Gujarat High Court
Tata Chemicals Ltd. And Anr. vs State Of Gujarat on 22 February, 1988
Equivalent citations: (1988)1GLR589
Author: A.M. Ahmadi
Bench: A.M. Ahmadi
JUDGMENT A.M. Ahmadi, J.
1. The Gujarat State Legislature enacted the Gujarat Mineral Rights Tax Act, 1985 (Gujarat Act 19 of 1985) (hereinafter referred to as 'the impugned Act' or 'the impugned Legislation') to provide for the levy and collection of tax on mineral rights of holders of mining leases in respect of certain minerals in the State of Gujarat specified in the Schedule. The Act received the assent of the Governor of Gujarat on 2nd August, 1985 and was first published in the Gujarat Government Gazette on 3rd August, 1985. By a notification dated 29th October, 1985 issued under Sub-section (3) of Section 1, the State Government brought the Act into force with effect from 1st November, 1985
2. The petitioners of this group of Writ Petitions arc holders of mining leases granted by the State of Gujarat under provisions of the Mines and Minerals (Regulation and Development) Act, 1957 (Central Act, 67 of 1957) (hereinafter called 'the Central Act') read with the Mineral Concession Rules, 1960. Under the terms of the lease deed, specimen copy whereof is produced at Annexure 'B' in Special Civil Application No. 2298 of 1986, the petitioners have a right to mine limestone and/or calcareous sand from the leased area. The indenture of lease, Annexure 'B' between the Governor of Gujarat and the concerned lessee is essentially in Form 'K' prescribed by Rule 31 of the Mineral Concession Rules, 1960, except for the removal of a few existing clauses and the insertion of some new ones. The lease deed is divided into IX parts. It is a lengthy document containing several terms and conditions but it would be sufficient here to indicate the essential terms only to bring out the true nature of the contractual relationship between the State and the concerned lessees. The area of the land for which the mining lease is granted is indicated in Part I; the lease is to mine a named mineral only; if any other mineral is found, the lessee is under an obligation to give intimation to the State Government and with its permission and on stated terms only the lessee can mine the said mineral. Since the lessee is allowed to work the mineral or minerals named in the lease, the State Government has reserved unto itself the right to work the other minerals or to grant a lease in respect thereof. Part V of the lease deed deals with rents and royalties. The lessee is under an obligation to pay the surface rent and dead rent and/or royalty as prescribed within the stipulated period to the State Government failing which the State Government may collect the same as arrears of land revenue, impose penalty in the case of frequent defaults or even terminate the lease as a last resort. Under the terms of the contract, the lessee is required to pay dead rent or royalty, whichever is higher in amount, but not both. Royalty is to be computed on the mineral produced or despatched. The State Government is, however, given the right of pre-emption of the minerals on payment of a fair market value prevailing at the time of pre-emption. In the event of the existence of a State of war or emergency, the State Government is given the right to take possession and control of the works, plant machinery and premises of the lessee on payment of fair compensation. It is seen from the above essential terms of the lease that the lessee has a right to mine the named mineral on payment of surface rent and dead rent or royalty as prescribed.
3. The petitioners, who, as holders of mining leases, have become liable to payment of tax on mineral right challenge the constitutional validity of the impugned Legislation and the notification dated 29th October, 1985 issued thereunder fixing the rate of mineral tax for each mineral on diverse grounds and seek to restrain the State of Gujarat by an appropriate writ from recovering the same from the petitioners.
4. As stated earlier, the impugned Legislation was enacted with a view to providing for the levy and collection of tax on mineral rights of holders of mining leases in respect of certain minerals specified in the Schedule to the Act. The Act extends to the whole of the State of Gujarat. Section 2 thereof defines certain expressions as under:
(a) 'Holder' means a holder of a mining lease in respect of a specified mineral for which he holds such mining lease and includes his agent, manager, employer, contractor or sub-lessee;
(b) 'tax' means a tax on mineral rights levied under Section 3;
xxx xxx xxx
(e) 'specified mineral' means mineral specified in the Schedule: and
(f) the words 'mineral' and 'mining lease' shall have the meanings respectively assigned to them in the Mines and Mineral (Development and Regulation) Act, 1957.
Under the Central Act referred to, the term 'minerals' includes all minerals except mineral oils while the term 'mining lease' means a lease granted for the purpose of undertaking mining operations, and includes a sub-lease granted for such purpose. The expression 'mining operations' means any operation undertaken for the purpose of winning any mineral. We may now notice Section 3 which is the charging Section. It reads as under:
3. 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.
Section 4 provides that the tax shall be leviable on the holder of the mining lease in respect of a specified mineral for which he holds such mining lease. Sections 5 to 10 relate to the submission of returns, assessment of tax by the Taxation Officer and the payment of tax into State treasury. If the tax is not paid on or before the prescribed date, Section 11 empowers the Taxation Officer to serve upon the holder of a mining lease a notice of demand in the prescribed form specifying the sum payable by the lessee to the State Government and if the same is not paid within a month thereof to order its recovery as arrears of land revenue. Section 12 provides for an appeal by a holder who is aggrieved by the notice of demand served on him under Section 11. Section 13 confers revisional powers on the State Government or its designated officer. Section 14 provides for the refund of excess payment. Section 15 enjoins upon every holder to keep and maintain accounts and registers in such forms as may be prescribed in respect of any specified mineral removed or consumed by him from the leased area. Section 16 empowers the Taxation Officer or any other officer empowered by the State Government in this behalf to order production of accounts, registers and documents, and to require the holder to furnish such information relating to the removal or consumption of any specified mineral as may be specified in the order. Section 17 empowers any officer authorised by the State Government to enter and inspect any mine or any area of mining lease granted to a holder; survey and take measurements in any such area or mine; weigh or take measurements of stocks of any specified mineral lying at any such area or mine; examine any document, book, register or record in the possession or power of any person having the control of or connected with any area of mining lease or any mine; order the production of any such document, book, register or record and examine any person having the control of or connected with any area of mining lease or any mine. Section 18 renders any holder failing to pay tax withintime liable to pay in addition to the amount of the tax a sum not exceeding twenty five per cent thereof as penalty. Sections 19 and 20 make certain acts of omission and commission on the part of the holder or a Company liable to prosecution and conviction. Section 21 empowers the Taxation Officer to compound certain offences. Section 22 protects a Government servant from prosecution, etc; for anything done in good faith or intended to be done in pursuance of the Act and the Rules made there under. Section 23 empowers the State Government to make Rules. The impugned Act provides for the levy and collection of 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 thereof. The Schedule to the Act reads as under:
SCHEDULE Maximum rate of tax per Mineral metric tonne removed or consumed by the/ (sic) from the leased area.
Rs.1 2 Calcarious sand 25 Limestone 25
It is evident from the Scheme of the impugned Act set out above that the State legislature enacted the law to impose a tax on mineral rights of holders of mining leases in respect of certain minerals only specified in the Schedule which includes limestone and calcarious sand. By Section 3 the State Government is empowered to specify the rates of mineral tax provided the same does not exceed the maximum rate specified in column 2 of the Schedule against each mineral. The impugned Act provides a complete code for the levy, assessment and collection of the tax.
5. In exercise of the power conferred by Section 3 of the Impugned Act, the State Government issued the following notification dated 29th October, 1985:
No. GHU - 85 - 62MCR -2185- 3378(ii) CHH - In exercise of powers conferred by Section 3 of the Gujarat Mineral Rights Tax Act, 1985 (Gujarat Act No. 19 of 1985) the Government of Gujarat hereby fixes for each of the minerals mentioned in column one of the Schedule hereunder the rate of the mineral rights tax as mentioned against each such mineral in column two of the said Schedule.
"SCHEDULE Mineral Rate per tonne Rs.1 2
1 to 8 xxx 9 Limestone 1. For lessees having captive mines 10 Calcarious sand for manufacture of cement (a) for new cement units year of commercial production First 3-00 Second 3-00 Third 4-00 Fourth 4-00 Fifth 5-00
(b) for existing 5-00 units
2. All other lessees. 10-00 11 xxx xxx xxx"
The rates of mineral rights tax fixed by the above notification differ in the case of lessees having captive mines for manufacture of cement and other lessees. Even amongst lessees having captive mines for manufacture of cement, the rates vary for new cement units and for existing cement units. Even with regard to new cement factories the rates vary depending on the year of production. The petitioners, therefore, challenge the validity of the said notification firstly on the ground that it is inter alia Section 3 which does not permit fixing of different rates for the same mineral and secondly because it is discriminatory.
6. The petitioners contend: Under Article 246 of the Constitution, Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I of the Seventh Schedule to the Constitution; the Legislature of a State has exclusive power to legislate with respect to any of the matters enumerated in List 11 of the said Schedule whereas both the Parliament and the State Legislatures have concurrent power to make laws with respect to any of the matters enumerated in List III of the said Schedule but since the impugned Act is not with respect to any of the matters enumerated in either List II (State List) or List III (Concurrent List), it is obvious that the State Legislature was not competent to enact the same. Unless it is shown that the impugned Legislation is with respect to any matter enumerated in either the State List or the Concurrent List it would be outside the ambit of the fields demarcated for the State Legislature and, therefore, unconstitutional. Further, according to the petitioners. Parliament decided in 1957 that the regulation and development of mines and minerals should in public interest be under the control of the Union and made a declaration in that behalf in Section 2 of the Central Act whereupon the State Legislature was denuded of the powers to make law under Entry 23 in List II, the said entry being subject to Entry 54 in List 1 (Union List). Once the field is occupied by a valid legislation made by Parliament under Entry 54 of the Union List, the State Legislature cannot trench on the same subject matter, to do so would be in contravention of Article 246 itself. Besides, contend the petitioners, the levy of royalty under Section 9 of the Central Act being on minerals won from the leased area is tax on minerals and therefore mineral rights referred to in Entry 50 of Sate List and since the power conferred on the State Legislature under Entry 50 in List II is subject to limitation imposed by Parliament by law relating to mineral development, the State Legislature was not competent to enter the field which was already occupied by the Central Act. Though we do not find a specific averment in the pleadings it was urged that since the measure of tax was dependant on the quantity of mineral removed or consumed, it was in substance a tax on manufacture or production under Entry 84 of Union List and therefore beyond the legislative competence of the State Legislature. So far as the impugned notification dated 29th October, 1985 issued under Section 3 is concerned, it is averred, as pointed out earlier, that it is ultra vires Section 3 as the said provision does not empower the fixing of different rates for the same mineral and is even otherwise ultra vires Article 14 of the Constitution inasmuch as it is based on a classification of mining leases which in turn is based on a diffentia which does not have any nexus with the object of prescribing different rates.
7. In the counter filed by the State Government it is contended that as the impugned Act falls within Entry 50 in List 11 (State List), the State Legislature was competent to enact it. The law was enacted as an independent source of revenue to the State Government and the tax collected thereunder is directly credited to the Consolidated Fund of the State. Different rates are fixed for different minerals keeping in view all the relevant factors, such as, production of different minerals, their market value and margin of profitability, its likely impact on the overall rise in price of finished goods, its impact on the extent of extraction and the total revenue that may be ultimately fetched. It is averred that in order to ensure that its impact on the consumer of the end product is minimal the amount of tax imposed is negligible and can never be said to be excessive or unreasonable. Lastly, it is said that before the impugned notification was issued under Section 3 of the impugned Act, the State Government had the benefit of detailed representations from lessees having captive mines for manufacture of cement, particularly new cement units, and bearing in mind the ratio of levy quota to free sale quota which was 40 : 60, the profitability in the open market, the additional burden that levy would throw on such units and its possible adverse effects, the production and demand of cement in the State, etc., and the recommendations of a Committee comprising senior officers as well as the views of the Commissioner of Industries and the Technical Officer in the said Department and the fact that no such levy was imposed by the neighbouring States, the State Government was of the view that the burden of tax on new units should be gradual and accordingly determined different rates of tax as per the classification found in the impugned/notification. The State Government, therefore, contends that before the impugned notification was issued, all the relevant factors were carefully examined and care was taken to see that the levy may not have an adverse effect on the industry, particularly infant units, and therefore decision cannot be said to be arbitrary or unreasonable. So far as other industrial units using limestone and/or calcarious sand are concerned it was felt that the additional burden being negligible could be easily passed on to the consumers. In the above premises different rates of tax were fixed for the said two minerals for lessees having captive mines and for other lessees as also for new cement units and existing cement units. The State Government contends that the notification is consistent with Section 3 of the impugned Act and is not opposed to Article 14 of the Constitution.
8. The grounds of challenge to the impugned Act and the Notification issued under Section 3 thereof were formulated by Mr. S.B. Vakil, who led the arguments on behalf of the petitioners, as under:
1. The tax is invalid as the impugned Act is outside the legislative competence of the State Legislature because
(i) the impugned tax is not a tax on mineral rights
(ii) it is in fact a tax on production covered by Entry 84 of Union List, and/ or
(iii) it is a tax on mining rights and not mineral rights.
2. The legislative field of Entry 50 of State List to impose the impugned tax was occupied by the Central Act enacted under Entry 54 of Union List and in particular by Section 9 thereof.
3. The impugned notification issued under Section 3 of the impugned Act is bad in law because.
(i) it is ultra vires Section 3 inasmuch as the said provision does not empower the State Government to prescribe different rates for different minerals as the impugned notification purports to do, and/or
(ii) it is ultra vires Article 14 of the Constitution as different rates of tax prescribed thereunder are based on a classification of mining leases, which is based on diffentia which have no reasonable nexus with the object of prescribing different rates.
These were the only points raised at the hearing of these petitions. The other learned Advocates appearing for some of the petitioners adopted the submissions of Mr. Vakil.
9. The State Government contends that the impugned Legislation falls within the scope and ambit of Entry 50 in State List and, therefore, the State Legislature was perfectly competent to enact it. That Entry reads as under:
Entry 50, List II Taxes on mineral rights subject to any limitations imposed by Parliament by the law relating to the mineral development.
The petitioners, however, contend that the tax is in substance a tax on minerals produced by the holders of mining leases falling within the purview of Entry 84 in the Union List, which Entry reads thus: Entry 84, List I 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 medical and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.
The petitioners contend that the State Legislature not being competent to legislate in respect of a subject covered by the Union List, the impugned Legislation is liable to be declared ultra vires the Constitution. Further, according to the petitioners, on the Parliament having decided that it was expedient in public interest to take under its control the regulation of mines and mineral development, the Central Act was enacted on 28th December, 1957 which inter alia carried the declaration contemplated by Entry 54 in Union List. Since Section 9 of the Central Act provides for the payment of royalty on minerals won, which is a tax, it was not open to the State Legislature to enact the impugned Act as the field was fully occupied by the Central Act. In this connection our attention was invited to Entry 54 in Union List and Entry 23 in State List which may be reproduced at this stage.
Entry 54 List I Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest.
Entry 23, List 11 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.
According to the petitioners, since limitations referred to in Entry 50 in the State List were imposed by the Central Act, it was not open to the State Legislature to enact the impugned Act. It would, therefore, be necessary to keep in mind the limitations, if any, imposed by the Central Act while examining the scheme of that statute.
10. We now proceed to examine the provisions of the Central Act. Section 2 makes the declaration contemplated by Entry 54 in Union List in the following words:
2. Declaration as to expediency of Union control: It is hereby declared that it is expedient in the public interest that the Union should take under the control the regulation of mines and the development of minerals to the extent hereinafter provided.
The words 'to the extent hereinafter provided' indicate the extent of the control assumed by the Union. The different terms and expressions used in the Act are defined in different clauses of Section 3, some of which may be noticed to understand the Scheme of the Act. These are:
(a) 'Minerals' includes all minerals except mineral oils;
(b) 'mineral oils' includes natural gas and petroleum;
(c) 'mining lease' means a lease granted for the purposes of undertaking mining operations, and includes a sub-lease granted for such purpose;
(d) 'mining operations' means any operations undertaken for the purpose of winning any mineral;
(e) 'minor minerals' means 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.
Although the terms 'minerals' is wide enough to include 'minor minerals', the latter terms is separately defined as the power to make rules in respect of minor minerals has been conferred on the State Government by virtue of Section 15 of the Act. Sections 4 to 9A lay down the general restrictions on undertaking prospecting and mining operations. These inter alia are; prospecting or mining operations shall be under a prospecting licence or a mining lease granted under the Act and the rules framed thereunder; the State Government shall not grant a prospecting licence or a mining lease unless certain conditions are satisfied; the maximum area for which a prospecting licence or a mining lease may be granted; the duration for which prospecting licences and mining leases may be granted or renewed; the royalty or dead-rent to be paid in a respect of a mining lease by the lessee. As one of the contentions raised by the petitioners bears on Section 9, we may reproduce the relevant part thereof:
9. (1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement, pay royalty in respect of any mineral removed or consumed by him or his agent, manager, employee, contractor or sublessee 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 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.
(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 four years.
The rates of royalty for limestone and calcarious sand have been set out at Serial Nos. 8 and 14, respectively, in the Second Schedule to the Act. Section 9A introduced by Amendment Act 56 of 1972 requires the holder of a mining lease to pay to the State Government, every year, dead-rent at such rate as may be specified in the Third Schedule, for all the areas included in the instrument of lease notwithstanding anything contained in the instrument of lease or in any other law for the time being in force. The proviso to that newly inserted Section reads as under:
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 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, which ever is greater.
Sections 10 to 12 prescribe the procedure for obtaining a prospecting licence or a mining lease in respect of land in which the minerals vest in the Government. Under Section 10 such applications are to be made to the State Government concerned in the prescribed form on receipt whereof the State Government may, either grant or refuse to grant the licence or lease. Section 11 confers a preferential right on a licensee in whose favour a prospecting licence has been granted in respect of any land for obtaining a mining lease in respect of that land other any other person provided the State Government is satisfied that the licensee has not committed any breach of the terms and conditions of the prospecting licence and is otherwise a fit person for being granted the mining lease. Section 12 speaks about the maintenance of registers of prospecting licenses and mining leases Sections 13 to 16 relate to rules for regulating the grant of prospecting licenses and mining leases. Section 13 confers rule-making power in respect of minerals on the Central Government. It empowers the Central Government to make rules for regulating the grant of prospecting licences and mining leases in respect of minerals and for purposes connected therewith. Section 13A confers power on the Central Government to make rules for the grant of prospecting licenses or mining leases within the territorial waters or continental shelf of India. Section 14 excludes the provisions of Sections 4 to 13 (inclusive) from applying to quarry leases, mining leases or other mineral concessions in respect of minor minerals. Section 15 empowers the State Government to make rules for regulating the grant of quarry leases, mining leases or other mineral concessions in respect of minor minerals and for purposes connected therewith. Section 16 concerns mining leases granted before 25th October, 1949. Section 17 confers special powers on the Central Government to undertake prospecting or mining operations in land in which the mineral vests in the State Government or any other person. Section 18 enjoins upon the Central Government to take all such steps as may be necessary for the conservation and development of minerals in India, for that purpose the Central Government may, by notification in the Official Gazette, make such rules as it thinks fit. Section 18A empowers the Central Government to authorise the Geological Survey of India, or such other authority or agency; to make investigations to collect precise information with regard to any mineral available in or under any land. Section 19 makes any prospecting licence or mining lease granted, renewed or acquired in contravention of the provisions of the Act or any Rules or Orders made thereunder void and of no effect. Under Section 20 the renewal of any prospecting licence or mining lease granted before the commencement of the Act must be in accordance with the provisions of the Act and the Rules made thereunder. Section 21 prescribes penalties; Section 22 makes the offences punishable under the Act or the Rules cognizable; Section 23 deals with offences by Companies; Section 23A provides for compounding of offences; Section 24 empowers any person authorised by the Central Government to enter and inspect any mines; to survey and take measurements in any such mine; to weigh, measure or take measurements of the stocks of minerals lying at any mine; to examine any document, book, register or record in the possession or power of any person having the control of any mine; to order the production of any such document etc., and to examine any person having the control of, or connected with, any mine. Section 25 provides for recovery of certain sums as arrears of land revenue. Section 26 empowers the Central Government to delegate any power exercisable by it under the Act to any officer or authority subordinate to it or to any officer or authority subordinate to the State Government. Section 27 is the usual protection clause for things done in good faith. Section 28 requires the rules and notifications to be laid before Parliament. Section 29 continues the existing rules until they are superseded by any rules made under the Act. Section 30 confers power of revision on the Central Government and Section 31 provides for relaxation of rules in special cases.
11. The Central Government has framed rules called the Mineral Concession Rules, 1960 (hereinafter called 'the Rules') under Section 15 of the Central Act. These Rules are spread over nine Chapters. Chapter I contains the title and the definition clauses; Chapter II deals with the grant and renewal of a certificate of approval; Chapters III and IV concern grant of prospecting licences and mining leases in respect of land the minerals whereof vest in the Government; Chapter V lays down the procedure for obtaining a prospecting licence or a mining lease in respect of such land; Chapter VI lays down the procedure for the grant of a prospecting licence or a mining lease in respect of land in which the minerals vest partly in Government and partly in private persons; Chapter VII provides for revision; Chapter VIII deals with miscellaneous matters and Chapter IX sets out the associated minerals. Since the impugned Act imposes a tax on mineral rights of holders of mining leases it would be sufficient to refer to the Rules in Chapter IV which bear on the grant of mining leases in respect of land in which the minerals vest in the Government. Rules 22 to 24 deal with the making of an application for a mining lease in the prescribed form and its disposal within the prescribed period. Rules 25 and 26 deals with the refusal of the requisition for the grant or renewal of a mining lease. Rule 27 sets out the conditions to which every mining lease will be subject. In addition to the conditions set out in the various clauses of Sub-rule (1), Sub-rule (2) of Rule 27 empowers the State Government to impose such other conditions in regard to matters detailed in the clauses catalogued thereunder as it may deem necessary. Rule 28 provides for renewal of a mining lease. Rule 29 lays down that a lessee shall not determine the lease except after notice in writing of not less than twelve calendar months is served on the State Government. Rule 30 lays down the rights of a lessee and Rule 31 prescribes the form in which the lease shall be executed. It lays down that the lease deed shall be executed in Form K or in Form as near thereto as the circumstances may require. The specimen lease deed, Annexure 'B', is in Form K with suitable changes. Rule 32 requires the deposit of security deposit before the execution of the lease deed. The rest of the provisions in this Chapter arc not relevant for our purpose.
12. It is obvious from the provisions of the Central Act and the Rules framed thereunder that the object was to take under the control of the Union the regulation of mines and the development of minerals. The declaration contained in Section 2 speaks of taking under the Union's control the regulation of mines and development of minerals 'to the extent hereinafter provided". We have, therefore to look to the provisions of the enactment to determine its sweep. The minerals are divided into minor minerals and all other minerals since Sections 4 to 13 (inclusive) do not apply to them by virtue of Section 14. In other words, the general restrictions on undertaking prospecting and mining operations contained in Sections 4 to 12 have no application to minor minerals. So also, the power of the Central Government to make rules conferred by Sections 13 and 13A cannot be invoked in the case of minor minerals. Instead by Section 15 the power to make rules in respect of minor minerals is conferred on the State Government. It inter alia empowers the State Government to impose royalty in respect of minor minerals by rules framed in that behalf. Although a separate treatment is given to minor minerals and all other minerals, the declaration in Section 2 encompasses both classes of minerals.
13. Sections 4 to 12 impose general restrictions on undertaking any prospecting or mining operations. Section 4 debars every person who does not hold a prospecting licence or a mining lease granted under the enactment from undertaking any prospecting or mining activity. The term 'prospecting licence' means a licence granted for the purpose of undertaking prospecting operation and the expression 'prospecting operations' means any operations undertaken for the purpose of exploring locating or proving mineral deposits We have noticed that a mining lease is granted for the purpose of undertaking operations for winning any mineral. Restrictions have also been placed on the power of the State Government to grant a prospecting licence or a mining lease. Restrictions as to area for which a prospecting licence or a mining lease may be granted have been placed by Section 6. The periods for which a prospecting licence or a mining lease may be granted or renewed have been set out in Sections 7 and 8 respectively. Sections 9 and 9A. oblige holders of mining leases to pay royalty or dead-rent, whichever is higher. The next group of Sections 10 to 12 lay down the procedure for obtaining a prospecting licence or a mining lease in respect of land in which the mineral rights vest in the Government. Section 13 empowers the Central Government to make rules for regulating the grant of prospecting licences and mining leases in respect of minerals and for purposes connected therewith. On a conjoint reading of this group of Sections it becomes obvious that control is sought to be exercised in the matter of exploring, locating proving and winning of minerals.
14. The second objective of the Central Act is development of minerals. Section 18 imposes a duty on the Central Government to take all such steps as are necessary for the conservation and development of minerals in India and to make rules in that behalf providing inter alia for opening new mines and regulation of mining operations, excavation or collection of minerals from mines, storage of minerals and generally for the development of mines. With that in view the Central Government may authorise the agency to carry out detailed investigations to collect precise information.
15. It is clear from the above that the Central Act was enacted to serve the twin objective of regulation of mines and development of minerals with a view to conserving our precious mineral wealth and regulating its use to avoid waste. With this view in mind, Parliament thought it wise in public interest that the Union should exercise control relating to the grant of prospecting licenses and mining leases with a view to regulating the exploring, locating, proving and winning of minerals and in order to conserve and develop minerals in India.
16. We may at the outset examine the question whether royalty charged under Section 9 of the Central Act is tax. Under Section 9 the holder of a mining lease is required to pay royalty in respect of any mineral removed or consumed by him from the leased area at the rate specified in the Second Schedule in respect of that mineral. According to the petitioners, the levy of royalty under Section 9 of the Central Act being on minerals removed or consumed from the leased area is nothing but a tax on minerals and hence the State Legislature was not competent to enact the impugned Act by virtue of Entry 50 in List II as the field was occupied by the Central Legislation. The short question then is, whether royalty charged under Section 9 can be said to be a tax.
17. In Corpus Juris Secudum Volume 77, the term 'royalty' has been explained as payment made to the land owner by the lessee of a mine in return for the privilege of working it. In H.R.S. Murthy v. Collector of Chittoor , the meaning of the expression 'royalty' in Section 79(1) of the Madras District Boards Act was under consideration. Dealing with the same, the Supreme Court observed in paragraph 7 of the judgment as under:
Where the land is held on lease, as in the present case, the lease amount is specifically referred to in Section 79 of the Act, as one of the components for the computation of the annual rent value. It is therefore obvious 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.
In Shanti Swaroop Sharma v. State , the Court after taking into consideration several definitions of 'royalty', came to the conclusion that 'royalty' was neither a tax nor a fee but was more akin to rent This is how the Court approached the matter:
Royalty thus has its basis in the contract between the grantor and the holder of a mining lease, and it is not a compulsory charge for holding such lease but payment to the owner of the minerals for the privilege of extracting the minor minerals computed on the basis of the quantity actually extracted and removed from the leased area. Accordingly royalty is not of the same nature as a tax or a fee.... It is in essence the consideration which the owner of a property may receive from those whom be allows the use of his property or entrusts his property for exploitation of the mineral resources contained therein. In that view of the matter, it is more akin to rent or compensation payable to an owner by the occupier or lessee of land for its use or exploitation of the resources contained therein.
The Full Bench of the Orissa High Court in Laxmi Narayan v. State AIR 1983 Orissa 210, was dealing with the contention that royalty was tax and the Parliament having taken over control by declaration in Section 2 of the Central Act to levy royalty in the field of mining and mineral development, the power of the State Legislature to impose tax was overborne. In that case the constitutional validity of the Orissa Cess Act, 1962 was under challenge on the ground that the State Legislature had no competence; the field having been taken over by Parliament by declaration made in Section 2 of the Central Act enacted by virtue of Entry 54 in List 1. The contention was, as will be noticed, similar to the contention urged before us. This contention was dealt with by the Full Bench in paragraph 12 of its judgment as under:
In our view royalty is the payment made for the minerals extracted. It is not tax.
Proceeding further, the Court observed.
Entry 54 of List I does not authorise the Parliament to levy a tax on mines or minerals.
Again in D.K. Trivedi and Sons v. State of Gujarat AIR 1986 SC 1323 (arising out of the decision of this Court in Smt. Sonbai Pethalji v. State 1980 (2) GLR 530) the Supreme Court considered various definitions of the expression 'royalty' in paragraphs 36 and 37 of the judgment and thereafter proceeded to make the following observation in paragraph 39:
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 will be seen from the above observations that royalty is payment made by the lessee in respect of minerals removed or consumed from the leased area proportionate to the quantity of minerals extracted. We are, therefore, of the opinion that royalty is payment by way of compensation to the lessor proportionate to the quantity of mineral removed or consumed from the demised area within a given point of time. It cannot, therefore, be equated to tax. So far as we are concerned, we think that the point is concluded by the decision of this Court in Saurashtra Cement and Chemical Industries v. Union of India AIR 1979 Gujarat 120 : 1979 GLR 895 wherein this Court was required to examine the constitutional validity of Section 9 of the Central Act on the plea that it was a taxing provision which fell within the ambit of Entry 50, List II, and not Entry 54, List I. The Court was therefore required to consider whether royalty charged under Section 9 of the Central Act was tax. Repelling the contention that royalty was tax, this Court observed as under:
In our opinion, therefore, royalty specified in Section 9 is neither a tax nor a fee but is a payment made by the lessee to the lessor (in case of mining lease) for removing or consuming the sub-soil property which the lessee has won by the application of his labour and enterprise. Therefore, since royalty is not a tax. the subject-matter of Section 9 is not covered by Entry 50 in the State List. It falls squarely under Entry 54 of the Union List because a lessee, who is authorized to operate a mine and win minerals therefrom, pays price of that property as prescribed by Parliament, to the lessor or the owner of the minerals, the Union of India. Section 9, therefore, is not ultra vires the legislative competence of Parliament.
It is, therefore, clear from the above decision that royalty is a payment for the mineral removed or consumed by the holder of a mining lease and cannot be equated to tax. We are in respectful agreement with the view expressed by this Court in the aforesaid decision. When the attention of Mr. Vakil was invited to this binding decision, he fairly submitted that he was not in a position to press the point any further. We must, therefore, reject this contention, namely, that the legislative field under Entry 50 of the State List to impose tax on mineral rights was occupied by Section 9 of the Central Act.
18. We have already indicated in detail the scheme of the Central Act and have pointed out the twin objectives of that enactment with a view to comprehending the sweep of the declaration in Section 2 thereof. We have also noticed in the preceding paragraph that royalty charged under Section 9 is not tax and hence the subject matter of Section 9 does not trench on the State Legislature's power to impose a tax under Entry 50 of State List. In the Central Act there is no other provision which touches the subject of tax nor was it so argued. It, therefore, seems clear to us that the sweep of the declaration is confined to the twin objectives stated earlier and does not trench the field of taxation covered by Entry 50 of the State List. We also do not find limitations imposed by Parliament, by the Central Act which would limit the exercise of power under Entry 50 of the State List. The power of the State Legislature under the said Entry is undoubtedly subject to any limitations imposed by Parliament by law relating to mineral development; the State Legislature is not thereby denuded of its power to impose a tax on mineral rights but the law enacted by it is made subject to any limitation imposed by Parliament by law relating to mineral development. Unless it is shown that the Central Act imposes limitations bearing on the subject of taxation covered by the said Entry, the thrust of the impugned Legislation cannot be affected. Counsel for the petitioners was not able to spell out the limitations from the Central Act. Realising this difficulty, Counsel fairly stated that he was not in a position to carry the point any further.
19. Before we consider the distribution of taxing power under our Constitution, it would be advantageous to bear in mind the historical perspective. Under the Government of India Act, 1915, the governmental power was highly centralised in the Secretary of States but under the reforms introduced later, greater independence was conferred on the provinces in provincial matters, vide Government of India Act, 1919. The newly inserted Section 45A provided for classification of subjects as Central and Provincial in relation to governmental functions. Under the Government of India Act, 1935 legislative functions came to be clearly demarcated in the Seventh Schedule between the Central and Provincial Governments, Lists I and II, respectively. List III setting out the concurrent powers. Thus the unitary system of Government yielded in favour of the federal system. Our constitution broadly adopts the same scheme of distribution of legislative powers with suitable changes. One such significant change is the conferment of residual powers on the Central Government, vide Article 248 read with Entry 97, List I, Seventh Schedule to the Constitution. In the Seventh Schedule of our Constitution various subjects have been elaborately classified under three different Lists and with respect to them the legislative powers between the Union and the States are carefully distributed. On a close examination of the relevant provisions of the Constitution, the distinction between general subjects and subjects concerning taxation is clearly discernible. A careful scrutiny of the entries concerning taxation in List I and II clearly disclose that the taxing powers of the Union and the States are mutually exclusive. List III does not contain any entry relating to taxation, while the residuary power conferred on Parliament by Article 248 is inclusive of the power to impose a tax not mentioned in either List II or List III. Entries 1 to 81 in List I deal with general subjects while Entries 82 to 92A deal with taxes. Entry 96 concerns fees in respect of subjects in List 1 other than Court-Fees whereas Entry 97 deals with any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists. Similarly, in List II Entries I to 44 relate to general subjects, while Entries 45 to 63 deal with taxes; Entry 66 deals with fees in respect of matters in the said List excluding Court-Fees.
20. On a plain reading of Article 246 with the three Lists in the Seventh Schedule, it is manifest that Parliament has exclusive power to make laws in respect of all the matters enumerated in List I notwithstanding anything contained in Clauses (2) and (3) thereof. The State Legislatures have exclusive power to make laws with respect to any of the matters enumerated in List II, subject of course to Clauses (1) and (2) thereof. As such, while considering the competence of the State Legislature to enact a given law, one has only to consider whether the subject matter of the legislation is comprised in List II or III, if not, Parliament alone can legislate on the subject. However, certain subjects of legislation which belong to the States become subjects of exclusive Parliamentary legislation upon a declaration by Parliament that it is expedient in the public interest that the control of said matter should rest with the Central Government. The sweep of such a declaration would have to be decided by Parliament having regard to public interest. Once such a declaration is made and its scope indicated. Parliament acquires exclusive power to legislate on the subject within the reach of the declaration. The field gets occupied by Parliament and the State becomes incompetent to legislate on the said subject within the limits of the declaration. It was for this reason argued that in view of the declaration under Section 2 read with the levy of royalty under Section 9 of the Central Act, the State Legislature was incompetent to enact the impugned Law under Entry 50 of List II, an argument which we have already negatived for reasons stated earlier.
21. The plenary power conferred on our legislatures is, however, controlled by the limitations imposed by the Constitution and can be exercised within the fields earmarked for the Parliament and the State Legislatures by the three Lists in the Seventh Schedule to the Constitution. If any legislature strays out of the earmarked zone allotted to it, its action would be ultra vires the Constitution. Therefore, when the validity of any legislation is challenged on the ground of lack of legislative competence, the first and the foremost thing for the Court is to examine whether the statute in question is with respect to one of the subjects assigned to that Legislature by the Constitution. However, the legislative power conferred by Clause (1) of Article 245 being 'subject to the provisions of the Constitution', the power to legislate must not only be within the competence of the concerned legislature but must also be consistent with the fundamental rights enshrined in Part III of the Constitution. In the present case it is not contended that the impugned Legislation violates any of the fundamental rights contained in Part III of the Constitution. The only question which we must consider is, whether the State Legislature was competent to enact the impugned Legislation.
22. Since we are dealing with a taxing statute, reference to Article 265 of the Constitution will not be out of place. That Article provides; 'No tax shall be levied or collected except by authority of law'. It follows that the law by which the tax is imposed must be a valid law. When a State Legislature imposes a tax, it must be shown that the legislation imposing the tax (i) is not prohibited by any other provision of the Constitution, e.g., Article 286; (ii) is within the legislative competence of the State Legislature; (iii) does not offend any right conferred Part III of the Constitution, and (iv) is not repugnant to any provision of law made by Parliament which Parliament is competent to enact subject to Clause (2) of Article 254 of the Constitution. In the present case the challenge is solely on the ground that the State Legislature was not competent to enact the impugned Legislation.
23. We may now broadly indicate the principles of interpretation of legislative entries. The cardinal rule of interpretation that words used by the legislature should receive their ordinary natural and etymological meaning applies even in cases where the Court is called upon to consider the language of legislative entries but it is well-settled that in doing so, the Court must adopt a liberal approach to avoid rigidity. In Re. C.P. Motor Spirit Act , Gwyer C.J., after referring to the observations of Lord Wright in James v. Commonwealth of Australia 1936 AC 578 @ 614 that a Constitution is not to be construed in any narrow and pedantic sense, proceeded to add as under:
Especially is this true of a federal constitution, with its nice balance of jurisdictions. I conceive that a broad and liberal spirit should inspire those whose duty it is to interpret it; but I do not imply by this that they are free to stretch or pervert the language of the enactment in the interests of any legal or constitutional theory, or even for the purpose of supplying omissions or of correcting supposed errors. A Federal Court will not strengthen, but only derogate from, its position, if it seeks to do anything but declare the law; but it may rightly reflect that a Constitution of Government is a living and organic thing, which of all instruments has the greatest claim to be construed ut res magis valeat quam pereat.
Therefore, although the words of the Constitution are required to be interpreted on the same principles as apply to interpretation of other statutes, when it comes to the interpretation of legislative entries, a broad and liberal interpretation is called for since the Constitution, the source of all other laws, cannot be rendered inflexible by a narrow and pedantic approach. This, however, must not be misunderstood to mean that only entries in the Union List must be broadly construed when there is a conflict between two entries, one in the Union List and the other in the State List. Since the Constitution is a living and organic document, it must be so interpreted as to be capable of absorbing new situations and developments that are likely to take place in a developing country. A rigid construction of constitutional provisions would frustrate new developments which are bound to take place developing country like ours. But cases may arise where a legislation purporting to deal with a subject in one List also appears to touch another subject in a forbidden List. When the entries in both the Lists have to be liberally construed, a question may arise what principle should be applied to resolve the overlap? To deal with such situations, Courts have firstly evolved the doctrine of 'pith and substance', that is to say, the Court must try to ascertain the true nature and character of the enactment to determine the subject matter of the legislation with reference to the competing entries in the two Lists. It is by now well-settled that in determining the true import of a taxing statute, regard must be had to the true nature and character of the impugned Legislation. The Court must not be bogged down by the strict letter of the law but must try to ascertain its spirit and determine its true nature and character. To put it differently, it should be the Court's endeavour to remove the coating Of words provided by the draftsmen and look underneath to ascertain its true colour and subject matter. Cases are not unknown where the plain words of some of the clauses of the legislation give the impression ex facie that the legislation belongs to a given entry in one List; but on closer scrutiny it is found that it belongs to altogether another entry in a different List. In short, the true nature and character of the legislation must decide its fate; once it is found that the pith and substance of the legislation belongs to the field of the legislature enacting the law, its incidental straying into the forbidden zone will not affect the validity of the legislation. However, if the conflict is not merely ex facie but is real. Courts have resorted to the principle of 'harmonious construction, to resolve the conflict. It is this principle which Courts have invoked when they come across two provisions which cannot stand side by side. In such cases, on the principle of harmonious construction, Courts have tried to place an interpretation which would give effect to both. Every effort must be made to give effect to both the provisions, if necessary, by reading down or modifying the language rather than rendering one of them nugatory for the obvious reason that the framers could not have intended a conflict. Despite all efforts, if the Court finds the two competing provisions irreconcilable, the Central law must prevail over the State Law. For the above principles see: In Re. C.P. Motor Spirit Act ; Subrahmanyan Chettiar v. Muttuswami Goundan ; Prafulla Kumar v. Bank of Commerce Khulna AIR 1947 PC 60; State of Bombay v. Narottamdas Jethabhai and Anr. 1951 SCR 51; the State of Bombay and Anr. v. F.N. Balsara 1951 SCR 682; Municipal Corporation v. Gordhandas (Paragraph 5); Sri Venkataramana Devaru v. The. State of Mysore 1958 SCR 895 @ 918; Assistant Commissioner, Madras v. Buckingham and Carnatic Co. Ltd (para 7); and Second Gift Tax Officer, Mangalore v. D.H. Hazareth AIR 1970 SC 999.
24. We may now pass on to the language of Entry 50 in List II which we have reproduced earlier. It speaks of taxes on 'mineral rights. In the Union List there is no entry dealing with imposition of taxes on mineral rights. The State Legislature is clearly entitled to impose a tax on mineral rights subject of course to any limitation imposed by Parliament by law relating to mineral development. We have already pointed out earlier that no such limitation is imposed by the Central Act which relates to the subject of mineral development. It is, therefore, obvious that the State Legislature has the power to levy taxes on mineral rights. What then do we understand by the expression 'mineral rights'? In 58 Corpus Juris Secundum Section 3(c), at page 39, we find the following statement:
C. Mining Rights and Title; Mineral Rights: A mining right is a right to enter upon and occupy land for the purpose of obtaining minerals or ores deposited therein. Mining title is the title obtained by discovery and location. Mineral right is the right or title to all, or certain specified, minerals in a given tract.
A mining right is a right to enter upon and occupy land for the purpose of working it, either by underground excavations or open workings, to obtain from it the minerals or ores which may be deposited therein: by implication the grant of such a right carries with it whatever is incident to it and necessary to its beneficial enjoyment, such as rights of way over the surface, the right to dig and drive slopes and entries, and the like. The term may also include licenses and the rights of the owner of the minerals, but it is not a mere easement in royalty. Mining title:
'Mining title' as the term is employee in the federal statute relating to the location of mining claims means the title which the minor obtains by his discovery and location, followed up with a compliance with the statutory regulations to preserve his right of possession.
Mineral right: The term 'mineral rights' has a well-recognized meaning. It is the right or title to all, or in 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 necessarily include the right to oil and gas.
According to the above statement, a mining right is a right to enter upon and occupy land for the purpose of working it whereas a mineral right is a right to a certain specified mineral or minerals in a specified tract, it must, therefore, be realised that a mining right is distinct from a mineral right and must not be confused as one and the same thing. Under the specimen lease deed, the lessee is permitted to enter upon and occupy land indicated in Part I thereof for the purpose of working it to remove a named mineral only; the lease deed expressly prohibits the removal of any other mineral without the express permission of the State Government. Thus under the lease deeds executed in favour of the petitioners-leases, a right to extract limestone and of calcarious sand is conferred on the lessees. Is it this mineral right which the State Legislature seeks to tax under the impugned Legislation? The preamble of the impugned Legislation posits that it is an Act to provide for levy and collection of tax on mineral rights of holders of mining leases in respect of certain minerals specified in the Schedule. Even the definition of 'tax' in Section 2(5) speaks of tax on mineral rights levied under Section 3. Section 3 in turn speaks of levy and collection of tax on mineral rights at such rates not exceeding the maximum specified in the Schedule against minerals named therein. Section 4 provides that the tax shall be leviable on the holder of the mining lease in respect of the specified mineral for which such mining lease is held. It is, therefore clear from the aforesaid provisions of the impugned Legislation that tax is levied on mineral rights of holders of mining leases. Ex facie, therefore, the State Legislature has sought to levy and collect tax on mineral rights held by lease-holders, the question, however, is whether what is apparent is real also? The petitioners contend that it is not so. According to the petitioners since the measure of tax is related to the quantity of mineral removed or consumed, it is in substance a tax on production of minerals falling under Entry 84 of the Union List and, therefore, outside the legislative competence of the State Legislature. The petitioners contend that if the pith and substance of the impugned Legislation is closely scrutinised, it becomes obvious that the impugned tax is in fact a tax on mining rights and since the rate of tax, subject to the maximum fixed in the Schedule to the Act, is solely dependent on the extent of minerals extracted from the bowels of the earth it is clearly not a tax on mineral rights. On the other hand, the learned Advocate General submitted that the mode of assessment of tax cannot determine the character of the tax. According to him the tax is in substance a tax on mineral rights but the assessment thereof is based on the quantity of mineral removed or consumed. Merely because the mode of assessment is linked with the removal or consumption of minerals, it cannot cease to be a tax on mineral rights. Lastly he submitted that removal or consumption of minerals in the context of the impugned Legislation cannot amount to production within the meaning of Entry 84 of the Union List and hence the impost cannot be said to be in the nature of excise duty to take it out of the competence of the State Legislature. We will now proceed to consider these rival points of view in some detail.
25. Under Entry 84 of the Union List, duties of excise can be levied on tobacco and other goods manufactured or produced in India, etc. Neither the Constitution nor the Central Excises and Salt Act, 1944 defines 'duty of excise'. In the absence of any definition of the said expression, the nature of the impost has to be adjudged by the Court on a true construction of the taxing statute. It is, however, obvious on a plain reading of Entry 84 of the Union List that it is a tax on goods manufactured or produced in India. Being an inland tax on the manufacture and production of goods, its incidence generally falls on the consumers. As held by the Federal Court in the Central Provinces and Berar Sales of Motor Spirit and Lubricant Taxation Act (supra), the power to make laws with respect to duties of excise is to impose duties of excise on the manufacturer or producer of excisable goods at the stage of, or in connection with, manufacture or production, and it extends no further. It was, therefore, held that the Provincial Legislature was entitled to levy tax on sales, the event of such levy being post-manufacture or post-production. Sulaiman, J. at Page 22, column 2, points out as under:
There is a fine distinction between taxes on the sale of goods and taxes on the goods themselves. The essence of a tax on goods manufactured or produced is that the right to levy it accrues by virtue of their manufacture or production.... If duty is imposed on the goods manufactured or produced when they issue from the manufactory, then the duty becomes leviable independently of the purpose for which they leave it and irrespective of what happens to them later.
It is evident from the above that the taxable event in respect of excise duty is the manufacture or production of excisable goods or articles. As held in R.C. Jall v. Union of India , once the levy is relatable to manufacture or production of excisable goods, the same can be levied at any convenient stage so long as the character of the impost is not changed. Their Lordships pointed out:
The method of collection does not affect the essence of the duty but only relates to the machinery of collection for administrative convenience.
Thus the duty of excise is levied on the manufacture or production of an excisable article. Its collection may be postponed to a later date. So long as the incidence of tax is on manufacture or production, the method of collection will have no bearing on the essence of the duty. It is, therefore, obvious that the concept of assessment or quantification of tax must not be confused with the concept of chargeability of tax.
26. We may now consider the case law in support of the submission that the mode of assessment of tax cannot determine the character of the tax. In Sir Byramjee v. Province of Bombay AIR 1940 Bombay 65, it was contended that the impugned tax was a tax on income as it was to be assessed on the basis of Income-Tax, that is, on the annual value or the amount which the property would fetch. Repelling this contention Broomofield J., observed:
But the mode of assessment does not determine the character of a lax. Annual value may be the basis of assessment of income-tax. It may also be the basis of assessment of a tax on capital, e.g. in the case of succession to land under the Succession Duties Act in England; (1858) 28 L. J Ex 46 or again it may be the basis of assessment of rates such as the ordinary Municipal rates in England, which are neither taxes on income nor taxes on property, but a personal charge on the occupier. Clearly, it is impossible to say that the employment of annual value as the measure of the impugned tax is any indication that it is a tax on income.
The above observations were quoted with approval in Municipal Corporation v. Gordhandas , wherein the validity of Rule 350A framed by the Corporation in respect of the rate of open land was challenged as ultra vires insofar as it entitled the Corporation to assess the tax on the value of the open land. It may be mentioned that the above quoted observations of Broomfield, J., were adopted by Fazal Ali, J. in Ralla Ram v. Province of East Punjab , wherein the learned Judge observed that if a tax is to be levied on property, it will not be irrational to correlate it to the value of the property or to make some kind of annual value the basis of the tax without intending to tax income. As pointed out earlier, the Supreme Court in R.C. Jail's case (supra) stated in no uncertain terms that the method of collection cannot affect the essence of the duty. In Sudhir Chandra v. Wealth-tax Officer, Calcutta , while considering the validity of the Wealth-tax Act enacted by Parliament under Entry 86 of Union List, the Supreme Court was required to consider if it trenched the field covered by Entry 49 of State List as the incidence of tax was related to the value of the assets. Dealing with this contention the Supreme Court observed that the adoption of the annual or capital value of lands and buildings which may be adopted for levying tax under Entry 49, List II, will not make the fields of legislation under the two entries overlapping. The same is the view expressed in the case of Assistant Commissioner of Urban Land Taxes v. Buckingham and Carnatic Co. Ltd. , wherein a tax on urban land was imposed by the State Legislature at a percentage of the market value of the land. Dealing with the contention that the impugned Legislation trenched upon the field of legislation under Entry 86, List I, the Supreme Court observed in paragraph 5 as under:
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 the two entries overlapping.
In Ramchand v. Malkapur Municipality , the Court was concerned with the levy of education cess at the rate of two percent of the annual letting value of the lands and buildings. Rejecting the argument that it was a tax on income, the Court held that although the cess was calculated on the basis of the annual letting value of lands and buildings, it was merely a mode of determining the quantum of cess; it continued to be a levy on lands and buildings and not on income and hence the State Legislature was competent to enact the law in question. Before the Full Bench of the Orissa High Court in Laxmi Narayan v. State AIR 1983 Orissa 210, the levy of cess under the Orissa Cess Act was challenged inter alia on the ground that the said statute was a piece of colourable legislation purporting to impose royalty under the garb of cess. The contention was that the legislation trenched the field occupied by Entry 84, List I, and was ultra vires the Central Act. Negativing this challenge, the Court held that in pith and substance it was a tax on land although in a remote way it may relate to mining operations. It then proceeded to observe as under:
No doubt, cess is assessed on the basis of royalty paid or payable but that is only a mode or machinery for assessment. It is a measure of the tax.
It is manifest from the catena of decisions cited above that the mode of machinery for assessment of tax is merely a measure of tax and has nothing to do with the true character of the tax. We, therefore, agree with the submission of the learned Advocate General that the mode of assessment of tax is not determinative of the actual nature of tax. Therefore, merely because under the impugned Legislation the rate of tax is related to the quantity of mineral removed or consumed by the holder of the mining lease, it cannot be concluded that the impost is not a tax on mineral rights covered under Entry 50 of State List.
27. The issue in this case is one of characterisation of the law. In pith and substance is the subject matter of law bearing on mineral rights or is it on production of minerals? In other words, is it in its true nature and character levying a tax on mineral rights of holders of mining leases falling within the ambit of Entry 50, List II, or a tax or duty on production of minerals attracting Entry 84, List I? We have already pointed out earlier that to resolve controversy, the Court must look to the nature and character of the impugned Legislation, the pith and substance of it, with a view to ascertaining the true subject matter of the legislation. If on an over all view of the law it is possible to ascertain its true and real subject matter, it would not be difficult to assign it to one or the other entry in the Union List or the State List and on the basis there of determine its validity. If in pith and substance the legislation belongs to a State subject, its incidental trenching on the Union field will not render it invalid or unconstitutional. Now to gather the real object of the impugned Legislation, the Court must first look to the charging section to identify the subject matter of the legislation since it is that provision which gives rise to the liability to pay tax. The mode of assessment would be found elsewhere in the statute. We have already noticed earlier that the impugned Act was placed on the statute book to provide for levy and collection of tax on mineral rights of holders of mining leases in respect of certain specified minerals. The expression 'mineral rights' is not defined by the impugned statute or by the Central Act. We have, however pointed out earlier that a mineral right is not the same thing as a mining right the former is a right to certain specified mineral or minerals where as the latter is a right to enter upon and occupy land for the purpose of working the mine. Bearing this distinction in mind, we may now turn to Section 3 which is the charging section. It provides:
.... 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.
Section 4 lays down that the tax shall be levied on the holders of mining leases. The maximum tax to be levied by the State Government is indicated against each mineral in the Schedule to the Act. Sections 7 to 9 deal with assessment of tax by the Taxation Officer. This also goes to show that the assessment of tax has nothing to do with the levy of tax. It will be seen from the above that the impugned Legislation seeks to tax mineral rights of holders of mining leases in respect of minerals specified in the Schedule. The aforesaid provisions, therefore, in no way weaken the presumption that a statute is infra vires unless shown to be otherwise.
28. It was, however, submitted by Mr. Vakil that although the preamble and the charging section speak of tax on mineral rights, in substance it is a duty levied on minerals produced inasmuch as the Schedule to the Act shows that the rate of tax is related to the weight or quantity of minerals removed or consumed. Even the notification issued by the State Government under Section 3 of the Act fixes the rate of the tax for each mineral on tonnage basis, that is, the quantity of mineral removed or consumed, which goes to show that in substance the tax is on the quantity of mineral extracted from the leased area and has nothing to do with the mineral rights of the holders of mining leases. Mr. Vakil, therefore. emphasised that if the pith and substance of the impugned Legislation is explored to ascertain its true nature and character, it becomes evident that a duty is sought to be levied and collected on minerals produced by the holders of mining leases and the impost clearly falls within the scope of Entry 84 of the Union List as Entry 51 of the State List is admittedly not attracted. The learned Advocate General, on the other hand, submitted that the preamble and the charging section unmistakably convey that the State Legislature has sought to tax mineral rights and since the measure of tax cannot be on something abstract, it had to be related to the quantity of minerals removed or consumed. Since the measure of tax cannot determine the character of the tax, the learned Advocate General argued that the submission made by the learned Counsel for the petitioners was clearly misconceived. He further contended that mining of minerals cannot be equated to production within the meaning of Entry 84, List I, as that word must take colour from the preceding word 'manufactured' and so read, extraction of minerals which exist below the surface cannot tantamount to production. Mr. Vakil sought to counter this submission by inviting our attention to Section 3 of the Limestone and Dolomite Mines Ladour Welfare Fund Act, 1972 which provides for levy and collection of a cess on so much of limestone dolomite 'produced' in any mine as is sold or otherwise disposed of to the occupier of any factory or used by the owner of such mine for the manufacture of cement, etc. It is clear from Section 5 of the said Act that the purpose of levy of cess is to create a fund for the welfare of labour. Similarly, Section 3 of the Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Cess Act, 1976, imposes a duty of cess inter alia on iron ore 'produced' in any mine. It is clear from Section 3 of the Iron Ore Mines, Manganese Ore Mines and Chrome Ore Mines Labour Welfare Fund Act, 1976, that the duty of cess collected under the prior law was for the purpose of constituting a fund for the welfare of labour. Our attention was also drawn to the Coal Mines Labour Welfare Fund Act, 1947 which imposes as a cess a duty of excise on all coke and coal despatched from collieries for creating a fund for housing and other welfare activities of labour. Lastly reference was made to the Mica Mines Labour Welfare Fund Act, 1947 which to imposes as a cess a duty of customs on all Mica exported from the territories to which the Act applies for the purpose of creating a fund for improving the living and working conditions of the labour employed in the Mica-Mining Industry. It will be seen from the aforesaid statutes that the primary object of all of them is to create a fund for the welfare of the labour employee in each industry by levying a duty of excise/custom as a cess. The limited purpose for which our attention was drawn to the charging sections of these other statutes was to show that a duty of excise was levied as a cess on the 'production' of the concerned minerals. This submission was further reinforced by a reference to the decision in Allumimium Corporation of India v. Coal Board wherein removal of coal was held to be 'production'. The ratio of this decision was approved in Ex Empire Industries Ltd. v. Union of India . Thus the argument was that when a mineral is taken out from below the earth's surface the activity amounts to 'production' of the said mineral within the meaning of Entry 84, Union List.
29. Although the word 'cess' does not find a mention in any of the legislative entries in the Seventh Schedule to the Constitution, Article 277 refers to it as one of the levies imposed by the State Government or the local authority. There cannot be any doubt that a cess is a tax and this is obvious from the aforesaid statutes which levy a duty of excise as a cess to be collected and applied for the welfare of labour employed in the concerned industries. There can also be no doubt that the levy and collection of cess is related to the production of minerals. as for example, limestone and dolomite, from a mine. We will, therefore, assume for the sake of argument that removal of mineral from a mine after it is won amounts to production. But does that mean that in all cases where the measure of tax is related to the quantum of mineral removed or consumed, it necessarily renders the impost a duty of excise within the meaning of Entry 84 in the Union List? A duty of excise can certainly be levied on goods manufactured or produced in India but that does not mean that where a taxing statute uses the quantum production of an article for the limited purpose of calculating the tax, the impost is nothing but a duty of excise. We have already pointed out earlier that the mode of assessment of tax cannot determine the character of the tax. The essence of the tax is to be determined on the language of the statute, its pith and substance, and not merely on the method and collection of tax employed by the statute. For ascertaining the object of taxation, the Court must look to the preamble of the statute and more particularly its charging section with a view to identifying the subject matter of the tax. It is the charging section which creates the liability to pay tax with reference to the subject matter stated therein as distinct from the machinery employed for assessing the actual tax. This proposition is well settled by a long line of decisions, to mention a few Sir Byramjee v. Province of Bombay AIR 1940 Bombay 65 (supra); Ralla Ram AIR 1949 FC 84 (supra); Laxmi Narayan AIR 1983 Orissa 210 (supra). From what we have discussed earlier, it seems to be well-settled law that what is important is the true nature and character of the tax and not the mechanism for assessing the same. In the words of Lord Thankerton In Re Section 3 of the Finance Act (Northern Ireland), 1934, 1936 AC 352:
It is the essential characteristic of the particular tax that is to be regarded, and the nature of the machinery often complicated by which the tax is to be assessed is not of assistance except in so far as it may throw light on the general character of the tax.
We have already pointed out earlier by reference to the preamble and the relevant provisions of the impugned enactment that the legislature has sought to tax the mineral right of holders of mining leases; but the subject matter of tax being abstract, the assessment of tax has been linked with the quantity of minerals removed or consumed from the mine. In view of the above, the argument constructed on the basis of the charging provisions of the other aforementioned statutes, particularly the promise that extraction of minerals from mines tantamounts production of minerals, must fail since it is solely based on the mode of assessment of tax employed by the impugned statute. We are, therefore, of the opinion that even if removal of minerals from mines is understood to mean 'production', in the sense in which that word is used in Entry 84 of the Union List, the hypothesis cannot hold good for the simple reason that the mode of assessment of tax cannot determine the essence or true character of the subject matter of the tax. In our view, therefore, the promise on which Mr. Vakil has sought to build his edifice is not strong enough to bear its weight. We, therefore, reject the submission as misconceived.
30. It was next argued that the impugned levy was on mining rights and not on mineral rights since the mineral rights belong to the State Government which own the mines. We have already pointed out, the difference between a mining right and a mineral right by reference to the relevant statement on page 39 of 58 Corpus Juris Secundum extracted earlier. According to the note, 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 mineral 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. In the present batch of petitions also, we have seen from the terms of the specimen lease deed that the lessees are permitted to remove only certain minerals but if any other mineral or minerals is or are found in the process of working the mine, the lessees are under an obligation to report the same to the State Government and they are not permitted to remove or consume. the same unless the State Government grants sanction in that behalf. The lessees have no right to such minerals but if the Government grants them permission to remove the same, they would acquire mineral rights in respect of those minerals also. The impugned Act in terms levies a tax on mineral rights and not mining rights. We, therefore, reject this contention.
31. It was faintly argued by Mr. Vakil relying on the decision of the Supreme Court in Anant Mills v. State of Gujarat , that the impugned levy is in effect a tax on 'land' within the meaning of Entry 49 in the State List as the term 'land' denotes not only the surface of the land but also the underground strata thereof. It is true that in the aforestated case the Supreme Court held in paragraph 47 of its judgment that land in Entry 49. List II, would include the underground strata also. While it is true that the expression 'land' under the said Entry is wide enough to include the underground strata also, it cannot by any stretch include minerals found in the bowels of the earth, much less mineral rights. Such a view would render the levy of duty on coal and other minerals under Entry 84 of Union List suspect. But, as pointed out earlier, the levy of duty of excise as a cess under the aforesaid other statutes enacted for the welfare of labour in different industries has been upheld. Besides, we fail to understand how such a stand can be of assistance to the petitioner since the State Legislature would be competent to enact a legislation in respect of a subject covered by Entry 49, List II. In any case we are clearly of the view that the impugned Legislation is not in respect of land but it is in respect of mineral rights. We, therefore, do not see any merit in this contention.
32. In the points formulated for consideration, no specific contention based on Article 19(1)(g) and Articles 263 and 300A of the Constitution was raised for submission but as averments in that behalf are found in some of the petitions, we think it proper to deal with the same. The contention raised is that the impugned Legislation is ultra vires Article 19(1)(g) inasmuch as it imposes an unreasonable restriction on the petitioners fundamental right to carry on trade or business. It is nobody's case that the tax imposed is confiscatory. Every tax imposes some burden or restriction upon a citizen but so long as it is not shown to be confiscatory or wholly unreasonable, it cannot be struck down as violative of Article 19(1)(g) of the Constitution. See: S. Kodar v. The State of Kerala . In the case of M/s. K.M. Mohamad Abdul Kader v. State of Tamil Nadu , a similar contention was rejected even though the dealer was prohibited from passing on the incidence of tax to the purchaser. In the present case there is no such prohibition and as is clear from the averments in the counter the burden thrown by the impost is minimal. We are therefore unable to appreciate how the levy can be said to be violative of Article 19(1)(g) of the Constitution. As to the contention that the legislation seeks to deprive the lease-holders of their property without the authority of law, it must be conceded that once the Act is found to be intra vires, the contention cannot survive and must fail.
33. We now turn to the validity of the notification issued under Section 3 of the impugned Act. As we have pointed out earlier, the validity of the notification is challenged on two grounds, namely, (i) it is ultra vires Section 3 inasmuch as the said provision does not empower prescription of different rates for different minerals as has been done by the impugned notification and (ii) it is ultra vires Article 14 as the different rates of tax prescribed are based on a classification of mining leases, which is based on differentia having no reasonable nexus with the object of prescribing different rates. It may at the outset be pointed out that the charging section empowers the State Government to levy and collect a tax on mineral rights at such rates not exceeding the maximum specified in column 2 of the Schedule. If we turn to the Schedule, we find different maximum rates mentioned in column 2 against, different minerals set out in column 1. In pursuance of the power conferred by Section 3 the State Government issued the impugned notification on 29th October, 1985 prescribing different rates of duties for different minerals. Insofar as limestone and calcarious sand are concerned, the lessees have been divided into two groups, namely, (i) lessees having captive mines for manufacture of cement and (ii) all other lessees. Again so far as the first group is concerned, the cement units are divided into (i) new cement units; and (ii) existing cement units. For the new cement units in the first and second year of commercial production the rate of duly is Rs. 3 per tonne; for those in the third and fourth year of commercial production, the rate prescribed is Rs. 4 per tonne whereas for those in the fifth year of commercial production, the rate prescribed is Rs. 5 per tonne which is equal to the rate prescribed for existing cement units. It is thus obvious that different rates of duties are prescribed for lessees having captive mines for manufacture of cement depending on the year of commercial production of the new cement unit. The other class of 'all other lessees' have to pay tax at the flat rate of Rs. 10 per tonne. The maximum rate prescribed for limestone and calcarious sand in the Schedule is Rs. 25 per tonne. The question then is, whether the prescription of different rates is ultra vires Section 3 of the impugned Act and/or Article 14 of the Constitution of India?
34. We may at the outset mention that the validity of the charging section, namely Section 3, of the impugned Legislation is not challenged on any ground whatsoever. We are, therefore, not called upon to examine the validity of the said provision. The challenge is limited to the notification fixing different rates of duty in respect of mineral rights concerning limestone and calcarious sand. Section 3, the charging section, permits the levy of tax at such 'rates' not exceeding the maximum as the State Government may from time to time prescribe. The use of the plural 'rates' clearly suggests that the rate of tax need not be uniform. Different maximum rates have been prescribed for different minerals which is indicative of the fact that the rate of tax for mineral rights is expected to vary for different minerals. Section 3, therefore, envisages different rates of tax on mineral rights depending on the mineral removed or consumed, subject of course to the maximum prescribed by the Schedule. The point then narrows down to the question whether the rate of tax can vary in respect of the same mineral, limestone and calcarious sand, extracted from the mines between lessees having captive mines for the manufacture of cement and all other lessees. The further question is, whether it is permissible to divide the first class of lessees on the basis of the year of commercial production of the cement units held by them for the purpose of taxation. Now it must be realised that when the legislature leaves it to the State Government to prescribe the rates of tax by a notification within the maximum prescribed by it, it expects the State Government to determine the financial and other relevant circumstances of the different mineral industries likely to be affected by the levy and collection of the tax to be recovered from such unit holders. The legislature in its wisdom lays down the maximum rate in respect of rights concerning rates concerning each mineral and leaves it to the State Government to prescribe the rate or rates for each mineral after taking all relevant factors into account. If a flat rate is prescribed for rights concerning all minerals without regard to the varying factors of the different mineral industries, perhaps such a levy may be challenged on the ground of constitutional discrimination as in the case of V. Nagappa Thimmappa v. Iron Ore Mines Cess Commissioner, Mysore AIR 1968 Mysore 42. Besides, Section 3 does not prohibit the State Government from prescribing different rates of taxation for different mineral rights, the only prohibition is that it must not exceed the maximum prescribed by the Schedule. Fixation of rates for different mineral rights is, therefore, left to the discretion of the State Government which discretion must undoubtedly be exercised judiciously after taking all the relevant facts and circumstances into consideration. In the counter-affidavit filed on behalf of the State Government, the Dy. Secretary, Industries Mines and Energy Department, has stated in paragraph 3 as under:
I say that different rates of mineral rights tax are fixed for different minerals taking into account factors such as production of minerals; market value of minerals: margin of profitability in business in which particular mineral is used; care that mineral development in particular items may not be retarded, consideration that the overall rise in price of finished goods should be marginal; that impact on actual user of the end product is minimal and relatable to the quantity of production and the total revenue it might fetch.
Proceeding further, in paragraph 4 of the counter, the deponent states as under:
Before issuing the notification under Section 3 of the Act the State Government has examined the matter thoroughly, with reference to its original proposal to levy tax at the flat rate of Rs. 12.50 per metric tonne of limestone and calcarious sand and had discussions with the Gujarat Mineral Industry Association and some the lessees. Detailed representations were received from captive mine lesse particularly cement units and more particularly from new cement units. Some of the representations particularly from cement industry and more particularly from new cement units were considered as genuine. Large existing cement units as well as new cement units were giving cement on levy to Government. The ratio of levy quota to free sale quota was 40: 60. It was noted that profitability of the cement units in the country had gone down substantially with increased capacity in the country; profitability was also affected on account of increase in cost of production. All the cement units contended that they were suffering loss on sale of levy cement and that they made only a marginal profit on free sale quota. It was felt that imposition of the mineral rights tax at the proposed rate will have a very adverse effect on overall profitability of the cement companies particularly new cement units. Even in the process of being set up, there has to be an over run in capital cost. There was also difficulty of marketability of cement since the country has created large new capacities. The demand of Gujarat State was considered at 25 lakhs M.T., whereas sanctioned capacities were 29 lakhs M.T. This was in 1985. Now the production has reached 30 lakhs tonnes and installed capacity 50 lakhs tonnes against a demand of 28 lakhs tonnes. Also, cost of power in Gujarat is high though availability is much better than in other States. Coal has to be brought from long distances resulting in more transportation costs, which further results in the cost of production going up. In the neighbouring States cement units, are at an advantage since power is somewhat cheaper, and coal bearing areas are nearer to cement factories. Further, neighbouring States have old cement units which were set up some years back at law capital cost. It was contended that their cost of production of cement is lower than that produced in the State of Gujarat.
Since the State Government was of the view that the representations made by the cement units, particularly the new cement units disclosed genuine difficulties, it appointed a Committee consisting of four senior officers to examine the impact of the mineral rights tax on these units. On receipt of the report of the Committee, the State Government obtained the opinion of the Industries Commissioner-cum-Technical Officer Shri Rathi and on realising that most units are likely to incur a loss on levy quota and merely marginal profit on free sale and after bearing in mind the fact that the neighbouring States had not levied a similar tax and the cement units in Rajasthan and Madhya Pradesh had a lower cost of production, it decided to grant certain concessions in the matter of fixation of tax so far as new cement units were concerned. After taking all these relevant facts into consideration, it issued the impugned notification under Section 3 on 29th October, 1985. It is, therefore, obvious that before the impugned notification was issued, the State Government bestowed its careful consideration to all the factors relevant to the fixation of rates for different mineral rights. It also took care to see that the tax burden was minimal particularly insofar as new cement units were concerned. It is, therefore, difficult to contend that the State Government acted arbitrarily or unreasonably in fixing the rates of tax for limestone and calcarious sands.
35. Now Section 3 of the impugned Act empowers the State Government to levy and collect a tax on mineral rights at such rates not exceeding the maximum specified in the Schedule. So long as the rate does not exceed the maximum the State Government is free to fix such rate as it considers proper. The use of the word 'rates' is clearly indicative of the fact that different rates may be prescribed for different minerals. Although the section does not in so many word state that different rates may be fixed for different mineral rights, the use of the plural 'rates' conveys the same meaning. Since the maximum rates of tax set out in the Schedule is not uniform, it supplies intrinsic evidence that the rate prescribed for rights pertaining to different minerals need not be identical. The maximum rate prescribed by the Schedule varies from Rs. 4 to Rs. 25 per metric tonne removed or consumed by the lessee and hence the rate prescribed in respect of each mineral right would ordinarily differ. It is, therefore, inherent in the language of Section 3 that different rates not exceeding the maximum can be prescribed for different minerals. Besides, Section 3 does not prohibit the fixation of different rates for different minerals. That being so, the submission that different rates cannot be prescribed for different mineral rights does not appear to be accurate.
36. The next question is whether different rates can be prescribed for the same mineral, limestone and calcarious sand, based on the classification of lessees holding mining leases. That brings into the focus the question, whether the classification of lessees into (i) lessees having captive mines for manufacture of cement; and (ii) all other lessees, for the purpose of fixing different rates of tax is permissible in law and is not opposed to Article 14 of the Constitution. The further question is, whether it was open to the State Government to further classify the lessees belonging to the first group into those having new cement units and those having existing cement units. In Jaipur Hosiery Mills (P) Ltd., Jaipur v. State of Rajasthan , the Court was concerned with a notification exempting from tax the sale of any garment, the price whereof did not exceed Rs. 4/- while taking hosiery products and hats of all kinds. The challenge based on Article 14 was negatived in the following words:
It is well settled that although a taxing statute can be challenged in the ground of infringement of Article 14 but in deciding whether the law challenged is discriminatory it has to be borne in mind that in matters of taxation the legislature possess the large freedom in the matter of classification. Thus wide discretion can be exercised in selecting persons or objects which will be taxed and the statute is not open to attack on the mere ground that it taxes some persons or objects and not others. It is only when within the range of its selection the law operates unequally and cannot be justified on the basis of a valid classification that there would be a violation of Article 14.
In S.Kodar's case (supra) the Supreme Court while dealing with the contention that the provisions of the Act imposing different rates of tax on different dealers depending on their turnover was ultra vires Article 14, observed through Mathew, J. as under;
Classification of dealers on the basis of their respective turnover for the purpose of graded imposition so long as it is based on differential criteria relevant to the legislative object to be achieved is not unconstitutional. A classification, depending upon the quantum of the turnover for the purpose of exemption from tax has been upheld in several decided cases. By parity of reasoning, it can be said that a legislative classification making the burden of the tax heavier in proportion to the increase in turnover would be reasonable. The basis is that just as in taxes upon income or upon transfer at death, so also in imposts upon business, the little man, by reason of inferior capacity to pay. should bear a lighter load of taxes relatively as well as absolutely, than is borne by the big one. The flat rate is thought to be less efficient than the graded one as an instrument of social justice. The large dealer occupies a position of economic superiority by reason of his greater volume of business. And, to make his tax heavier both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus to arrive in the end at a more genuine equality. The economic wisdom of a tax is within the exclusive province of legislature. The only question for the Court to consider is whether there is rationality in the belief of the legislature that capacity to pay the tax increases, by and large, with an increase of receipts.
The Same principle came to be reiterated in Hoechst Pharmaceuticals Ltd. v. State of Bihar in the following words:
On questions of economic regulations and related matters, the Court must defer to the legislative judgment. When the power to tax exists, the extent of the burden is a matter for discretion of the law makers. It is not the function of the Court to consider the propriety or justness of the tax, or enter upon the realm of legislative policy. If the evident intent and general operation of the tax legislation is to adjust the burden with a fair and reasonable degree of equality, the constitutional requirement is satisfied. The equality clause in Article 14 does not take from the State power to classify a class of persons who must bear the heavier burden of tax. The classification having some reasonable basis does not offend against that clause merely because it is not made with mathematical nicety or because in practice it results in some inequalities.
More recently, in M/s. Vrajlal Manila] and Co. v. State of M.P. , the challenge based on Article 14 was repelled on the ground that Tendu leaves from a separate class of commercial commodity and could, therefore, be taxed separately.
37. Now by the impugned Act the legislature has imposed a tax on mineral rights. After indicating the outer limit of the tax by prescribing the maxima qua each mineral right, the legislature has charged the State Government with the duty of fixing the rates of tax on such mineral rights. Since the tax is leviable on the holder of a mining leases it must necessarily relate to a specified mineral or minerals for which the mining lease is held. Since the tax levied is on a mineral right, the extent of user of the right could only be calculated with reference to the user of the specified mineral. The tax could not be assessed on an abstract right and, therefore, the measure of assessment of tax had per force to be linked with the extent of mineral removed or consumed. It would have been unfair and unreasonable to levy the tax without regard to the exercise of the right which could only be measured in terms of the quantity of minerals removed or consumed. The impugned Legislation seeks to recover a tax, on the holder of a mining lease putting to use his mineral right by the actual removal or consumption of the specified mineral in respect whereof he has a contractual right. The right is acquired under the lease deed but until it is actually exercised it is not taxed. That is why the measure of tax is related to the actual user but that does not mean that it ceases to be a tax on mineral rights. Since the capacity of the holders of mining leases to pay the tax must differ from mineral to mineral, the legislature has fixed the maxima in respect of each mineral in the Schedule to the Act. The capacity to pay must necessarily depend on the income derived by the use of the minerals. The income would vary from time to time depending on market forces, e.g., the demand and supply positions, the cost of production, other local taxes, etc., and, therefore, the legislature in its wisdom entrusted the job of fixing the rates of tax to the State Government to avoid rigidity. By providing that the State Government will fix the rates, not exceeding the maximum indicated in the Schedule, the legislature introduced flexibility to enable the State Government to vary or alter the rates if the circumstances so demand. It is, therefore, manifest that the legislature thought it wise to confer, a wide discretion on the State Government to fix the rates not exceeding the prescribed maximum as it may consider proper bearing in mind all relevant factors. When the legislature empowers the State Government to fix the rates not exceeding the maximum prescribed, the extent of the burden to be thrown on each class of tax payer must depend on the judicious discretion of the State Government and the Court will be loathe to interfere unless it is shown that the Government decision operates unequally and is not based on a valid classification. It cannot be said that the classification of lessees into (i) those having captive mines for the manufacture of cement and (ii) all other lessees, is irrational. The classification is based on an intelligible differentia and cannot by any stretch be said to be unconstitutional. Similarly, the division of cement units between new cement units and existing cement units cannot be said to be arbitrary and unjust as the same was considered necessary to adjust the burden of tax fairly and reasonably, the established units bearing the larger brunt as compared to the new units. In the counter filed on behalf of the State Government the reasons which weighed with the State Government in fixing the different rates of tax have been elaborately stated. If the State Government thought that the burden of tax must be graded amongst the new units based on the year of commercial production, we do not think the decision can be branded as arbitrary or unreasonable. On the contrary it cannot be said that the decision is based on sound commercial considerations and evidences the State Government's anxiety to see that the burden of tax is so spread that the new units are able to bear the same. Once the new unit is in the fifth year of commercial production it is put on par with existing units for tax purposes. As observed by the Supreme Court in Hoechst's case (supra), the equality clause in Article 14 does not deprive the State of the power to classify a class of persons who must bear the heavier burden of tax. If it is manifest, as indeed it is, that the intention of the State Government was to classify the tax payers with a view to adjusting the tax burden in a fair and reasonable manner, the new cement units taking the lighter burden according to their in fancy as compared to established or existing units which can bear a heavier burden, we think that would satisfy the equality clause in the Constitution rather than infringe it. We are, therefore, of the view that when the legislature left it to the State Government to fix the rates of tax not exceeding the maximum prescribed by it, it conferred a wide discretion on the State Government to fix the rates having regard to all the relevant facts, such as, the standing of the industry, cost of production, profitability, other tax burdens, price structure of the commodity vis-a-vis the prices prevailing in the neighbouring States, the demand and supply forces, etc. We have noticed from the facts stated in the counter filed on behalf of the State Government that it had given its anxious consideration to all these matters before finalising the rates of tax under the impugned notification. It is, therefore, obvious that the rates were so fixed that the tax 'impact on actual user of the end product is minimal and relatable to the quality of production and the total revenue it might fetch'. We are, therefore, unable to uphold the contention that the impugned notification is ultra vires Section 3 of the Act or Article 14 of the Constitution.
38. Mr. Vakil placed strong reliance on the decision of this Court in Special Civil Application No. 662 of 1968 and 179 Other Petitions decided on 14/21/22/23/24/27th October 1969 (Per Bhagwati J., as he then was) based on the construction of Sections 99, 129, proviso, 137 and 150 of the Bombay Provincial Municipal Corporations Act, 1949. In that case the special rate of conservancy tax, namely, 9 per cent of the rateable value, determined by the Municipal Corporation at its meeting held on 31st January, 1968 was challenged as (i) ultra vires Section 99; (ii) inconsistent with Section 137 and (iii) violative of Article 14 of the Constitution. The contention in this behalf was formulated in Ground (K) of the various grounds urged in the said group of writ petitions. Before we deal with the ratio of that decision, it would be proper to refer to the relevant provisions bearing on the subject. Section 99 empowers the Corporation to fix the rates at which municipal taxes referred to in Sub-section (1) of Section 127 shall be levied in the next ensuing official year and the rates at and the extent to which any of the taxes referred to in Sub-section (2) of the said Section which the Corporation decides to impose shall be levied in the next ensuing official year. Section 127(1) empowers the Corporation to impose property taxes and a tax on vehicles, boats and animals. In addition to the above taxes. Section 127(2) empowers the Corporation to impose octroi, a profession tax, a tax on dogs, a theatre tax, a toll on animals and vehicles, entering the City and any other tax which the State Legislature has power under the Constitution, to impose in the State. Section 129 deals with property taxes referred to in Sub-section (1) of Section 127, it provides that property taxes shall comprise (a) a water tax at such percentage of their rateable value as the Corporation shall deem reasonable for providing a water supply for the City; (b) a conservancy tax at such percentage of their rateable value as will, in the opinion of the Corporation suffice to provide for the collection, removal and disposal, by municipal agency, of all excrementitious and polluted matter from privies, urinals are cess-pools and for efficiently maintaining and repairing the municipal drains constructed or used for the reception or conveyance of such matter, subject however to the provisos that the minimum amount of such tax to be levied in respect of any one separate holding of land or of any one building or of any one portion of a building which is let as a separate building shall be eight annas per mensem and that the amount of such tax to be levied in respect of any hotel, club, industrial premises or other large premises may be specially fixed under Section 137; and (c) a general tax of not less than twelve per cent of their rateable value which may be levied, if the Corporation so determines, on a graduated scale. Then appears the proviso on which considerable reliance was placed. It reads as under:
Provided that the Corporation may, when fixing under Section 99 or Section 150 the rate at which general tax shall be levied for any official year or part of an official year, determine the rate leviable in respect of buildings and lands or portions of buildings and lands in which any particular class of trade or business is carried on, shall be higher than the rate fixed in respect of other buildings and lands or portions of buildings and lands by an amount not exceeding one half of the rate so fixed.
39. Section 137 provides for fixation of conservancy tax at special rates in certain cases. Under Sub-section (1) of Section 137, the Commissioner is empowered, whenever he thinks fit, to fix the conservancy tax to be paid in respect of any hotel, club, stable or other large premises at such special rate as may be generally approved by the Standing Committee. Sub-section (2) of Section 137 lays down that in the case of premises used solely for public purposes and not used or intended to be used for purposes of profit or for residential or charitable or religious purposes in respect of which the conservancy tax is payable by the Government the Commissioner shall fix the said tax at a special rate approved as aforesaid. However, Sub-section (3) of that Section stipulates that in any such case the amount of conservancy tax shall be fixed with reference to the cost or probable cost of the collection, removal and disposal by the agency of municipal conservancy staff, of excrementitious and polluted matter from the said premises. Under Section 150 any tax imposable under the provisions of the Act can be increased or newly imposed by way of supplementary taxation. As pointed out above, the Municipal Corporation at its meeting held on 31st January, 1968 fixed the special rate of conservancy tax at 9 per cent of the rateable value. The question which arose for consideration was, whether this determination of the special rate was within the power of the Corporation under Section 99; could the Corporation fix two different rates, one a general rate of 3 per cent for all properties other than those governed by the special rate, and the other, a special rate of 9 per cent for certain special kinds of properties? This Court after considering the scheme of the taxation provisions under the said statute observed that even though there was nothing in Section 99 which prohibited the Corporation from fixing different rates for different classes of properties, the absence of such prohibition was not decisive of the question because the scheme of taxation embodied in the Act, particularly Sections 129 and 137, makes it clear that only one rate of conservancy tax can be fixed by the Corporation and not different rates for different classes of properties. In taking this view considerable emphasis was laid on the fact that property taxes were imposed on the basis of rateable value which was fixed after taking into consideration factors such as the size of the property its location, its utility, etc. It was pointed out that once the rental value is arrived at, the difference based on these factors gets reflected in the rental value and thereafter they cannot once again be made the basis of differential treatment in the matter of rates because if these factors are taken into account over again, the tax would cease to be a tax based on rateable value; it would be a tax levied with reference to these factors. Referring to Section 129, Clause (b), it was pointed out that the percentage of rateable value at which conservancy tax can be levied has to be fixed having regard to the total cost of conservancy services supplied by the Corporation. The burden of the total cost of conservancy services is to be provided according to rateable value and, therefore, the Court held that the percentage fixed by the Corporation must be uniform and cannot vary from one class of properties to another. Dealing with the submission that under the said provision conservancy tax can be specially levied in respect of any hotel, club and other large premises, the Court pointed out that under Section 137(3) the special rate is to be fixed with reference to the cost or the probable cost of the collection, removal and disposal of excrementitious and polluted matter from the concerned premises. According to the Court the inclusion of this provision in the last part of Section 129 Clause (b) suggests that where a special rate is to be fixed having regard to the additional burden of conservancy service in respect of the said kinds of premises, is may be done by the Commissioner under Section 137(1) but the Corporation cannot take into account the additional burden of conservancy service in respect of any particular class of premises and fix special rate with reference to the cost of such additional burden; it can only fix a general rate having regard to the total cost of conservancy service. Lastly, the Court found that if the contention urged on behalf of the Corporation is accepted, it would reader Clause(c) of Section 129 and the proviso immediately following otiose. According to the Court, the fact that an express provision had to be made in Section 129, Clause (c), and in the proviso to that clause empowering certain differentiations in the matter of fixing rates lends support to the view that in cases not falling within those provisions, different rates could not be fixed for different classes of properties. On this line of reasoning, the resolution of the Corporation fixing a special rate of 9 per cent for conservancy tax in respect of special kinds of properties was held to be outside the power conferred by Section 99 of the said Act. It becomes obvious from the above discussion that the entire decision turned on the special scheme of taxation and the nature of the relevant provisions of the said statute referred to hereinabove. The decision, therefore, cannot be used as an authority for the proposition that where a taxing statute does not in terms provide that different rates can be prescribed for different rights or properties, the Government is debarred from making such provisions while fixing the rates of duties or taxes.
40. No other contention was urged before us. For the above reasons we sec no merit in any of the contentions raised in this batch of petitions. All the petitions, therefore, fail and we hereby reject them and discharge the rule with cost in each petition. In view of the rejection of the petitions, the interim relief granted in each petition shall stand vacated.