud]
..….…….………………………………………J
[Hrishikesh Roy]
..….…….………………………………………J
[Abhay S Oka]
…….……………………………………………J
[J B Pardiwala]
…….……………………………………………J
[Manoj Misra]
…….……………………………………………J
[Ujjal Bhuyan]
…….……………………………………………J
[Satish Chandra Sharma]
…….……………………………………………J
[Augustine George Masih]
New Delhi;
July 25, 2024
200
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE/ORIGINAL JURISDICTION
CIVIL APPEAL NOS.4056-4064 OF 1999
MINERAL AREA DEVELOPMENT AUTHORITY
& ANOTHER …APPELLANTS
VERSUS
STEEL AUTHORITY OF INDIA
& ANOTHER ETC. …RESPONDENTS
WITH
CIVIL APPEAL NO.7937 OF 2019
WRIT PETITION (CIVIL) NO.512 OF 2018
CIVIL APPEAL NO.7938 OF 2019
CIVIL APPEAL NO.7936 OF 2019
CIVIL APPEAL NO.6221 OF 2008
CIVIL APPEAL NO.5250 OF 2019
WRIT PETITION (CIVIL) NO.729 OF 2019
WRIT PETITION (CIVIL) NO.1029 OF 2019
SPECIAL LEAVE PETITION (CIVIL) NO.16028 OF 2021
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 1 of 193
CIVIL APPEAL NO.4286 OF 2023
CIVIL APPEAL NO.5682 OF 2007
CIVIL APPEAL NO.1295 OF 2008
CIVIL APPEAL NO.874 OF 2013
CIVIL APPEAL NOS.8269-8271 OF 2013
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CIVIL APPEAL NO.8267 OF 2013
CIVIL APPEAL NO.6135 OF 2013
CIVIL APPEAL NO.8272 OF 2013
CIVIL APPEAL NO.9458 OF 2013
SPECIAL LEAVE PETITION (CIVIL) NO.18600 OF 2013
CIVIL APPEAL NO.4332 OF 2013
CIVIL APPEAL NO.5329 OF 2002
CIVIL APPEAL NO.4993 OF 2006
CIVIL APPEAL NO.8273 OF 2013
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CIVIL APPEAL NO.3869 OF 2014
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 2 of 193
CIVIL APPEAL NO.2632 OF 2013
CIVIL APPEAL NO.14685 OF 2015
CIVIL APPEAL NO.6784 OF 2014
WRIT PETITION (CIVIL) NO.376 OF 2015
CIVIL APPEAL NO.10082 OF 2016
CIVIL APPEAL NO.886 OF 2017
CIVIL APPEAL NO.4588 OF 2017
CIVIL APPEAL NO.205 OF 2017
CIVIL APPEAL NOS.5728-5729 OF 2018
CIVIL APPEAL NOS.4722-4724 OF 1999
CIVIL APPEAL NO.5333 OF 2002
CIVIL APPEAL NOS.5335-5336 OF 2002
CIVIL APPEAL NO.5332 OF 2002
CIVIL APPEAL NO.1352 OF 2005
CIVIL APPEAL NO.1883 OF 2006
TRANSFER PETITION (CIVIL) NO.722 OF 2006
CIVIL APPEAL NO.4745 OF 2006
CIVIL APPEAL NO.4990 OF 2006
CIVIL APPEAL NO.5599 OF 2006
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 3 of 193
CIVIL APPEAL NO.5649 OF 2006
CIVIL APPEAL NO.378 OF 2007
CIVIL APPEAL NO.665 OF 2007
CIVIL APPEAL NO.1180 OF 2007
TRANSFER PETITION (CIVIL) NO.481 OF 2007
TRANSFER PETITION (CIVIL) NO.906 OF 2007
CIVIL APPEAL NO.3401 OF 2008
CIVIL APPEAL NO.3400 OF 2008
CIVIL APPEAL NO.3402 OF 2008
CIVIL APPEAL NO.8311 OF 2011
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CIVIL APPEAL NO.2055 OF 2009
TRANSFER PETITION (CIVIL) NO.951 OF 2006
CIVIL APPEAL NO.4991 OF 2006
CIVIL APPEAL NO.4992 OF 2006
SPECIAL LEAVE PETITION (CIVIL) NO.763 OF 2007
SPECIAL LEAVE PETITION (CIVIL) NO.15900 OF 2007
CIVIL APPEAL NO.3403 OF 2008
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 4 of 193
CIVIL APPEAL NO.98 OF 2009
TRANSFER PETITION (CIVIL) NO.613 OF 2009
TRANSFER PETITION (CIVIL) NO.626 OF 2009
CIVIL APPEAL NO.4479 OF 2010
CIVIL APPEAL NO.4478 OF 2010
CIVIL APPEAL NO.3643 OF 2011
CIVIL APPEAL NOS.4710-4721 OF 1999
CIVIL APPEAL NO.2174 OF 2009
CIVIL APPEAL NO.6497 OF 2008
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CIVIL APPEAL NO.96 OF 2009
CIVIL APPEAL NO.6499 OF 2008
CIVIL APPEAL NO.97 OF 2009
SPECIAL LEAVE PETITION (CIVIL) NO.26160 OF 2008
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 5 of 193
JUDGMENT
NAGARATHNA, J.
Table of Contents
01. Constitutional Framework .............................................. 14
02. Interpretation of Legislative Entries ................................ 19
03. Scheme of The MMDR Act, 1957 .................................... 29
04. Hingir-Rampur ............................................................... 53
05. M.A. Tulloch ................................................................... 59
06. Baijnath Kedia................................................................ 63
07. HRS Murthy ................................................................... 66
08. India Cement .................................................................. 69
09. Laddu Mal ...................................................................... 83
10. Laxminarayana Mining Co. ............................................. 88
11. Orissa Cement................................................................ 95
12. Mahalaxmi Fabric Mills .................................................. 97
13. Mahanadi Coalfields ..................................................... 100
14. Saurashtra Cement. ..................................................... 101
15. Goodricke ..................................................................... 101
16. Kesoram ....................................................................... 107
17. Kannadasan ................................................................. 124
18. Entries 49 And 50 – List II ............................................ 151
19. Effect of Overruling India Cement ................................. 165
20. Federalism in India....................................................... 170
21. Sarkaria Commission Report on Centre-State Relations 173
22. Conclusions ................................................................. 181 Civil Appeal Nos.4056-4064 of 1999 Etc. Page 6 of 193 I have perused the comprehensive opinion authored by Hon’ble the Chief Justice of India Dr Dhananjaya Y Chandrachud on the questions referred to this nine-judge Bench. I respectfully dissent with the said opinion and express my reasons therefor.
1.1 The sum and substance of all the questions referred to this Bench could be crystallised to the short point for consideration, namely, whether royalty as envisaged under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (for short “MMDR Act, 1957”) is a tax or an exaction. At this stage itself, it must be made clear that the concept of royalty is being considered from the perspective of Section 9 of the MMDR Act, 1957 and not from any other context. My short answer is that viewed from the statutory framework of the MMDR Act, 1957 passed by the Parliament on the strength of Entry 54 – List I of the Seventh Schedule of the Constitution of India and having regard to Section 2 of the said Act, royalty is in the nature of a “tax” or an “exaction”. Further, Section 9 of the MMDR Act, 1957 is a limitation within the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 7 of 193 meaning of Entry 50 – List II of the Seventh Schedule of the Constitution and the States have no legislative competence to levy any other tax, impost or fee on the exercise of mineral rights. Entry 49 – List II is also not applicable to mineral bearing lands. Therefore, India Cement Limited vs. State of Tamil Nadu, (1990) 1 SCC 12 : AIR 1990 SC 85, (“India Cement”), has been correctly decided by a seven-judge Bench of this Court and that the majority judgment in State of West Bengal vs. Kesoram Industries Limited, (2004) 10 SCC 201 (“Kesoram”), is incorrect and therefore, ought to be overruled. I propose to discuss in detail the reasons for the aforesaid view.
2. The genesis of this controversy insofar as the reference to the nine-judge Bench is concerned, emanates from the judgment of the seven-judge Bench of this Court in India Cement. The said judgment authored by Sabyasachi Mukharji, J. (as His Lordship then was) held that royalty is a tax and therefore, any levy of a tax/cess on royalty is impermissible in law, having regard to the constitutional framework, particularly the relevant Entries of List I and II of the Seventh Schedule to Civil Appeal Nos.4056-4064 of 1999 Etc. Page 8 of 193 the Constitution of India. The said dictum of the seven-judge Bench was doubted in Kesoram, by a majority of the five-judge Bench (Sinha, J. dissenting). The majority judgment was penned by Lahoti, J. (as His Lordship then was). Consequently, the judgment of a two-judge Bench in State of Madhya Pradesh vs. Mahalaxmi Fabric Mills Ltd., 1995 Supp (1) SCC 642 (“Mahalaxmi Fabric Mills”) following India Cement was overruled and it was observed that the matter required consideration by a larger Bench.
3. A similar view was expressed by a three-judge Bench in Mineral Area Development Authority vs. Steel Authority of India, (2011) 4 SCC 450, (“Mineral Area Development Authority”) wherein this Court was of the view that the matter has to be considered by a Bench of nine Judges and hence, the following questions of law were raised:
“1. Whether “royalty” determined under Sections 9/15(3) of the Mines and Minerals (Development and Regulation) Act, 1957 (67 of 1957, as amended) is in the nature of tax?
2. Can the State Legislature while levying a tax on land under List II Entry 49 of the Seventh Schedule of the Constitution adopt a measure of tax based on the value of the produce of land? If yes, then would the constitutional Civil Appeal Nos.4056-4064 of 1999 Etc. Page 9 of 193 position be any different insofar as the tax on land is imposed on mining land on account of List II Entry 50 and its interrelation with List I Entry 54?
3. What is the meaning of the expression “Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development” within the meaning of Schedule VII List II Entry 50 of the Constitution of India?
Does the Mines and Minerals (Development and Regulation) Act, 1957 contain any provision which operates as a limitation on the field of legislation prescribed in List II Entry 50 of the Seventh Schedule of the Constitution of India? In particular, whether Section 9 of the aforementioned Act denudes or limits the scope of List II Entry 50?
4. What is the true nature of royalty/dead rent payable on minerals produced/mined/extracted from mines?
5. Whether the majority decision in State of W.B. v. Kesoram Industries Ltd. [(2004) 10 SCC 201] could be read as departing from the law laid down in the seven- Judge Bench decision in India Cement Ltd. v. State of T.N. [(1990) 1 SCC 12] ?
6. Whether “taxes on lands and buildings” in List II Entry 49 of the Seventh Schedule to the Constitution contemplate a tax levied directly on the land as a unit having definite relationship with the land?
7. What is the scope of the expression “taxes on mineral rights” in List II Entry 50 of the Seventh Schedule to the Constitution?
8. Whether the expression “subject to any limitations imposed by Parliament by law relating to mineral development” in List II Entry 50 refers to the subject-matter in List I Entry 54 of the Seventh Schedule to the Constitution?
9. Whether List II Entry 50 read with List I Entry 54 of the Seventh Schedule to the Constitution constitute an exception to the general scheme of entries relating to taxation being distinct from other entries in all the three Civil Appeal Nos.4056-4064 of 1999 Etc. Page 10 of 193 Lists of the Seventh Schedule to the Constitution as enunciated in M.P.V. Sundararamier & Co. v. State of A.P. [AIR 1958 SC 468 : 1958 SCR 1422] [AIR p. 494 : SCR at p. 1481 (bottom)]?
10. Whether in view of the declaration under Section 2 of the Mines and Minerals (Development and Regulation) Act, 1957 made in terms of List I Entry 54 of the Seventh Schedule to the Constitution and the provisions of the said Act, the State Legislature is denuded of its power under List II Entry 23 and/or List II Entry 50?
11. What is the effect of the expression “… subject to any limitations imposed by Parliament by law relating to mineral development” on the taxing power of the State Legislature in List II Entry 50, particularly in view of its uniqueness in the sense that it is the only entry in all the entries in the three Lists (Lists I, II and III) where the taxing power of the State Legislature has been subjected to “any limitations imposed by Parliament by law relating to mineral development”?.” That is how the questions have been placed for consideration of this nine-judge Bench.
4. His Lordship, the Chief Justice of India, while holding that royalty is not a tax, has overruled the following dicta of this Court: (i) India Cement; (ii) Orissa Cement Limited vs. State of Orissa, 1991 Supp (1) SCC 430 (“Orissa Cement”); (iii) Mahalaxmi Fabric Mills; (iv) Saurashtra Cement & Chemicals Industries Ltd. vs. Union of India, (2001) 1 SCC 91, (“Saurashtra Cement”), and (v) State of Orissa vs. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 11 of 193 Mahanadi Coalfields Ltd., 1995 Supp. (2) SCC 686 (“Mahanadi Coalfields”). While coming to the aforesaid conclusion, three significant judgments of this Court in Hingir- Rampur Coal Co. Ltd. vs. State of Orissa, (1961) 2 SCR 537 (“Hingir-Rampur”); State of Orissa vs. M.A. Tulloch, (1964) 4 SCR 461 (“M.A. Tulloch”) and Baijnath Kedia vs. State of Bihar, (1969) 3 SCC 838 (“Baijnath Kedia”) have been discussed.
5. Since the Entries under discussion are in their respective Lists of the Seventh Schedule of the Constitution, it would be unnecessary to refer to them as being part of “the Seventh Schedule of the Constitution” in the following discussion.
6. On enumerating the questions for opinion of this nine- judge Bench, five issues have been encapsulated in paragraph 5 of the judgment of the learned Chief Justice of India which read as under:
“5. During the course of the hearing, counsel for the petitioners and respondents agreed that the main questions that fall for determination by this Court could be reframed in the following terms:
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 12 of 193
a. What is the true nature of royalty determined under Section 9 read with Section 15(1) of the MMDR Act? Whether royalty is in the nature of tax.
b. What is the scope of Entry 50 of List II of the Seventh Schedule? What is the ambit of the limitations imposable by Parliament in exercise of its legislative powers under Entry 54 of List I? Does Section 9, or any other provision of the MMDR Act, contain any limitation with respect to the field in Entry 50 of List II?
c. Whether the expression “subject to any limitations imposed by Parliament by law relating to mineral development” in Entry 50 of List II pro tanto subjects the entry to Entry 54 List I, which is a non-taxing general entry? Consequently, is there any departure from the general scheme of distribution of legislative powers as enunciated in M.P.V. Sundararamier (supra)?
d. What is the scope of Entry 49 of List II and whether it covers a tax which involves a measure based on the value of the produce of land? Would the constitutional position be any different qua mining land on account of Entry 50 of List II read with Entry 54 of List I?
e. Whether Entry 50 of List II is a specific entry in relation to Entry 49 of List II, and would consequently subtract mining land from the scope of Entry 49 of List II?”
7. As the learned Chief Justice has recorded the submissions of the respective parties in detail, I need not be repetitive except highlighting the fact that the learned senior counsel and counsel for the appellants have contended that “royalty is not a Civil Appeal Nos.4056-4064 of 1999 Etc. Page 13 of 193 tax” while the learned senior counsel and counsel for the respondents including the Attorney General and Solicitor General for the Union of India have submitted that “royalty is a tax or an exaction” and therefore, the States are denuded of their power to levy any other levy, impost, tax or cess on royalty. Therefore, the question which arises is, whether, payment made for exercise of mineral rights being royalty, is a tax or an exaction.
Constitutional Framework:
8. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. Article 366 is a definition clause and it states that in the Constitution, unless the context otherwise requires, the expressions mentioned therein have the meanings thereby respectively assigned to them. For the purpose of this case, Article 366(28) is relevant and the same reads as under:
“(28) “taxation” includes the imposition of any tax or impost, whether general or local or special and “tax” shall be construed accordingly.” Civil Appeal Nos.4056-4064 of 1999 Etc. Page 14 of 193 The aforesaid definition of ‘taxation’ is not exhaustive but inclusive in nature to include not only any tax in the usual understanding of the said expression or tax stricto senso but also any levy akin to a tax. There can be no cavil to the proposition that before any tax or impost could be levied or collected, it must have the authority of law vide Article 265. 8.1 Article 246 of the Constitution deals with distribution of legislative powers between the Parliament and State Legislatures. It reads as under:
“246. Subject-matter of laws made by Parliament and by the Legislatures of States.—(1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List 1 in the Seventh Schedule (in this Constitution referred to as the "Union List").
(2) Notwithstanding anything in clause (3), Parliament and subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the "Concurrent List"). (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the 'State List'). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a Civil Appeal Nos.4056-4064 of 1999 Etc. Page 15 of 193 State notwithstanding that such matter is a matter enumerated in the State List.” With regard to the allocation of subjects under the three Lists, it may be useful to refer to the Devolution rules drawn under the Government of India Act, 1919 and thereafter, to the Government of India Act, 1935 which are the precursors to the distribution of legislative powers between the Union and the States as per the three Lists of the Seventh Schedule. Some of the salient aspects concerning the distribution of the legislative powers between Parliament and State Legislature as per the three Lists in the backdrop of provisions could be alluded to.
Article 246 of the Constitution deals with the distribution of legislative powers between the Union and the States. The said Article has to be read along with the three Lists, namely, the Union List, the State List and the Concurrent List. The taxing powers of the Union as well as the States are also demarcated as separate Entries in the Union List as well as the State List i.e. List I and List II respectively. The Entries in the Lists are fields of legislative powers conferred under Article 246 of the Constitution. In other words, the Entries define the areas of Civil Appeal Nos.4056-4064 of 1999 Etc. Page 16 of 193 legislative competence of the Union and the State Legislature. (vide: State of Karnataka vs. State of Meghalaya, (2023) 4 SCC 416 para 56), (“State of Karnataka”).
8.2 The legislative power to impose a tax or impost can be traced to either List I - Union List or List II - State List. List III - Concurrent List which gives powers to both Union as well as the States to legislate does not contain any taxation Entry. Entry 47 - List III states that fees in respect of any of the matters in that List but not including fees taken in any Court could be levied and collected by an authority of law either by the Union or the State Legislature. Similarly, Entry 66 - List II states that fees in respect of any of the matters in List II but not including fees taken in any Court could be collected by the State Legislature. In a similar vein, Entry 96 - List I gives power to levy fee in respect of subjects enumerated in List I but not including fees taken in any Court. It is nobody’s case that royalty is a fee and therefore no further discussion on that aspect is necessary. However, the conundrum to be unravelled by this nine-judge Bench is, whether royalty is a tax or a levy Civil Appeal Nos.4056-4064 of 1999 Etc. Page 17 of 193 akin to a tax or an exaction in the context of exercise of mineral rights.
8.3 In order to understand the foundation of this controversy, it is necessary to consider Article 246 of the Constitution and the relevant Entries of the two Lists vis-à-vis regulation of mines and mineral development, as the controversy has arisen in this particular context, which can be usefully extracted as under:
“List I – Union List Entry 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.
List II – State List Entry 23 : Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union.
xxx xxx xxx Entry 49 : Taxes on lands and buildings.
Entry 50 : Taxes on mineral rights subject to any limitation imposed by Parliament by law relating to mineral development.” Civil Appeal Nos.4056-4064 of 1999 Etc. Page 18 of 193 Interpretation of Legislative Entries:
8.4 On the aspect of interpretation of legislative Entries in the three Lists, the following principles are apposite as discussed in State of Karnataka.
8.4.1 The power to legislate which is dealt with under Article 246 has to be read in conjunction with the Entries in the three Lists which define the respective areas of legislative competence of the Union and State Legislatures. While interpreting these Entries, they should not be viewed in a narrow or myopic manner but by giving the widest scope to their meaning, particularly, when the vires of a provision of a statue is assailed. In such circumstances, a liberal construction must be given to the Entry by looking at the substance of the legislation and not its mere form. However, while interpreting the Entries in the case of an apparent conflict, every attempt must be made by the Court to harmonise or reconcile them. Where there is an apparent overlapping between two Entries, the doctrine of pith and substance is applied to find out the true character of the enactment and the Entry within which it would fall. The Civil Appeal Nos.4056-4064 of 1999 Etc. Page 19 of 193 doctrine of pith and substance, in short, means, if an enactment substantially falls within the powers expressly conferred by the Constitution upon the legislature which enacted it, the same cannot be held to be invalid merely because it incidentally encroaches on matters assigned to another legislature. Also, in a situation where there is overlapping, the doctrine has to be applied to determine to which Entry, a piece of legislation could be related. In order to examine the true character of enactment or a provision thereof, due regard must be had to the enactment as a whole and to its scope and objects. It is said that the question of invasion into another legislative territory has to be determined by substance and not by degree.
8.4.2 In case of any conflict between Entries in List I and List II, the power of Parliament to legislate under List I will supersede when, on an interpretation, the two powers cannot be reconciled. But if a legislation in pith and substance falls within any of the Entries of List II, the State Legislature's competence cannot be questioned on the ground that the field Civil Appeal Nos.4056-4064 of 1999 Etc. Page 20 of 193 is covered by Union list or the Concurrent list vide Prafulla Kumar Mukherjee vs. Bank of Commerce, Khulna, AIR 1947 P.C. 60 (“Prafulla Kumar Mukherjee”). According to the pith and substance rule, if a law is in its pith and substance within the competence of the Legislature which has made it, it will not be invalid because it incidentally touches upon the subject lying within the competence of another Legislature vide State of Bombay vs. FN Balsara, AIR 1951 SC 318 (“FN Balsara”).
8.4.3 Once the legislation is found to be ‘with respect to’ the legislative Entry in question, unless there are other constitutional prohibitions, the power would be unfettered. It would also extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in that topic or category of legislation (vide United Provinces vs. Atiqa Begum, AIR 1941 FC 16 (“Atiqa Begum”)). 8.4.4 Another important aspect while construing the Entries in the respective Lists is that every attempt should be made to harmonise the contents of the Entries so that interpretation of Civil Appeal Nos.4056-4064 of 1999 Etc. Page 21 of 193 one Entry should not render the entire content of another Entry nugatory (vide Calcutta Gas Company vs. State of West Bengal, AIR 1962 SC 1044 (“Calcutta Gas Company”)). This is especially so when some of the Entries in a different List or in the same List may overlap or may appear to be in direct conflict with each other. In such a situation, a duty is cast on the Court to reconcile the Entries and bring about a harmonious construction. Thus, an effort must be made to give effect to both Entries and thereby arrive at a reconciliation or harmonious construction of the same. In other words, a construction which would reduce one of the Entries nugatory or a dead letter, is not to be followed.
8.4.5 The sequitur to the aforesaid discussion is that if the Legislature passes a law which is beyond its legislative competence, it is a nullity ab-initio. The Legislation is rendered null and void for want of jurisdiction or legislative competence vide RMDC vs Union of India, AIR 1957 SC 628 (“RMDC”). 8.4.6 In short, the Entries in the different Lists should be read together without giving a narrow meaning to any of them. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 22 of 193
The powers of the Union and the State Legislatures are expressed in precise and definite terms. Hence, there can be no broader interpretation given to one Entry than to the other. Even where an Entry is worded in wide terms, it cannot be so interpreted as to negate or override another Entry or make another Entry meaningless. In case of an apparent conflict between different Entries, it is the duty of the Court to reconcile them in the first instance. In case of an apparent overlapping between two Entries, the doctrine of pith and substance has to be applied to find out the true nature of a legislation and the Entry within which it would fall. Where one Entry is made “subject to” another Entry, all that it means is that out of the scope of the former Entry, a field of legislation covered by the latter Entry has been reserved to be specially dealt with by the appropriate legislature. When one item is general and another specific, the latter will exclude the former on a subject of legislation. If, however, they cannot be fairly reconciled, the power enumerated in List II must give way to List I. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 23 of 193 8.4.7 On a close perusal of the Entries in the three Lists, it is discerned that the Constitution has divided the topics of legislation into the following three broad categories:
(i) Entries enabling laws to be made;
(ii) Entries enabling taxes to be imposed; and
(iii) Entries enabling fees and stamp duties to be collected.
Thus, the Entries on levy of taxes are specifically mentioned. Therefore, as such, there cannot be a conflict of taxation power of the Union and the State. Thus, in substance the taxing power can be derived only from a specific taxing Entry in an appropriate List. Such a power has to be determined by the nature of the tax and not the measure or machinery set up by the statute.
8.5 Entry 54 - List I read with Entry 23 - List II deals with regulation of mines and mineral development. Since both the Entries deal with regulation of mines and mineral development and they are in List I and List II, Entry 23 - List II expressly states that any regulation of mines and mineral development is subject to the provisions of List I with respect to regulation and Civil Appeal Nos.4056-4064 of 1999 Etc. Page 24 of 193 development under the control of the Union (i.e. Entry 54 - List I).
8.6 However, what is pertinent to be considered in this case is, Entry 50 - List II in juxtaposition with Entry 54 - List I. As already noted, Entry 50 - List II is a taxation Entry which empowers a State Legislature to impose tax on mineral rights. However, this power of the State Government is not an absolute power inasmuch as Entry 50 - List II itself states that the power of the State Legislature to impose tax on mineral right is “subject to any limitations imposed by Parliament by law relating to mineral development”. In other words, if there is any limitation imposed by the Parliament by law relating to mineral development then that would have an impact on the legislative competence of the State Legislature to impose a tax on mineral rights. The key expressions of Entry 50 - List II are “taxes on mineral rights” and “subject to any limitations imposed by the Parliament by any law on mineral development”. Thus, the Parliament can impose any limitation on the State’s right to impose a tax on mineral rights by way of a law relating to Civil Appeal Nos.4056-4064 of 1999 Etc. Page 25 of 193 mineral development. Thus, while Entry 50 - List II speaks of taxes on mineral rights and is a taxation Entry empowering States to impose taxes on mineral rights, the same is not unbridled or absolute but is subject to any limitation to be imposed by Parliament by law relating to mineral development. In other words, if Parliament intends to regulate mineral development in the country, it can do so by a law made as per Entry 54 - List I and to that extent the taxation Entry in Entry 50 - List II could be limited and the State’s right to impose a tax on mineral rights by a law would be affected. Thus, a taxation Entry in Entry 50 - List II can be affected by Entry 54 - List I in the interest of mineral development by Parliament imposing a limitation on the State’s right to tax mineral rights. In other words, if the Union has by a law taken control of, inter alia, mineral development with the Parliament passing a law, then the State’s power to impose any tax on mineral rights would, to that extent, be denuded, if the Parliamentary or Central law creates a limitation to impose such a tax, if it relates to mineral Civil Appeal Nos.4056-4064 of 1999 Etc. Page 26 of 193 development. It is in the above backdrop that the controversy must be considered.
8.7 Exercise of mineral rights have to be consistent with mineral development in the country, which would embrace, inter alia, uniformity in mineral development throughout the country having regard to several factors which would otherwise come in the way of such development. Hence, the framers of the Constitution introduced Entry 50 - List I enabling a limitation being imposed on Entry 50 - List II although that is a taxation Entry giving powers to the States to impose taxes on mineral rights. It is subject to any limitation imposed by Parliament under Entry 54 - List I. 8.8 The golden thread which runs through Entry 54 - List I and Entry 23 - List II is that the Entries deal with regulation of mines and mineral development. Thus, any aspect of regulation of mines and mineral development taken under the control of the Union by a declaration made by the Parliament by a law, denudes the State Legislature of its legislative competence to pass any law to that extent. If a Parliamentary law such as Civil Appeal Nos.4056-4064 of 1999 Etc. Page 27 of 193 MMDR Act, 1957 is enacted and deals with certain aspects of mineral development, to that extent the State Legislature would be denuded of its competence to pass any law on the said aspect. The legislative competence vested with the State Legislature is, therefore, not an absolute one but is subject to a Parliamentary law enacted as per Entry 54 - List I dealing with mineral development.
9. The precise question before this Court being, whether, imposition of royalty envisaged under Section 9 of the MMDR Act 1957, which is a parliamentary legislation passed by virtue of Entry 54 - List I, acts as a limitation imposed by Parliament by law relating to mineral development and therefore, the State Legislature is denuded of its powers to impose any other tax or impost on mineral rights. Whether royalty, which is paid by a lessee to a lessor i.e. the State while exercising mineral rights is a limitation imposed on State’s power to impose any other impost, cess or tax on exercise of mineral rights while undertaking a mining operation and extracting minerals by a lessee, is the precise question to be answered in the context of Civil Appeal Nos.4056-4064 of 1999 Etc. Page 28 of 193 the constitutional framework, the parliamentary law, namely, the MMDR Act, 1957 and the judgments of this Court. Scheme of the MMDR Act, 1957:
10. Having analysed the relevant constitutional Entries which have a bearing on the controversy, it is necessary to refer to the scheme of and salient provisions of the MMDR Act, 1957 which has been enacted by Parliament pursuant to Entry 54 - List I. This is apparent on a reading of Section 2 of the said Act which reads as under:
“2. Declaration as to the expediency of Union control,— It is hereby declared that it is expedient in the public interest that the Union should take under its control the regulation of mines and the development of minerals to the extent hereinafter provided.” The expression in Entry 54 - List I “to the extent to which” is also significant inasmuch as Section 2 of the MMDR Act, 1957 also uses the expression “to the extent hereinafter provided”. The two expressions have the same content and are consistent with each other.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 29 of 193 10.1 The MMDR Act, 1957 which is a successor to MMRD Act, 1948, can be briefly considered by referring to various provisions of the Act. The Preamble of the MMDR Act, 1957 states that the Act is to provide “for the development and regulation of mines and minerals under the control of the Union”. Earlier, it read as “for regulation of mines and the development of minerals” but by Section 2 (Act 38 of 1999), the above amendment was made.
10.2 The relevant provisions of the MMDR Act, 1957 could be adverted to at this stage. The expression ‘minerals’ in Section 3(a)(d) includes all minerals except mineral oils. Section 3(e) defines ‘minor minerals’ to mean building stones, gravel, ordinary clay, ordinary sand other than sand used for prescribed purposes, and any other mineral which the Central Government may, by notification in the official gazette, declare to be a minor mineral. ‘Notified minerals’ is defined under Section 3(ea) to mean any mineral specified in the Fourth Schedule, such as, bauxite, iron ore, limestone, manganese ore.
Further, ‘mineral concession’ is defined in Section 3(ae) of the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 30 of 193 said Act to mean either a reconnaissance permit, prospecting licence, mining lease, composite licence or a combination of any of these and the expression “concession” shall be construed accordingly. Section 3(c) defines “mining lease” to mean a lease granted for the purpose of undertaking mining operations and includes a sub-lease granted for such purpose. Section 3(d) defines “mining operations” to mean any operation undertaken for the purpose of winning any mineral. Section 3(h) defines “prospecting operations” to mean any operations undertaken for the purpose of exploring, locating or proving mineral deposits. Section 3(ha) defines “reconnaissance operations” to mean any operation undertaken for preliminary prospecting of a mineral through regional, aerial, geophysical or geochemical surveys and geological mapping, but does not include pitting, trenching, drilling (except drilling of boreholes on a grid specified from time to time by the Central Government) or sub- surface excavation.
10.3 It is observed that the MMDR Act, 1957 specifies the twin purposes of the Act, namely, (1) the regulation of mines, Civil Appeal Nos.4056-4064 of 1999 Etc. Page 31 of 193 and (2) the development of minerals, both under the control of the Union. Sections 4 to 10 of the Central Act form a group headed ‘General Restrictions on Undertaking Prospecting and Mining Operations’ and relate to the rules and regulations under which prospecting licences and mining leases might be granted; the period for which they may be granted or renewed; the royalties and fees that would be payable on them etc. The next group of Sections, namely, Sections 10 to 12 deal with the procedure for obtaining prospecting licences or mining leases in respect of land in which minerals vest in the Government. Sections 13 to 17 are grouped under a caption which reads - “Rules for regulating the grant of Prospecting Licences and Mining Leases”. Section 13 empowers the Central Government, by notification, to make rules for regulating the grant of prospecting licences and mining leases in respect of minerals and for purposes connected therewith. Sub-section (2) specifies in particular the matters for which such rules may provide and among them is (i) the fixing and collection of fees for mineral concession, surface rent, security deposit, fines, other fees or Civil Appeal Nos.4056-4064 of 1999 Etc. Page 32 of 193 charges and (ii) the time within which and the manner in which the dead rent or royalty shall be payable, and rules regarding prospecting licences and mining leases.
10.4 Section 18 deals with the mineral development. Section 18(1) states that it shall be the duty of the Central Government to take all such steps as may be necessary for the conservation and development of minerals in India and for that purpose the Central Government may, by notification in the Official Gazette, make such rules as it thinks fit. Section 18(2) talks of rules providing for the development of mineral resources in any area. Section 25 provides for the recovery of any rent, royalty, tax or other sum due to the Government under this Act or the rules made thereunder and that they are to be recovered in the same manner as arrears of land revenue.
10.5 Section 9 of the MMDR Act, 1957 with which we are concerned deals with royalty while Section 9A deals with dead rent. The said provisions can be usefully extracted as under: Civil Appeal Nos.4056-4064 of 1999 Etc. Page 33 of 193
“9. Royalties in respect of mining leases.―(1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement, pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area after such commencement, at the rate for the time being specified in the Second Schedule in respect of that mineral. (2) The holder of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area at the rate for the time being specified in the Second Schedule in respect of that mineral. (2A) The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972 shall not be liable to pay any royalty in respect of any coal consumed by a workman engaged in a colliery provided that such consumption by the workman does not exceed one- third of a tonne per month.
(3) The Central Government may, by notification in the Official Gazette, amend the Second Schedule so as to enhance or reduce the rate at which royalty shall be payable in respect of any mineral with effect from such date as may be specified in the notification:
Provided that the Central Government shall not enhance the rate of royalty in respect of any mineral more than once during any period of three years.
9A. Dead rent to be paid by the lessee.―(1) The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, shall notwithstanding anything contained in the instrument of lease or in any other law for the lime being in force, pay to the State Government, every year, dead rent at such rate, as may be Civil Appeal Nos.4056-4064 of 1999 Etc. Page 34 of 193 specified, for the time being, in the Third Schedule, for all the areas included in the instrument of lease: Provided that where the holder of such mining lease becomes liable, under section 9, to pay royalty for any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area, he shall be liable to pay either such royalty, or the dead rent in respect of that area, whichever is greater. (2) The Central Government may, by notification in the Official Gazette, amend the Third Schedule so as to enhance or reduce the rate at which the dead rent shall be payable in respect of any area covered by a mining lease and such enhancement or reduction shall take effect from such date as may be specified in the notification:
Provided that the Central Government shall not enhance the rate of the dead rent in respect of any such area more than once during any period of three years.” Section 9 speaks of royalty to be paid by a holder of a mining lease while Section 9A deals with dead rent to be paid by a lessee. Dead rent is payable by a lessee, when the lessee - a holder of a mining lease, becomes liable to pay under Section 9 royalty of any mineral removed or consumed by him. The holder of a mining lease conducts mining operations for the purpose of winning any mineral. Thus, a mining operation is an exercise of a mineral right and therefore, is covered under the provisions of the MMDR Act, 1957 and particularly having regard to Section 2 thereof, as a declaration has been made by Civil Appeal Nos.4056-4064 of 1999 Etc. Page 35 of 193 the Union to take under its control the regulation of the mines and minerals development, which is expedient in public interest. Reconnaissance, prospecting operations or mining operations are all aspects which are taken under the control of the Union, in view of the declaration under Section 2 of the MMDR Act, 1957.
10.5.1 For the exercise of mineral rights, royalty has to be paid by the holder of the mining lease in terms of Section 9 or dead rent in terms of Section 9A of the said Act, as per the conditions mentioned therein. Royalty is paid in exercise of a mineral right as a consideration for conducting a mining operation, which is undertaken for the purpose of winning any mineral. A mining lease is granted only for the purpose of undertaking a mining operation. Therefore, royalty has to be paid by the holder of a mining lease to the lessor who executes the lease deed i.e. the State Government. For this reason, Section 25 states that any rent, royalty, tax, fee or other sum due to the Government under the Act or the Rules made thereunder or under the terms and conditions of any mineral Civil Appeal Nos.4056-4064 of 1999 Etc. Page 36 of 193 concession shall be recovered in the same manner as arrears of land revenue.
10.6 By way of abundant caution, Section 25 of the said Act uses the expression “rent, royalty, tax, fee or other sum” due to the Government under the provisions of the said Act.
Section 25 of the said Act reads as under:
“25. Recovery of certain sums as arrears of land revenue.― (1) Any rent, royally, 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 mineral concession 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.
(2) Any rent, royalty, tax, fee or other sum due to the Government either under this Act or any rule made thereunder or under the terms and conditions of any mineral concession 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 if it were an arrear of land revenue and every such sum which becomes due to the Government after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, together with the interest due thereon shall be a first charge on the assets of the holder of the mineral concession, as the case may be.” 10.7 Under the scheme of the Act, royalty shall be payable in respect of mining leases. The statutory basis for the same may Civil Appeal Nos.4056-4064 of 1999 Etc. Page 37 of 193 be found in Section 9 of the Act, which prescribes that royalty shall be payable by holders of mining lease, whether such lease be granted before or after commencement of the Act. The event that triggers payment of royalty is the removal and/or consumption of mineral. The rates of royalty are prescribed under the second schedule to the Act and are generally expressed as a percentage of the average sale price of the respective mineral, and the same is to be paid on ad valorem basis. It is clarified at this juncture that the payment of royalty in respect of mining leases, shall be notwithstanding any stipulation contained under the instrument of lease or any other law in force at the time of execution of the lease.
10.8 Section 9A of the Act provides that the holder of a mining lease shall pay dead rent to the State Government, annually, at such rate specified in the third schedule to the Act. Dead rent is to be paid for such area included in the instrument of lease. However, since the holder of a mining lease is also liable to pay royalty under Section 9 of the Act, it is clarified under Section 9A that the liability shall be limited to Civil Appeal Nos.4056-4064 of 1999 Etc. Page 38 of 193 either dead rent or royalty, whichever is greater. Since royalty is payable on ad valorem basis, the holder of a mining lease would be liable to pay the same only depending on the value of the mineral won/removed/consumed. That is, when mining activity is not conducted, liability of royalty would be nil. However, dead rent is payable for such area covered under the instrument of lease, on an annual basis, regardless of whether any mining activity is undertaken on such land. The Third Schedule to the Act prescribes the dead rent payable per hectare, per annum. The amount of dead rent payable also depends upon the nature of the minerals available on the land in question - medium value minerals, high value minerals or precious metals and stones. The Act also prescribes the manner in which rent and royalty payable, may be recovered. Section 25 of the Act provides that any sum due to the Government under the provisions of the Act, including rent and royalty, 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 arrears of land revenue. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 39 of 193 10.8.1 Section 13(1) of the Act enables the Central Government to make rules for regulating the grant of mineral concession in respect of minerals and for purposes connected therewith. Without prejudice to the generality of the power prescribed under Section 13(1), Section 13(2) lists the specific subjects that may be regulated by framing Rules. Section 13(2)(e) enables the Central Government to make rules to prescribe the authority by which mineral concession in respect of land in which the minerals vest in the Government may be granted. Section 13(2)(f) on the other hand, relates to the rule making power to prescribe the procedure for obtaining a mineral concession in respect of any land in which the minerals vest in a person other than the Government, and the terms on which and conditions subject to which such a permit, license or lease may be granted or renewed.
10.8.2 In exercise of the rule-making power under Section 13 of the Act, the Central Government has enacted the Mineral Concession Rules, 1960, to provide, inter-alia, for the procedure for obtaining mineral concessions in respect of various Civil Appeal Nos.4056-4064 of 1999 Etc. Page 40 of 193 categories of lands, the terms on which and conditions subject to which such a permit, license or lease may be granted or renewed.
10.8.3 Chapter IV of the Rules governs all matters connected with grant of mining leases in respect of land in which minerals vest in the Government. Applications for mining lease is to be made to the State Government in the manner prescribed under Rule 22. Rule 22(4) prescribes the manner in which the State Government is to act upon receipt of an application for grant of mining license. First, the State Government is required to take a decision as to the precise area for the said purpose and communicate such decision to the applicant. On receipt of communication from the State Government of the precise area to be granted, the applicant shall submit a mining plan within a period of six months or such other period as may be allowed by the State Government, to the Central Government for its approval. Thereafter, the applicant shall submit the mining plan, duly approved by the Central Government or by an officer duly authorised by the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 41 of 193 Central Government, to the State Government to grant mining lease over that area. The procedure for approval of mining plans, by the Central or State Government, as the case may be, has been detailed under Rule 22BB.
10.8.4 Rule 31 provides that where, on an application for the grant of a mining lease, an order has been made for the grant of such lease, a lease deed in Form K is required to be executed by the State Government within six months of the order granting lease. The State Government may, after giving an opportunity of being heard and for reasons to be recorded in writing and communicated to the applicant, also refuse, in the manner specified under Rule 26, to grant a mining lease over whole or part of the area applied for.
10.8.5 Rule 27 prescribes the general conditions to which mining leases, in respect of land in which minerals vest in the Government, shall be subject to. The relevant portion of said Rule is extracted hereinunder for easy reference: Civil Appeal Nos.4056-4064 of 1999 Etc. Page 42 of 193
“27. Conditions :- (1) Every mining lease shall be subject to the following conditions :-
xxx xxx xxx
(c) the lessee shall pay, for every year, except the first year of the lease, such yearly dead rent at the rates specified in the Third Schedule of the Act and if the lease permits the working of more than one mineral in the same area the State Government shall not charge separate dead rent in respect of each mineral:
Provided that the lessee shall be liable to pay the dead rent or royalty in respect of each mineral whichever be higher in amount but not both;
(d) the lessee shall also pay, for the surface area used by him for the purposes of mining operations, surface rent and water rate at such rate, not exceeding the land revenue, water and cesses assessable on the land, as may be specified by the state Government in the lease;
xxx xxx xxx
(t) the lessee shall pay to the occupier of the surface of the land such compensation as may become payable under these rules;
(u) the lessee shall comply with the Mineral Conservation and Development Rules framed under section 18;” 10.8.6 While the aforesaid provisions contained in Chapter IV relate to mining leases in respect of land in which minerals vest in the Government, Chapter V prescribes the procedure for obtaining a mining lease in respect of land in which minerals vest exclusively in a person other than the Government. Rule 45 pronounces the conditions of a mining lease. It is pertinent Civil Appeal Nos.4056-4064 of 1999 Etc. Page 43 of 193 to note that the said provision adopts the conditions prescribed under clauses (b) to (l) and (p) to (u) of sub-rule (1) of Rule 27 which relate to mining leases in respect of land in which minerals vest in the Government, and makes the said conditions applicable to mining leases in respect of land in which minerals vest exclusively in a person other than the Government, with the modification that in clauses (c) and (d) for the words "State Government" the word "lessor" shall be substituted. Further, in addition to the aforesaid conditions that are statutorily prescribed, Rule 45 (iii) permits the parties to set down and mutually agree upon such other conditions in the instrument of lease, so long as such additional conditions are not inconsistent with the provisions of the Act and the Rules. Rule 45 (iv) enjoins upon the lessor, the duty to give notice to the lessee requiring him to pay royalty due under Section 9 of the Act, on failure of the lessee to remit the same as required. Should the lessee not act upon such notice and duly make the payment of royalty within sixty days from the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 44 of 193 date of receipt of notice, the lessor shall be bound to determine the lease.
10.8.7 Chapter VI pertains to grant of mining leases in respect of land in which the minerals vest partly in the Government and partly in private persons. Rule 53 provides that the provisions of Chapter IV shall apply to mining leases in respect of minerals which vest partly in the Government and partly in a private person as they apply in relation to the grant of prospecting licences and mining leases in respect of minerals which vest exclusively in the Government. The proviso to Rule 53 clarifies that the dead rent and royalty payable in respect of mineral which partly vest in the Government and partly in a private person shall be shared by the Government and by that person in proportion to the shares they have in the minerals. 10.8.8 The pertinent provisions prescribing the liability of a lessee to pay royalty and dead rent in respect of mining leases over different categories of lands as described under Chapters Civil Appeal Nos.4056-4064 of 1999 Etc. Page 45 of 193 IV, V and VI of the Rules, have been summarised and presented in the following tabular statement:
Sl. No. Category of Procedure for Liability to pay land over grant of lease Royalty and Dead which mining and Rent prescribed lease is Conditions of under:
granted: mining lease
prescribed
under:
Mining lease in Chapter IV of Royalty:
respect of land the Rules: Section 9 of the Act,
1. in which r/w Second
minerals vest in Rule 27 - Schedule to the Act
the Conditions which prescribes
Government the rate of royalty;
Rule 27 (1) (c) and
the proviso thereto;
Part V of Form K of
the Rules;
Dead Rent:
Section 9A of the
Act, r/w Third
Schedule to the Act
which prescribes
the amount of dead
rent payable per
hectare of land;
Rule 27 (1) (c) and
the proviso thereto;
Part V of Form K of
the Rules.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 46 of 193
Sl. No. Category of Procedure for Liability to pay
land over grant of lease Royalty and Dead
which mining and Rent prescribed
lease is Conditions of under:
granted: mining lease
prescribed
under:
Surface rent:
Payable in terms of
Rule 27(1)(d), at the
rate specified by the
State Government
in the lease.
2. Mining lease in Chapter V of Royalty and Dead respect of land the Rules: rent:
in which
minerals vest Rule 45- Royalty and dead
exclusively in a Conditions of rent are payable in person other mining lease terms of Section 9 than the [Conditions and 9A of the Act, Government stipulated respectively, read under Rule 27 with Rule 27 (1) (c) have been of the Rules.
adopted with modification to Surface rent:
substitute ‘State Payable in terms of Government’ Rule 27(1)(d), as as appearing substituted in under Rule terms of Rule 45, at 27(1)(c) and (d) the rate specified by with the word the lessor in the ‘lessor’.] lease.
In addition to the conditions statutorily prescribed, Civil Appeal Nos.4056-4064 of 1999 Etc. Page 47 of 193 Sl. No. Category of Procedure for Liability to pay land over grant of lease Royalty and Dead which mining and Rent prescribed lease is Conditions of under:
granted: mining lease
prescribed
under:
Rule 45 (iii)
permits the
parties to set
down and
mutually agree
upon such
other
conditions in
the
instrument of
lease, so long
as such
additional
conditions are
not
inconsistent
with the
provisions of
the Act and
the Rules.
3. Mining leases Chapter VI of Royalty and Dead in respect of the Rules: rent:
land in which the minerals The procedure Royalty and dead vest partly in and conditions rent are payable in the prescribed terms of Section 9 Government under Chapter and 9A of the Act, and partly in IV to apply respectively, read private persons mutatis with Rule 27 (1) (c) mutandis of the Rules.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 48 of 193 10.9 Section 9 of the MMDR Act, 1957 categorically deals with royalty. It has to be read with the Second Schedule which deals with rates of royalty in respect of minerals listed therein.
Therefore, there can be no cavil that royalty is an aspect within the scope and ambit of the Parliamentary law which is intended to take under the control of the Union by a declaration (vide Section 2 of the said Act) vis-à-vis regulation of the mines and mineral development which is declared to be expedient in the public interest. When the imposition of royalty on a mining lease in terms of lease-deed as envisaged in Form-K of the MMDR Act, 1957 is considered in light of Entry 54 - List I read with Section 2 of the MMDR Act, 1957, it is clear that royalty is a matter coming under the control of the Union. If payment of royalty, which is a consideration for exercise of mineral rights is expressly covered under Section 9 of the MMDR Act, 1957, can the same be a basis for any other exaction by a State either by imposing another tax/cess based on royalty or by imposing any other tax on mineral bearing land? This is the question which has fallen for consideration in several cases before this Court as Civil Appeal Nos.4056-4064 of 1999 Etc. Page 49 of 193 well as before several High Courts. As noted above, royalty is a consideration imposed by a lessor on a lessee of a mining lease for the grant of the mining lease, which in sum and substance is a requisite consideration for exercise of a mineral right. Royalty and dead rent as envisaged under the scheme of Sections 9 and 9A of the MMDR Act, 1957 have been imposed by the Parliament in the interest of mineral development in the country. The fact that under Sections 9 as well as 9A, payment of royalty and dead rent as respectively envisaged as per the conditions stated in the said Sections, would clearly indicate that having regard to development of any particular mineral, the rate of royalty has been fixed under the Second Schedule to the MMDR Act, 1957. Therefore, it is in the interest of mineral development that a lessor is bound to collect royalty and dead rent from a lessee in terms of what is envisaged in Sections 9 and 9A read with Second Schedule to the Act. The payment of royalty is to the lessor which is the State which executes the lease deed in terms of the Form K of Mineral Concession Rules, 1960. Thus, having regard to the statutory scheme envisaged Civil Appeal Nos.4056-4064 of 1999 Etc. Page 50 of 193 under Sections 9 and 9A of the Act read with the Second Schedule to the MMDR Act, 1957, any exercise of mineral right by a lessee is subject to the payment of royalty to the State Government. The exaction of royalty is, therefore, statutory in nature.
10.10 In Govind Saran Ganga Saran vs. Commissioner of Sales Tax, (1985) Supp SCC 205 (“Govind Saran Ganga Saran”), the components which enter into the concept of tax were discussed by this Court in paragraph 6 which reads as under:
“6. The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity.” Civil Appeal Nos.4056-4064 of 1999 Etc. Page 51 of 193 The four components could be understood as:
(i) the character of the tax which is determined by its nature which prescribes the taxable event attracting the levy;
(ii) a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax;
(iii) rate at which the tax is imposed; and
(iv) the measure or value to which the tax will be applied for computing the taxing liability.
If the aforesaid components are applied to the present case, it is clear that –
(i) Section 9 of the MMDR Act, 1957 deals with payment of royalty in respect of any mineral removed or consumed;
(ii) by a holder of mining lease who is obliged to pay the royalty;
(iii) at the rate specified in the Second Schedule to MMDR Act, 1957; and Civil Appeal Nos.4056-4064 of 1999 Etc. Page 52 of 193
(iv) a percentage of the average sale price on ad valorem basis.
For instance, in respect of Iron Ore : (CLO, lumps, fines and concentrates all grades) fifteen per cent of average sale price on ad valorem basis.
Although, Section 9 of the MMDR Act, 1957 is not worded in the manner a charging section in a taxation statute is normally worded, nevertheless, its import must be understood in the sense of it being a taxation provision. For the aforesaid reasons, I hold that royalty is the nature of a tax or an exaction.
I now move on to the judgments of this Court as well as High Courts on the nature of exaction in the form of royalty under the provisions of the MMDR Act, 1957 as the controversy centres around various decisions of this Court and certain High Courts.
Hingir-Rampur:
11. In Hingir-Rampur, a Constitution Bench of this Court presided over by P.B. Gajendragadkar, J. was considering the validity of the Orissa Mining Areas Development Fund Act, 1952 (hereinafter referred to as, “Act of 1952”). In December, Civil Appeal Nos.4056-4064 of 1999 Etc. Page 53 of 193 1952, the State of Orissa passed the Act of 1952. In pursuance of the rule-making power conferred on it by the impugned Act, respondent No.1 purported to make the rules called the Orissa Mining Areas Development Act Rules, 1955 (hereinafter referred to as, “1955 Rules”). The liability for the payment of cess under the impugned Act was notified against the first petitioner’s Rampur colliery therein. Since a demand was made for the payment of cess, there was a challenge made to the same by filing the writ petition under Article 32 of the Constitution before this Court. According to the petitioners, cess levied under the impugned Act was not a fee but in substance a levy in the nature of a duty of excise on the coal produced at the first petitioner’s Rampur Colliery, and as such was beyond the legislative competence of the Orissa legislature. Alternatively, it was urged that even if the levy imposed by the impugned Act is a fee relative to Entries 23 and 66 - List II, it would nevertheless be ultra vires having regard to the provisions of Entry 54 - List I read with Central Act 53 of 1948 (MMRD Act, 1948). According to the respondent-the State of Orissa, the levy imposed by the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 54 of 193 impugned Act was a fee relatable to Entries 23 and 66 - List II and its validity was not affected either by Entry 54 read with Act 53 of 1948 or by Entry 52 read with Act 65 of 1951. In the alternative, it was contended that if the said levy is held to be a tax and not a fee, it would be a tax relatable to Entry 50 - List II and as such the legislative competence of the State legislature to impose the same cannot be successfully challenged. 11.1 The scheme of the impugned Act was considered in paragraph 15 of the judgment and it was observed by this Court that the object of the Act was for the purpose of development of mining areas in the State. That the method in which the fee is recovered is a matter of convenience that by itself cannot fix upon the levy the character of duty of excise though the method in which an impost is levied may be relevant in determining its character, its significance and effect. Therefore, it was observed that under the impugned Act, the mere fact that the levy imposed by the impugned Act had adopted the method of determining the rate of the levy with reference to the minerals produced by the mines would not by Civil Appeal Nos.4056-4064 of 1999 Etc. Page 55 of 193 itself make the levy a duty of excise. The method thus adopted may be relevant in considering the character of the impost but its effect must be weighed along with and in the light of the other relevant circumstances; where an impugned statute passed by a State legislature is relatable to an Entry in List II, it is not permissible to challenge its vires only on the ground that the method adopted by it for the recovery of the impost can be and is generally adopted in levying a duty of excise. Therefore, it was held that cess in question was neither a tax nor a duty of excise but a fee.
11.2 If the cess was held to be a fee relatable to Entries 23 and 66 - List II, its validity was still open to challenge because the legislative competence of the State Legislature under Entry 23 is subject to the provisions of List I with respect to regulation and development under the control of the Union. 11.3 According to this Court, on a combined reading of two Entries, namely, Entry 23 - List II and Entry 54 - List I, what emerged was that the jurisdiction of the State legislature under Entry 23 - List II is subject to the limitation imposed by the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 56 of 193 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 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 - List I, and if the said declaration covers the field occupied by the impugned Act, the impugned Act would be ultra vires, not because of any repugnance between the two statutes but because the State legislature had no jurisdiction to pass the law. The limitation imposed by Entry 23 - List II is a limitation on the legislative competence of the State legislature itself and this position was not in dispute. It was urged that the field covered by the impugned Act was already covered by the Mines and Minerals (Regulation and Development) Act, 1948, (53 of 1948) and in view of the declaration made by Section 2 of the Act, the impugned Act was ultra vires. Section 2 of the said Act contained a declaration as to the expediency and control by the Central Government. This Court opined that if it was held Civil Appeal Nos.4056-4064 of 1999 Etc. Page 57 of 193 that this Act contained the declaration referred to in Entry 23 - List II, there would be no difficulty in holding that the declaration covered the field of conservation and development of minerals and the said field is indistinguishable from the field covered by the impugned Act. What Entry 23 - List II, provides is that the legislative competence of the State Legislature is subject to the provisions of List I with respect to regulation and development under the control of the Union, and Entry 54 - List I requires a declaration by Parliament by law that regulation and development of mines should be under the control of the Union in public interest, then it would not be competent of the State legislature to pass an Act in respect of the subject-matter covered by the said declaration. In such a case, the test must be whether the legislative declaration covers the field or not. It was observed that field covered by the impugned Act was covered by the Central Act 53 of 1948.
11.4 Wanchoo, J. (as His Lordship then was) gave a separate opinion in the said case by stating that cess levied on all extracted minerals from any mine in any mining area at a rate Civil Appeal Nos.4056-4064 of 1999 Etc. Page 58 of 193 not exceeding five per centum of the value of the minerals at the pit’s mouth by the Orissa State legislature under Section 4 of the Act of 1952 (Act 27 of 1952) was a fee properly so called and not a duty of excise.
11.5 The next contention considered by Wanchoo, J. was that if the cess is not justified as a fee, it is a tax under Item 50 of List II. Item 50 List II provides for taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development. The question was as to what are taxes on mineral rights. It was held by Wanchoo, J. that taxes on mineral rights would be confined to taxes on leases of mineral rights and on premium or royalty. Taxes on such premium and royalty would be taxes on mineral rights while taxes on the minerals actually extracted would be duties of excise. Consequently, the writ petition was dismissed. M.A. Tulloch:
12. In M.A. Tulloch, also before a Constitution Bench, the question was with regard to the validity of the imposition of the Orissa Mining Areas Development Fund Act, 1952 (Orissa Act Civil Appeal Nos.4056-4064 of 1999 Etc. Page 59 of 193 27 of 1952) and cancellation of the notices of demand issued. The High Court had allowed the petition of the respondents therein by observing that the Orissa Act had been rendered ineffective or suppressed by a Central Act, namely, MMDR Act, 1957, w.e.f. 01.06.1958. Considering Entry 23 - List II and Entry 54 - List I, the High Court held that the Orissa Act ceased to be operative by reason of the withdrawal of legislative competence by force of the Entry in the State List being subject to the Parliamentary declaration and the law enacted by Parliament. Therefore, w.e.f. 01.06.1958 the Orissa Act was deemed to be non-existent as there was lack of power to enforce and realise the demands for the payment of the fee at the time when the demands were issued and were sought to be enforced. The correctness of this judgment was considered by a Constitution Bench of this Court.
12.1 It was observed that to the extent to which the Union Government had taken under “its control” “the regulation and development of minerals” so much was withdrawn from the ambit of the power of the State legislature under Entry 23 - List Civil Appeal Nos.4056-4064 of 1999 Etc. Page 60 of 193 II and the 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 be rendered ineffective. This was because there was a denudation of State legislative power by the declaration which Parliament was empowered to make and had made (vide Section 2 of MMDR Act, 1957). It was observed that the States would lose legislative competence only to the “extent to which regulation and development under the control of the Union had been declared by Parliament to be expedient in the public interest”. The crucial enquiry had therefore to be directed to ascertain this “extent” for, beyond it, the legislative power of the State remained unimpaired.
12.2 Thus, the scheme of Orissa Act, which was a 1952 Act, was considered in juxtaposition of the MMDR Act, 1957, also called as ‘Central Act’. The question considered was “whether the extent of control and regulation” provided by the Central Act took within its fold the area or the subject covered by the Orissa Act. The test was if the entire field of mineral development was taken over by the Central Act that would Civil Appeal Nos.4056-4064 of 1999 Etc. Page 61 of 193 include the provision of amenities to workmen employed in the mines which was necessary in order to stimulate or maintain the working of mines. The test was, therefore, if under power confirmed by Section 18(1) of the Central Government had made rules providing for the amenities for which provision was made by the Orissa Act and if the Central Government had imposed a fee to defray the expenses of the provision of these amenities, would such rules be held to be ultra vires the Central Act, particularly, when taken in conjunction with the matters for which rules could be made under Section 13 to which reference has been made.
12.3 The Court observed that in Hingir-Rampur case, the Orissa Act was a post-Constitution enactment (1952 Act), whereas the Central Act of 1948 was a pre-Constitution law and under Entry 54 - List I “Parliament” had not made the requisite declaration. The previously existing Central law was held not to be within the terms of Entry 54 - List I and therefore, the State enactment was held to continue to be operative. But later when the Central law i.e. MMDR Act, 1957 Civil Appeal Nos.4056-4064 of 1999 Etc. Page 62 of 193 contains the requisite declaration by the Union Parliament under Entry 54 - List I and that Act covers the same field as the Act of 1948 (Central Act) in regard to mines and mineral development, it was observed that unless there were any material differences between the scope and ambit of the Central Act 53 of 1948 and that of the Act of 1957, the matter was concluded. Consequently, the writ petition was dismissed. Baijnath Kedia:
13. A Constitution Bench of this Court had the occasion to consider the provisions of the MMDR Act, 1957 in light of the Bihar Land Reforms Act and the amendment thereto. In Baijnath Kedia, it was the contention that amendment of Section 10 of the Bihar Land Reforms Act was ultra vires the Constitution and that Rule 20(2) did not legally entitle recovery of the dead rent, royalty, etc. as mentioned in the Schedules to the Bihar Minor Mineral Concession Rules, 1964. The dispute arose on account of the appellants therein receiving letters to the effect that in view of the amendment to Section 10 of the Bihar Land Reforms Act, 1950 and all leases for minor minerals Civil Appeal Nos.4056-4064 of 1999 Etc. Page 63 of 193 having stood statutorily substituted by the corresponding terms and conditions by the Bihar Minor Mineral Concession Rules, 1964, the rent and royalty etc. in respect of minor minerals in the State (irrespective of the date on which the lease was granted) were to be paid as per the aforesaid Rules with effect from 27.10.1964. The appellant therein denied their liability to pay. The State of Bihar submitted that the terms of the original lease having being validly altered by the operation of the second proviso to Section 10(2) of the Bihar Land Reforms Act, 1950 in addition to Section 10A of the said Act, the State Government was entitled to collect dead rent, royalty etc. from the lessees who had been granted lease so long as there was a lease subsisting on the date of the commencement of the amendment.
13.1 M. Hidayatullah, C.J. speaking for the Bench traced the history of the legislation on the subject of mines and minerals by referring to Entry 36 of the Federal Legislative - List I and Entry 23 of the Provincial Legislative - List II of the Seventh Schedule of the Government of India Act, 1935 and also made Civil Appeal Nos.4056-4064 of 1999 Etc. Page 64 of 193 reference to Entry 54 - List I - Union List, Entry 23 – List II - State List. That the Mines and Minerals (Regulation and Development) Act, 1948, (“MMRD Act, 1948”) had a declaration under Section 2 to the same effect as the declaration under Section 2 of the MMDR Act, 1957. This Court held that once the MMDR Act, 1957 was enacted by the Parliament, the Union had taken all the powers to itself and had authorised the State Government to make Rules for the regulation of leases. By the declaration and the enactment of Section 15 of the MMDR Act, 1957, the whole of the field relating to minor minerals came within the jurisdiction of Parliament and no scope was left for the enactment of the second proviso to Section 10(2) in the Bihar Land Reforms Act. The enactment of the proviso was, therefore, without jurisdiction. Consequently, the appeals were allowed and the State of Bihar was restrained from enforcing the second proviso to Section 10(2) added to the Bihar Land Reforms (Amendment) Act, 1964.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 65 of 193 HRS Murthy:
14. HRS Murthy vs. Collector of Chittoor, AIR 1965 SC 177 (“HRS Murthy”) is also a decision of the Constitution Bench. In this case, the validity of notices of demand for the payment of land cess under the Madras District Boards Act, 1920 (‘Madras Act’, for short) and the legality of the procedure for the recovery of the amount of the said cess was questioned. The impugned notices made a demand also for education cess which was merely a proportion of the land-cess. 14.1 In the year 1953, the appellant's father therein had obtained a mining lease from the Government of Madras under
which he was permitted to work and win iron ore in a tract of land in a village in Chittoor district. On separation of State of Andhra from State of Madras a demand was made upon the father of the appellant therein for the payment of land cess calculated in accordance with the provisions of Sections 78 and 79 of the aforesaid Act. The notices issued were questioned before the Madras High Court and thereafter by way of a Special Leave Petition the matter was heard by this Court along Civil Appeal Nos.4056-4064 of 1999 Etc. Page 66 of 193 with a Writ Petition also filed by the very same appellant. One of the contentions raised was with regard to the meaning of the expression royalty under Section 79(1) of the Madras Act. Did it include the royalty payable under a mining lease on the ore won by the lessee? On the meaning of the word, royalty, it was contended that the said expression under Section 79(1) of the Madras Act was something other than the return to the lessor or licensor and it connotes the payment made for the materials or minerals won from the land. The expression royalty under Section 79(1) of the said Act did not signify royalty as commonly understood but was confined to the rent payable for beneficial use of the surface of the land. This contention was rejected and it was observed that royalty which follows the expression lease-amount is something other than the return to the lessor or licensor for the use of the land surface and represents, as it normally connotes, the payment made for the materials or minerals won from the land.
14.2 The judgments in Hingir-Rampur and M.A. Tulloch were considered. It was observed that the power to impose the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 67 of 193 cess was not available after the Central Acts of 1948 and 1957 came into force. It was contended that since the cess was payable only in the event of the mining lessee winning the mineral and no royalty was paid when no minerals were extracted, it was in effect a tax on the minerals won and, therefore, on mineral rights. However, this argument was not accepted. It was observed that 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. It was observed that, no doubt, cess has a remote connection to the mineral won but that does not stamp it as a tax on either the extraction of minerals or on the mineral rights. The Court found it 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. It was observed that there was Civil Appeal Nos.4056-4064 of 1999 Etc. Page 68 of 193 no law enacted by Parliament which was contrary to the State power to levy the tax and in effect the cess under Sections 78 and 79 of the Madras Act was a “tax on lands” within Entry 49
- List II. In the circumstances, it was observed that the cess was lawfully imposed upon land and hence, the appeals and writ petitions were dismissed.
14.3 This Court, in India Cement held at para 34 that royalty is a tax and did not approve the dictum in HRS Murthy.
It is the above conclusion which was doubted by a five-judge Bench in Kesoram and other cases which has led to the constitution of this nine-judge Bench in order to consider the correctness of the aforesaid verdicts. Therefore, it is necessary to consider the facts and the reasoning in India Cement. India Cement:
15. In India Cement, Section 115 of Madras Panchayats Act, 1958 as amended by the Madras Act, 1964 came up for consideration. The demand of a local cess on royalty on exercise of a mineral right was questioned. The appellant therein was engaged in mining operations and on execution of the lease Civil Appeal Nos.4056-4064 of 1999 Etc. Page 69 of 193 deed had paid royalties, dead rents and other amounts payable on the said deed. The imposition of the local cess was with retrospective effect along with local cess surcharge under Section 116 of the aforesaid Act. The contention of the appellant therein was that the cess on royalty could not be levied. According to the seven-judge Bench, the question which fell for consideration and determination was whether cess on royalty could be a valid levy imposed by the State of Tamil Nadu.
15.1 Under Section 115(1) of the amended Act a local cess at the rate of 45 paisa on every rupee of land revenue payable to the Government in respect of any land for every fasli was envisaged. An Explanation to the said Section was added and was deemed always to have been incorporated by the Tamil Nadu Panchayats (Amendment and Miscellaneous Provisions) Act, 1964 (Amending Act) which provided as under:
“Explanation- In this section and in Section 116, “land revenue” means public revenue due on land and includes water cess payable to the Government for water supplied or used for the irrigation of land, royalty, lease amount or other sum payable to the Government in respect of land Civil Appeal Nos.4056-4064 of 1999 Etc. Page 70 of 193 held direct from the government on lease or licence, but does not include any other cess or the surcharge payable under Section 116, provided that land revenue remitted shall not be deemed to be land revenue payable for the purpose of this section.” (emphasis by me) Sub-section 2 of Section 115 of the amended Act provided that the local cess shall be deemed to be a public revenue due on all the lands in respect of which a person is liable to pay local cess and all the buildings upon the said land and their products shall be regarded as security for the local cess. Section 116 of the amended Act reads as follows:
“116. Every panchayat union council may levy on every person liable to pay land revenue to the government in respect of any land in the panchayat union a local cess surcharge at such rate as may be considered suitable as an addition to the local cess levied in the panchayat development block under Section 115 provided that the rate of local cess surcharge so levied shall not exceed two rupees and fifty paise on every rupee of land revenue payable in respect of such land.” (emphasis by me) 15.2 A writ petition was filed in the Madras High Court by the appellant therein, which was dismissed by a learned Single Judge holding that cess levied under Section 115 of the amended Act was a tax on land and as such, fell under Entry Civil Appeal Nos.4056-4064 of 1999 Etc. Page 71 of 193 49 - List II-State List and was within the competence of the State legislature. Reliance was placed on a decision of this Court in HRS Murthy. Against the order of the learned Single Judge, a writ appeal was filed before the Division Bench of the High Court, which was also dismissed by holding that local cess authorised by Section 115 of the amended Act “was not land revenue but is a charge on the land itself and Section 115 merely qualified the basis of quantum of the land revenue.” The Division Bench of the Madras High Court held that the meaning of the Explanation added to Section 115 was that the cess was levied as a tax on land and was measured with reference to land revenue which also meant, royalty, lease amount etc., as mentioned in the Explanation. The Division Bench of the High Court also relied on the decision of this Court in HRS Murthy and held that it was not possible to accept the contention of the appellant therein that Section 115 of the said Act read with the Explanation contravened in any manner Section 9 of the MMDR Act, 1957.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 72 of 193 15.3 In the said case, this Court at the outset observed that under the Second Schedule of the MMDR Act, 1957 rates have been provided with regard to the payments of royalty to the Government under the lease deed. Thus, there was an obligation on the lessee to pay rent and other charges mentioned under the clauses of the lease deed and all other Central and State Government dues “except demands for land revenue”. The question which was framed by the seven-judge Bench of this Court was whether cess on royalty was a demand of land revenue or additional royalty.
15.4 As already noted, the aforesaid Explanation added to Section 115 of the said Act by virtue of the Amended Act was to include “royalty, lease amount and other sums payable to the government” in the definition of “land revenue” and also to validate the levy and collection of the cess and surcharge by giving the Explanation a retrospective effect. As a result, the said amendment was intended to bring royalty payable on a mining lease as per Section 9 of the MMDR Act, 1957 within the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 73 of 193 Explanation which was the definition of “land revenue” applicable to Section 115 as well as Section 116 of the said Act. 15.5 This Court noted that the appellant, India Cement Limited, was paying royalty which was prescribed under the lease deed as fixed under MMDR Act, 1957 and as per the Rules made thereunder, the same being a Parliamentary Act by which the control of mines and minerals has been taken over by the Union. That the MMDR Act, 1957 is an Act for the regulation of mines and development of the minerals under the control of the Union of India. It was noted that Section 2 of the Act declares that it is expedient in the public interest that the Union of India should take under its control the regulation of mines and the development of the minerals to the extent provided in the Act.
Section 9 of the MMDR Act, 1957 deals with payment of royalty in respect of mining leases. This Court observed that the MMDR Act, 1957 was passed by virtue of the power of the Parliament under Entry 54 - List I. Since the control of mines and the development of minerals were taken over by Parliament, the question whether the impugned levy or the impost by the State Civil Appeal Nos.4056-4064 of 1999 Etc. Page 74 of 193 Legislature, under the provision of the State Legislation referred to above, could be justified or sustained either under Entries 49, 50 or 45 - List II was considered. In paragraph 19 of India Cement, this Court considered Guruswamy & Co., vs. State of Mysore, AIR 1967 SC 1512, (“Guruswamy”) to indicate what a cess is. On analysing Sections 115 and 116 of the Madras legislation referred to above, this Court observed that the expression royalty in the Explanation could not be included in the definition of “land revenue” properly called or conventionally known, which is separate and distinct from royalty.
15.6 Reference was also made to the Judgments of the Mysore High Court in M/s Laxminarayana Mining Co., Bangalore vs. Taluk Development Board, AIR 1972 Mys 299 (“Laxminarayana Mining Co.”) and Patna High Court in Laddu Mal vs. The State of Bihar, AIR 1965 Pat 491, (“Laddu Mal”) and the Judgment of this Court in HRS Murthy. It was observed that in the latter case attention of this Court was not invited to the provisions of MMDR Act, 1957 and Civil Appeal Nos.4056-4064 of 1999 Etc. Page 75 of 193 Section 9 thereof and the Second Schedule to the said Act. Under the above provisions, there was a clear bar on the State legislature taxing royalty payable under Section 9 of the said Act so as to in effect amend the Second Schedule of the said Act. Therefore, it was held that tax on royalty can be a tax on land or called land revenue. Even if it is a tax, which falls within Entry 50 - List II it will be ultra vires the State legislative power in view of Section 9(3) read with Section 2 of MMDR Act, 1957, which is a Parliamentary law. In the above legislative background, this Court held that royalty was a tax or “land revenue” under the Explanation clause referred to above, which could not be the basis for levy of cess as, by that, cess on royalty payable would not be in consonance with what is stipulated under Section 9(3) of the MMDR Act, 1957 but would exceed the amount so stipulated which would not be within the legislative competence to levy in view of Section 2 of MMDR Act, 1957 read with Entry 50 - List I. 15.7 This Court further referred to the judgments of Rajasthan, Punjab, Gujarat and Orissa High Courts, which had Civil Appeal Nos.4056-4064 of 1999 Etc. Page 76 of 193 held that royalty is not a tax, namely, Bherulal vs. State of Rajasthan, AIR 1956 Rajasthan 161, (“Bherulal”); Dr. Shanti Saroop vs. State of Punjab, AIR 1969 P & H 79, (“Dr. Shanti Saroop”); Saurashtra Cement and Chemical Industries Ltd. Ranavav vs. Union of India, AIR 1979 Guj 180 (“Saurashtra Cement and Chemical Industries”); and Laxmi Narayan Agarwalla vs. State of Orissa, AIR 1983 Ori 210, (“Laxmi Narayan Agarwalla”) but did not find it necessary to discuss the same in the view it was taking and having regard to there being no discussion of the constitutional provisions in the aforesaid cases.
15.8 The contention of the State of Tamil Nadu in India Cement was that the State has a right to tax minerals and that in Entry 50 - List II, there was no limitation to the taxing power of the State. This was not accepted and it was held that in view of Section 9(2) of the MMDR Act, 1957 the field was fully covered by the said Act which is a Central legislation. In paragraph 33, it was further observed that royalty is directly relatable only to the minerals extracted and on the principle Civil Appeal Nos.4056-4064 of 1999 Etc. Page 77 of 193 that the general provision is excluded by the special one, royalty would be relatable to Entry 50 - List II and not Entry 49 - List II. That as the field is covered by the Central legislation i.e. the MMDR Act, 1957, the impugned provisions of the State legislation cannot be upheld. Ultimately in paragraph 34 of the Judgment of this Court, it is observed as under:
“34. 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.” A reading of paragraph 34 would indicate as follows:
(i) Cess on royalty being a tax on royalty, is beyond the competence of the State legislature because Section 9 of the Central Act ie., MMDR Act, 1957, covers the field.
(ii) As a result, the State Legislature is denuded of its competence under Entry 50 - List II to impose any Civil Appeal Nos.4056-4064 of 1999 Etc. Page 78 of 193 cess on royalty which is collected under Section 9 of the MMDR Act, 1957.
(iii) Cess on royalty cannot be sustained under Entry 49 - List II as being a tax on land.
(iv) Royalty on mineral rights is not a tax on land but a payment for the user of land.
(v) However, under the Tamil Nadu legislation, royalty paid under the provisions of MMDR Act, 1957 was construed to be “land revenue” on which cess was levied, which was beyond the competence of the State Government as royalty is paid by a holder of a mining lease under the MMDR Act, 1957, a Central Act as a tax.
(vi) Thus, royalty is a tax.
15.9 The aforesaid conclusion was so arrived, inter alia, because the Explanation to Section 115 of the aforesaid amended Tamil Nadu Act defined ‘land revenue’ to include royalty, lease amount or any other sum payable to the Government in respect of land held direct from the Government Civil Appeal Nos.4056-4064 of 1999 Etc. Page 79 of 193 on lease or licence. Local cess on every rupee of “land revenue” was payable as per the above definition which meant royalty. This meant that on royalty payable on mining leases in respect of mineral bearing lands in the State of Tamil Nadu, which was included in the definition of land revenue, a further local cess was payable. Therefore, payment of royalty on a mining activity in exercise of a mineral right was construed to be “land revenue” and the basis for imposing a local cess. The payment of cess was in addition to payment of royalty under the provisions of the MMDR Act, 1957, which is a Central enactment. Thereby the payment to be made by a holder of a mining lease was a local cess to be paid under the Tamil Nadu Act in addition to royalty being paid under the MMDR Act, 1957. Moreover, under Section 116 of the Tamil Nadu Act, a Panchayat Union Council could also levy a local cess surcharge on every person liable to pay land revenue to the State Government in respect of any land in the Panchayat Union. The levy of local cess and local cess surcharge on the payment of royalty by a holder of a mining lease would inevitably increase Civil Appeal Nos.4056-4064 of 1999 Etc. Page 80 of 193 the price of minerals extracted in the State of Tamil Nadu over and above what is otherwise the price that could be fixed which would include, inter alia, only the royalty charges. Therefore, the increase in the price of a particular mineral extracted in the Tamil Nadu by virtue of the local cess and surcharge on local cess would not be in the interest of mineral development as it would lead to price escalation in the State of Tamil Nadu. This is not in the interest of mineral development as this would lead to every State imposing local cesses/imposts/tax on the minerals extracted in the respective States over and above royalty payable under the MMDR Act, 1957 which is a structured levy in the form of a tax to be determined only by the Central Government in order to maintain uniformity in the price of a mineral extracted throughout the country. But if over and above payment of royalty by a holder of a mining lease, local cesses and surcharges are also imposed based on the royalty paid, it would be contrary to Entry 54 - List I and the declaration made under Section 2 of the MMDR Act, 1957 and Civil Appeal Nos.4056-4064 of 1999 Etc. Page 81 of 193 the scheme of the said Act which envisages only payment of royalty on the minerals extracted.
15.10 Further, royalty could not be the basis for levy of cess construed as “land revenue” by the Tamil Nadu Act as this would make royalty a tax on land and cess on royalty would make it a tax which a State is not permitted to levy on mineral bearing land in view of Section 9 of the MMDR Act, 1957. Having regard to the provisions of MMDR Act, 1957, it was held that royalty is a tax. The same cannot be included within the definition of “land revenue” which itself is a tax which a State cannot make as the basis for imposing a cess or a surcharge on cess. Therefore, in paragraph 34 of the Judgment in India Cement, the seven-judge Bench of this Court held that royalty is a tax and therefore cess on royalty being a tax on royalty was beyond the competence of the State legislature. This was having regard to the scheme of MMDR Act, 1957 and the Rules made thereunder as discussed above. Further, Entry 49 - List II could not be relied upon by the State Government to impose a cess on royalty by treating it as a land revenue and as a tax on land. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 82 of 193 This was because payment of royalty was under Section 9 of the MMDR Act, 1957 as a tax on exercise of mineral rights. Hence, it was observed in paragraph 34 itself that “Royalty on mineral rights is not a tax on land but a payment for the use of land.” It is in the above legal framework of the Tamil Nadu Act and the Entries in List I and List II and having regard to the object and scheme of MMDR Act, 1957 and the Rules made thereunder that the conclusion in paragraph 34 was arrived at. Ultimately, it was held that the levy of cess and surcharge on cess on the royalty payable was ultra vires the power of the State Legislature. As a result, the appeals filed by the appellant in India Cement, were allowed.
As already noted, reference was made in detail to two decisions of the Patna and Mysore High Courts in arriving at the above conclusion by this Court which could be discussed at this stage.
Laddu Mal:
16. In Laddu Mal, notices issued to the brick-layers by the Assistant Mining Officer, Purnea, Bihar calling upon them to Civil Appeal Nos.4056-4064 of 1999 Etc. Page 83 of 193 pay royalty were assailed. The petitions challenged the notices mainly on the ground that what were being used by them for manufacture of bricks, which were minor minerals and therefore, the Bihar State Government had no authority in law to impose any royalty in respect of minor minerals. In the said case, the High Court considered the definition of “taxation” under Article 366(28) of the Constitution of India to include the imposition of any tax or impost and observed that the expression royalty is used in a secondary sense to signify that part of the reddendum which is variable and depends upon the quantity of minerals taken out. It is a payment made to the land owner by the lessee of the mine, in return of the privilege of working which is different from rent. Royalty is a levy in proportion to the minerals worked. Royalty is an impost by the Government and was in the nature of tax because it was a compulsory exaction recoverable, in the event of non-payment, as if it was arrears of land revenue. That royalty on mines and minerals is not a fee but a levy which is in the nature of a tax. Article 265 of the Constitution provides that no tax shall be Civil Appeal Nos.4056-4064 of 1999 Etc. Page 84 of 193 levied or collected except by authority of law and the State Government had no authority to impose and demand royalty for mines and minerals.
16.1 With reference to Entry 54 - List I and Entry 23 - List II, it was observed that the area of operation of the two Entries has been kept separate and distinct. Anything beyond what is declared by Parliament to be expedient in the public interest to be kept under the control of the Union, will be under the legislative ambit of the State in regard to mines and mineral development in the State. The MMDR Act, 1957 is an enactment of the Parliament for the regulation of mines and the development of minerals under the control of the Union. Referring to various provisions of the MMDR Act, 1957 such as Section 3(a) which defines “minerals” to include all minerals except mineral oils; “mining lease” in Section 3(c) and ”mining operations” in Section 3(d) and the definition of ‘minor minerals” in Section 3(e) of the said Act, it was observed that Section 2 of the said Act declared that it was expedient in public interest that the Union should take under its control the regulation of Civil Appeal Nos.4056-4064 of 1999 Etc. Page 85 of 193 mines and the development of minerals to the extent provided. Further, on a reading of Sections 4 to 13 of the said Act, it was clear that the Parliament gave control of all mines and minerals except mineral oil, to the Union Government. However, in Sections 14 and 15, an exception was carved with regard to minor minerals. Therefore, Entry 54 - List I gave the power to the Union Government to regulate all mines and development in minerals except oils thereby leaving no area for legislation in that respect to the State Legislature. That, insofar as ‘minor minerals’ are concerned, the State Governments were authorised to make rules for regulation of grant of prospective licenses and mining leases and for purposes connected therewith and it is also a delegated authority given to the State Government and not the State Legislature.
16.2 Taking into consideration Entry 50 - List II, which deals with taxes on mineral rights subject to any limitation imposed by the Parliament by law relating to mineral development, it was observed that in view of the limitation imposed by the Parliament under the MMDR Act, 1957, it was doubtful if any Civil Appeal Nos.4056-4064 of 1999 Etc. Page 86 of 193 legislative competency has been left for the State Legislature to impose any tax on mineral rights. Discussing Section 9 of the MMDR Act, 1957, it was observed that the same mandates payment of royalty by the holder of a mining lease in respect of any mineral removed by him after the commencement of the Act at a rate specified in the Second Schedule thereof. The Union Government had been empowered to enhance or reduce such rate, subject to certain conditions. That the Parliament had given power to the Union Government to modify the rates of royalty for all minerals except for minor minerals in respect of which the matter was left to the States. Insofar as minor minerals are concerned, imposition of royalty was within the power of the State Government by way of rules. Also, rules made by the State Government prior to the enforcement of the MMDR Act, 1957 continued to be operative till fresh rules were enforced, being the Bihar Minor Mineral Concession Rules, 1984. It was reasoned that, Entry 54 - List I uses the expression “mines and minerals” which includes (i) regulation of mines and
(ii) mineral development. Therefore, widest possible meaning Civil Appeal Nos.4056-4064 of 1999 Etc. Page 87 of 193 should be given to the said expression considering the question in the context of the Bihar Minor Minerals Concession Rules, 1954 and the impugned notices demanding royalty. Consequently, the notices issued by the Assistant Mining Officer calling upon the petitioners to pay royalty on account of brick-earth were quashed.
Laxminarayana Mining Co.:
17. Reference was made to the judgment of the Mysore High Court in Laxminarayana Mining Co. authored by Venkataramiah, J. (as His Lordship then was), in India Cement. In the said case it was observed that on a combined reading of Entries 23 and 50 - List II and Entry 54 - List I it established that as long as the Parliament did not make any law in exercise of its power under Entry 54 - List I the powers of the State Legislature in Entries 23 and 50 - List II would be exercisable by the State Legislature. But once the Parliament makes a declaration by law that it is expedient in the public interest to make regulation of mines and development of minerals under the control of the Union, to the extent to which Civil Appeal Nos.4056-4064 of 1999 Etc. Page 88 of 193 such declaration is made, such regulation and development is undertaken by law made by Parliament and the powers of the State Legislature under Entries 23 and 50 - List II are denuded. 17.1 In this case, the Mysore Village Panchayats and Local Boards Act, 1959, (‘State Act’, for short) by enacting Sections 143 and 144 intended to confer power on the Taluk Board to levy a licence fee on the mining of manganese ore, iron ore etc carried on by persons holding mineral concessions i.e. on the activity of mining.
17.2 By Notification issued under the aforesaid provisions, persons engaged in mining of manganese iron ore, etc. with the help of machinery or without the help of machinery, as the case may have been, under Entries 62 and 63 of the Schedule to the aforesaid State Act had to pay a licence fee. Aggrieved by the notices of demand and the Notification issued under Sections 143 and 144 of the aforesaid State Act, the petitioners therein had filed the writ petition seeking quashing of the notices of demand and the Notification in so far as they levied licence fee Civil Appeal Nos.4056-4064 of 1999 Etc. Page 89 of 193 under the aforesaid provisions. Further, Sections 143 and 144 of the State Act provided for regulation of certain trades and the relevant part of Schedule II of the State Act, on the basis of which the impugned Notification was issued which provided for the levy of a licence fee on any purpose or the doing in the course of any industrial process, which, in the opinion of the Taluk Board, was likely to be dangerous to human life, or health or property or was likely to create or cause a nuisance.
The following three main contentions were urged by the petitioners therein: -
(i) that the State Legislature could not have made a law authorising the imposition of the impugned levy after the Mines and Minerals (Regulations and Development) Act, 1957 (Central Act LXVII of 1957) came into force;
(ii) that the Notification in so far as it levied licence fee on the mining activities carried on by the petitioners therein was outside the scope of Sections 143 and 144 of the State Act;
and Civil Appeal Nos.4056-4064 of 1999 Etc. Page 90 of 193
(iii) that the licence fee in question which was in the nature of a tax and could not have been levied because Sections 143 and 144 of the State Act did not confer power on the Taluk Development Board to levy a tax.
17.3 The respondent-State of Mysore had sought to contend that the demand notices as well as the Notification were rightly issued and that the licence fee demanded by the them was in the nature of a tax and that the Taluk Development Board had the competence to levy the same as the State Legislature was authorised by Entry 23 - List II to make law with respect to regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union. It was further contended that Entry 50 – List II of the same list authorised the State Legislature to levy tax on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development.
17.4 After referring to the scheme of the MMDR Act, 1957 as well as the Mineral Concession Rules, 1960, the High Court Civil Appeal Nos.4056-4064 of 1999 Etc. Page 91 of 193 reasoned that the State enactment was passed in the year 1959 whereas the MMDR Act, 1957 was passed in the year 1957. Section 143 of the State Act dealt with regulation of certain trades. The notification issued under Sections 143 and 144 of the aforesaid State Act had mandated that the owner or occupier of a place for the purpose of mining of manganese ore or iron ore etc. with the help of machinery or without the help of machinery had to pay a licence fee for the use of such place. Relying upon Hingir-Rampur and M.A. Tulloch, and distinguishing HRS Murthy, it was observed that this Court had in unequivocal terms had held that in respect of matters dealt with by the Central Act, i.e. MMDR Act, 1957, the State Legislature had no authority to make any law. 17.5 It was also observed that this Court in Hingir-Rampur or in HRS Murthy did not decide the question as to what meaning should be given to the expression ‘tax on mineral rights’ appearing in Entry 50 – List II. It was further reasoned in paragraphs 17 and 18 as under:
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 92 of 193
“17. Entry 50 in List II which authorises the levy of tax on mineral rights is subject to limitations imposed by Parliament by law relating to mineral development made in exercise of its power under Entry 54 of List I. It was contended on behalf of the respondents that in the instant case the tax was not on mineral rights, but on the activity of mining carried on in certain areas. We find it difficult to accept the said contention. As observed by the Supreme Court in State of Orissa v. M.A. Tulloch, AIR 1964 SC 1284 by making a declaration under Section 2 and enacting Section 18 of the Central Act, the intention of the Parliament to cover the entire field of mineral development including tax on mineral rights is made clear. The levy of royalty under Section 9 of the Central Act and the provision for making rules with regard to the fixation and collection of dead rent, fines and fees or other charges and the collection of royalties on prospecting licence and mining lease and the provisions of Section 25 of the Central Act authorising the recovery of any tax payable under the Central Act as arrear of land revenue, clearly shows that the Parliament intended that the power to legislate with regard to taxation on mineral rights also should be assumed by it to the exclusion of the State Legislatures. The expression ‘royalty’ is used differently in different contexts. Sometimes it is used as equivalent to a tax also and in some other cases it is used as representing the amount payable by a lessee in respect of minerals removed by the lessee even though the lessor is not the sovereign Government we are of the opinion that the expression ‘royalty’ in Section 9 which requires payment of royalty to the State Government as prescribed in the II Schedule connotes the levy of a tax. Vide Laddu Mal v. The State of Bihar, AIR 1965 Pat 491. It is a levy falling outside the scope of Entry 84 in List I which provides for levy of excise duty by Parliament but within the scope of the expression ‘tax on mineral rights’ within the meaning of that expression in Entry 50 of List II. To us it appears the expression ‘tax on mineral rights’ includes within its scope the royalty payable on minerals extracted. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 93 of 193 Mineral rights and mining activity carried on in exercise of those mineral rights appear to us to be indistinguishable in the above context. That appears to be the true intendment of the declaration contained in Section 2 of the Central Act and that it is so enacted in order to see that throughout the ‘Indian Union, the rents, royalties and other taxes payable in respect of mining and minerals are uniform. It may be recalled here that in Hingir Rampur Coal Company's case, AIR 1961 SC 459 the Supreme Court has stated that the scope of the Central Act is wider than the scope of the Central Act LIII of 1948 which by Section 6(2) provided for making rules regarding levy and collection of royalties fees or taxes on minerals mined, quarried or excavated (vide paragraph 24 of the judgment).
18. We are, therefore, of the opinion that by the enactment of the Central Act, the State Legislature lost its legislative power under Entries 23 and 50 of List II to the extent indicated in the Central Act. Hence, we cannot accept the contentions of the respondents that even after the passing of the Central Act, the State Legislature by enacting Section 143 of the State Act intended to confer power on the respondents to levy tax on the mining activities carried on by persons holding mineral concessions. It follows that levy of tax on mining by respondents as Per the impugned notification is Unauthorised and is liable to be set aside. … … What is however liable to be set aside is the notification issued by respondent 1 in exercise of its power under Section 143 of the State Act to the extent it levies a tax on mining of manganese or iron ore.” The Mysore High Court held that royalty under Section 9 of the MMDR Act, 1957 is in the nature of a tax. Therefore, the levy of a licence fee on mining activity by the Taluk Board as per the impugned notification issued under the aforesaid Civil Appeal Nos.4056-4064 of 1999 Etc. Page 94 of 193 provision was unauthorised and was set aside as there was no power vested under Entry 50 – List II after the enforcement of MMDR Act, 1957. This was because Section 9 was a limitation imposed by Parliament on Entry 50 – List II.
17.6 This judgment is instructive inasmuch as it put into perspective what was required to be decided, i.e. whether royalty is a tax within the scope and meaning of Section 9 and other relevant provisions of the MMDR Act, 1957 and not from any other perspective.
Orissa Cement:
18. Subsequent to the judgment in India Cement, the validity of the levy of a cess, based on the royalty derived from mining lands, by the States of Bihar, Orissa and Madhya Pradesh was challenged in Orissa Cement in the respective appeals filed by the State. On discussing the legislative Entries and earlier decisions of this Court and having regard to Section 2 of the MMDR Act, 1957 and the various State enactments under which cess on royalty was sought to be levied, this Court raised two questions as under:
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 95 of 193
“(1) Can the cess be considered as “land revenue” under Entry 45 or as a “tax on land” under Entry 49 or as a “tax on mineral rights” under Entry 50 of the State List? (2) If the answer to question (1) is in the negative, can the cess be considered to be a fee pertaining to the field covered by Entry 23 of the State List or has the State been denuded of the legislative competence under this Entry because of Parliament having enacted the MMRD Act, 1957?” After a detailed discussion, in paragraph 37 of Orissa Cement, it was observed by this Court that if royalty were to be regarded as a tax, it can perhaps be described properly as a tax on mineral rights and has to conform to the requirements of Entry 50 - List II. If the cess is taken as a tax, then, unless it can be described as land revenue or a tax on land or a tax on mining rights, it cannot be upheld under Entry 45, 49 or 50 -
List II. It was further observed that the question whether royalty is a tax or not does not assist much in furnishing an answer to the two questions posed in the case. 18.1 Considering the Scheme of the MMDR Act, 1957 and the Rules made thereunder, it was opined that levy of tax had to be struck down insofar as the Bihar Act was concerned. As far as the Madhya Pradesh Act was concerned, the levy of cess Civil Appeal Nos.4056-4064 of 1999 Etc. Page 96 of 193 was not on land in general but only on land held in connection with mineral rights, which, in the State of Madhya Pradesh is principally in regard to coal and limestone. Reiterating that cess is not referrable either under Entry 49 or 50 - List II, the State’s petition was dismissed. It was held that the State legislature had no competence to impose the cess. The same reasoning was also applied insofar as the levy of cess in the State of Orissa was concerned.
Mahalaxmi Fabric Mills:
19. In Mahalaxmi Fabric Mills, two questions fell for consideration in the said appeals – firstly, whether Section 9(3) of the MMDR Act, 1957 was ultra vires the Constitution; and, secondly, whether the notification dated 01.08.1991 issued by the Central Government under Section 9(3) of the Act was ultra vires, illegal and inoperative in law. This Court followed the earlier dicta in India Cement as well as Orissa Cement and was observed that the contention of the Central Government that prices of minerals for exports were fixed and could not be escalated with the enhancement of the royalties by different Civil Appeal Nos.4056-4064 of 1999 Etc. Page 97 of 193 States as their working would become impossible. Therefore, the Parliament had placed an embargo on enhancement of the royalty directly or indirectly except by the Union and in the manner specified under the MMDR Act, 1957. In paragraph 20 of the judgment, it was observed that enhancing uniformly the rates of royalty for the entire country even though minerals might be extracted from different States is necessary for having a uniform pattern of price of minerals and that has a direct linkage with the development of minerals. Further, regulating the rates of royalty on extraction of minerals also has an important role to play in opening up new mining areas for winning minerals. In this connection, Section 18 of the Act which deals with mineral development was referred to and it was observed that fixation of royalty rates is in the realm of development of minerals as envisaged by Section 18 of the MMDR Act, 1957 and the contrary submission to the above was not accepted.
19.1 Referring to the definition clause which defines, inter alia, ‘minerals and minding operations’, it was observed that Civil Appeal Nos.4056-4064 of 1999 Etc. Page 98 of 193 ‘mining operation’ means any operation undertaken for the purpose of winning any mineral. It was obvious that development of mineral as envisaged by Section 18 of the MMDR Act, 1957 and even by Entry 50 - List II necessarily would mean extraction of mineral from the earth or from the crust of the earth by mining operations. Therefore, the term development of minerals has a direct linkage with mining operation. Without that, minerals cannot develop by themselves. Therefore, it was held that regulation of mines and development of minerals are interconnected concepts. This was because minerals hidden in the earth by themselves cannot yield profit to anyone and they become minerals only when they are brought out on the surface of the earth by mining operations. Therefore, imposition of royalty is in the context of development of minerals on a uniform pattern throughout the country. It was further observed that the original writ petitioners had failed to show how the enhanced rate of royalty as per the impugned notification had become unreasonable or Civil Appeal Nos.4056-4064 of 1999 Etc. Page 99 of 193 confiscatory in nature. Consequently, the appeals were dismissed.
Mahanadi Coalfields:
20. The main controversy in this case was with regard to levy of tax under the Orissa Rural Employment, Education and Production Act, 1992, on coal-bearing lands. The Division Bench of the High Court of Orissa held that the State Legislature did not have the competence to levy the tax on coal- bearing lands and had struck down Section 3(2)(c) of the said Act as well as the Schedule appended to the said Act. The High Court took the view that the levy was hit by Section 9-A of the MMDR Act, 1957 and was also discriminatory and hit by Article 14 of the Constitution. On discussing the earlier judgments of this Court in light of the constitutional Entries in Lists I and II and the Scheme of the MMDR Act, 1957 as well as the combined effect of the proposed levy, the civil appeals were disposed of by concurring with the conclusions of the High Court of Orissa to the effect that the State had no legislative competence to levy the cess under the aforesaid Act of 1992. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 100 of 193 Saurashtra Cement.:
21. In this case, the interesting question was regarding the constitutional validity of Section 9(3) of the MMDR Act, 1957, inter alia, on the ground that the levy of royalty on minerals is a tax and the Union Legislature did not have the power under Entry 54 - List I to enact such a law which denudes the right of the State Legislature to levy tax on minerals right under Entry 50 - List II. The Gujarat High Court followed the dicta in India Cement and Mahalaxmi Fabric Mills and disposed of the writ petitions.
Goodricke:
22. In Goodricke Group Ltd. vs. State of West Bengal, 1995 Supp. (1) SCC 707 (“Goodricke”), the validity of the levy of education cess and rural employment cess created by the West Bengal Taxation Laws (Second Amendment) Act, 1989 was called in question by way of writ petitions preferred by several tea estates in West Bengal. The first question considered was, whether, the impugned levy was a levy upon the lands within the meaning of Entry 49 - List II. In this case, the judgment of Civil Appeal Nos.4056-4064 of 1999 Etc. Page 101 of 193 this Court in India Cement was considered and it was observed that what was of crucial relevance in India Cement was that the levy of cess was not upon the land or upon its yield (or its income) but upon the royalty amount payable to the lessor, which was included within the definition of “land revenue” under the Madras Panchayats Act. The question in India Cement, therefore, arose whether such cess levied with reference to or calculated on the basis of amount of royalty can be called a tax on land. It was held that it could not be so. It was pointed out that the royalty varies according to the particular mineral quarried in a given year and if no mineral was quarried, no royalty would be payable. However, the basis of the judgment was that it was a case where tax was measured not with reference to or on the basis of the income or yield of the land but with reference to the amount of royalty payable by the lessee to his lessor. It was for this reason that the cess was held to be not upon the land. Royalty is a matter of agreement between the lessor and the lessee. It may also be determined by a statutory provision. But royalty is not the produce of the land; Civil Appeal Nos.4056-4064 of 1999 Etc. Page 102 of 193
royalty is not the income of the land nor is royalty the yield of the land and that is the distinction. In India Cement, the petitioners’ contention was that the impugned measure being a tax not on the share of the produce of the land but on “royalty” payable, the levy of cess was bad. This contention was upheld. It was held that cess on royalty cannot be sustained under Entry 49 - List II as being a tax on land. It was observed that the cess impugned in India Cement was “an additional charge on royalty” which was impermissible as it was not a tax on land but an impost on royalty paid for exercising mineral rights. 22.1 The aforesaid reasoning in India Cement was therefore distinguished in Goodricke. Similarly, Orissa Cement was also distinguished. It was observed that the levy should not be an indirect levy on land like the one in India Cement wherein it was on the royalty but not on land itself. However, levy on land quantified on the basis of its yield could be treated as direct levy upon the land. Therefore, in Goodricke, it was observed that the mere fact that the tax was measured with reference to Civil Appeal Nos.4056-4064 of 1999 Etc. Page 103 of 193 the yield of the land did not make it any the less tax upon the land directly and within the scope of Entry 49 - List II. 22.2 In my view, the aforesaid distinction brought out in Goodricke between the levy of cess on royalty and levy of cess on yield from land, clearly indicates that in India Cement, the cess was struck down as not coming within the scope and ambit of Entry 49 - List II as the cess was not on land directly. Cess was on a payment of royalty by a lessee conducting a mining operation which is not a cess directly on the land but on exercising a mineral right which aspect was under the control of the Union by virtue of the MMDR Act, 1957.
22.3 However, in Goodricke, it was observed that tax imposed on land measured with reference to or on the basis of its yield, is certainly a tax directly on the land. Apart from income, yield or produce, there can perhaps be no other basis for levy. Merely, because a tax on land or building is imposed with 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 Civil Appeal Nos.4056-4064 of 1999 Etc. Page 104 of 193 not alter the nature or character of the levy. It remains a tax on land or building. The aforesaid reasoning would not apply to the present case. The payment of royalty on exercise of mineral right is itself a tax and the royalty being considered as a measure for the purpose of payment of tax on land within the scope and ambit of Entry 49 – List II would not arise in view of there being a separate Entry 50 – List II.
22.4 Moreover, in Goodricke, what was considered was Entry 52 – List I and not Entry 54 – List I. Entry 50 – List I which is subjected to Entry 54 – List I and the same being a unique Entry, would not apply while considering Entry 49 – List II in the context of Entry 52 – List I. This is because Entry 52 – List I does not impose any limitation on Entry 49 – List II and if the tax on exercise of mineral right squarely falls within the ambit of Entry 50 – List II then the limitation in the context of Entry 54 – List I would have to be borne in mind before the State can embark upon levying any further tax on the basis of royalty as a measure.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 105 of 193 22.5 Having noted this sui generis relationship above, I may observe the difficulty in drawing any further analogy between Goodricke and the instant case. Every facet concerning minerals, whether it be taxation, regulation, or development, is without an iota of doubt an important question of national concern for, it has ramifications on the stability of national economy, environmental degradation, labour laws, rights of tribal communities, etc. That the aforesaid sentiment was shared and acted upon by our Constitutional framers is explicit vide insertion of a unique and special apparatus in the Constitution through Entry 54 - List I, Entry 23 – List II and Entry 50 – List II. In my opinion, it would be incongruous with the constitutional intent to hold that the conscious provision for Union supremacy through the insertion of aforesaid apparatus, specifically through insertion of Entry 50 – List II, denudes the States’ power to use mineral rights or royalty levied upon them as a measure to tax land. To do so would simply render Entry 50 – List II nugatory.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 106 of 193 22.6 The contention that land cannot be decoupled from mineral rights is attractive at first blush. But, on closer examination, this proposition goes against the cardinal rule of interpreting Entries in the Lists. It is settled law that there must be a reasonable nexus between the nature of tax and the measure of tax. In India Cement, this Court had noted that royalty is only indirectly connected with land and cannot be said to be a tax directly on land as a unit. In my opinion, this finding requires no second look. The contention that royalty can be used a measure to tax land under Entry 49 – List II would, in my opinion, inevitably lead to conflation with the nature of tax that is reserved for Entry 50 – List II subject to any limitations imposed by Parliament by law relating to mineral development.
Kesoram:
23. The dictum in India Cement by a seven-judge Bench and subsequent decisions which followed it was doubted by a majority of a five-judge Bench of this Court in Kesoram. It would be useful to highlight the relevant portions of the said Civil Appeal Nos.4056-4064 of 1999 Etc. Page 107 of 193 judgment as the real controversy stems from this Judgment. In the said case, three sets of matters arose from West Bengal, which, for the sake of convenience, were called as (A) “coal matters” (B) “tea matters” and (C) “brick earth matters”. The other set of matters which arose from the State of Uttar Pradesh was (D) “minor mineral matters”.
23.1 In the coal matters, the constitutional validity of the amendment made to the Cess Act, 1880 and West Bengal Rural Employment and Production Act, 1976 by which the expression “coal-bearing land” was defined to mean holding or holdings of land having one or more seams of coal comprising the area of a coal mine, given effect to from 01.04.1992, was successfully impugned before the High Court. Therefore, the State of West Bengal had filed the appeal before this Court. The High Court had placed reliance on the judgments of this Court in India Cement and Orissa Cement wherein the levy of cess impugned therein was struck down as unconstitutional. The Calcutta High Court had held that the levy was without legislative competence of the State and hence, was liable to be struck down. The High Civil Appeal Nos.4056-4064 of 1999 Etc. Page 108 of 193 Court had also concluded that the Cess cannot be said to be on land so as to be covered by Entry 49 - List II.
23.2 A similar cess was levied by the State Legislature of Orissa as the Orissa Rural Employment, Education and Production Act, 1992 on land-bearing coal and other minerals. A challenge to the constitutional validity of such cess was successfully laid before this Court and the Section 3(2)(c) of the Orissa legislation was struck down as unconstitutional as ultra vires the competence of the State Legislature in Mahanadi Coalfields.
23.3 Insofar as the cases arising from the Allahabad High Court concerning constitutional validity of a cess on mineral rights levied under Section 35 of the Uttar Pradesh Special Area Development Authorities Act, 1986 read with Rule 3 of Shakti Nagar Special Area Development Authority (Cess on Mineral Rights) Rules, 1997 (“the SADA Act” and “the SADA Cess Rules”, respectively), the challenge was to the imposition of cess on mineral rights at such rates as may be prescribed, subject to any limitations imposed by Parliament by law relating to Civil Appeal Nos.4056-4064 of 1999 Etc. Page 109 of 193 mineral development. The SADA Cess Rules as well as Section 35 of the SADA Act were challenged on the ground that MMDR Act, 1957 having been enacted, containing a declaration under Section 2 thereof as contemplated by Entry 54 - List I and the Act being applicable to the State of Uttar Pradesh as well, the State legislature was denuded of its power to enact the impugned law and levy impugned cess. It was contended that the impugned cess would have the impact of adding to the royalty already being paid and thereby increase the same, which was ultra vires the power of the State Government as that power could only be exercised by the Central Government. The Allahabad High Court held that SADA Act and SADA Rules and the levy of cess thereunder was within the competence of the State Legislature with reference to Entry 50 - List II. Since this Court, through a three-judge Bench, had noted a conflict of decisions, the matters were placed before Hon’ble the Chief Justice for appropriate directions. Thereafter, the matters were listed before a five-Judge Constitution Bench. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 110 of 193 23.4 The Constitution Bench in Kesoram noted the question of constitutional significance centring around Entries 52, 54 and 97 - List I and Entries 23, 49, 50 and 66 - List II, as also the extent and purport of the residuary power of legislation vested in the Union of India. In Paragraph 52 of the judgment, this Court noted the questions which arose in India Cement and encapsulated the ratio of the said judgment. 23.5 In India Cement, the judgment of the Mysore High Court in Laxminarayana Mining Co. was cited with approval. As already noted, the Mysore High Court had struck down as violative of the MMDR Act, 1957 imposition of a licence fee on mining manganese, iron ore, etc., under a State legislation by issuance of a notification. In Kesoram, while considering the ratio of the judgment of the Division Bench of the Mysore High Court in Laxminarayana Mining Co., which had held that, licence fee was a step trenching upon the field of regulation and mineral development, was liable to be struck down on that ground alone, in paragraph 55, observed as under: Civil Appeal Nos.4056-4064 of 1999 Etc. Page 111 of 193
“55. In our view, the decision by the Mysore High Court cannot be read so widely as laying down the law that the 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.” In substance, this Court observed that Union’s power to regulate and control is distinct from the State's power to levy tax and the distinction between the two had not been borne in mind by the Mysore High Court which aspect shall be discussed later.
23.6 Moving further in paragraph 56, this Court in Kesoram observed as under:
“(A diversion from the main issue) Royalty, if tax?
56. We would like to avail this opportunity for pointing out an error, attributable either to the stenographer's devil or to sheer inadvertence, having crept into the majority judgment in India Cement Ltd. case [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 1990 SC 85] . 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.
case [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 1990 SC 85] , feeling bound and rightly, by the said judgment Civil Appeal Nos.4056-4064 of 1999 Etc. Page 112 of 193 having the force of pronouncement by a seven-Judge Bench. Para 34 of the Report reads as under: (SCC p. 30) “34. 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.” 23.7 In paragraph 57, this Court made its inferences on what was observed by the seven-judge Bench of this Court in paragraph 34 (extracted above) of India Cement as under:
“57. 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 the judgment. This is clear from reading the judgment in its entirety. Vide paras 22 and 31, which precede para 34 abovesaid, 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 Civil Appeal Nos.4056-4064 of 1999 Etc. Page 113 of 193 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 List II which enables the State to 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.” (underlining by me) 23.8 Thereafter, this Court discussed the meaning and content of the expression royalty from various dictionaries and other authorities and referred to the judgments of the High Courts of Orissa, Punjab and Haryana, and Gujarat High Court and in paragraph 64 observed as under:
“64. We need not further multiply the authorities. Suffice it to say that until the pronouncement in India Cement [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 1990 SC 85] nobody doubted the correctness of “royalty” not being a tax.” (underlining by me) Civil Appeal Nos.4056-4064 of 1999 Etc. Page 114 of 193 And ultimately in paragraph 69, it was inferred as under: “69. In India Cement [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 1990 SC 85] (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, nowhere else has the majority judgment held royalty to be a tax.” (underlining by me) 23.9 The inference being that there is an apparent error in holding that “royalty to be a tax”, whereas “royalty is not a tax”.
However, the above inference loses sight of the fact that in paragraph 34 of the India Cement it has been observed that “Royalty on mineral rights is not a tax on land, but a payment for the user of the land”. This has been held to be a contradiction in Kesoram. However, what was actually meant in India Cement was that royalty is a tax on mineral rights. The majority in Kesoram thereafter noted how the matter was dealt with in Mahalaxmi Fabrics Mills and Saurashtra Cement and made observations therein, as noted in paragraph 70 of the judgment. Ultimately, in paragraph 71, it was Civil Appeal Nos.4056-4064 of 1999 Etc. Page 115 of 193 observed that royalty is not a tax and royalty cannot be a tax and that even in India Cement it was not the finding of the Court that royalty is a tax.
23.10 With regard to decisions post India Cement, the majority expressed its dissent with that part of the judgment in Mahalaxmi Fabrics Mills, which stated that there was “no typographical error” in India Cement. The reasoning in Mahanadi Coalfields was also not subscribed to in Kesoram and it was held that the said case was not correctly decided inasmuch as they applied India Cement and Orissa Cement and therefore, it was over-ruled.
23.11 With great respect to the majority in Kesoram, the aforesaid strong observations were in fact premised on a “typographical error” in para 34 of the judgment in India Cement when there was none. The entire reasoning in paragraph 57 of Kesoram extracted above proceeded on the basis that a typographical error was inadvertently or erroneously committed while typing the correct text of the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 116 of 193 judgment and therefore, what was a “sensible reading” was supplied by the majority to make an omission or error, namely, “cess on royalty” instead of “royalty” only. 23.12 With respect, I find that the aforesaid understanding by the majority in Kesoram is incorrect, a departure from all precedents right from the judgment of this Court in Hingir- Rampur and contrary to the scheme of Entry 54 – List I and Entry 50 – List II and the architecture of the MMDR Act, 1957 enacted pursuant to Entry 54 - List I and particularly, having regard to Section 2 of the said Act. Therefore, there was no necessity to doubt the proposition that royalty is a tax. On a non-appreciation of what exactly the import of the judgment in the India Cement was, this doubt expressed by the majority in Kesoram has ultimately led to the constitution of this nine- judge Bench to answer eleven points for reference which, in my view, was wholly unnecessary. This aspect would become more clear if the judgment of this Court in P. Kannadasan vs. State of Tamil Nadu, (1996) 5 SCC 670 (“Kannadasan”) is perused which is discussed later.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 117 of 193 23.13 By contrast, Sinha J., in his dissenting opinion in Kesoram at paragraph 309, has appreciated the controversy in the following words:
“309. The decisions of the Privy Council in Governor General in Council v. Province of Madras [1945 FCR 179 :
AIR 1945 PC 98] on the question of interpretation as regards conflicting legislative entries in general and tax entries in particular may not be apposite in the instant case inasmuch as herein we are concerned with only one question, namely, whether the field of taxation of mines and minerals which are extracted and cease to be a part of the surface, is wholly covered or not. One of the principles for reconciling conflicting tax entries is to ascertain as to whether a person, thing or activity is the subject-matter of tax and the amount of the tax to be levied. The question which has to be answered on the basis of the aforementioned principle is, is it a tax on land or tax on mineral. If having regard to the nature of tax and keeping in view the history of the legislation to the effect that the State of West Bengal has all along been trying to impose tax on minerals as opposed to tax on land, is taken into consideration, it will be noticed that endeavours have been made to continue to impose “cess” on mineral and mineral rights in the garb of “land tax”.” (underlining by me) 23.14 Therefore, the pith and substance of the controversy being, whether in the garb of imposition of impugned land tax on the strength of Entry 49 - List II, the State has the power to impose cess on royalty, or, in other words, cess on mineral and mineral rights was rightly identified. This is because royalty is a Civil Appeal Nos.4056-4064 of 1999 Etc. Page 118 of 193 payment for the exercise of mineral rights and not a tax on land and if cess is levied on royalty, then the same is an imposition on the exercise of mineral rights, which is covered under Section 9 of the MMDR Act, 1957. It is in the aforesaid context that Sinha, J. also referred to Section 25 of the MMDR Act, 1957 which states that any rent, royalty, tax, fee or other impost under the said Act or the Rules made thereunder can be recovered as arrears of land revenue. Therefore, in paragraph 321, it was opined by Sinha, J. as under:
“321. Section 25 of the MMRD Act, 1957 by necessary implication refers to the taxing power of Parliament. Imposition of taxes on mineral rights would affect the development of mines and minerals. Parliament's authority to regulate and control mineral development would be seriously impaired and affected if it is held that the matter relating to imposition of tax on minerals is also vested in the State. The vires of Sections 9 and 9-A of the 1957 Act has not been questioned. In fact, they have been held to be intra vires in State of M.P. v. Mahalaxmi Fabric Mills Ltd. [1995 Supp (1) SCC 642] , Saurashtra Cement and Chemical Industries Ltd. v. Union of India [(2001) 1 SCC 91] and South Eastern Coalfields Ltd. [(2003) 8 SCC 648 :
(2003) 7 Supreme 539] Unless power to levy compulsory impost is held to be ultra vires the Constitution, it cannot be held that Parliament has encroached upon the States' power of taxation.” (underlining by me) Civil Appeal Nos.4056-4064 of 1999 Etc. Page 119 of 193 The aforesaid observations are significant in light of the history of legislation as regards regulation of mines and development of minerals and the logical corollary would be that in the field of levy of tax, fee or other charges, the Parliament by virtue of Section 9 read with Section 25 of the MMDR Act, 1957 has covered the field of legislation which act as a limitation on the State's power under Entry 23 - List II of the Constitution.
Therefore, Sinha, J. rightly observed that once it is held that the entire field of mines and minerals is covered by the MMDR Act, 1957 the impugned levy by way of cess on coal-bearing land is nothing but an imposition of tax on exercise of mineral rights which is barred having regard to the field being covered by the provisions of the MMDR Act, 1957.
24. What is of significance is that in India Cement, the seven-judge Bench of this Court considered the judgments of the Patna High Court in Laddu Mal and that of the Mysore High Court in Laxminarayana Mining Co. and approved the same. However, there was a reference made to four other judgments of the High Courts of Punjab and Haryana, Gujarat, Civil Appeal Nos.4056-4064 of 1999 Etc. Page 120 of 193 Orissa and Rajasthan. The criticism by the majority in Kesoram is that there was no discussion on those judgments in India Cement. The reasons for there being no necessity for discussion of the said judgments are not far to see. The judgments of the Patna and Mysore High Courts considered at length the concept of royalty in the context of the constitutional Entries in Lists I and II, as discussed above and in light of the declaration made in Section 2 and the scheme of the MMDR Act, 1957. It was observed by the Patna and Mysore High Courts that having regard to the constitutional scheme vis-à-vis the legislative fields, in the context of making laws on mineral rights and mineral development and Section 2 of the MMDR Act, 1957 payment of royalty on a mining lease being covered under the Parliamentary Act, i.e. MMDR Act, 1957, the same acted as a limitation imposed by the Parliament by law relating to mineral development on the States’ competence to also tax on exercise of mineral rights by levying a cess or any other impost on royalty. Therefore, by a logical deduction, it was held that royalty is a tax within the meaning of Entry 50 - List II. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 121 of 193 Consequently, any cess on royalty or any other impost on royalty or royalty being a basis for a further tax or impost being levied by a State Government was impermissible. In other words, the MMDR Act 1957 insofar as and to the extent dealt with the aspect of royalty being payable by a holder of a mining lease imposed a limitation on the States’ right to levy any other impost/tax on mineral rights as royalty was payable for exercise of mineral rights resulting from a mining operation and extraction of minerals. It was in this context that it was reasoned that royalty is a tax. Also, royalty could not be a basis for levy of any other tax on mineral bearing land as land revenue.
24.1 On the other hand, the judgments of four other High Courts, namely, Punjab and Haryana, Orissa, Rajasthan and Gujarat did not consider the controversy from the perspective of the constitutional Entries and Section 2 of the MMDR Act, 1957. The said judgments proceeded on the dictionary meaning of ‘royalty’ under various types of transactions under which royalty has to be paid and concluded that royalty was Civil Appeal Nos.4056-4064 of 1999 Etc. Page 122 of 193 not an impost or tax, which approach was also adopted by the majority in Kesoram. Thereby, Entry 54 - List I and Entry 50 - List II as well as Section 2 of the MMDR Act, 1957 was given a complete go-by while arriving at such a conclusion. Consequently, the said judgments and also the majority in Kesoram concluded that the States have the legislative competence to tax mineral rights or make royalty a basis for any other exaction such as cess etc. This was contrary to the view expressed in India Cement by this Court. Therefore, it was unnecessary for the seven-judge Bench in India Cement to have discussed the judgments of the High Courts of Punjab and Haryana, Gujarat, Orissa and Rajasthan referred to above. In fact, in my view, the judgments of the aforesaid High Courts were impliedly overruled in India Cement, which aspect has not been noticed by the majority in Kesoram.
25. Insofar as the judgment of this Court in the case of Mahalaxmi Fabric Mills is concerned, the said judgment followed India Cement. However, it was overruled in Kesoram. So also, the judgments in Saurashtra Cement and other Civil Appeal Nos.4056-4064 of 1999 Etc. Page 123 of 193 cases. Reference was made to Mahanadi Coalfields wherein the levy by the State Legislature was a tax of Rs.32/- per thousand acre on coal-bearing lands. The attack on the legislation was that the provision was one on mineral lands and mineral rights and the Parliament had enacted the MMDR Act, 1957 and the field was entirely covered and the State Legislature was incompetent to levy the tax. The three-judge Bench 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. This was because non-mineral-bearing lands and non-coal-bearing lands were left out of the levy. The levy was struck down as the levy was not a tax on land, but on minerals and mineral rights. Kannadasan:
26. In this context, it is significant to refer to another judgment of this Court in Kannadasan wherein this Court, by following the observations in India Cement and Orissa Cement, held that the States are denuded of the power to levy any tax on minerals and therefore, the State enactments were Civil Appeal Nos.4056-4064 of 1999 Etc. Page 124 of 193 declared to be lacking in legislative competence as in the aforesaid cases, insofar as they pertained to levy of tax/cess on royalty paid on minerals extracted. It was observed that the denudation of the States’ powers was not partial but total and the States cannot levy any tax on mining and minerals, so long as the declaration in Section 2 of the MMDR Act, 1957 stands. Once the denudation is total, there is no occasion or necessity for any further declaration of denudation, or for that matter, for repeated declarations of denudation. Kannadasan was partially overruled by a three-judge Bench in District Mining Officer vs. Tata Iron and Steel Company, (2001) 7 SCC 358 (“Tata Iron and Steel”), but on a different question which I shall also advert to later.
26.1 However, what is relevant for the purposes of this reference could be discussed in the first instance. In Kannadasan, the appellants therein had challenged the validity of the Cess and Other Taxes on Minerals (Validation) Act, 1992 (“Validation Act” for short) enacted by Parliament. The High Court had rejected the writ petitions. The background Civil Appeal Nos.4056-4064 of 1999 Etc. Page 125 of 193 of the said Act was that in India Cement, this Court had held that (i) the levy could not be sustained under and with reference to Entry 49 - List II as a tax on land; (ii) the levy was a levy on minerals and was relatable to Entries 23 and 50 - List II; (iii) that on account of the declaration made by Parliament contained in Section 2 of the MMDR Act, 1957, the State Legislatures had been denuded of the power to levy tax on minerals. That regulation of mines and mineral development takes within its purview the levy of tax on minerals. This Court held that Sections 9 and 9A of the MMDR Act, 1957 provides for levy of royalty/dead rent on minerals. The State Legislatures cannot, therefore, impose any tax on minerals or exercise of mineral rights and HRS Murthy was wrongly decided. Having so declared, this Court in India Cement, however, directed that the said decision shall only have a prospective effect. This was for the reason that the States had been levying and collecting the cesses on the basis of the decision of this Court in HRS Murthy. The decision in India Cement was rendered on 25.10.1989.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 126 of 193 26.2 Thereafter, a three-judge Bench in Orissa Cement declared identical levies imposed by the States of Orissa, Bihar and Madhya Pradesh as being lacking in legislative competence. The Bench again directed that the said decision shall be operative prospectively with effect from the date of the said judgment i.e., 04.04.1991 in the case of State of Bihar, with effect from 22.12.1989 in the case of State of Orissa and with effect from 28.03.1989 in the case of State of Madhya Pradesh. In view of the States not having the competence to make the said levies, the Union had to step in and promulgated the Cess and other Taxes on Mineral (Validation) Ordinance, 1992 on 15.02.1992 and thereafter replaced it by a Parliamentary enactment called the Cess and other Taxes on Minerals (Validation) Act, 1992 with effect from 04.04.1992. The Act was enforced in order to validate the imposition and collection of cesses and certain other taxes on minerals under certain State laws. The Act was deemed to come into force on 04.04.1991. Under the said Act, a person could claim refund of any cess or tax paid by him in excess of the amount due from him under Civil Appeal Nos.4056-4064 of 1999 Etc. Page 127 of 193 any such State law. The Schedule to Section 2 named the Acts of various States which were validated. For immediate reference, Section 2 of the Validation Act is extracted as under:
“2. Validation of certain State laws and actions taken and things done thereunder. - (1) The laws specified in the Schedule to this Act shall be, and shall be deemed always to have been, as valid as if the provisions contained therein relating to cesses or other taxes on minerals had been enacted by Parliament and such provisions shall be deemed to have remained in force up to the 4th day of April, 1991.
(2) Notwithstanding any judgment, decree or order of any court, all actions taken, things done, rules made, notifications issued or purported to have been taken, done, made or issued and cesses or other taxes on minerals realised under any such laws shall be deemed to have been validly taken, done, made, issued or realised, as the case may be, as if this section had been in force at all material times when such actions were taken, things were done, rules were made, notifications were issued, or cesses or other taxes were realised, and no suit or other proceeding shall be maintained or continued in any court for the refund of the cesses or other taxes realised under any such laws.
(3) For the removal of doubts, it is hereby declared that nothing in sub-section (2) shall be construed as preventing any person from claiming refund of any cess or tax paid by him in excess of the amount due from him under any such laws.” Section 2 was the validation clause stating that the laws specified in the Schedule to the Act shall be, and shall be deemed always to have been, as valid as if the provisions Civil Appeal Nos.4056-4064 of 1999 Etc. Page 128 of 193 contained therein relating to cesses or other taxes on minerals had been enacted by Parliament and such provisions shall be deemed to have remained in force up to 04.04.1991. The Act was deemed to have come into force on 15.02.1992, which was the date on which the Ordinance was promulgated by the President. According to this Court, the Parliament adopted the device of legislation by incorporation as a result of which all the relevant provisions of the Scheduled Acts (State Acts) were deemed to have been enacted by Parliament and read into Section 2(1) of the Validation Act. As a corollary, all the taxes which were set aside by this Court and the High Courts were deemed to be the taxes/levies of the Parliament itself. This was on the clear understanding that the power of Parliament to levy such taxes was not in dispute and States had no power to levy such cesses or taxes. This was also on the acceptance of the judgment in India Cement. The provisions of the Act were declared to be in force up to 04.04.1991 though the law was enforced from 04.04.1992, which was unique by itself. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 129 of 193
26.3 The validity of the Validation Act was questioned before this Court on several counts by the private parties and defended by the Union of India. This Court observed that the object and purpose of enacting the MMDR Act, 1957 was to bring about, inter alia, a uniformity in taxes and royalties throughout the country in the interest of mineral development in the country for which only the Union or the Central Government could impose a levy such as royalty or any other tax. There is not a precondition to a law made by Parliament under Entry 54 - List I nor is there a limitation upon Parliament’s power. If Parliament has enunciated the principle, it can also create an exception thereto in appropriate circumstances or to meet an exigency. The Validation Act was in order to meet such an exigency. The said Act was both an addition to as well as an exception to Section 9 of the MMDR Act, 1957. With regard to Section 9 of the MMDR Act, 1957, it was reasoned that in light of the decisions of this Court in India Cement and Orissa Cement, the States were totally denuded of the power to levy any taxes on minerals. The Civil Appeal Nos.4056-4064 of 1999 Etc. Page 130 of 193 denudation of the State is not partial; it is total insofar as the levy of any tax or cess on mineral is concerned. So long as the declaration in Section 2 stands, it is unnecessary to have a fresh declaration to be made by Parliament whenever the Union increases the rate of royalties.
26.4 It was further observed that what was sought to be levied under the impugned enactment was a tax/cess and not a fee and therefore, the Parliament was not bound to utilize the taxes realized under the impugned Act, i.e., the Validation Act, only for the purpose of regulation of mines and mineral development. That even in the matter of fees, it is not necessary that an element of quid pro quo should be established in each and every case as fees can be both regulatory and compensatory and that in the case of regulatory fees, the element of quid pro quo is totally irrelevant vide Corporation of Calcutta vs. Liberty Cinema, AIR 1965 SC 1107, (“Liberty Cinema”).
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 131 of 193 26.5 It was further observed that the Validation Act though a temporary statute did not have an expiry date, in the sense it was deemed to come into force on 15.02.1992 and validated all imposts up to 04.04.1991 and not thereafter. By this, it didn’t mean that the statute itself expired on 04.04.1991 as it was deemed to come into force on a later date, i.e. on 15.02.1992. The Validation Act was also not a temporary statute. It was observed that the duration of the levy validated under the Act and the life of the Act are two different things which are not necessarily coextensive. The Validation Act would remain in force till Parliament chooses to repeal it. Therefore, the argument that the Validation Act being a temporary statute was not effective from 04.04.1991, was rejected by this Court. It was observed that levies were validated by the Validation Act notwithstanding the cessation of levy after 04.04.1991 and the machinery created to recover and refund the said cesses/taxes was kept alive.
26.6 The judgment of this Court in Kannadasan is a clear indication of the fact that it was the Parliament, by enacting a Civil Appeal Nos.4056-4064 of 1999 Etc. Page 132 of 193 legislation in the year 1992 in the form of a Validation Act which had to step in to support the States for validation of the States’ incompetent levies, namely, cesses or taxes on royalty which had been set aside over decades by this Court. This legislation was also in the interest of mineral development and in exercise of powers and relatable to Entry 54 - List I. But for the Validation Act enacted by the Parliament, the levies being declared invalid by this Court as well as the High Courts, it was the bounden duty of the States to have refunded the levies collected in the form of cesses or surcharge on cesses on royalties as directed by this Court which would have been a drain on the States’ exchequers. Realising the financial predicament in which the States were, the Parliament, in exercise of its unitary powers and as the Union of the States, came to rescue all the States by passing the Validation Act so that till 04.04.1991, by a fiction the States’ levies in the form of cesses or other taxes on royalty were validated as if the State laws were enacted by Parliament itself. Therefore, all judgments which had struck down the levies imposed by the State on Civil Appeal Nos.4056-4064 of 1999 Etc. Page 133 of 193 mineral rights discussed above if had directed to refund the levies collected by them would now not have been necessary. Further, all such State levies being validated, arrears till 04.04.1991 could be collected by the States. Such an Act was passed by way of an abundant caution as in certain other judgments of this Court, there could be directions to refund the taxes or levies collected and attended complications on the refund of the said incompetent levies or in order to collect the arrears till 04.04.1991. These aspects constrained the Parliament to pass the Validation Act. In the circumstances, the appeals and the writ petitions were dismissed. 26.7 The judgment in Kannadasan clearly established the fact that the Parliament has supremacy over the regulation of mines and development of minerals in view of Entry 54 - List I read with Section 2 and the other provisions of MMDR Act, 1957, as Entry 23 – List II is also subject to Entry 54 – List I. That levying of a uniform impost in the form of royalty and dead rent imposed under Sections 9 and 9A of the MMDR Act, 1957 throughout the length and breadth of the country, insofar as a Civil Appeal Nos.4056-4064 of 1999 Etc. Page 134 of 193 particular mineral is concerned, without letting any State to impose any other levy over and above royalty is in the interest of mineral development. Thus, Sections 9 and 9A are an embargo and a limitation on the power of the State to impose any tax on exercise of mineral rights. This is because royalty is paid on exercise of mineral rights. It is a statutory exaction under the MMDR Act, 1957 and is compulsory for every holder of a mining lease to pay royalty to the State Government which executes the lease deed in the status of a lessor. Payment of royalty being compulsory by the holder of a mining lease, it makes it a tax as the rate of royalty is fixed by the Central Government as per Section 9 of the MMDR Act, 1957 and as notified in the Second Schedule to the aforesaid Act. Thus, royalty being a tax could be collected as arrears of land revenue in the event of non-payment. Such being the construction and interpretation of the provisions of MMDR Act, 1957 in light of the Entries in the Lists, royalty as a compulsory exaction has met all the parameters of a tax and hence the provisions regarding collection of royalty under the MMDR Act, 1957 Civil Appeal Nos.4056-4064 of 1999 Etc. Page 135 of 193 and the Rules made thereunder acted as a limitation under Entry 50 – List II. Hence, the States are denuded of their power to impose a cess or any other levy on royalty or define it as a land revenue which could be imposed by the States under Entry 49 – List II. Such State levies on royalty is against the interest of mineral development in the country and therefore the State levies on the basis of royalty was struck down by this Court and certain High Courts. The validation Act also established the fact that the Parliament by passing such an Act did so in the interest of mineral development in the country and to save the States from losing the revenue collection made though under incompetent levies prior to 04.04.1991. Therefore, the States were not required to refund the illegal levies collected by them and continued to collect the same till 04.04.1991. The sustaining of the Validation Act by this Court is also significant. Thus, as a result of the Validation Act, the decades’ old controversy between States’ attempts to levy taxes on royalty and the High Courts and this Court striking down the same by holding that it was the Parliament Civil Appeal Nos.4056-4064 of 1999 Etc. Page 136 of 193 only which could do so by a law, brought down the curtains on the said controversy till its revival in Kesoram. 26.8 Justice Jeevan Reddy speaking for the Bench in Kannadasan cleared any lurking doubts about States having any power to levy any cess, tax or other impost on exercise of mineral rights; it was only the Parliament which could impose such a levy either by way of royalty or in any other form. 26.9 Thereafter, in Tata Iron and Steel, the controversy arose from the Patna High Court, in the context of the Validation Act, 1992 wherein it was held that the said Act did not authorise recovery of any tax or cess after 04.04.1991, even if the liability was incurred under the validated laws before 04.04.1991 and consequently, it restrained the State of Bihar from taking any steps to realise such demands. However, by then this Court in Kannadasan had upheld the right of the State to demand and collect levies which were collectable up to 04.04.1991. The decision of the Patna High Court to the extent Civil Appeal Nos.4056-4064 of 1999 Etc. Page 137 of 193 it restrained the State from realising the demand was challenged before this Court by the State of Bihar. 26.10 The matter was considered by a three-judge Bench as Kannadasan was decided by a two-judge Bench. It was observed that the Validation Act had validated the levy of taxes by eleven States upto 04.04.1991. That the Validation Act fictionally held that the Parliament had in fact imposed the cess and other taxes on minerals by keeping those provisions of State Act, which had been struck-down, alive till 04.04.1991. Although, Parliament never in fact re-enacted the eleven Acts mentioned in the Schedule to the Validation Act but it merely provided legislative competence for those Acts which related to cesses or taxes on minerals. This was done owing to the judgments of this Court in India Cement and Orrisa Cement that had led the to a situation that required a Validation Act to save the State from refunding the incompetent levies already collected. This was to allay the apprehension of the State Government that the incompetent levies already collected would have to be refunded. Therefore, Parliament, being also of the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 138 of 193 same opinion, through a legislative device of providing legislative competence in respect of the certain provisions of the States’ laws and by validating the levies which could be collected up to 04.04.1991 i.e. the date on which this Court delivered the judgment in Orissa Cement case, had enacted the Validation Act.
26.11 The controversy, however, revolved on the expression “imposition and collection” under Section 2(1) of the Validation Act. Whether it related to only imposition and collection already made under certain State laws or conferred further right of imposition and collection of cesses on the minerals extracted upto 04.04.1991. In Kannadasan this Court had interpreted the provisions to the effect that the Validation Act would confer a right on the State Government to make fresh levy and collection of dues which were collectable upto 04.04.1991. This interpretation was, however, not accepted by three-judge Bench. It was observed that the Validation Act could not be construed to confer a right to make a levy or collection of the cess and taxes on the minerals which were collected upto Civil Appeal Nos.4056-4064 of 1999 Etc. Page 139 of 193 04.04.1991, as was held in Kannadasan. It merely validated the collections already made so that the State will not be burdened with the liability of refunding the amount, already collected under void law. Therefore, the contrary view expressed in Kannadasan was held to be not correct.
26.12 With reference to Article 265 of the Constitution, it was observed that the State laws which stood expired on various dates prior to 04.04.1991 and on 04.04.1991 did not authorise imposition and collection of taxes and cess on minerals after 04.04.1991 in respect of minerals extracted till 04.04.1991, on which the cess was collectable. It was observed that object of the Validation Act was only to confer the life to void statutes by fictional re-enactment and granting legislative competence for limited purpose so that the State would not be called upon to refund the cess already collected under such void law. Thus, the void laws never existed after 04.04.1991 and consequently, there was no right with the State to make any levy or collection of the cess, which was collectable up to 04.04.1991. Only past actions had been sought to be validated, Civil Appeal Nos.4056-4064 of 1999 Etc. Page 140 of 193 that too, by a fictional enactment of the State laws by Parliament, keeping it alive till 04.04.1991. Even if imposition of levy had been made but not collected, the same could not be collected after 04.04.1991 as the Validation Act had not provided any provision permitting State to levy or collection after 04.04.1991. Therefore, it was held that the States cannot be conferred a right to levy or collection after 04.04.1991. Therefore, to that extent Kannadasan’s observations were not approved.
26.13 The overruling of certain observations made in Kannadasan by the three-judge Bench in Tata Iron and Steel does not touch upon the question whether imposition of cess and other taxes on the basis of royalty or in addition to royalty by a State legislature is competent. The judgment in Tata Iron and Steel on the other hand proceeds on the premise that India Cement and Orissa Cement were rightly decided. The Validation Act had been passed by the Parliament and there being a confusion with regard to the actual collection of the levies by the States on or after 04.04.1991 and in Civil Appeal Nos.4056-4064 of 1999 Etc. Page 141 of 193 Kannadasan, this Court having held that it could be so in the form of arrears and dues, to that extent, disapproved Kannadasan.
26.14 I do not find any inconsistency between the judgments in Kannadasan and Tata Iron and Steel on the questions of whether royalty is a tax and whether the States had no competency to levy any tax on exercise of mineral rights. On the other hand, what is common to both Kannadasan and Tata Iron and Steel is the fact that they proceeded on the basis that this Court, having set aside the incompetent levies imposed by the States and the Parliament, coming forward to support the States vis-à-vis their apprehension regarding refund to be made on the basis of the principle of unjust enrichment, enacted the Validation Act. The challenge to the said Act otherwise failed in Kannadasan. The contention of the assessee was only with regard to levies to be collected up to 04.04.1991 under the Validation Act and not after that date. This aspect was answered by the three-judge Bench in Tata Iron and Steel by holding that the Validation Act was in fact a temporary statute Civil Appeal Nos.4056-4064 of 1999 Etc. Page 142 of 193 which neither gave the State the right to levy any taxes or cesses etc. which were struck-down by this Court as being incompetent nor could the States collect arrears of such taxes/cesses after 04.04.1991.
26.15 In view of the aforesaid judicial and legislative history, can this Court once again confer powers on the States to levy taxes, etc. on the exercise of mineral rights in addition to royalty by way of a cess or a surcharge on cess or independently on the basis of royalty as a measure for imposing such taxes? The majority judgment in Kesoram has attempted to do that. This is by holding that royalty imposed under Section 9 of MMDR Act, 1957 is not a tax and therefore, the States can levy taxes on minerals rights either under Entry 50 or Entry 49 – List II.
Thus, the legal quagmire has not ended but continued.
27. In my view, the majority judgment in Kesoram is liable to be overruled for holding that royalty is not a tax for the following reasons:
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 143 of 193
Firstly, because the doubt expressed in the said judgment by the majority was premised on a “typographical error” in paragraph 34 of the main judgment in India Cement by failing to appreciate the entire reasoning of the seven-judge Bench. It also failed to notice that in the case of India Cement, Oza, J. penned a separate but concurring opinion and arrived at a conclusion that royalty is in the nature of a tax by separate reasoning. The majority in Kesoram did not find any “typographical error” in Oza, J.’s opinion. Secondly, the majority in Kesoram came to the conclusion that royalty is not a tax based on the definition of royalty in dictionary meanings, etc. without reference to the constitutional Entries, particularly, Entry 50 - List II being limited by Entry 54
- List I and a Parliamentary law MMDR Act, 1957 being made under the latter Entry and the declaration made in Section 2 thereof. In this regard, it would be useful to refer to the observations of this Court in State of Civil Appeal Nos.4056-4064 of 1999 Etc. Page 144 of 193 Orissa vs. Titaghur Paper Mills Company Limited, 1985 Supp. SCC 280 (“Titaghur Paper Mills”), wherein this Court discussed the scope and ambit of the expression royalty and it was observed that while understanding the meaning of an expression, the dictionary meaning of a word cannot be looked at where that word has been statutorily defined or judicially interpreted (in light of the constitutional Entries in the Lists). Where there is no such definition or interpretation, the Court may take the aid of dictionaries to ascertain the meaning of a word in common parlance, bearing in mind that a word is used in different senses according to its context and a dictionary gives all the meanings of a word in several contexts. The Court has therefore to select the particular meaning which would be relevant to the context in which it has to interpret that word. Thirdly, the judgment in the India Cement was doubted even in the absence of their being a conflict of Civil Appeal Nos.4056-4064 of 1999 Etc. Page 145 of 193 the judgment with any other seven-judge Bench decision. No doubt, at the Highest Court, one cannot really be bogged down by the Bench strength nor does the doctrine of stare decisis would apply strictly to this Court when a judgment of a larger Bench is questioned by a Bench of similar or smaller strength. But for that, there must be present a flagrant violation of law, a patent error or a blatantly erroneous approach in the matter so as to enable a Bench of a similar or smaller strength to doubt the correctness or otherwise of the decision of a larger Bench. There could also be a situation where a judgment is per incuriam or the doctrine of sub silentio would apply.
For instance, a two-judge Bench of this Court doubted the correctness of a five-judge Bench decision in A.R. Antulay vs. R.S. Naik, 1986 Supp SCC 510 (“A.R. Antulay”) which led to the constitution of a seven-judge Bench by Hon’ble the Chief Justice of India. By a majority of 5:2, the seven-judge Bench in Civil Appeal Nos.4056-4064 of 1999 Etc. Page 146 of 193 the aforesaid case answered the questions raised by the two-judge Bench and thereby set aside the judgment of the five-judge Bench. The circumstances as, they occurred in the case of A.R. Antulay did not present themselves in Kesoram so as to doubt India Cement. Fourthly, in my view, the opinion of the majority in the Kesoram is per incuriam as it failed to follow the dictum in India Cement on the basis of a “typographical error” in paragraph 34 thereof where there was none. Judgments of larger Benches cannot be questioned by smaller Benches on the basis of an imagined “typographical error”! The entire judgment must be read and understood including its under currents before negating it for what it stands. A judgment of a Court of law is not a piece of legislation but one pregnant with reasoning and it becomes the duty of a succeeding Bench considering a precedent to be cautious in opining something contrary on the premise of a “typographical error” in a judgment of a Civil Appeal Nos.4056-4064 of 1999 Etc. Page 147 of 193 larger Bench by failing to understand the import of the reasoning.
Fifthly, Kesoram also failed to note that the Parliament enacted the Validation Act, 1992 on the definite premise that the States did not have the legislative competence to levy the impugned levies which were rightfully set aside by this Court in a series of judgments starting from Hingir-Rampur.
Sixthly, I may observe that the Validation Act, 1992 clearly established that the dicta of this Court in India Cement, Orissa Cement and other cases which followed the said judgment are correct and were accepted by the Parliament which acted on it by passing the Validation Act.
Seventhly, in Kannadasan, the validity of the Validation Act, 1992 was upheld. This clearly established the fact that the State’s levies which were quashed and set aside by this Court in India Cement Civil Appeal Nos.4056-4064 of 1999 Etc. Page 148 of 193 and other cases were not relatable to Entry 49 - List II. If that was so, then Parliament could not have enacted the Validation Act, 1992 as only States can levy taxes on lands and buildings under the Entry 49 – List II. Eighthly, the actual basis for the majority in Kesoram doubting the judgment in India Cement is on the premise that there is a distinction between the power to regulate and control and the power to tax, the two being distinct and different. It was held that the taxation Entry i.e. Entry 50 – List II could not be controlled by Entry 54 – List I which is a regulatory Entry which is meant for regulation for mines and mineral development under the control of the Union. That may be so in the case of many other Entries, however, Entry 50 – List II is unique inasmuch as the taxation Entry namely, the power to impose taxes on mineral rights is itself subject to any limitations imposed by Parliament by law relating to mineral development. In the context of mineral development, Civil Appeal Nos.4056-4064 of 1999 Etc. Page 149 of 193 limitations could be imposed by Parliament by law vis-
à-vis the power to impose taxes on mineral rights which is evident on a reading of Entry 50 – List II. The reason being, exercise of mineral rights is related to mineral development which is a subject under Entry 54 – List I. This coalescing of the subjects in Entry 50 – List II with Entry 54 – List I has not been noticed whereas in India Cement as well as in Laddu Mal and in Laxminarayana Mining Co., this aspect has been the foundation of the reasoning.
28. In view of the aforesaid discussion, I differ from the judgment of Hon’ble the Chief Justice of India, and hold that India Cement, Orissa Cement, Mahalaxmi Fabric Mills, Saurashtra Cement, Mahanadi Coalfields, Kannadasan excluding to the extent overruled in Tata Iron and Steel, and Tata Iron and Steel have been correctly decided and therefore, are binding precedent and cannot be overruled. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 150 of 193 Entries 49 and 50 – List II:
29. The second aspect of this case which also requires consideration is with regard to interplay of Entries 49 and 50 - List II in the context of mineral bearing lands.
30. In the judgment proposed by Hon’ble the Chief Justice of India, it has been concluded as under:
“e. The State legislatures have legislative competence under Article 246 read with Entry 49 of List II to tax lands which comprise of mines and quarries. Mineral- bearing land falls within the description of “lands” under Entry 49 of List II;
f. The yield of mineral bearing land, in terms of the quantity of mineral produced or the royalty, can be used as a measure to tax the land under Entry 49 of List II. The decision in Goodricke (supra) is clarified to this extent;
g. Entries 49 and 50 of List II deal with distinct subject matters and operate in different fields. Mineral value or mineral produce can be used as a measure to impose a tax on lands under Entry 49 of List II; and h. The “limitations” imposed by Parliament in a law relating to mineral development with respect to Entry 50 of List II does not operate on Entry 49 of List II because there is no specific stipulation under the Constitution to that effect.”
31. In India Cement, the State of Tamil Nadu mainly contended that impugned levy, namely, imposition of cess on royalty under Entry 49 - List II as taxes on lands and buildings Civil Appeal Nos.4056-4064 of 1999 Etc. Page 151 of 193 and therefore defining “land revenue”, as including royalty on mineral bearing land in exercise of mineral rights by the holder of a mining lease was justifiable. In this regard, reference was made by the State of Tamil Nadu to Raja Jagannath Baksh Singh vs. State of U.P., (1963) 1 SCR 220 (“Raja Jagannath Baksh Singh”), wherein it was indicated that the expression “lands” in Entry 49 - List II is wide enough to include agricultural as well as non-agricultural land. But this contention was repelled by this Court by observing that ‘royalty’ being that which is payable on the extraction of minerals from land and ‘cess’ being an additional charge on the basis of royalty cannot be considered to be a tax on mineral land under Entry 49 – List II. It was observed that there was a clear distinction between tax directly on land and tax on income arising from land such as from minerals extracted from the land.
31.1 In fact, this Court in New Manek Chowk Spinning & Weaving Mills Co. Ltd. vs. Municipal Corporation of the City of Ahmedabad, (1967) 2 SCR 679 (“New Manek Chowk Civil Appeal Nos.4056-4064 of 1999 Etc. Page 152 of 193 Spinning & Weaving Mills”), had observed that Entry 49 - List II only permitted levy of tax on lands and buildings and not on machinery contents in or situated on the buildings even though the machinery was there for the use of the buildings for a particular purpose. Also construing the said Entry, this Court in Sudhir Chandra Nawn vs. Wealth Tax Officer, Calcutta, (1969) 1 SCR 108 (“Nawn”), observed that Entry 49
- List II contemplated a levy on land as a unit and the levy must be directly imposed on land and must bear a definite relationship to it. The aforesaid decision was affirmed in Assistant Commissioner of Urban Land Tax vs. The Buckingham & Carnatic Co. Ltd., (1970) 1 SCR 268 (“The Buckingham & Carnatic Co.”). Similarly, in Second Gift Tax Officer, Mangalore vs. D.H. Nazareth, (1971) 1 SCR 195 (“D.H. Nazareth”), it was held that a tax on the gift of land is not a tax imposed directly on land but only for a particular act, namely, the transfer of land by way of gift. In Union of India vs. Harbhajan Singh Dhillon, (1971) 2 SCC 779 Civil Appeal Nos.4056-4064 of 1999 Etc. Page 153 of 193 (“Harbhajan Singh Dhillon”), the aforesaid two decisions were approved.
31.2 Further, it was observed in India Cement that royalty which is indirectly connected with land cannot be said to be tax directly on land as a unit. The cess impugned could not be levied if there was no mining activity carried on as no royalty was payable as payment of cess was on royalty. Hence, it was manifest that cess on royalty was not relatable to land as a unit which is the only method of valuation of land under Entry 49 - List II but was relatable to minerals extracted, i.e. royalty was payable on a proportion of the minerals extracted based on the rate fixed under the Second Schedule to MMDR Act, 1957. Therefore, the impugned cess on royalty was held in pith and substance to be a tax on royalty and not a tax on land. Hence, royalty could not be included within the definition of “land revenue” for the purpose of imposition of a cess on land revenue, which means cess on royalty, when royalty is itself a tax paid by a holder of mining lease for exercise of his mineral rights, which is in the interest of mineral development. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 154 of 193 31.3 It was further observed in India Cement that Entry 23
- List II deals with regulation of mines and mineral development subject to the provisions of List I, i.e. Entry 54 - List I. Even though the subject mineral rights are part of the State List, taxes on mineral rights are treated separately and hence, the principle that the specific excluded the general must be applied. Therefore, it was observed that the word “lands” in Entry 49 - List II cannot include mineral bearing lands. In this connection, it was further observed that the extent to which regulation of mines and mineral development under the control of the Union is declared by Parliament by law to be expedient in the public interest (Entry 54 – List I), must be noted as, to that extent, denuding the State Legislation of its power under Entry 50 - List II. It was further observed that in view of the Parliamentary legislation under Entry 54 - List I, namely, the MMDR Act, 1957, and the declaration made under Section 2 and the provisions of Section 9 thereof, the State’s power would be overridden to that extent.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 155 of 193 31.4 Further, in India Cement, reliance was placed by State of Tamil Nadu on the judgment of this Court on HRS Murthy wherein it was observed that land cess paid on royalty has a direct relation to the land and only a remote relation with mining. This was held to be an incorrect approach in the matter by the seven-judge Bench in India Cement. In paragraph 30 of India Cement, it was further clarified that in HRS Murthy, attention of this Court was not invited to the provisions of Section 9 of the MMDR Act. It was also observed that Section 9(3) of the MMDR Act, 1957 in terms states that royalties payable under the Second Schedule of the said Act shall not be enhanced more than once during a period of three years. Therefore, this created a clear bar on the State Legislatures taxing royalty in any manner so as to in effect amend Second Schedule of the MMDR Act as additional taxes on royalty imposed by the States would vary the tax structure from State to State leading to variance in the price of a particular mineral in the country which is not in the interest of mineral development. Therefore, it was observed that tax on Civil Appeal Nos.4056-4064 of 1999 Etc. Page 156 of 193 royalty cannot be a tax on land. This is ultra vires the State legislative power particularly in view of Section 9(3) of the MMDR Act, 1957. It was also observed in India Cement that under Section 9 of the MMDR Act, 1957 the field was fully covered by the Central legislation and that royalty is directly relatable only to the minerals extracted. Hence, royalty was found relatable only to Entry 50 - List II and not Entry 49 - List II. As the field is covered by the MMDR Act, 1957, Entries 23 and 50 - List II will be subject to the declaration made under Section 2 of the MMDR Act, 1957 which has been enacted as per Entry 54 - List I.
32. In view of the above, the reasoning in the proposed judgment of the learned Chief Justice of India, in paragraph 339 that “though Parliament can limit the taxing field entrusted to the State under Entry 50 - List II through a law relating to mineral development, the limitation operates on the field of taxing mineral rights. Such a limitation cannot operate on Entry 49 - List II because there is no specific stipulation under the Constitution to that effect. The nature of taxes under both the Entries, that is Civil Appeal Nos.4056-4064 of 1999 Etc. Page 157 of 193 Entries 49 and 50 - List II, are distinct. The Constitution envisages the imposition of limitations by Parliament on the legislative field of the state of taxes on mineral rights, and not taxes on lands … Therefore, we are of the opinion that the doctrine of generalia specialibus non derogant has no application in the instant case because Entries 49 and 50 of List operate in different fields” in my view is contrary to what has been reasoned by the seven-judge Bench in India Cement and also the scheme of Entry 54 - List I and Entries 23 and 50 - List II as well as the object, intent and scheme of Parliament in making a declaration under Section 2 of the MMDR Act, 1957. Further, the Validation Act passed by the Parliament on the strength of Entry 54 – List I would have been wholly unnecessary if Entry 49 – List II was applicable to mineral bearing lands.
33. In view of what has been discussed above, in my view, Entry 49 - List II is an Entry of the widest amplitude. Taxes on lands and buildings would include taxes on agricultural land, non-agricultural land, etc. But insofar as mineral-bearing land Civil Appeal Nos.4056-4064 of 1999 Etc. Page 158 of 193 is concerned, there cannot be a tax on such land per se to be levied by the State Legislature as well as tax on mineral rights exercised on such land which is based on the value of the minerals produced under a Central Act. The reasons for saying so are as follows:
(i) Firstly, royalty as a tax on the value of the minerals extracted is paid by the lessee or the person who would exercise mineral rights to the State or lessor, as the case may be, under the provisions of MMDR Act, 1957 which is a Parliamentary law. Whereas, a tax or cess on land is paid by the owner or the occupier of the land as the case may be as per particular statute or by an agreement between the owner and the occupier.
(ii) Secondly, on a reading of the lease-deed executed in terms of Form-K appended to the Mineral Concession Rules, 1960, which are Central Rules, in light of Section 9 of the MMDR Act, 1957 and the Second Schedule thereof, it is clear that the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 159 of 193 lessee is under an obligation to pay royalty to the Government on the mineral extracted which is in exercise of his mining rights as per the provisions of MMDR Act, 1957, which is a Parliamentary legislation enacted in terms of Entry 54 - List I for regulation of mines and mineral development uniformly throughout the country.
(iii) Thirdly, the royalty is paid as a tax as a tax in respect of minerals removed or consumed by the holder of a mining lease from the leased area at the rate for the time being specified in the Second Schedule to MMDR Act, 1957 in respect of that mineral. There is no payment of royalty on the basis of a private negotiation between the lessor or lessee. The rate at which royalty has to be paid is prescribed in the Second Schedule of the MMDR Act, 1957 mineral wise. Only the Central Government by notification in the official gazette can amend the Second Schedule so as to enhance Civil Appeal Nos.4056-4064 of 1999 Etc. Page 160 of 193 or reduce the rate at which the royalty shall be payable in respect of any mineral with effect from the date as may be specified in the notification.
Provided that the Central Government shall not enhance the rate of royalty in respect of any mineral more than once during any period of three years. This power is reserved only with the Central Government, which is in the interest of mineral development in a uniform manner throughout the country.
(iv) Fourthly, there is no value that can be attached to a mineral bearing land so as to impose tax on such land minus the minerals. Insofar as extraction of minerals is concerned, being an exercise of a mineral right, royalty is payable by a holder of a mining lease and when no mining activity is carried on, dead rent is payable by such a person. Thus, royalty being a tax or an exaction, there cannot be another tax imposed by the State under Entry 49 - Civil Appeal Nos.4056-4064 of 1999 Etc. Page 161 of 193 List II on such mineral bearing land. Such land is valuable because of the mining activity that is carried thereon and the minerals are extracted. Such land is not the same as agricultural or non- agricultural land or land on which buildings are constructed that is subjected to tax under Entry 49
- List II by a State Government.
(v) Fifthly, to reiterate, when the value of minerals extracted is the basis of payment of royalty under the scheme of the MMDR Act, 1957, which is a Parliamentary legislation, such land cannot be construed to be falling within the scope and ambit of Entry 49 - List II also so as to be subjected to a tax imposed by the State. In other words, there cannot be a tax on mineral bearing land twice over by the State Government: one, under Entry 49 - List II as land per se and another, under Entry 50 - List II which is subject to any limitation being made by Parliament by law i.e. MMDR Act, 1957 Civil Appeal Nos.4056-4064 of 1999 Etc. Page 162 of 193 made pursuant to Entry 50 - List I and more particularly, Section 2 read with Section 9 of the said Act. If, for instance, Section 9 of the MMDR Act, 1957 is repealed and the Parliament leaves it to the wisdom of State legislatures to impose royalty, then, there cannot be a duplication of taxes on mineral bearing land: one under Entry 49
- List II and another under Entry 50 - List II. A tax on mineral bearing land cannot fall under two Entries of the same List. Taxation Entries are mutually exclusive from each other in a particular List, the State List – List II in the instant case, unless they are made subject to an Entry in another List i.e., Union List - List I as in the instant case, Entry 50 - List II is subject to Entry 54 - List I.
34. In view of the aforesaid discussion, I also observe that mineral value or mineral produce cannot be used as a measure to tax mineral bearing land under Entry 49 - List II; also, the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 163 of 193 word “lands” under Entry 49 - List II cannot include mineral bearing land as well. This would amount to “double taxation” so to say imposed by two different Legislatures: one, by the State Legislature on the mineral bearing land under Entry 49 - List II and again for conducting a mining operation which is for exercise of a mineral right under Section 9 of MMDR Act, 1957, which is a Parliamentary law also paid to the State Government. This is impermissible having regard to the constitutional intent and scheme of Entries in the Lists. Therefore, royalty cannot also be a measure to impose tax on mineral bearing land. Hence, the State Legislature using royalty on mineral produce as a measure to impose a cess under Entry 49 - List II on mineral bearing land would indeed overlap Entry 50 - List II. This is because minerals are extracted by virtue of mining activity which is in exercise of a mineral right and taxes on mineral rights are envisaged under Entry 50 – List II subject to any limitation imposed by the Parliament. Therefore, Entry 50 - List II would have to be viewed distinctly from Entry 49 - List II. If so viewed, it becomes subject to Parliamentary law in Civil Appeal Nos.4056-4064 of 1999 Etc. Page 164 of 193 the form of MMDR Act, 1957 and the rules made thereunder which would be a limitation on the power of the State to tax under Entry 50 – List II. Hence to get over the rigour of Entry 50 – List II, the States cannot resort to Entry 49 – List II. Effect of Overruling India Cement:
35. A survey of cases on the aspect as to whether royalty is a tax or not would reveal that Hingir-Rampur, M.A. Tulloch, Baijnath Kedia, India Cement and the two judgments of Patna High Court and Mysore High Court have clearly held that royalty is a tax coming within the scope and ambit of Article 366(28) of the Constitution. There are other judgments which have followed India Cement. This is having regard to the interpretation of the Entries namely, Entry 50 – List II in light of Entry 54 – List I and the declaration made in Section 2 of the MMDR Act, 1957 and the scheme of the provisions of the said Act. On the other hand, in HRS Murthy and Kesoram, it has been held by this Court that royalty is not a tax. 35.1 What is significant is between India Cement and the cases that have followed the said dictum and Kesoram is the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 165 of 193 judgment of this Court in Kannadasan which marks a watershed in the entire controversy and in fact had put a closure to the same. The circumstance which led to the Parliament enacting the Validation Act was to validate all the incompetent levies imposed in the form of cesses and surcharge on cesses, licence fee, etc. on royalty which had been set aside by this Court. Parliament was constrained to enact the Validation Act having regard to Entry 54 – List I and Section 2 of the MMDR Act, 1957. This significant aspect has not been appreciated by the majority in Kesoram. Instead the judgment in Kesoram proceeded on an imagined “typographical error” in paragraph 34 of India Cement without appreciating the reasoning therein for holding that royalty is a tax. 35.2 Apart from questioning the verdict of a larger Bench on the premise that there was a “typographical error”, the majority in Kesoram lost sight of the implication and the adverse impact that its view would have on mineral development in the country. If royalty is not held to be a tax and the same being covered under the provisions of the MMDR Act, 1957, it would Civil Appeal Nos.4056-4064 of 1999 Etc. Page 166 of 193 imply that despite Entry 54 – List I and the declaration made in Section 2 of the MMDR Act, 1957 and Section 9, 9A and other provisions thereof, taxes on mineral rights could be imposed by the States over and above payment of royalty on a holder of a mining lease. This would also mean that the limitation that the Parliament has made by law on the taxing power of a State explicitly stated in Entry 50 – List II would be given a go by.
This would further imply that despite such a Parliamentary limitation, the States could pass laws imposing taxes, cesses, surcharge on cess, etc. on the basis of royalty which is in addition to payment of royalty. Further, that such levies could also be imposed under Entry 49 – List II thereby making Entry 50 – List II redundant is not acceptable. As a sequitur, this would result in mineral development in the country in an uneven and haphazard manner and increase competition between the States and engage them into what has been termed by Louise Tillin in a ‘race to the bottom’ in a nationally sensitive market. There would be unhealthy competition between the States to derive additional revenue and consequently, the steep, Civil Appeal Nos.4056-4064 of 1999 Etc. Page 167 of 193 uncoordinated and uneven increase in cost of minerals would result in the purchasers of such minerals coffing up huge monies, or even worse, would subject the national market being exploited for arbitrage. The steep increase in prices of minerals would result in a hike in prices of all industrial and other products dependent on minerals as a raw material or for other infrastructural purposes. As a result, the overall economy of the country would be affected adversely which may result in certain entities or even non-extracting States resorting to importing minerals which would hamper foreign exchange reserves of the country. There would lead to a breakdown of the federal system envisaged under the Constitution in the context of mineral development and exercise of mineral rights. It could also lead to a slump in mining activity in States which have mineral deposits owing to huge levies that have to be met by holders of mining licences. Further, another impact of this would be a unhealthy competition to obtain mining leases in States which have the mineral deposits and who do not wish to impose any other levy apart from royalty. It is, therefore, Civil Appeal Nos.4056-4064 of 1999 Etc. Page 168 of 193 necessary to realise why the framers of the Constitution took a clue from the Government of India Act, 1935 in order to distribute the legislative powers between the Union and the State List insofar as regulation of mines and minerals is concerned.
35.3 At this juncture, I must also observe the overruling the judgment in India Cement would mean that all judgments which are akin to the ratio of India Cement whether prior to or subsequent thereto, stand overruled irrespective of whether they are the judgments of the High Courts or this Court. Consequently, all States would once again start levying taxes on mineral rights under Entry 49 - List II and thereby bypass Entry 50 - List II so as to not be bound by any limitation that the Parliament had imposed by law on the power of the States to levy taxes on mineral rights. The circle would come around when Parliament would have to again step in to bring about a uniformity in the prices of minerals and in the interest of mineral development so as to curb the States from imposing levies, taxes, etc. on mineral rights. Why should that happen Civil Appeal Nos.4056-4064 of 1999 Etc. Page 169 of 193 again? There would then be legal uncertainty which would cause adverse economic consequences including on mineral development in India. For the above reason also, the majority judgment in Kesoram is not a good law and ought to be overruled to the extent that it holds that royalty is not a tax. Federalism in India:
36. According to Louise Tillin, in her article “Building a National Economy : Origins of Centralized Federalism in India” published by the Oxford University Press in 2021, India’s post- colonial Constitution introduced a new approach to federalism which has departed from the principle that federal and regional governments should each have independence in their own sphere of authority. According to Tillin, “the distinctive elements of Indian federalism were shaped at their foundations by the desire to boost industrial development and lay the foundation for a national welfare state in a post-colonial future by preventing the consolidation of ‘‘race to the bottom’’ dynamics arising from unregulated inter-provincial economic competition.” According to her, Indian federalism was Civil Appeal Nos.4056-4064 of 1999 Etc. Page 170 of 193 influenced by emerging debates taking place within India and in the international fora established alongside the League of Nations after the First World War, about the regulation of economic competition and the development of the twentieth century welfare State. According to her, the distinctive element of Indian federalism is the combination of a strong Centre and a substantial sphere of shared Centre-State jurisdiction. This thinking was shaped by nationalist politicians, industrialists, and labour leaders in the decades prior to India’s Independence and the significant political and economic factors that influenced the constitutional design of federalism in India. 36.1 According to certain scholars, India’s founding fathers opted for Parliamentary supremacy with a strong centre to prevent further secessionist movements. That, Jawaharlal Nehru’s preference was for a centralized model of federalism was to hold together the fledgling Union and concerted efforts to foster a national, civic identity rather than parochial identification with local or linguistic identities. Therefore, the Constitution uses the word “Union” instead of “Federation”. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 171 of 193 36.2 Nehru, who was the Chairman of the Union Powers Committee of the Constituent Assembly, was of the view that “it would be injurious to the interests of the country to provide for a weak central authority which would be incapable of ensuring peace, of coordinating vital matters of common concern and of speaking effectively for the whole country in the international sphere.” (Nehru cited in M.P. Jain, Nehru and the Indian Federalism, Journal of the Indian law Institute, Vol.19, No.4, 1977, p.408).
36.3 The Government of India Act, 1935 was the first comprehensive blueprint for legislative division of power in India between federal, provincial and concurrent spheres which resolved residuary powers to rest with the Federal Government. Though there are apparent similarities between the Government of India Act, 1935 and the Indian Constitution, yet factors, such as, regulation of economic competition and the development of twentieth century welfare States guided the constitutional blueprint for a model of federalism in which Civil Appeal Nos.4056-4064 of 1999 Etc. Page 172 of 193 provincial initiative should not preclude national coordination, particularly, in the fields of socio-economic spheres. 36.4 According to Tillin, “in the case of India, political economy considerations intersect with the accommodation of diversity in shaping the resulting forms of federalism”. The question of a desirable balance between Central and the State Governments has to be viewed in the context of the country continuing to confront the need to promote economic growth while upholding and expanding social rights. Sarkaria Commission Report on Centre-State Relations:
37. Resolved to study and reform the existing arrangements between the Union and the States in an evolving socio- economic scenario, the Ministry of Home Affairs vide Order dated 09.06.1983 constituted a Commission under the Chairmanship of Justice R.S. Sarkaria with Shri B. Sivaraman and Dr. S.R. Sen having due regard to the framework of the Constitution. At this stage, reference to Section 5, Chapter II – Legislative Relations of the Report of the Sarkaria Commission (“Sarkaria Commission Report”) may be of assistance: Civil Appeal Nos.4056-4064 of 1999 Etc. Page 173 of 193
“2.5.21 In every Constitutional system having two levels of government with demarcated jurisdiction, contents respecting power are inevitable. A law passed by a State legislature on a matter assigned to it under the Constitution though otherwise valid, may impinge upon the competence of the Union or vice versa. Simultaneous operation side-by-side of two inconsistent laws, each of equal validity, will be an absurdity. The rule of Federal Supremacy is a technique to avoid such absurdity, resolve conflicts and ensure harmony between the Union and State laws. This principle, therefore, is indispensable for the successful functioning of any federal or quasi-federal Constitution. It is indeed the kingpin of the federal; system. “Draw it out, the entire system falls to pieces” 2.5.22 If the principles of Union Supremacy are excluded from Articles 246 and 254, it is not difficult to imagine its deleterious results. There will be every possibility of our two-
tier political system being stultified by internecine strife, legal chaos and confusion caused by a host of conflicting laws, much to the bewilderment of the common citizen. Integrated legislative policy and uniformity on basic issues of common Union-State concern will be stymied. The federal principle of unity in diversity will be very much a casualty. The extreme proposal that the power of Parliament to legislate on a Concurrent topic should be subject to the prior concurrence of the States, would, in effect, invert the principle of Union Supremacy and convert it into one of State Supremacy in the Concurrent sphere. The very object of putting certain matters in the Concurrent List is to enable the Union Legislature to ensure uniformity in laws on their main aspects throughout the country. The proposal in question will, in effect, frustrate that object. The State Legislatures because of their territorially limited jurisdictions, are inherently incapable of ensuring such uniformity. It is only the Union, whose legislative jurisdiction extends throughout the territory of India, which can perform this pre-eminent role. The argument that the States should have legislative paramountcy over the Union is basically unsound. It involves a negation of the elementary truth that the 'whole' is greater than the 'part'.” (emphasis supplied) Civil Appeal Nos.4056-4064 of 1999 Etc. Page 174 of 193 As the paragraphs extracted above elucidate, the Commission was of the firm view that the principles of Union Supremacy cannot be undermined from Articles 246 and 254. While the immediate paragraph is concerned with legislative actions taken under the List III - Concurrent List, they provide us a beneficial lens to both the importance of Union supremacy in matters that demand national uniformity and the Commission’s following discussion on “Mines and Minerals” in Chapter XIII.
37.1 As the extract hereunder reflects, the Commission noted that the tug-of-interpretation between Centre and States was causing adverse impact on prices of petroleum which is necessarily not in the interest of national conformity and uniformity. It reads as under:
“13.5.10 …….We are informed by the government of India that one State has levied mineral rights tax, approximately 300 percent of royalty on coal and lime-stone and 100 percent of royalty on other minerals. The Union Government, while conceding the States rights under Entries 49 and 50 (subject to such limitation as may be imposed by Parliament), has pointed out the need for the States to exercise restraint on imposition of such levies, so as not to affect uniformity or competitiveness.…… xxx Civil Appeal Nos.4056-4064 of 1999 Etc. Page 175 of 193 13.5.12 The controversy, is therefore, not of legal interpretation of their respective jurisdiction, but one of evolving an understanding in regard to the extent to which these sources of revenue can be exploited keeping in view the overall national interest. Such issues can best be sorted out through consultation and consensus. We are of the view that the NEDC proposed by us will be the best forum for this purpose. It is, however, quite clear that the issues are inter-
linked. Mutual trust and confidence can be built up only if, on the one hand, the Union Government promptly revises royalty rates at reasonable intervals and on the other, the States abstain from arbitrary action in levy of cesses, etc. Parochial considerations must yield to the larger interests of the nation in such matters.” However, till the above situation is achieved constitutional courts would have to adjudicate by way of judicial review. 37.2 One has to also appreciate the pragmatic solution- oriented approach coupled with the acknowledgment that the subject matter of this lis-taxation on minerals-which are natural resources, should be exploited for the development of the country as a whole. Therefore, it is only Union legislation which can ensure the same successfully. The Report further states as under:
“13.5.15 Exploitation of mineral resources will continue to increase. There is general agreement that minerals are national resources and they should be exploited and developed for the benefit of the country as a whole. Only Union legislation can ensure such regulation and Civil Appeal Nos.4056-4064 of 1999 Etc. Page 176 of 193 development of minerals. The States have been given an unrestricted field in respect of 'minor minerals' which have little all-India implications. There is, however, need for periodic review of the First Schedule to the MMRD Act, in consultation with the States, say after every three years, as there is a possibility that a particular mineral, not included in the Schedule, may become a matter of national concern or vice versa. Any amendment of the Act should normally be preceded by consultation in the NEDC.” (emphasis supplied)
38. However, the controversy in this case would demonstrate how a State with substantial mineral reserves manages, regulates and taxes its resources without hurting the national interest and the development of the country in the context of mineral development. It is with the above background that the distribution of legislative powers between the Union and the States were thought of in a manner that would give an upper hand to Parliamentary supremacy, so to say, over the legislative power of the State. Therefore, the respective Entries in Lists I and II, namely, the Union List and the State List respectively, have been so drafted in order to ensure that there is overall mineral development in the country as a whole, rather than particular States possessing the mineral wealth acting contrary Civil Appeal Nos.4056-4064 of 1999 Etc. Page 177 of 193 to the overall welfare of the country and against the economic interest of the other States.
39. In view of the aforesaid discussion, I find that the learned Attorney General is right in contending that the MMDR Act, 1957 contemplates all manner of levies, charges, impost or demands that could be provided for having a nexus with mineral rights. Therefore, the Act itself has to be construed as a limitation on the power of the States to demand or impose levies to the extent to which is stated in the Act. Although, Entry 50 – List II is a taxing Entry, it will be subject to the limitations enacted by the Parliament by law under Entry 54 – List I. The answer to the question raised by learned Solicitor General, whether the States can impose levies under Entry 50 – List II over and above the amount of royalty received by them under the MMDR Act, 1957, is in the negative. The submission that Entry 50 – List II is sui generis because it is the only legislative Entry which limits the taxing powers of the State legislatures by reference to a general law, is a correct submission made by Sri Harish Salve, learned senior counsel. Civil Appeal Nos.4056-4064 of 1999 Etc. Page 178 of 193 Therefore, the expression “mineral development” found in Entry 50 – List II has to be traced to the entire architecture of the MMDR Act, 1957 which serves as limitation of the taxing power of the State legislature under Entry 50 – List II. To read it otherwise would lead to destruction of the federal balance, as rightly contended by Sri Salve. Further, tax on mineral right would also include royalty as envisaged under Section 9 and the other Sections of the MMDR Act, 1957 which is in the nature of sovereign exaction and every holder of mining lease is bound to pay royalty in terms of Section 9 read with Second Schedule to the said Act. In that sense, royalty is in the nature of a tax on mineral rights which has to be compulsorily paid by the holder of a mining lease irrespective of who the owner of the mineral bearing land is.
39.1 Also the MMDR Act, 1957 and the Rules made thereunder is a complete Code on the regulation of mineral development and royalty paid by a holder of a mining lease is in the nature of a tax paid on mineral rights, the State legislature cannot, on the basis of royalty paid, levy any other tax, cess or Civil Appeal Nos.4056-4064 of 1999 Etc. Page 179 of 193 surcharge on cess. The States can only levy tax on sale of mineral as per Entry 54 – List II which is not a tax on mineral rights, as rightly contended by Sri Datar, learned senior counsel. Moreover, Entry 50 – List II is a recognition of parliamentary superiority via imposition of a limitation, as rightly argued by Dr. Singhvi, learned senior counsel. 39.2 Consequently, the contention of learned senior counsel Sri Rakesh Dwivedi for the appellants-States to the effect that value of the minerals could be used as a measure to tax mineral bearing land under Entry 49 – List II cannot be accepted. It is also not right to contend that the Parliament has only fixed the amount of royalty payable under Section 9 which cannot be a limitation on the taxing power of the State legislature under Entry 50 – List II. Moreover, the expression “any limitation” used in Entry 50 – List II can be construed to mean even a prohibition apart from a restriction.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 180 of 193 Conclusions:
40. What follows are my answers to the conclusions reached on the issues raised in the judgment of Hon’ble the Chief Justice of India, which read as under:
Question Issues My Conclusions
a. What is the true nature The true nature of royalty
of royalty determined determined under Section
under Section 9 read 9 read with Section 15(1)
with Section 15(1) of the of the MMDR Act, 1957 is MMDR Act? Whether that it is in the nature of a royalty is in the nature tax coming within the of tax? scope and ambit of Article 366(28) of the Constitution which defines taxation to include the imposition of any tax or impost, whether general or local or special and the word “tax” is to be construed accordingly.
b. What is the scope of Entry 50 - List II of the Entry 50 - List II of the Seventh Schedule is, no Seventh Schedule? doubt, a taxation Entry What is the ambit of the which deals with taxes on limitations imposable by mineral rights. But this Parliament in exercise of Entry is subject to any its legislative powers limitations imposed by under Entry 54 - List I? Parliament by law relating Does Section 9, or any to mineral development.
other provision of the The use of the word “any”
MMDR Act, contain any means the limitation
limitation with respect could be in any form
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 181 of 193
Question Issues My Conclusions
to the field in Entry 50 - which can be imposed List II? only by the Parliament by law relating to mineral development. In view of the use of the expression “any limitations”, it must be given the widest possible meaning to include a limitation in the form of Sections 9 and 9A, 25 or any other provision of the MMDR Act, 1957 and Rules made thereunder which act as a limitation to Entry 50 -
List II.
c. Whether the expression The expression “subject to
“subject to any any limitations imposed
limitations imposed by by Parliament by law
Parliament by law relating to mineral
relating to mineral development” in Entry 50
development” in Entry - List II pro tanto subjects
50 - List II pro tanto the Entry to Entry 54 -
subjects the Entry to List I. The use of the
Entry 54 - List I, which expression “any
is a non-taxing general limitations” would mean
Entry? Consequently, that the taxing Entry
is there any departure would be subject to a non-
from the general taxing or general Entry
scheme of distribution such as in Entry 54 - List
of legislative powers as I which could also be
enunciated in MPV termed as a regulatory
Sundararamier Entry. Consequently,
(supra)? there is a departure from
the general scheme of
distribution of legislative
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 182 of 193
Question Issues My Conclusions
powers as enumerated in
MPV Sundararamier
insofar as Entry 50 - List
II read with Entry 54 -
List I is concerned which
is unique to Entry 50 –
List II. This is having
regard to the significance
of Entry 54 – List I which
also overrides Entry 23 –
List II.
d. What is the scope of Entry 49 - List II deals
Entry 49 - List II and with taxation of lands and
whether it covers a tax buildings. It does not
which involves a cover taxes on mineral
measure based on the bearing lands. The
value of the produce of constitutional position is
land? Would the different qua mineral
constitutional position bearing lands on account
be any different qua of Entry 50 - List II read
mining land on account with Entry 54 - List I and
of Entry 50 - List II read Section 2 of the MMDR with Entry 54 - List I? Act, 1957. Consequently, any imposition on the basis of royalty by a State Legislature or involving royalty as a measure of the value of the minerals extracted from the land is impermissible.
e. Whether Entry 50 - List Yes, Entry 50 - List II is a
II is a specific Entry in specific Entry in relation
relation to Entry 49 - to Entry 49 - List II and
List II, and would would consequently
consequently subtract subtract mining lands
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 183 of 193
Question Issues My Conclusions
mining land from the from the scope of Entry 49 scope of Entry 49 - List - List II. This is II?” particularly so having regard to Entry 50 - List II to be read with Entry 54 -
List I and Section 2 of the MMDR Act, 1957.
41. Consequently, the following conclusions are arrived at by me:
a. I hold that royalty is in the nature of a tax or an exaction. It is not merely a contractual payment but a statutory levy under Section 9 of the Act (Section 9A relating to dead rent). The liability to pay royalty does not arise purely out of the contractual conditions of a binding lease. The payment of royalty to the Government is a tax in view of Entry 50 - List II being subject to any limitations imposed by Parliament by law in the context of Entry 54 - List I read with Section 2 of the MMDR Act, 1957.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 184 of 193 b. Entry 50 - List II is an exception to the position of law laid down in MPV Sundararamier vs. State of Andhra Pradesh, AIR 1958 SC 468 (“MPV Sundararamier”). Moreover, in the said case, the scope and ambit as well the implication of Entry 54 – List I on Entry 50 - List II was not considered at all. Therefore, the principle stated in MPV Sundararamier is foreign to the instant case and the ratio of the said decision does not apply to the present case. No doubt, the legislative power to tax mineral rights vests with the State legislature but Parliament, though may not have an express power to tax mineral rights under Entry 54 - List I, it being a general Entry, Parliament can, nevertheless on the strength of Entry 54 - List I read with Section 2 of the MMDR Act, 1957, impose any limitation on the power of the States to tax mineral rights under Entry 50 - List II. Sections 9 and 9A of the MMDR Act, 1957 are two such instances of Civil Appeal Nos.4056-4064 of 1999 Etc. Page 185 of 193 limitations imposed by the Parliament on the taxing power of the State under Entry 50 - List II. This is a unique Entry and must be given its true and complete meaning and while interpreting the same one cannot be swayed by the principles laid down in MPV Sundararamier as the same do not apply in the instant case. At the cost of repetition, it is stated that Entry 50 - List II never came for consideration in the aforesaid case.
c. Parliament is not using its residuary power with respect to imposing any limitation on the taxing power of the State under Entry 50 – List II. In fact, even the Validation Act, 1992 enacted by Parliament was upheld having regard to Entry 54 - List I read with Section 2 of the MMDR Act, 1957 and not Entry 97 - List I. d. Entry 50 - List II envisages that Parliament can impose “any limitations” on the legislative field Civil Appeal Nos.4056-4064 of 1999 Etc. Page 186 of 193 created by that Entry under a law relating to mineral development. The MMDR Act, 1957 has imposed the limitations as envisaged in Entry 50 - List II in Sections 9, 9A and 25, etc. on the strength of Entry 54 – List I. e. I, however, concur with the learned Chief Justice that the scope of the expression “any limitations” under Entry 50 - List II is wide enough to include the imposition of restriction, conditions, principles as well as a prohibition by Parliament by law. f. The State legislatures have legislative competence under Article 246 read with Entry 49 - List II to tax lands and buildings but not lands which comprise of mines and quarries or have mineral deposits as mineral bearing lands do not fall within the description of lands (under Entry 49 - List II). Similarly, States can tax such mineral bearing lands which are not covered within the scope of Civil Appeal Nos.4056-4064 of 1999 Etc. Page 187 of 193 MMDR Act, 1957 i.e., minor minerals, under Entry 50 – List II and not under Entry 49 – List II as tax on exercise of mineral rights. Thus, mineral bearing lands cannot be taxed under Entry 49 – List II.
g. Further, the yield of mineral bearing lands, in terms of quantity of mineral produced or royalty paid cannot also be used as a measure to tax such lands under Entry 49 - List II. In my view, the decision in Goodricke does not apply to the present case and hence does not require any clarification.
h. Entries 49 and 50 - List II, no doubt, operate in different fields. Entry 49 - List II deals with taxes on lands and buildings but Entry 50 - List II deals with taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development. There is no constitutional Civil Appeal Nos.4056-4064 of 1999 Etc. Page 188 of 193 limitation on the competence of the State legislature to tax lands and buildings. However, the State’s competence to tax mineral rights is subject to any limitations imposed by the Parliament by law relating to mineral development. Entry 49 - List II and Entry 50 - List II are distinct and operate in distinct ways. Entry 49 - List II does not apply to mineral bearing lands as such lands are taxed in the form of royalty or dead rent in the context of exercise of mineral rights. Exercise of mineral rights is the basis for payment of royalty or dead rent. Consequently, value of mineral produced cannot be used as a measure to once again impose a tax on mineral bearing land under Entry 49 - List II. If so, Entry 50 – List II would be rendered redundant.
i. As Entry 49 - List II does not apply to mineral
bearing land, the limitations imposed by
Parliament by law relating to mineral development Civil Appeal Nos.4056-4064 of 1999 Etc. Page 189 of 193 with respect to Entry 50 - List II would restrict the power of the State legislature to impose tax on mineral rights under the latter Entry. Thus, the power of the State legislature to impose tax under Entry 50 - List II is subject to the Parliament imposing any limitation by law relating to mineral development.
42. In view of the above discussion, the eleven questions referred to this Bench are accordingly answered. In particular, I hold that:
(i) Sections 9, 9A and 25 of the MMDR Act, 1957 denude or limit the scope of Entry 50 - List II;
(ii) the majority decision in Kesoram is a serious departure from the law laid down by the seven-
judge Bench in India Cement which was wholly unwarranted and therefore, in my view, the said majority judgment is liable to be overruled and is overruled to the extent of holding that royalty is not a tax;
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(iii) taxes on lands and buildings under Entry 49 - List II contemplates a tax levied directly on the land as a unit having a defined relationship with the land and does not include mineral bearing lands within its scope;
(iv) in view of the declaration under Section 2 of the MMDR Act, 1957 made in terms of Entry 54 - List I and to the extent of the provisions of the said Act, the State legislature is denuded of its powers under Enry 50 - List II; and
(v) Entry 50 - List II is a unique Entry because it is the only taxation Entry in Lists I and II where the taxing power of a State legislature has been subjected to “any limitations imposed by Parliament by law relating to mineral development”. The dictum in MPV Sundararamier has not discussed on Entry 50 – List II and hence the said decision has no bearing as such on the Civil Appeal Nos.4056-4064 of 1999 Etc. Page 191 of 193 present controversy. The conclusion that ‘royalty’ is a ‘tax’ is the only exception to the position of law laid down in MPV Sundararamier. Of course, the scope of expression “any limitations” in Entry 50 - List II is wide enough to include the imposition of restrictions, conditions, principles as well as a prohibition.
43. In the result, in my view, the judgments in India Cement, Orissa Cement, Mahalaxmi Fabric Mills, Saurasthra Cement, Mahanadi Coalfields, Kannadasan excluding to the extent overruled in Tata Iron and Steel, and Tata Iron and Steel are correct and therefore are binding precedent and cannot be overruled. On the other hand, the majority judgment in Kesoram, is overruled to the extent it holds that royalty is not a tax.
44. The Registry is directed to place these matters before Hon’ble the Chief Justice of India for directions on listing the matters before the appropriate Bench.
Civil Appeal Nos.4056-4064 of 1999 Etc. Page 192 of 193 I must place on record my sincere appreciation to the learned Attorney General, learned Solicitor General and their teams, learned senior counsel appearing for the respective parties, learned instructing counsel and learned counsel for the respective parties for their valuable assistance to this Bench.
………………………………J. (B.V. NAGARATHNA) New Delhi;
July 25, 2024.
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