Civil Appeal Nos4353 54 of 1983 etc
From the Judgment and Order dated 731983 of the Orissa High Court in OJC No 1517 of 1978
AK Ganguli G Ramaswamy TS Krishnamurthy Iyer Dr 114 LM Singhvi Shanti Bhushan P Chidambram RB Datar TV SK Iyer VA Bobde BSen MS Gujral RF Narinan PH Parekh Ms Shalini Soni KK Lahiri JBDadachanji SSukumaran PNGupta RK Mehta AKPanda Sakes Kumar Ashok Singh Satish Agnihotri D Goburdhan DN Mishra Shri Narain Abhey Sapra Sandep Narain Mrs Kirti Misra Harish NSalve SR Grover KJJohn MP Sharma Ms Deepa Dixit Sanjay Parekh Praveen Kumar Darshan Singh KV Srekumar TGNNair BRAgrawal SK Bagga Mrs SKBagga Rameshwar Nath and AM Dittia for the appearing parties
The Judgment of the Court was delivered by RANGANATHAN J
These are connected batches of Civil Appeals and Special Leave Petitions
We grant special leave to appeal in all the petitions condoning the delay in the filing of the unnumbered one referred to below and proceed to dispose of all the appeals by this common judgment
The details of the appeals and petition are for sake of convenient reference tabulated below High Court Date of Civil Appeal Name of Judgment SLP Nos
Appellant 1
Orissa 1741980 CA2053 208080 Tata Iron  Steel Co Ltd 731983 CA4353 435483 Orissa Cement Ltd 22121989 SLP 147990 State of Orissa 22121989 SLP 90 Orient Paper  Industries Ltd  Anr
1371990 SLP1193990 do 2
Bihar 1021986 CA 59286 Tata Iron  Steel Co Ltd 3
Madhya 2831986 CA 1641 166286 State of MP Pradesh We shall discuss later the manner in which these appeals and petitions have arisen
115 THE ISSUE The validity of the levy of a cess based on the royalty derived from mining lands by the States of Bihar Orissa and Madhya Pradesh is challenged in these petitions and appeals
A seven Judge Bench of this Court in India Cement struck down a similar levy under a Tamil Nadu Act as beyond the legislative competence of the State Legislature
The assessees in the matters now before us claim that the issue here is directly and squarely governed by the above decision
The State on the other hand claim that the nature and character of the levies imposed by them is totally different from that of the Tamil Nadu levy and that they are entirely within the scope of the States  Legislative powers under the Constitution
This is the issue to be decided in these matters
As the impugned enactments of Bihar Orissa and Madhya Pradesh mutually differ from one another in some respects they will need separate consideration
However the basic issue being the same all these matters have been heard together and it is found convenient to dispose of them all by this common judgment
We may mention in passing that initially these matters were listed before a Bench of two Judges of this court
It referred the matters on 1781990 to the learned Chief Justice for the constitution of a larger Bench
The matters have come up before us in pursuance of the directions of the Hon ble Chief Justice
THE LEGISLATIVE ENTRIES It will be convenient at the outset to refer to the various entries of the Union and the State Lists in the Seventh Schedule to the constitution which have a bearing on the issues to be discussed
These are List I Union List Entry 52 Industries the control of which by the Union declared by Parliament by law to be expedient in the public interest
Entry 54 Regulation of mines and mineral development to the extent to which such regulation and development under the control of Union is declared by Parliament by law to be expedient in the public interest
116 List II State List Entry 18 Land that is to say rights in or over land land tenures including the relation of landlord and tenant and the collection of rents transfer and alienation of agricultural land improvement and agricultural land colonization
Entry 23 Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union
Entry 45 Land revenue including the assessment and collection of revenue the maintenance of land records survey for revenue purposes and records of rights and alienation of revenues
Entry 49 Taxes on lands and buildings
Entry 50 Taxes on mineral rights subject to nay limitations imposed by Parliament by law relating to mineral development
Entry 66 Fees in respect of any of the matters in this List but not including fees taken in any court
EARLIER HISTORY Before proceeding to consider the provisions of the enactments impugned and the issues debated before us it is necessary to set out certain earlier controversies that led to India Cement
Hingir Rampur Case As early as in 1960 this Court had to consider the constitutional validity of the Orissa Mining Areas Development Fund Act 1952 Orissa Act XXVII of 1952
section 3 of the Act empowered the State Government to constitute mining areas whenever it appeared to the Government that it was necessary and expedient to provide amenities 117 life communications water supply and electricity for the better development of such areas or to provide for the welfare of the residents or workers in areas within which persons employed in a mine or a group of mines reside or work
S4 empowered the State Government to impose and collect a cess or fee on the minerals extracted the rate of which was not to exceed 5 of the valuation of the minerals at the pit smouth
S5 provided for the constitution of the Orissa Mining Areas Development Fund
The proceeds of the cess recovered in pursuance of S4 along with other subsidies from Government local authorities and other public subscriptions were credited to the fund and the expenses for such collection debited thereto
The fund has to be utilised to meet expenditure incurred in connection with such development measures as the State Government might draw up for the purposes above mentioned as well as for the purposes specified in clauses a to e of S55
The validity of this levy of cess was challenged by the petitioner coal company in the Hingir Rampur case as ultra vires the powers of the State Legislature because a the cess was not a fee but a duty of excise on coal which was a field covered by Entry 84 of List I in the Seventh Schedule and repugnant to the Local Mines Labour Welfare Fund Act 1947 Central Act XXXII of 1947 and b even if it was treated as a fee relatable to Entries 23 and 66 of List II in the Seventh Schedule it was hit by Entry 54 of List I read with the Mines and Minerals Development  Regulation Act Central Act LIII of 1948 the MMRD Act  for short or by Entry 52 of List I read with the Industries Development and Regulation Act the IDR Act  for short 1951 Central ACt LXV of 1951
The first of the above arguments was based on the fact that the cess was fixed at a percentage of the valuation of the mineral concerned at pit s mouth
This argument was based on two considerations
The first related to the form and the second to the extent of the levy
Repelling the argument it was held that the extent of levy of a fee would always depend upon the nature of the services intended to be rendered and the financial obligations incurred thereby and cannot by itself alter the character of the levy from a fee into the of a duty of excise except where the correlation between the levy and services is not genuine or real or where the levy is disproportionately higher than the requirements of the services intended to be rendered
So far as the first consideration was concerned it was observed that the method in which the fee is recovered is a matter of convenience and by itself it cannot fix upon the levy the character of a duty of excise
Though the method in which an impost is levied may be relevant in determining its character its significance and effect cannot be exaggerated
The court therefore came to the conclusion that the cess levied by the impugned act was 118 neither a tax nor a duty of excise but a fee
The second argument turned on the impact of the MMRD Act on the State s power to levy a fee under Entry 66 read with Entry 23 of List II as a consequence of the declaration contained in S2 of the Central Act
The Court agreed that a declaration by Parliament in terms of Entry 54 of List I operated as a limitation on the legislative competence of the State Legislature itself and observed if Parliament by its law has declared that regulation and development of mines should in public interest be under the control of the Union to the extent of such declaration the jurisdiction of the State Legislature is excluded
In other words if a Central Act has been passed which contains a declaration by Parliament as required by Entry 54 and if the said declaration covers the field occupied by the impugned Act the impugned Act would be ultra vires not because of any repugnance between the two statutes but because the State Legislature had no jurisdiction to pass the law underlining ours However the answer to the argument was easily found by the Court inasmuch as the declaration on the terms of Entry 54 of List I relied on for the coal company was founded on Act LIII of 1948 which was an Act of the Dominion Legislature and not an Act of Parliament
However the Court did not stop here
It proceeded to review the provisions of Central ACt LIII of 1948 and concluded that if this Act were held to contain the declaration referred to in Entry 23 there would be no difficulty in holding that the declaration covered the field of conservation and development of minerals and that the said field was indistinguishable from the field covered by the impugned Act
In coming to this conclusion the Court pointed out that the rule making powers conferred on the Central Government under Section 62 of the Act included the levy and collection of royalties fees and taxes in respect of minerals mines quarried excavated or collected
The circumstance that no rules had in fact been framed by the Central Government in regard to the levy and collection of any fees it was held would not make any difference The Court observed What Entry 23 provides is that the legislative competence of the State Legislature is subject to the provisions of List I with respect to regulation and development under the con 119 trol of the Union and Entry 54 in List I requires a declaration by Parliament by law that regulation and development of mines should be under the control of the Union in public interest
Therefore if a Central Act has been passed for the purpose of providing for the conservation and development of minerals and if it contains the requisite declaration then it would not be competent to the State Legislature to pass an Act in respect of the subject matter covered by the said declaration
In order that the declaration should be effective it is not necessary that rules should be made or enforced all that this required is a declaration by Parliament that it is expedient in the public interest to take the regulation and development of mines under the control of the Union
In such a case the test must be whether the legislative declaration covers the field or not
Judged by this test there can be no doubt that the field covered by the impugned Act is covered by the Central Act LIII of 1948
 The Court then considered the argument based on Entry 52 of List I and the provisions of the IDR Act but came to the conclusion that the vires of the impugned Act could not be successfully challenged on this ground
Wanchoo J delivered a separate dissenting judgment
He held that the levy was not a fee or a land cess but a duty of excise
He pointed out at p 579 80 how taxes could be turned into fees on the so called basis of quantification with the help of the device of creating a fund and attaching certain services to be rendered out of monies in the fund
In this view he did not consider the question how far the Central Acts of 1948 and 1951 impaired the State s competence to levy the fees in question
He negatived the State s attempt to bring the levy in question treating it as a tax within the scope of Entry 50 of List II
He was of opinion that the expressions taxes on mineral rights referred to taxes on the right to extract minerals and not taxes on the minerals actually extracted
He held that the cess in the present case was not a tax on mineral rights but a tax on the minerals actually produced
It was no different in pith and substance from a a tax on goods produced which comes under Item 84 of List I as duty of excise
Tulloch case  The same issue regarding the competence of the Orissa State Legislature to levy the very same cess came up for consideration again 120 in the Tulloch case
The scenario had changed because the levy now challenged was in respect of the period July 1957 to March 1958 by which time the MMRD Act 1957 Central Act Central Act LIII of 1948
The 1948 Act which had earlier provided for the regulation of mines and oil fields and for the development of minerals was now limited only to oil fields and the 1957 Act provided for the regulation of mines and mineral development
S2 of the 1957 Act like the predecessor 1948 Act contained the following declaration in terms of Entry 54 of List I
It read It is hereby declared that it is expedient in the public interest that the Union should take under its control the regulation of mines and the development of minerals to the extent hereinafter provided
but unlike the earlier one this was a declaration contained in an Act of Parliament which had the effect of impairing the legislative competence of the State under Entry 23 read with Entry 66 of the State List
The hurdle which prevented the Supreme Court from considering the provisions of the 1948 Act as a bar to the levy of the cess was therefore out of the way
The Court analysed in detail the provisions of the impugned State Act as well as the two Central Acts
It referred to its conclusion in the Hingir Rampur case that the field covered by the impugned State Act was covered by the 1948 Act and observed that this fully applied to the State Act vis a vis the 1957 Act also particularly as Ss
181 and 2 of the 1957 Act were wider in scope and amplitude and conferred larger powers on the Central Government than the corresponding provisions of the 1948 Act
Counsel for the State attempted to distinguish the ambit of the 1957 Act from that of the 1948 Act
But the Court pointed out that the argument could not prevail
section 13 of the 1957 Act contained an express provision for the levy of a fee
section 25 though not as categorically as section 6 of the 1948 Act clearly implied a power to levy rent royalty tax fee and other sums a nd besides section 18 of the Central Act of 1957 were wider in scope and amplitude and conferred larger powers on the Central Government than the corresponding provisions of the Act of 1948
It was reiterated referring to Hingir Rampur and distinguishing Ch
Tika Ramji  Ors
vs The State of Uttar Pradesh  Ors  that it was incorrect to think that until rules were made under section 13 or steps taken under S25 to collect fees etc the Central Act would not cover the field
The Court observed further 121 But even if the matter was res integra the argument cannot be accepted
Repugnancy arises when two enactments both within the competence of the two Legislatures collide and when the Constitution expressly or by necessary implication provides that the enactment of one legislature has superiority over the other then to the extent of the repugnancy the one supersedes the other
But two enactments may be repugnant to each other even though obedience to each of them is possible without disobeying the other
The test of two legislations containing contradictory for if a competent legislature with a superior efficacy expressly or impliedly evinces by its legislation an intention to cover the whole field the enactments of the other legislature whether passed before or after would be overborne on the ground of repugnance
Where such is the position the inconsistency is demonstrated not by a detailed comparison of provisions of the two statutes but by the mere existence of the two pieces of legislation
In the present case having regard to the terms of section 181 it appears clear to us that the intention of Parliament was to cover the entire field and thus to leave no scope for the argument that until rules were framed there was no inconsistency and no supersession of the State Act
Meeting the argument that the power to levy a fee was an independent head of legislative power under each of the three legislative lists and that the levy of tax undue the State Act could be traced to this entry the Court pointed out the fallacy underlying the argument in the following words The materials words of the Entries are Fees in respect of any of the matters in this List
It is therefore a prerequisite for the valid imposition of a fee that it is in respect of a matter in the list
If by reason of the declaration by Parliament the entire subject matter of conservation and development of minerals has been taken over for being dealt with by Parliament thus depriving the State of the power which it theretofore possessed it would follow that the matter in the State List is to the extent of the declaration subtracted from the scope and ambit of Entry 23 of the State List
There would therefore after the Central Act of 1957 be no matter in the List to which the fee 122 could be related in order to render it valid
 The result was that Tulloch declared the levy of the cess to be invalid and it was held that as and from 161958 the date on which the 1957 Act came into force the Orissa Act should be deemed to be non existent for every purpose
Murthy case We now come to the third important case on the topic Murthy vs Collector of Chittoor which seems to strike a somewhat different note although in both Tulloch and Murthy the judgments were delivered within a few month of each other by Rajagopala Ayyangar J on behalf of 5 Judge Benches which were constituted differently
The erstwhile Province of Madras later State of Tamil Nadu had been levying since long a cess on land revenue under the Madras District Boards Act Madras Act XIV of 1920
Under S78 of the Act a cess was levied on the annual rent value of all occupied lands on whatever tenure held
It was a tax at two annas in the rupee of the annual rent value of all lands ins the district
The annual rent value of the land was to be calculated in the manner prescribed in S79 of the Act
The appellant held certain lands under a mining lease for extraction of iron ore from the Government which stipulated for the payment of a stipulated amount of dead rent a royalty on the basis of every ton of ore mined as well as a surface rent per acre of the surface area occupied or used
In the case of such lands S79i provided that the lease amount royalty or other sum payable to the Government for the lands shall be taken to be the such lands annual rent value
The appellant was therefore called upon to pay a cess based on the royalty paid by him to the State Government of Andhra Pradesh which had succeeded to the State of Madras in respect of the territories in question and it was the validity of this levy which was upheld by the High Court that came up for the consideration of this Court
It was contended on behalf of the appellant relying on Hingir Rampur and Tulloch that the provision imposing land cess quoad royalty must be held to be repealed by MMRD Act of 1948 or in any event by the MMRD Act 1957 Central Act LXVII of 1957 and that after the date when these enactments came into force the land cess that could be levied must be exclusive of royalty under a mining lease
Distinguishing the decisions cited this Court rejected the contention
It observed 123 It will be seen that there is no resemblance whatever between the provision of the Orissa Act considered in the two decisions and the provision for the levy of the land cess under sections 78 and 79 of the Act with which we are concerned
Sections 78 and 79 have nothing to do and are not concerned with the development of mines and minerals or their regulation
The proceeds of the land cess are under s92 of the Act to be credited to the District fund into which under the terms of the Finance Rules in section V to the Act the land cess as well as several other taxes fees and receipts are directed to be credited
This fund is to be used under Ch
VII of the Act with which s112 starts for everything necessary for or conducive to the safety health convenience or education of the inhabitants or the amenities of the local area concerned and everything incidental to the administration and include in particular the several matters which are mentioned in those sections
It will thus be seen that there is no connection between the regulation and development of mines and collection of land cess for which provision is made by ss78 and 79 of the Act
There is therefore no scope at all for the argument that there is anything in common between the Act and the Central Acts of 1948 and 1957 so as to require any detailed examination of these enactments for discovering whether there is any over lapping A second contention raised before the Court was that as the impugned land cess was payable only in the event of the lessee winning the mineral and not when no minerals were extracted it was in effect a tax on the minerals won and therefore on mineral rights
Rejecting this contention the Court observed We are unable to accept this argument
When a question arises as to the precise head of legislative power under which a taxing statue has been passed the subject for enquiry is what in truth and substance is the nature of the tax
No doubt in a sense but in a very remote sense it has relationship to mining as also to the mineral won from the mine under a contract by which royally is payable on the quantity of mineral extracted
But that does not stamp it as a tax on either the extraction of the mineral or on the mineral right
It is unnecessary for the purpose of this case 124 to examine the question as to what exactly is a tax on mineral rights seeing that such a tax is not leviable by Parliament but only by the State and the sole limitation on the State s power to levy the tax is that it must not interfere with a law made by Parliament as regards mineral development
Our attention was not invited to the provision of any such law enacted by Parliament
In the context of ss78 and 79 and the scheme of those provisions it is clear that the land cess is in truth a tax on land within Entry 49 of the State List
emphasis added The Court proceeded to explain why the land cess before it was nothing else except a land tax falling within Entry 49
Under section 78 of the Act the cess is levied on occupied land on whatever tenure held
The basis of the levy is the annual rent value ie the value of the beneficial enjoyment of the property
This being the basis of the Tax and disclosing its true nature s79 provides for the manner in which the annual rent value is determined ie what is the amount for which the land could reasonably be let the benefit to the lessor representing the rateable value or the annual rent value
In the case of ryotwari lands it is the assessment which is payable to the Government that is taken as the rental value being the benefit that accrues to the Government
Where the land is held under lease it is the lease amount that forms the basis
Where land is held under a mining lease that which the occupier is willing to pay is accordingly treated as the annual rent value of the property
Such a rent value would therefore necessarily include not merely the surface rent but the dead rent as well as the royalty payable by the licensee lessee or occupier for the user of the property
The position then is that the rent which a tenant might be expected to pay for the property is in the case of lease hold interests treated as the statutory annual rent value
It is therefore not possible to accept the contention that the fact that the lessee or licensee pays a royalty on the mineral won which extended only to the mere use of the surface land places it in a category different from other types where the lessee uses the surface of the land alone
In each case the rent 125 which a lessee or licensee actually pays for the land being the test it is manifest that the land cess is nothing else except a land tax
 The judgment of the Supreme Court in the Murthy case supra held the field from 1964 to 1990
Murthy followed The above type of levy was not peculiar to the State of Tamil Nadu
In fact a cess on royalty was bound to be very remunerative to States having a wealth of mineral resources
We are informed that similar cess is being levied in several States
We have already referred to the cess levied in Orissa which came to be considered by this Court as early as 1961 and 1964 in the Hingir Rampur and Tulloch cases
Further cases came up for consideration on the same lines in Bihar Associated Cement Co Ltd vState of Bihar and Tata Iron  Steel Co vs State CWJC 301978 decided on 15584  the subject matter of CA 59286 before us in Orissa Laxmi Narayan Agarwala vs State AIR 1983 Ori
210 in Rajasthan Bherulal vs State AIR 1965 Raj 161 in Punjab Sharma vs State AIR  in Gujarat Saurashtra Cement  Chemical Industries Ltd vs Union  and Madhya Pradesh Hiralal Rameshwar Prasad vs State mP 41083 decided on 2831986 and MP Lime Manufactures  Association vs State of MP AIR 1989 MP 264 FB and except for the last two cases from Madhya Pradesh the others upheld the levy of a cess which depended on royalties following Murthy
India Cement case The correctness of the above line of decisions came to be tested in India Cement Ltd vs State
The Government of Tamil Nadu and granted a mining lease on 1971963 to the appellant for extraction of limestone and kankar for a period of twenty years
The lease deed which was in accordance with the Mineral Concession Rules stipulated for the payment of royalty dead rent and surface rent and also provided that the lessee was bound to pay all Central and State Government dues except land revenue
At the time the lease was obtained S1151 of the Madras Panchayats Act
1958 provided for the levy in each panchayat development block of a local cess at the rate of 45 paise on every ruupee of land revenue payable to the Government in respect of any land for every fasli
section 1152 provided that the 126 local cess will be deemed to be public revenue and all the lands and buildings thereon shall be regarded as security therefore
S 1153 and 4 set out the various purposes for which the cess levied and collected under section 115 could be utilised
S116 provided for the levy of a local cess surcharge
The maximum amount of such surcharge was originally left to be prescribed by the Government and was in 1970 limited to Rs150 on every rupee of land revenue and in 1972 to Rs250 on every rupee of land revenue
Apparently inspired by the decision in Murthy the Tamil Nadu Panchayats Amendment and Miscellaneous Provisions Act Tamil Nadu Act 18 of 1964 added with full retrospective effect the following Explanation to S1151 Explanation In this section and in Section 116 land revenue  means public revenue due on land and includes water cess payable to the government for water supplied or used for the irrigation of land royalty lease amount or other sums payable to the government in respect of land held direct from the government on lease or licence but does not include any other cess or the surcharge payable under Section 116 provided that lands revenue remitted shall not be deemed to be land revenue payable for the purpose of this section
The appellants  challenge in the High Court to this levy which was consequent on the 1964 amendment was unsuccessful
The High Court upheld it as a tax on land measured with reference to land revenue royalty or lease or other amount as mentioned in the Explanation
The challenge based on Entry 54 of List I read with Entry 23 of List II and the provisions of the MMRD Act 1957 was also repelled applying the decision in Murthy
The appeal to this Court was referred to a Bench of seven Judges who came to the conclusion that Murthy dity of the levy of the cess
It may be necessary to refer in greater detail to some passages in the judgment later but it will be convenient
for the present to summarise the salient conclusions of the Court
These were 1
The levy could not be supported under a Entry 45 of List II as it is not a tax on land revenue an expression which has a well defined connotation
Land revenue  is separate and distinct from royalty
The Explanation to S1151 itself proceeds on the basis that royalty cannot be land revenue 127 properly so called or conventionally so known
b Entry 49 of List II as it is not a tax on land
A tax on land can only be levied on tax as a unit must be imposed directly on land and must bear a definite relationship to it
There is a clear distinction between a tax directly on land and a tax on income arising from land
The cess is not a tax directly on land as a unit but only a tax on royalty which is indirectly connected with land
In the words of Oza
J it is a tax not only on land but on labour and capital as well
It could have been treated as a tax on land if it had been confined to surface rent  instead of royalty
c Entry 50 of List II as a tax on royalty as it is not a tax on mineral rights and so is outside the purview of Entry 50
Even otherwise Entry 50 is subject to the provisions of List I and is therefore subject to the declaration contained in and the purview of the MMRD Act 1957
Even if the cess is regarded as a fee the State s competence to levy the same can if at all only be justified with reference to Entry 23 and Entry 50 of List II but this recourse is not available as the field is already covered by Central Legislation referable to Entry 54 of List I 3
Murthy was not rightly decided
The view of the Rajasthan Punjab Gujarat and Orissa decisions was overruled
In the view taken by the Court ie Madhya Pradesh ruling was not examined n detail particularly as it was said to be pending in appeal before the Supreme Court
In issue before us now are the levies of cesses based on royalty from lands containing minerals by the States of Orissa Bihar and Madhya Pradesh
Since the relevant statutes vary in detail and the parties concerned have also taken different stands emphasising different aspects the arguments have to be considered and dealt with separately We may however mention that the appeals before us include those in the cases of Laxmi Narayan Agarwalla Orissa
land Harilal Rameshwar Prasad Madhya Pradesh noticed earlier
THE VARIOUS ENACTMENTS ORISSA The invalidation in 1961 of Orissa Act XXVII of 1952 in Hingir Rampur apparently rendered it necessary for the State to bring in fresh 128 legislation
The Orissa enactment with which we are now concerned is the Orissa Cess Act Orissa Act IIof 1962 as amended by Act 42 of 1976
According to the Statement of Objects and Reasons accompanying the bill the primary objective of the legislation is to condense and simplify the existing law on the subject by consolidating the different enactments customs and usages relating to the levy of cess in the State to cure defects and deficiencies therein and to introduce uniformity in the levy of cess throughout the State
The Act proposed to adopt a uniform rate of 25 paise in the rupee of the annual rental value and distribute the entire gross collection among the zilla parishads panchayat samithis referred to as samithis  in the Act and grama panchayats in the ratio 5812 respectively thus providing them with enhanced revenues to enable them to discharge their statutory responsibilities more efficiently by taking up development works and providing better amenities to the people of the State
Its principal provisions are as follows i Under Section 4 from and after the commencement of the Act all lands other than lands which were not liable to payment of rent or revenue before 1477 and lands which were subject to a tax on land holdings sunder a 1950 Municipal Act are made liable to the payment of cess in addition to any land revenue tax cess rate or fee otherwise payable in respect thereof determined and payable as herein provided
A 1976 amendment makes it clear that lands held for carrying on mining operations ar not exempt from the cess
ii The rate of cess assessment and fixation of cess year are dealt with by S5 which originally read thus 51 The cess shall be assessed on the annual value of all lands on whatever tenure held calculated in the manner hereinafter appearing
2 The rate per year at which such cess shall be levied shall be twenty five percentum of the annual value of the land
3 x x x Sub section2 was amended by Act 13 of 1970 by substituting of 50 in place of 25 but a 1982 amendment inserted S5A to provide that for a period 141977 to 3131980 the cess would be levied at 25 of the annual value in respect of lands held for carrying on mining 129 operations
section 5 was again amended by Act 15 of 1988 wef 26101988 to read thus 2 The rate at which such cess shall be levied shall be
a in case of lands held for carrying on mining operations in relation to any mineral on such percentum of the annual value of the said lands as specified against that mineral in Schedule II and b in case of other lands fifty percentum of the annual value
Clause a was again amended by Act 17 of 1989 to read thus a in the case of land held for carrying on mining operations in relation to any mineral such percentum of the annual value as the State Government may by notification specify from time to time in relation to such mineral
It will thus be seen that in place of a fixed rate an elasticity was provided for initially by requiring the rates to be specified in the Schedule differently for different minerals
Schedule II prescribed the percentage which the cess was to bear to the annual value the percentages varied from 650 in the case of sand to 300 in the case of coal 200 in respect of certain minerals such as iron ore limestone manganese ore except those meant for export or cement manufacture 150 in the case of certain other minerals and 100 in respect of the rest
Further elasticity was provided for in 1989 by leaving it to the Government to vary the rates by a simple notification
In consequence of this amendment Schedule has been omitted and a notification has been issued prescribing the percentage of the royalty or the dead rent as the case may be that is to be levied as the cess in respect of various items of specified minerals
The rates specified are 650 400 300 200 and 150
In respect of all minerals not specified in the notification the rate of cess is to be 100 of the royalty or dead rent
iii S6 specifies the person by whom the cess is payable
In so far as is material for our present purposes it directs that the cess is payable c by a person for the lands he holds for carrying on mining operations and shall be paid by him to the Government
This clause was inserted in S6 simultaneously with the amendment of S5 by Act 42 of 1976
130 iv Annual value is defined in S7 thus 7
Annual Value 1 The annual value of lands held by a raiyat shall be the rent payable by such raiyat to the land lord immediately under whom he holds the land x x x x x x 2 In the case of lands held as an estate the annual value shall be the aggregate of a the amount which the intermediary is entitled to receive on account of revenue or rent less the amount payable by such intermediary as revenue to the intermediary immediately superior to him or to the Government as the case may be and b the rent if any payable held for carrying on mining operations the annual value shall be the royalty or as the case may be the dead rent payable by the person carrying or mining operationss to the Government
 The Explanation to the section defines dead rent and royalty in terms of their definitions in the MMRD Act1957
It also states the royalty would include any payments made or likely to be make to the Government for the right of raising minerals from the land which shall be calculated on every tone of such minerals despatched from the land at the same rate as prescribed under the said Act or such other rate as may be fixed by the Government but not exceeding the amount which would have been otherwise payable as royalty under the said Act
Act 17 of 1989 also amended S73 to red thus 3 In the case of lands held for carrying on mining operations the annual value shall be the royalty or as the case may be the dead rent payable by the person carrying on mining operationss to the Government or the pit s mouth value wherever it has determined
This was apparently intended to regulate the cess on coal in respect of which the pit s mouth value had been determined
So a notification 131 dated 14889 was issued to provide that the cess in respect of coal bearing lands would be 30 of the pit s mouth value of the said mineral
v Sections 8 to 9B provide for the assessment of the cess in respect of various cases
S9B inserted by the 1976 amendment provided 9B Assessment of cess on lands held for mining operations 1 The cess payable in respect of lands held for carrying on mining operations shall be assessed in the prescribed manner
2 Nothing contained in Sections 89 and 9A shall apply in relation to the assessment of cess in respect of the aforesaid lands The prescribed manner of such assessment had been already set out in the Orissa Cess Rules 1963
Rule 6A inserted in 1977 deals with this but it is unnecessary for us to consider the details except to mention that it is assessed and collected along with the amount of royalty or dead rent by the Mining Officer concerned
vi S10 also needs to be referred to
It originally read thus 10
Application of proceeds of the cess 1 Notwithstanding anything contained in any other law the amount collected as cess shall be credited to the Consolidated Fund of the State and shall be utilised in the following manner namely a amounts collected in respect of lands within the local limits of any Municipality or Notified Area constituted under the Orissa
Municipal Act 1950 shall be paid to the concerned Municipal Council or Notified Area Council as the case may be and b amounts other than those referred to in clause a shall be distributed in the prescribed manner among the Grama Panchayats Samitis and Parishads in the ratio of twelve is to eight is to five
132 Explanation In this section Grama Panchayat mean a Grama panchayat constituted under the Orissa Grama Panchayats Act 1948 and Samiti and Parishad respectively mean the Samiti and Parishad constituted under the Orissa Panchayat Samiti and Zila Parishad Act 1964 and Samiti means a panchayat samiti constituted under the Orissa Panchayat Samitis Act 1959
Orissa Act 13 of 1970 substituted the following section for the above 10 Application of proceeds of the cess
1 Notwithstanding anything contained in any other law the amount collected as cess shall be credited to the Consolidated Fund of the State and shell be utilised for the following purposes namely a primary education b contribution to Grama Panchayats and c contribution to Samitis
Explanation In this sectionGrama Panchayat means  Grama Panchayat constituted under the Orissa Panchayat Samitis Act 1959
2 The proportion in which the amount collected as cess is to be allotted for the said purpose shall be as may be prescribed
As substituted by Act 42 of 1976 it reads 10
Application of proceeds of the cess 1 Notwithstanding anything contained in any other law all amounts collected as cess shall be credited fifty percentum of those which represent cess collected in respect of lands other than lands held by carrying on mining operations shall be utilised for the following purposes namely a primary education b contribution to Grama Panchayats and c contribution to Samitis
2 The allotment of amounts to be utilised for the pur 133 poses mentioned in clause a  b and c of sub section1 shall be made in such proportion as may be prescribed BIHAR We shall now turn to the relevant provisions of the Bihar Act
Bihar is governed in this respect by the provisions of the Bengal Cess Act Act IX of 1880
It is sufficient to refer to the provisions of Sections 4 to 69 and to certain notifications
i A definition of royalty  was introduced in S4 of the Act by an ordinance of 1975
It was amended by the Bihar Finance Act 1981 and then by the Bihar Finance Act 1982
The definition as amended wef
141982 by the latter reads as follows royalty for the purpose of this Act in respect of mines and quarries means payment which includes dead rent made or likely to be made to the owner of mines and minerals for the right of working the same on the quantity or value of such produce by a lessee if the land had been under a lease granted under MMRD Act 1957 and rules made thereunder and includes any amount which Government may demand from the appropriation of mines and minerals belonging to the Government and any amount that may be paid as or in lieu of royalty for the right of working mines and quarries in areas held or acquired under any Act or agreement
At the end of the section it added the following interpretation clause  Valuation of mineral bearing land means with reference to assessment of local cess in any year on land held for working mines and quarries the value at pit s mouth of all the mineral extracted form the land in that year and the Explanation which defines the value at pit s mouth of a mineral ii S5 provided that from and after the commencement of this Act in any district or part of a district all immovable property situate therein except otherwise in Section2 provided shall be liable to the payment of a local cess
134 iii Section 6 again is a much amended section As substituted by Ordinance No209 of 1975 dated 21275 it read 6
Cess has to be assessed The local cess shall be assessed on the annual value of lands and until provision to the contrary is made by the Parliament on the royalty of mines and quarries sale value of the other immovable properties including forest produce and annual net profits from tramways and railways as contained respectively as prescribed in this Act and the rate at which the local cess shall be levied for each other shall be a in the case of royalty the rate will be determined by the government from time to time but it will not exceed the amount of royalty b in the case such annual net profits fifteen paise on each rupee of such profits c in the case of annual value of lands twenty paise per rupee of the annual value and d in the case of sale value of immovable properties including first produce the rate will not exceed 10 and the State Government may by notification prescribe from time to time the commodities on the sale of which cess would be levied along with the rate at which it would be levied
It was amended by a series of Bihar Cess Amendment ordinances between 1975 and 1982 
It was further amended by the Finance Act 1982 wef 1482 the Finance Act 1984 the Finance Act 1985 wef 181985 and the Bihar Cess Amendment Ordinance 1985 After the last of these amendments the section stood thus S6
Cess how to be assessed The local cess shall be assessed on the annual value of the lands and until provision to the contrary is made by the Parliament on the royalty of mines and quarries or on value of mineral bearing land as the case may be sale value of other immovable properties including forest produce and annual net profits from tramways and railways ascertained respectively as prescribed in the Act and the rate at which the local cess 135 shall be levied for each year shall be a in the case of royalty the rate will be determined by the Government from time to time but it will not exceed five times the amount of royalty provided that the local cess payable in any one year shall not be less than the amount arrived at by multiplying the dead rent with the rate of cess determined undo clause a aa in the case of value of mineral bearing land where the local cess payable in any year in respect of any mineral bearing land as assessed in clause a is less than 30 per cent of the value of mineral bearing land in that year then notwithstanding anything hereinbefore contained the State Government may assess the local cess at such percentage of the value of the mineral bearing land not exceeding of 30 per cent as may be notified in the Official Gazette from time to time although the cess so assessed may exceed five times the amounts of royalty b in the case of annual net profit fifteen paise on each rupee of such profits c in the case of annual value of land twenty five paise per rupee of the annual value and d in the case of sale value of immovable properties including first produce the rate will not exceed 30 per cent and the State Government may  be notification prescribe from time to time the commodities on the sale of which cess would be levied along with the rates at which it would be levied
The Bihar Cess Amendment Ordinance 1987 replaced by Act 3 of 1988 substituted 40 for 30 in clause aa
iv S9 of the Act deals with the application of the proceeds of cess
It has been amended from time to time inter alia in 1976 1977 1978 1979 1980 1981 and 1982
After all these amendments the section stood thus 9
Application of the proceeds of cess The proceeds of local cess and all sums levied or recovered as interest or 136 otherwise shall in each district be paid in the district fund i at such rate as may from time to time be determined by the State Government in the case of local cess on annual value of land and ii at such rate as may from time to time be determined by the State Government subject to a maximum of twenty per cent in case of local cess on royalty of mines and quarries or value of mineral bearing land sale value of other immovable properties forest produce and annual net profit from tramways and railways and the remaining amount shall be deposited in the consolidated fund of the State for the construction and maintenance of other works of public utility xxx xxx xxx xxx xxx Provided further that out of the remaining amount not less than ten percent of the amount of the local cess collected under clause a or clause aa of Section 6 shall be spent for purposes relating to mineral development  
v In exercise of the powers conferred by section 6 above the State Government issued a notification on 201180 determining the rate of cess on the amount of royalty of all minerals of the State at 100 wef 121980
Our attention has also been drawn to and some print made of a notification dated 20485 by which the State Government modifying the earlier notification of 1101981 determined the rate of cess on the amount of royalty of iron ore which is extracted from manually operated iron ore mines   at 100 wef 11084 which was followed up by a notification dated 201185 enhancing the rate at 300 on the amount of royalty of iron ore wef21685 in respect of mines other than those in which the ore is extracted manually
Other notifications were also issued determining the rate of cess in respect of other minerals as indicated below  Date of Effective Mineral Rate Notification Date 201185 21685 Bauxite Ore sand 500 for stowing 201185 21685 Copper Ore and 300 uranium 201185 21685 Lime stone and kynite 200 201185 21685 Coal 30 of pit s mouth value or 500 on the amount of royalty whichever is greater 137 Madhya Pradesh In Madhya Pradesh two statutes have to be considered The first is the Madhya Pradesh Upkar Adhiniyam 1981 Act 1 of 1982
It provides for the levy of an energy development cess Part I an urban development cess Part II a cess on transfer of vacant land Part III and a cess on storage of coal Part IV
The Act provided that the cesses levied under Parts I and IV should first be credited to the Consolidated Fund of the State but subsequently withdrawn and credited to a separate Electrical Development Fund Ss32 and Coal bearing Area Development Fund section 121 and that the amounts to the credit of the funds as well as the cesses collected under Parts II and III should be utilised for special purposes connected respectively with energy development S33 development of coal bearing areas S122 urban development section 72 and rural development section 95
Act 21 of 1987 changed Part IV into a part dealing with cess on land held in connection with mineral rights   with full retrospective effect
Part IV as now substituted deals only with land situate in the State and held under a mining lease for undertaking mining operations in relation to major mineral including operations for raising winning or extracting coal  
Section 11 and 12 read thus Section 11 There shall be levied and collected a cess on land held in connection with mineral rights at such rate as may be notified by the State Government per ton of major mineral raised and the rate of cess prevailing in respect of coal during the period commencing from the date of commencement of the Principal Act and ending on the date of commencement of the Madhya Pradesh Upkar Sanshodhan Adhiniyam 1987 shall be deemed to be the rate of cess notified under this sub section in respect of coal Provided the subject to the limitation mentioned above the State Government may by notification increase or 138 reduce the rate of cess at an interval of not less than one year where the rate is increased it shall not be in excess of fifty per cent of the rate for the time being in force Provided further that every notification under the above proviso shall be laid on the table of the Legislative Assembly and the provisions of Section 24 A of the Madhya Pradesh General Clauses Act 1957 No 3 of 1958 shall apply thereto as they apply to rule
2 The rate of cess to be notified for the first time in exercise of the powers conferred by Sub section 1 shall be effective from the first of April 1987
3 The cess levied under sub section 1 shall subject to and in accordance with the rules made in this behalf be assessed and collected by such agencies and in such manner as may be prescribed
4 The agencies prescribed under sub section 3 shall for the purpose of assessment collection and recovery of cess and all matters connected therewith exercise such of the powers conferred upon the authorities specified in section 3 of the Madhya Pradesh General Sales Tax Act 1958 No 2 of 1959 for the purpose aforesaid in respect of sales tax under said Act and the rules made thereunder as may be prescribed as if such agencies were the authorities specified in the section 3 and the cess on land held in connection with mineral rights were the tax levied under the said Act
Section 12  The proceeds of the cess on land held in connection with the mineral rights may be utilised by the State Government for the general development of the mineral bearing areas   Section 12 has however been omitted by an Amending Act of 1989 again with full retrospective effect ie from 1101982
It appears however that there was in force in Madhya Pradesh wef 1111982 another statute levying mineral development cess
It was the MP Karadhan Adhiniyam 1982 Act 15 of 1982 as amended by MP Acts 1983 and 13 of 1985 which was challenged before the 139 MP High Court in Hiralal Rameshwar Prasad vs State and other connected cases
The Madhya Pradesh Karadhan Adhiniyam 1982 was enacted by State Legislature to provide for levy of school building cess forest development cess and mineral areas development cess and matters incidental thereto  
Part II of the Act deals with the school building cess
Section 5 therein requires the holder of every holding of six hectares and above to pay the school building cess as provided therein
The proceeds of the school building cess are required by S4 to be credited to a separate Fund supplemented by a State contribution equal to 50 thereof and utilised for construction and furnishing of primary school buildings in non urban areas
Part III of the Act deals with the forest development cess
Section 7 imposes forest development cess on every sale or supply for forest produce by the Forest Department
The proceeds thereof are to be credited to a separate Fund and utilised for social forestry afforestation reforestation forest rehabilitation and other purposes connected with forest development
Then comes Part IV dealing with the mineral areas development cess the provisions of which are relevant for the purpose of these appeals and it is the charging provision therefor contained in Section 9 which has been attacked as constitutionally invalid
The Section read thus 9 Levy of mineral areas development cess on land under mining lease  
1 There shall be levied and collected on the land held under a mining lease for undertaking mining operation a mineral areas development cess at the rate of twenty five percent of the rental value thereof
2 For the purpose of sub section 1 rental value shall be equal to the royalty or dead rent as the case may be whichever is higher
3 The mineral areas development cess shall be payable by person to whom the mining lease is granted
4 The mineral areas development cess shall subject to and in accordance with the rules made in this behalf be collected by such agencies and in such manner as may be prescribed and shall be applied towards development of mineral bearing areas  
140 The 1983 amendment substituted the following sub section 1 in Section 9 1 There shall be levied and collected on the land held under a mining lease for undertaking minor operations for a major mineral a mineral areas development cess at the rate of one hundred percentum o the rental value thereof  
The 1985 amendment substituted the following sub section in place of the above wef
181985 1 There shall be levied and collected a on the land held under mining lease for undertaking mining operations for a major mineral other than coal a mineral areas development cess at the rate of one hundred percentum of the rental value thereof b on the land held under mining lease for undertaking mining operations for coal a mineral area development cess at the rate of the hundred twenty five percentum of the rental value thereof  
and also made a provision for payment of interest on arrears of cess
Rules have been framed under this Act called The Madhya Pradesh Mineral Areas Development Cess Rules 1982  
Rule 3 provided for the collection of the cess every month along with the royalty or dividend
Rule 10 thereof is alone relevant for the purpose of these partitions and read as under 10
Application of cess The State Government shall decide from time to time the manner in which the amount collected from cess shall be utilized for the development of mining lease areas  
In 1985 an amendment substituted the words mineral bearing   for the words mining lease   in this rule
It will be seen that unlike the cesses referred to in Part I and III the Act did not provide for the creation of a separate Fund for the mineral areas development cess
The manner of utilisation thereof was also left to the discretion of the State Government though it had to be spent for development of mineral bearing areas
141 THE CONTENTIONS ORISSA In the historical and statutory context set out above the attempt of Sri TS Krishnamurthy Iyer learned counsel for the State of Orissa to save the impugned legislation of the State is two fold
First he points out that in India Cement the statute by Ss 115 and 116 imposed a cess and surcharge on land revenue  and the explanation to section 115 defined land revenue  to mean royalties 
In other words that was a clear case of direct cess or Tax on royalties
Here on the other hand s5 makes it clear that what the legislature has provided for is a tax assessed on the annual value of all lands on whatever tenure held calculated at a percentage of the annual value of the land
section 7 which defines annual value  provides for different measures for determining the annual value in respect of lands held under different kinds of tenures and in the case of lands held for mining operations the measure of such annual value is the royalty or dead rent paid to the Government
On a proper construction of the statute he submits the cess levied is a cess or tax on land and the royalty  is only taken as a measure for determining the quantum of tax
He contends that India Cement only forbids a cess or tax on royalty as such and not a cess or tax on land which may be measured by reference to the royalty derived from it
He presses in aid of his argument the well marked distinction between the subject matter of a tax and its measure outlined amongst others in Ralla Ram s case 1948 FCR207 at pp
218 224 and Bombay Tyre International v Union 1984 1 SCC487 at pp
481 4
This argument Sri Iyer contended is based on the statutory language used in the Orissa Cess Act 1962 and should prevail independently of the correctness or otherwise of Murthy Secondly he submitted that royalty  is not a tax and the cess on royalty is also not a tax but only a fee
This view is supported he said by the limitations imposed in the statute on the modes of its utilisation
Being a fee the State Legislature s competence to impose it has to be determined with reference to Entry 23 read with Entry 66 of the State List
So doing the validity of the levy has to be upheld as in counsel s submission the declaration contained in and the provisions of the MMRD Act 1957 do not in any way whittle down or impair this competence
Basically it will seen two questions arise 1 Can the cess be considered as land revenue   under Entry 45 or as a tax on land   under Entry 49 or as a tax 142 on mineral rights   under Entry 50 of the State List 2 If the answer to question 1 is in the negative can the cess be considered to be a fee pertaining to the field covered by Entry 23 of the State List or has the State been denuded of the legislative competence under this Entry because of Parliament having enacted the MMRD Act 1957 Taking up the first question the attempt to bring the levy under Entry 45 of the State List proceeds in two steps
First land revenue is the sovereign s share of the proceeds of the land belonging to the sovereign and is represented in the case of land containing minerals by the payment of royalty to the Government
Second the cess being an accretion to royalty partakes of the same character
This argument however must fail in view of the categorical observations of the Supreme Court in india Cement vide paras 20 and 21 as to the connection of the expression land revenues 
At least in India Cement the statute sought to include royalty within the meaning of land revenue  but there is no such provision in the Orissa Act and this being so royalty or the tax thereon cannot be equated to land revenue
The cess here cannot be therefore brought under Entry 45
Turning next to Entry 50 though Murthy left open the question how far a levy of this nature can be considered to be a tax on mineral rights vide page 676 India Cement has chosen to approve the contrary view of Wanchoo J in his dissenting judgment in Hingir Rampur para 30
Actually it appears that the observations of Wanchoo J have not been fully examined
The learned Judge held that the tax in the case before him was not a tax on mineral rights because it was levied on the value of the minerals extracted
If his observations in this context are read as a whole it would seem that he also was of opinion that a tax on royalty would be a tax on mineral rights for he observed at pp
582 3 The next contention on behalf of the State of Orissa is that if the cess is not justified as a fee it is a tax under item 50 of List II of the Seventy Schedule
Item 50 provides for taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development
This raises a question as to what are taxes on mineral rights
Obviously taxes on mineral rights must be different from taxes on goods produced in the nature of duties of excise
If 143 taxes on mineral rights also include taxes on minerals produced there would be no difference between taxes on mineral rights and duties of excise under item 84 of List I A comparison of List I and II of the Seventh Schedule shows that the same tax is not put in both the Lists
There fore taxes on minerals rights must be different from duties of excise which are taxes on minerals produced
The difference can be understood if one sees that before minerals are extracted and become liable to duties of excise somebody has got to work the mines
The usual method of working them is for the owner of the mine to grant mining leases to those who have got the capital to work the mines
There should therefore be no difficulty in holding that taxes on mineral rights are taxes on the right to extract minerals and not taxes on the minerals actually extracted
Thus tax on mineral rights would be confined for example to taxes on leases of mineral rights and on premium or royalty for that
Taxes on such premium and royalty would be taxes on mineral rights while taxes on the minerals actually extracted would be duties of excise
It is said that there may be cases where the owner himself extracts minerals and does not give any right of extraction to somebody else and that in such cases in the absence of mining leases or sub leases there would be no way of leaving tax on mineral rights
It is enough to say that these cases also rare though they are present no difficulty
Take the case of taxes on annual value of buildings
Where there is a lease of the building the annual value is determined by the lease money but there are many cases where owners themselves live in buildings
In such cases also taxes on buildings are levied on the annual value worked out according to certain rules
There would be no difficulty where an owner himself works the mine to value the mineral rights on the same principles on which leases of mineral rights are made and then to tax the royalty which for example the owner might have got if instead of working the mine himself he had leased it out to somebody else
there can be no doubt therefore that taxes on mineral rights are taxes of this nature and not taxes on minerals actually produced
Therefore the present cess is not a tax on mineral rights it is a tax on the minerals actually produced
Therefore the present cess is not a tax on mineral rights it is a tax on the minerals actually produced and can be no different in pith and substance from a 144 tax on goods produced which comes under Item 84 of List I as duty of excise
The present levy therefore under section 4 of the Act cannot be justified as a tax on mineral rights
However the conclusion of India Cement is clear that a tax on royalties cannot be a tax on minerals and we are bound thereby
This apart we shall also advert while discussing the second question to another hurdle in the way of the State s attempt to have recourse to Entry 50 which has also been touched upon by India Cement
Can then the cess be described as a tax on land   The Status considered in India Cement as Sri Iyer correctly points out was differently worded
It purported to levy a cess on land revenue and royalty  was brought within the definition of that expression
It was therefore a case where they levy had no reference to land at all but only to the income from the land in the case of Government lands got by way of land revenue or otherwise
Here the Statute is different
The objective of the Cess Act as set out earlier is to levy a cess on all land
Indeed originally the idea was to levy a uniform cess at 25 of the annual value of all land which was subsequently raised to 50
It is argued that the tax here is therefore a tax on land and it is immaterial that this tax is quantified with reference to the income yielded by the land
A tax on land may be levied inter alia with reference to its capital value or with reference to its annual value
One realistic measure of such capital or annual value will be the income that the land will yield just as for property tax purposes the annual value is based on the amount for which the property can reasonably let from year to year
The income from the land may be more or less due to a variety of reasons
In the case of agricultural lands it may depend on the fertility of the soil the sources of irrigation available the nature of crops grown and other such factors
Likewise where the land is one containing minerals naturally the value whether annual or capital value will be more if it contains richer minerals and can be legitimately measured by reference to the royalties paid in respect thereof
the mere fact it is argued that the annual value is measured with reference to the royalty dead rent or pit s mouth value of the mineral does not mean that it ceases to have the character of a tax on land
In this context Sri Iyer places strong reliance on the decision of a Constitution Bench of this Court in Ajay Kumar Mukherjea vs Local Board of Barpeta 19653 SCR 47
There a local Board was authorised to grant a license for the use of any land as a market and impose an annual tax thereon  
The Court held examining the Scheme and the language of the provision in question that the tax imposed was a tax 145 on land under Entry 49
The Court indicated the following approach to the issue before it The first question which falls for consideration therefore is whether the impost in the present case is a tax on land within the meaning of Entry 49 of List II of the Seventh Schedule to the Constitution
It is well settled that the entries in the three legislative lists have to be interpreted interpreted in their widest amplitude and therefore if a tax can reasonably be held to be a tax on land it will come within Entry 49
Further it is equally well settled that tax on land may be based on the annual value of the land and would still be a tax on land and would not be beyond the competence of the State legislature on the ground that it is a tax on income see Ralla Ram vs The Province of East Punjab 1948 FCR207
it follows therefore that the use to which the land is put can be taken into account in imposing a tax on it within the meaning of entry 49 of List II for the annual value of land which can certainly be taken into account in imposing a tax for the purpose of this entry would necessarily depend upon the use to which the land it put
It is in the light of this settled proposition that we have to examine the scheme of section 62 of the Act which imposes a tax under challenge   On the other hand it is contended for the respondents that whatever may have been the original intention the true and real impact of the cess is only on the royalties
It is said that at any rate after the amendments of 1976 when lands held for mining operations were segregated for levy of separate and steep rates of cess based on royalty the ostensible appearance of levying a tax on all land with reference to annual value has disappeared and a direct undisguised tax on royalties from mining lands has taken its place
it is urged that for deciding whether the tax is really a tax on land as in Murthy or whether it is really a tax on royalties which has been struck down in India Cement it is not the form or the statutory machinery that matters one has to look at the real substance and true impact of the levy
If this is done it is said there can be no doubt that the cess impugned here suffers from the same vice that vitiated the levy in India Cement
The decision of this Court in Buxa Dooars Tea Co vs State was referred to by Sri GRamaswamy learned 146 counsel for Orient Paper Mills in support of this contention
In that case this Court was concerned with a cess levied annually
Initially section 42 of the relevant statute levied the cess a in respect of lands at the rate of six paise on each rupee of development value thereof b in respect of coal mines at the rate of fifty paise on each tonne of coal on the annual dispatches therefrom c in respect of mines other than coal mines and quarries at the rate of six paise on each rupee of annual net profits thereof  
With effect from 141981 clause a above was amended and clause aa inserted to provide for the levy of cess a in respect of land other than a tea estate at the rate of six paise on each rupee of development value thereof aa in respect of a tea estate at such rate not exceeding rupees six on each kilogram of tea on the dispatches from such tea estate of tea grown therein as the State Government may by notification in the Official Gazette fix in this behalf Provided that in calculating the dispatches of tea for the purpose of levy of rural employment cess such dispatches for sale made at such tea auction centres as may be recognised by the State Government by notification in the Official Gazette shall be excluded Provided further that the State Government may fix different rates on dispatches of different kinds of tea  
Sub section 4 was added in Section 4 to enable the State Government if it considers necessary so to do by notification in the Official Gazette to exempt such categories of dispatches or such percentage of despatches from liability to pay the whole or any part of the rural employment cess or reduce the rate of rural employment cess payable thereon under clause aa of sub section 2 on such terms and conditions as may be specified in the notification
With effect from 1101982 the first proviso to clause aa was omitted
It was contended 147 for the tea estate inter alia that the above levy violated the provisions of Article 301 of the Constitution and was also beyond the legislative competence of the State Government
Upholding these contentions the Court observed The question then is whether the impugned levy impedes the free flow of trade and commerce throughout the territory of India and if it does whether it falls within the exception carved out in article 304b
If the levy imposes a cess in respect of tea estate it may will be said that even though the free flow of trade is impeded in its Government throughout the territory of India it is in consequence of an indirect or remote effect of the levy and that it cannot be said that article 301 is contravened
The contention of the petitioners is however that it is ostensibly only in respect of tea estate but in fact it is a levy on despatches of tea
If that contention is sound there can be no doubt that it constitutes a violation of article 301 unless the legislation is brought within the scope of article 304b
To determine whether the levy is in respect of tea estates or is a levy on despatches of tea the substance of the legislation must be ascertained from the relevant provisions of the statute
It cannot be disputed that the subject of the levy the nature of which defines the quality of the levy must not be confused with the measure of liability that is to say the quantum of the tax
There is a plenitude of case law supporting that principle among the cases being Union of India vs Bombay Tyre International 1984 1 SCR347
But what is the position here 
Now for determining the true nature of the legislation whether it is a legislation in respect of tea estate and therefore of land or in respect of despatches of tea we must as we have said take all relevant provisions into account and ascertain the essential substance of it
It seems to us that although the impugned provisions speak of a levy of cess in respect of tea estates what is contemplated is a levy on despatches of tea instead
The entire structure of the levy points to that conclusion
If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea dispatched there must be a nexus between the two indicating relationship between the levy on the tea estate and the criteria for determining the 148 measure of liability
If there is no nexus at all it can conceivably be inferred that the levy is not what it purports to be
The statutory provisions for measuring the liability on account of the levy throws light on the general character of the tax as observed by the Privy Council in Re A Reference under the Government of Ireland Act 1920 and Section 3 of the Finance Act Northern Ireland 1934 1963 2 AER III
In RR Engineering Co vs Zilla Parishad Barielly  this Court observed that the method of determining the rate of levy would be relevant in considering the character of the levy
All these cases were referred to in Bombay Tyer International Ltd  where in the discussion on this point at page 367 this Court said Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy  
Applying the above tests to the case before it the Court reached the conclusion that in substance the impugned levy was a levy in respect of despatches of tea and not in respect of tea estates
It was then pointed out that the question of legislative competence also turned on this issue If this impugned legislation were to be regarded as a levy in respect of the estates it would be referable to entry 49 in List II of the Seventh Schedule of the Constitution which speaks taxes on lands and buildings  
But if the legislation is in substance legislation in respect of despatches of tea legislative authority must be found for it with reference to some other entry   Pointing out that no such entry in List II or III had been brought o its notice and further that under S2 of the Tea Ct 1953 control over the tea industry has been assumed by Parliament within the meaning of Entry 54 of List I the Court upheld the challenge to the competence of the State legislature to levy the impugned cess
it is submitted that likewise here the levy is one in substance on royalties and not one on land
There is force in the contention urged by Sri TSK Iyer that there is a difference in principle between a tax on royalties derived 149 from land and a tax on land measured by reference to the income derived therefrom
That a tax on building does not cease to be such merely because it is quantified on the basis of the income it fetches is nowhere better illustrated than by the form of the levy upheld in Ralla Ram followed by Bhagwan Dass Jain  which illustrates the converse situation
Mukherjea supra also supports this line of reasoning
But here the levy is not measured by the income derived by the assessee from the land as is the case with lands other than mineral lands
The measure of the levy is the royalty paid in respect of the land by the assessee to his lessor which is quite a different thing
Moreover interesting as the argument is we are constrained to observe that it is only a reiteration of the ratio in Murthy which has been upset in India Cement
We may point out that this is of significance because unlike in India Cement the statute considered in Murthy as the one here only purported to levy a cess on the annual value of all land
India Cement draws a clear distinction between tax on land and tax on income arising from land  
The former must be one directly imposed on land levied on land as a unit and bearing a direct relationship to it
In para 23 of the judgment the Court has categorically stated that a tax on royalty cannot be said to be a tax directly on land as a unit
Sri Iyer contended that all the observations and propositions in India Cement stem from the basic conclusion of the Court that the cess levied there was a cess on royalty in view of the Explanation to section 115
He also submitted that the statue under consideration in India Cement did not provide for any cess in the case of land which did not yield any royalty in other words the Act did not use dead rent as a basis on which land was to be valued
He drew attention to the observations of Oza JIn para 42 of India Cement that if the Explanation to section 115 had used the words surface rent  in place of royalty  the position would have been different and that if a cess on such surface rent  or dead rent  is charged it could be justified as a tax on land falling within the purview of Entry 49 Here however the position is different and so he urged the nature of the levy is also different
We may have considered these points as furnishing some ground to distinguish the present levy from that in india Cement but for the Court s specific disapproval of Murthy
We are unable to accept the plea of Sri Iyer that in spite of Murthy he can support the validity of the levy as the statute considered in Murthy contained exactly the same features as are here emphasised by Shri Iyer and the validity of such Levy cannot be upheld after India Cement
As to the second contention based on the observations in the judgment of Oza J we may point out here the 150 levy is not one confined to dead rent or surface rent as suggested by Oza J but one on royalty which even according to Oza J cannot be described as a tax on land
Sri Iyer contended that unless the case of the assessees is that the statute is a piece of colourable legislation it is not possible to construe the levy on mineral lands differently
He pointed out that section 4 of the Orissa Cess Act 1962 levies a cess on all land and that if Sc
71 and 2 measuring the cess by reference to the income of other categories of land are valid there is no reason why S73 alone should be treated differently and objected to as imposing a tax on royalties particularly when the levy also extends to dead rent
The answer to this contention appears to be that the plea of the assessee need not go to the extent of saying that the levy is a colourable piece of legislation
it is sufficient to restrict oneself to the issue of a proper determination of the pith and substance of the legislation
There is no doubt an apparent anomaly in considering section 71 and 2 as levying a tax on land but construing section 73 as imposing a tax on royalties and this anomaly has been noticed in India Cement vide para 42
But the question is what is it that is really being taxed by the Legislature So far as mineral bearing lands are concerned is the impact of the tax on the land or on royalties The change in the scheme of taxation under S7 in 1976 the importance and magnitude of the revenue by way of royalties received by the State the charge of the cess as a percentage and indeed as multiples of the amount of royalty and the mode and collection of the cess amount along with the royalties and as part thereof are circumstances which go to show that the legislation in this regard is with respect to royalty rather than with respect to land
Sri Iyer had invited our attention to the decision of this Court in RR Engineering Co v Zila Parishad  which upheld the validity of a circumstances and property tax  levied by a Zila Parishad
The High Court had held this levy could not be traced to any entry other than the residuary Entry 97 of List I This Court on appeal pointed out the distinction between a tax of this type and a tax on income
It held that the tax was a composite one referable to Entry 49 tax on lands and buildings Entry 58 taxes on animals and boats and Entry 60 tax as on professions trades callings and employments of List II
While holding therefore that the ceiling of Rs250 per annum referred to in Entry 60 would not be applicable to the tax the Court uttered a word of caution  
151 The fact that one of the components of the impugned tax namely the component of circumstances  is referable to other entries in addition to Entry 60 shall not be construed as conferring an unlimited charter on the local authorities to impose disproportionately excessive levies on the assessees who are subject to their jurisdiction
An excessive levy on circumstances will tend to blue the distinction between a tax on income and a tax on circumstances
income will then cease to be a mere measure or yardstick of the tax and will become the very subject matter of the tax
Restraint in this behalf will be a prudent prescription for the local authorities to follow  
While Sri Iyer sought to use this decision in support of his contention that a tax on property can be legitimately measured on the basis of the income therefrom we think the observations extracted above are very apposite here
The manner in which the levy initially introduced a uniform cess on all land was slowly converted qua mining lands into a levy computed at multiples of the royalty amounts paid by the lesses thereof seem to bear out the contention that it is being availed of as a tax on the royalties rather than one on the annual value of the land containing the minerals
In the words of Chandrachud J as he then was one can legitimately conclude that royalty has ceased to be a mere measure or yardstick of the tax and has become the very subject matter thereof
For the reasons discussed above we repel the contention of the State seeking to justify the levy under Entry 45 49 and 50 of List II of the Seventh Schedule
There has been considerable discussion before us as to whether royalty  itself is a tax or not
The controversy before us centres round the discussion contained in paras 31 to 34 of the India Cement judgement
Counsel for the assessees respondents invite attention to the opening sentence of para 34 which runs In the aforesaid view of the matter we are of the opinion that royalty is a tax   and argue that this clinches the issue
On the other hand Sri Iyer submits that this purported conclusion does not follow from the earlier discussion and is also inconsistent with what follows
He points out that though there is a reference in para 27 to the conclusion of Venkataramiah J in a judgement of the Mysore High Court that royalty under S9 of the MMRD Act is really a tax and a reference in para 31 to the Rajasthan Punjab Gujarat and Orissa decisions to the effect that royalty is not a 152 tax there is no discussion criticism or approval of any of the decision on this point and that therefore the first sentence of para 34 relied upon for the respondents is non sequitir
He submits that perhaps there is a typographical error in the first sentence of para 34 and that the sentence should really read thus In the aforesaid view of the matter we are of opinion that cess is a tax and as such a cess on royalty being a tax on royalty is beyond the competence of the State Legislature    He also points out that the last sentence of para 34 reads thus Royalty on mineral right is not a tax on land but a payment for the use of land  
He submits therefore that this issue has not been decided in India Cement
He submits that before we express any opinion on this issue we should consider the matter afresh and places before us extracts from various lexicons and dictionaries to show that a royalty is nothing more than the rent or lease amount paid to a lessor in consideration for the grant of a lease to exploit minerals
Reference may also be made to the discussion in this respect in paras 35 40 of Trivedi  Sons vs State of Gujarat 1986 Supp
SCC 20
It is therefore neither a fee nor a tax but merely a price paid for the use of mineral bearing land
We do not think that it is necessary for us to express an opinion either way on this controversy for it seems to us it is immaterial for the purposes of the present case
If royalty itself were to be regarded as a tax it can perhaps be described properly as a tax on mineral rights and has to conform to the requirements of section 50 which are discussed later
We are however here concerned with the validity of the levy of not royalty but of cess
If the cess is taken as a tax then unless it can be described as land revenue or a tax on land or a tax on mining rights it cannot be upheld under Entry 45 49 or 50
On the contrary if it is treated to Entry 23 a proposition the effect of which will be considered later
the question whether royalty is a tax or not does not assist us much in furnishing an answer to the two questions posed in the present case and set out earlier
We shall therefore leave this question to rest here
This takes us to the second question posed by us initially and this 153 turns on the effect of MMRD Act 1957 and the declaration contained in S2 thereof which has been extracted earlier
This will arise if we treat the levy as a tax falling under Entry 50 of List II or alternatively as a fee though it may not affect the State s competence if it can be attributed to Entry 49 of List II
To take up Entry 50 first a perusal of entry 50 world show that the competence of the State Legislature with respect thereto is circumscribed by any limitations imposed by Parliament by law relating to mineral development  
The MMRD Act 1957 is there can be no doubt about this a law of Parliament relating to mineral development
S9 of the said Act empowers the Central Government to fix alter enhance or reduce the rates of royalty payable in respect of minerals removed from the land or consumed by the lessee
Sub section 3 of Section 9 in terms states that the royalties payable under the Second Schedule to the Act shall not be enhanced more than once during a period of three years
India Cement has held that this is a clear bar on the State legislature taxing royalty so as in effect to amend the Second Schedule to the Central Act and that if the cess is taken as a tax falling under Entry 50 it will be ultra vires in view of the provisions of the Central Act
It is possible then to treat the levy as a fee which the State legislature is competent to legislate for under Entry 66 of the State List Sri Iyer contends for this position particularly on the strength of S10 of the Orissa Cess Act 1962
There is one great difficulty in accepting this solution to the State s problem
S10 as it stands now earmarks the purposes of utilisation of only fifty percent of the proceeds of the cess and that too is limited to the cess collected in respect of lands other than lands held for carrying on mining operations  
In other words the levy cannot be correlated to any services rendered or to be rendered by the State to the class of persons from whom the levy is collected
Whether royalty is a tax or not the cess is only a tax and cannot be properly described as a fee
This consideration apart even assuming it is a fee the State legislature can impose a fee only in respect of any of the matters in the State List
The entry in the State List that is relied upon for this purpose is Entry 23
But Entry 23 it will be seen is subject to the provisions of List I with respect to regulation and development   of mines and minerals under the control of the Union
Under Entry 54 of List I regulation of mines and mineral development is in the field of Parliamentary legislation to the extent to which such regulation and 154 development under the control of the Union is declared by Parliament by law to be expedient in the public interest  
Such a declaration is contained in section 2 of the MMRD Act 1957 which has been set out earlier
It therefore follow that any State legislation to the extent it encroaches on the field covered by the MMRD Act 1957 will be ultra vires
The assessees contend in this case that the legislation in question is beyond the purview of the State legislature by reason of the enactment of the MMRD Act
It would appear prima facie that the contention has to be upheld on the basis of the trilogy of decisions referred to at the outset viz Hingir Rampur Tulloch and India Cement
They seem to provide a complete answer to this question
The argument is however discussed at some length because it has been put forward mutatis mutandis in support of the levy of cess by the other State as well
Before dealing with the contentions of the counsel for the State in this behalf a reference may be made to a difference in wording between Entry 52 and Entry 54 of List I The languages of Entry 52 read with Entry 24 would suggest that once it is declared by Parliament by law that the control of a particular industry by the Union is expedient in the public interest the State legislatures completely lose all competence to legislate with respect to such an industry in any respect whatever indian Tobacoo Co Ltd vs Union 1985 Supp 1 SCR 145
But even here there are judicial decisions holding that such declaration does not divest the State legislature of the competence to make laws the pith and substance of which fall within the entries in List II see for eg Kannan Dewan Hills Co vs State of Kerala  and Ishwari Khetan Sugar Mills Ltd vs State of UP  to which reference will also be made later merely on the ground that it has some effect on such industry
Compared to that of Entry 52 the language of Entry 54 is very guarded
It deprives the States of legislative competence only to the extent to which the law of Parliament considers the control of Union to be expedient in the matter of regulation of mines and mineral development
Emphasising this difference learned counsel for the State of Orissa submits that the intent purpose and scope of the MMRD Act is totally different and does not cross the field covered by the impugned Act
It is a law to provide for the proper exploitation and development of minerals and regulates the persons to whom the manner in which and procedure according to which licenses for prospecting or leases for minerals should be granted
The enactment is concerned with the need for a proper exploitation of minerals from lands
The impugned Act on the other hand concentrates on the need 155 for development of mineral areas as such and provides for the collection of cess to cater to these needs
The scope of the subject matter of legislation under the two Acts are entirely different and the MMRD Act cannot be considered to exclude State legislation of the nature presently under consideration
Before considering the above contention it will be useful to refer to certain earlier decisions of this Court which have a bearing on this issue
State of West Bengal vs Union 1964 1 SCR 371 concerned the validity of an Act of Parliament proposing to acquire certain coal bearing areas in the State qua certain areas vested in the State itself
While upholding the general right of Parliament to legislate for the acquisition of even property vested in a State the Court pointed out that this could be done only if there is some provision in the Central Act expressly or necessarily implying that the property of the State is to be acquired by the Union
However the Court held when the requisite declaration under Entry 54 is made the power to legislate for regulation and development of mines and minerals under the control of the Union would by necessary implication include the power to acquire mines and minerals
Baijnath Kedia vs State of Bihar  was a case arising out of a 1964 amendment to the Bihar Land Reforms Act 1950
By section 10 of the 1950 Act all the rights of former landlords or lessors under mining leases granted by them in their estates came to be vested in the State but the terms and conditions of those leases were made binding upon the State Government
Under a second proviso to this provision and a sub rule added by virtue of the 1964 amendment additional demands were made to lessees the validity of which was challenged successfully before this Court
The Court applying Hingir Rampur and Tulloch held that the whose whole of the legislative field in respect of minor minerals was covered by Parliamentary legislation and Entry 23 of List II was to the extent cut down by Entry 54 of List I
The old leases could not be modified except by a legislative enactment by Parliament on the lines of S16 of the MMRD Act 1957
In State of Haryana vs Chanan Mal  the State Government had declared saltpetre as a minor mineral and auctioned saltpetre mines in the State under the MMRD Act 1957 read with the Punjab Minor Minerals Concession Rules 1964
In a writ petition filed by one of the owners the High Court held unless the mineral deposits were specifically mentioned in the wajib ul arz of the village 156 as having vested in the State their ownership would continue to remain vested in the former proprietors according to the record of rights
To meet this difficulty and the difficulties that had been created by haphazard leases created by the erstwhile proprietors the State legislature passed the Haryana Minerals Vesting of Rights Act 1973 and issued notifications thereunder again acquiring the rights to the saltpetre in the lands putting up certain saltpetre bearing lands to auction
The High Court upheld the challenge to the validity of the notifications holding that in view of the declaration contained in S2 of the MMRD Act the field covered by the impugned Act was already fully occupied by Central legislation and that therefore the State Act was void and imperative on grounds of repugnancy
This Court however reversed the High Court s decision
It held that though the stated objects and reasons of the State Act showed that the acquisition was to be made to protect the mineral potentialities of the land and to ensure their proper development and exploitation on scientific lines and this did not materially differ from that which could be said to lie behind the Central Act the character of the State Act had to be judged by the substance and effect of its provisions and not merely by the purpose given in the Statement of Objects and Reasons
Analysing the provisions of the Central Act the Court pointed out that subject to the overall supervision of the Central Government the State Government had a sphere of its own powers and could take legally specified actions under the Central Act and rules
In particular S161b of the Central Act showed that Parliament itself contemplated State legislation for vesting of lands containing minerals deposits in the State Government a feature that could be explained only on the assumption that Parliament did not intend to touch upon the power of State legislatures under Entry 18 of List II read with Entry 42 of List IIIS17 also showed that there was no intention to interfere with vesting of lands in the States by the provisions of the Central Act
The decision of Hingir Rampur Tulloch and Baijnath Kedia were distinguished
In Chanana Mal Supra the respondents relied upon certain observation in Hingir Rampur and State of West Bengal vs Union supra
The Court however distinguished them saying In the two cases discussed above no provision of the Central Act 67 of 1957 was under consideration by this Court
Moreover power to acquire for purposes of development and regulation has not been exercised by Act 67 of 1957
The existence of power of Parliament to legislate on this topic as an incident of exercise of legislative power on another subject is one thing
Its actual exercise is another
157 It is difficult to see how the field of acquisition could become occupied by a Central Act in the same way as it had been in the West Bengal s case supra even before Parliament legislate to acquire land ina State
At least untill Parliament has so legislated as it was shown to have done by the statute considered by this Court in the case from West Bengal the field is free for State legislation falling under the express provisions of entry 42 of List III
Tulloch and Baijnath Kedia were also considered no longer applicable as Ss16 and 17 of the MMRD Act 1957 had been amended to get over the need for a parliamentary legislation pointed out in Baijnath Kedia
A similar question whether the State legislature was competent to acquire certain sugar undertakings when the sugar industry had become a declared industry under the provisions of Entry 52 of List I read with S2 of the IDR Act arose for consideration of Ishwari Khetan Sugar Mills P Ltd vs State of UP1980 3
SCR 331
Answering this question in the affirmative the Court observed  The argument that the State legislature lacked competence to enact the impugned legislation is without force
Legislative power of the State under Entry 24 List II is eroded only to the extent control is assumed by the Union pursuant to a declaration made by the Parliament in respect of a declared industry as spelt out by the legislative enactment and the field occupied by such enactment is measure of erosion
Subject to such erosion on the remainder the State legislature will have power to legislate in respect of a declared industry without in any way trenching upon the occupied field
State legislature which is otherwise competent to deal with industry under Entry 24 List II can deal with that industry in exercise of other powers enabling it to legislate under different heads set out in Lists II and III and this power cannot be denied to the State
The contention that the impugned Act is in violation of section 20 of the Central Act had no merit
The impugned legislation was no enacted for taking over the management or control of nay industrial undertaken by the State undertakings
If an attempt was made to take over the manage 158 ment or control of any industrial undertaking in a declared industry the bar of section 20 would inhibit exercise of such executive power
The inhibition of section 20 is on the executive power which if as a sequel to an acquisition of an industrial undertaking the management or control of the industrial undertaking stands transferred to the acquiring authority section 20 is not attracted
It does not preclude or forbid a State legislature exercising legislative power under an entry other than Entry 24 of List II and if in exercise of that legislative power the consequential transfer of management or control over the industry or undertaking follows as an incident of acquisition such taking over of management or control pursuant to an exercise of legislative power is not within the inhibition of section 20
The decisions in the above two case were again applied in Western Coalfields Ltd vs Special Area Development Authority  Here the question was whether the enactment of the Coal Mines Nationalisation Act 1973 and the MMRD Act 1957 precluded the State legislature from providing for the levy of a property tax by the Special Area Development Authority constituted under a 1973 Act of the State legislature in respect of lands and buildings used for the purposes of and covered by coal mines
The plea on behalf of the appellant coalfields was that the State Act was invalid a as it encroached on the field vested in the Centre by reason of the declaration of S2 of MMRD Act and b as it impeded the powers and functions of the union under the Coal Mines Nationalosation Act 1973 which had been enacted by Parliament for acquisition of coal mines with a view to reorganising and restructuring such coal mines so to ensure the rational coordinated and scientific development and utilisation of coal resources as best to subserve the common good
Rejecting this contention the Court held   Apart from the fact that there is no data before us showing that the property tax constitutes an impediment in the achievement of the goals of the Coal Mines Nationalisation Act the provisions of the MP Act of 1973 under which Special Areas and Special Area Development Authorities are constituted afford an effective answer to the Attorney General s contention
Entry 23 of List II relates to Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union
Entry 54 of List I 159 relates to Regulation of mines and mineral development to the extent to which such regulation and development under control of the Union is declared by Parliament by law to be expedient in the public interest
It is true that on account of declaration contained in S2 of the Mines and Minerals Development  Regulation Act
1957 the legislative field covered by Entry 23 of List II will pass on to Parliament by virtue of Entry 54 List I
But in order to judge whether on that account the State legislature loses its competence to pass the Act of 1973 it is necessary to have regard to the object and purpose of that Act and to the relevant provisions thereof under which Special Area development Authorities are given the power to tax lands and buildings within their jurisdiction
We have set out the objects of the Act at the commencement of this judgement one of which is to provide for the development and administration of Special Areas through Special Area Development Authorities
Section 64 of the Act of 1973 which provides for the constitution of the special areas lays down by sub section 4 that Notwithstanding anything contained in the Madhya Pradesh Municipal Corporation Act 1956 the Madhya Pradesh Panchayats Act 1962 the Municipal Corporation Municipal Council Notified Area Committee or a Panchayat as the case may be shall in relation to the special area and as from the date of the Special Area Development Authority undertakes the function under clause v of clause vi of Section 68 ceases to exercise the powers and perform the function and duties which the Special Area Development Authority is competent to exercise and perform under the Act of 1973
Section 68 defines the function of the Special Area Development Authority one of which as prescribed by clause v is to provide the municipal services as specified in sections 123 and 124 of the Madhya Pradesh Municipalities Act 1961
Section 69 which defines the powers of the authority shows that those powers are conferred inter alia for the purpose of municipal adminstration
Surely the functions powers and duties of Municipalities do not become an occupied filed by reason of the declaration contained in section 2 of the mines and Minerals Development  Regulation Act 1957
Though therefore on account of that declaration the legislative field covered by Entry 23 List II may pass 160 on to the Parliament by virtue of Entry 54 List I the competence of the State Government to enact laws for municipal adminstration will remain unaffected by our declaration
Entry 5 of List II related to Local Government that is to say the constitution and powers of municipal corporation and other local authorities for the purpose of local self Government
It is in pursuance of this power that the State legislature enacted the Act of 1973
The power to impose tax on lands and buildings is derived by the State Legislature from Entry 49 of List II  Taxes on lands and buildings
The power of the municipalities to levy tax on lands and buildings has been conferred by the State Legislature on the Sspecial Area Development Authorities
Those authorities have the power to levy that tax in order effectively to discharge the municipal functions which are passed on them
Entry 54 of List I does not contemplate the taking over of municipal functions
 The Court pointed out that Murthy provided a complete answer to the above contention
Chanan Mal and Ishwari Khetan were referred to and Baijnath Kedia distinguished
The decision of the Madhya Pradesh High Court in Central Coalfields vs State of MP AIR 1986 MP 33 also arose out of similar facts The question for consideration was whether the functions powers and duties of Municipalities and Special Area Development Authority SADA become an occupied field by virtue of S2 of the MMRD Act 1957 and the powers vested in them to regulate construction activities relating to mining areas was ultra vires
It was found that SADA had become the local authority to discharge the functions of a municipal adminstration under a State Act and that the regulation of construction activities was one of the aspects of municipal adminstration and management
In this situation the question posed was answered in the negative following Ishwari Khetan Western Coalfields and Chanan Mal
Placing considerable reliance on the decisions in Chanan Mal Ishwari Khetan and Western Coalfields Sri Iyer contended that the State legislation in the present case is not vitiated by reason of MMRD Act 1957
He also pointed out that India Cement also dies not consider in detail the reasoning in Hingir Rampur and Tulloch but only reefers to certain observations in the dissenting judgement of Wanchoo J  as His Lordship then was in the former case and urged
161 that the entire matter requires careful consideration
He submitted that Tulloch and Western Coalfields represent two lines of cases which need reconciliation and that this task has not been attempted at all in India Cement
On the other hand learned counsel for the respondents submitted that the authority of the Constitution Bench in Western Coalfields which endorsed Murthy should be considered weak after India Cement which has overruled Murthy
The present case it is submitted is closer to Baijnath Kedia
It is submitted that the principles of Tulloch have been referred to with approval in a number of cases  Karunanidhi 1979 3SCR 254 at 277 Hind Stone  at 746m ITC at 168 and are too well settled to need any reconsideration
It is clear from a perusal of the decisions referred to above that the answer to the question before us depends on a proper understanding of the scope of MMRD Act 1957 and an assessment of the encroachment made by the impugned State legislation into the field covered by it
Each of the cases referred to above turned on such an appreciation of the respective spheres of the two legislations
As pointed out in Ishwari Khetan the mere declaration of a law of Parliament that it is expedient for an industry of the regulation and development of mines and minerals to be under the control of the Union under Entry 52 or entry 54 does not denude the State legislatures of their legislative powers with respect to the fields covered by the several entries in List II or List III
Particularly in the case of a declaration under Entry 54 this Legislature Power is extended to the extent control is assumed by the Union pursuant to such declaration as spelt out by the legislative enactment which makes the declaration
The measure of erosion turns upon the field of the enactment framed in pursuance of the declaration
While the legislation in Hingir Rampur and Tulloch was found to fall within the pale of the prohibition those in Chanan Mal Ishwari Khetan and Western Coalfields were general in nature and traceable to specific entries in the State List and did not encroach on the field of the Central enactment except by way of incidental impact
The Central Act considered in Chanan Mal seemed to envisage and indeed permit State legislation of the nature in question
To turn to the respective spheres of the two legislations we are here concerned with the Central Act MMRD Act 1957 demarcates the sphere of Union control in the matter of mines and mineral development
While concerning itself generally with the requirements 162 regarding grants of licenses and leases for prospecting and exploitation of minerals it contains certain provisions which are of direct relevance to the issue before us
S9 which deals with the topic of royalties and specifies not only the quantum by also the limitations on the enhancement thereof has already been noticed
S9A enacts a like provision in respect of dead rent
Reference may also be made to S13 and S18 which to the extent relevant are extracted here
Power of Central Government to make rules in respect of minerals 1 The Central Government may by notification in the Official Gazette make rules for regulating the grant of prospecting licenses and mining leases in respect of minerals and for purposes connected therewith
2 In particular and without prejudice to the generality of the foregoing power such rules may provide for all or any of the following matters namely  i the fixing and collection of fees for prospecting licenses or mining leases surface rent security deposit fines other fees or charges and the time within which and the manner in which the dead rent or royalty shall be payable XXX XXX XXX XXX XXX m the construction maintenance and use of roads power transmission lines tramways railways aerial rope ways pipe lines and the making of passages for water for mining purposes on any land comprised in the mining lease XXX XXX XXX XXX XXX qq The manner in which rehabilitation of flora and other vegetation such as trees and the like destroyed by reason of any prospecting a mining operation shall be made in the ______________________________________________________________ Substituted by Act 37 of 1986 for the original clause i which read i the fixing and collection of dead rent fines fees or other charges and their collection of royalties in respect of i prospecting licenses ii mining leases iii minerals mines quarried excavated or collected
163 same area or in any other area selected by the Central Government whether by way of reimbursement of the cost of rehabilitation or otherwise by the person holding the prospecting license or mining lease S18 which originally laid a duty on the Central Government to take all such steps as may be necessary for the conservation and development of minerals in India has been amended by Act 37 of 1986 to cover steps for the conservation and systematic development of minerals in India and for the protection of environment by preventing or controlling any pollution which may be caused by prospecting or mining operations and the scope of the rule making power under S182 has likewise been enlarged
S251 read thus 251 Any rent royalty tax fee or other sum due to the Government under this Act or the rules made thereunder or under the terms and conditions of any prospecting licence or mining lease may on a certificate of such effect as may be specified by the State Government in this behalf by general or special order be recovered in the same manner as an arrear of land revenue
and sub section 2 provides further that all such rent royalty tax fee etc
shall be a first charge of the assets of the holder of the prospecting licence or mining lease as the case may be
If one looks at the above provisions and bears in mind that in assessing the field covered by the Act of Parliament in question one should be guided as laid down in Hingir Rampur and Tulloch not merely by the actual provisions of the Central Act or the rules made thereunder but should also take into account matters and aspects which can legitimately be brought within the scope of the said statute the conclusion seems irresistible particularly in view of Hingir Rampur and Tulloch that the State Act has trespassed into the field covered by the Central Act
The nature of the incursion made into the fields of the Central Act in the other cases were different
The present legislation traceable to the legislative power under Entry 23 or Entry 50 of the State List which stands impaired by the Parliamentary declaration under Entry 54 can hardly be equated to the law for land acquisition or municipal administration which were considered in the cases cited and which are traceable to different specific entries in List II or List III
___________________________________________________________ Newly inserted by Act 37 of 1986 164 Sri Iyer contended that the object and purposes of the Orissa Act and its provisions were quite distinct and different from the object and purposes of the Central Act with the result that the two enactments could validly coexist since they do not cover the same field
It was argued that the impugned Act was concerned with the raising of funds to enable panchayats and Samitis to discharge their responsibilities of local administration and take steps for proper development of areas including mining areas under their jurisdiction whereas the Central Act was concerned not with any social purpose but merely with the development of mineral resources of the country and as such the State legislation in this regard may also be treated as referable to Entry No5 of the State List as the statute in Western Coalfields supra
As to the reliance on Entry 5 of List II it is plainly to tenuous
As pointed out by Sri Bobde there is a difference between the object  of the ACt and its subject
The object of the levy of the fees may be to strengthen the finances of local bodies but the Act has noting to do with municipal or local administration
In this context it may be pointed out that while S10 of the Orissa Act as originally enacted provided for a distribution of the cess collected among local bodies an amendment of 1970 restricted the utilisation of the cess partly for primary education and partly for the above purpose
Even this was amended in 1976 whereafter there has been no restriction regarding the cess collected in respect of mining areas which form part of the consolidated fund of the State
The levy has therefore ceased to be capable of being described as a fee
Even if its purpose is only to levy a fee the fee can be described only as one with respect of land  Entry 18 if considered generally or with respect to mines and minerals development Entry23 if restricted to the nature of the issue before us
We shall discuss the relevance of Entry 18 later but so far as Entry 23 is concerned the State s legislative competence is subject to the field covered by the Central Act
Turning therefore to the distinction sought to be made between the respective areas of operation of the two Acts the answer to this contention is provided by Hingir Rampur
The Constitution Bench first set out the scheme of the impugned Act thus  The scheme of this Act thus clearly shows that it has been passed for the purpose of development of mining areas in the State
The basis for the operation of the Act is the constitution of a mining area and it is in regard to mining areas thus constituted that the provision of the Act come 165 into play
It is not difficult to appreciate the intention of the State Legislature evidenced by this Act
Orissa is an under developed State in the Union of India though it has a lot of mineral wealth of great potential value
Unfortunately its mineral wealth is located generally in areas sparsely populated with bad communication
Inevitably the exploitation of the minerals is handicapped by lack of communications and the difficulty experienced in keeping the labour force sufficiently healthy and in congenial surroundings
The mineral development of the State thereof requires that provision should be made for improving the communications by constructing good roads and by providing means of transport such as tramways supply of water and electricity would also help
It would also be necessary to provide for amenities of sanitation and education to the labour force in order to attract workmen to the area
Before the Act wa passed it appears that the mine owners tried to put up small length roads and tramways for their own individual purpose but that obviously could not be as effective as roads constructed by the State and tramway service provided by it
It is on a consideration of these facts that the State Legislature decided to take an active part in a systematic development of its mineral areas which would held the mine owners in moving their minerals quickly through the shortest route and would attract labour to assist the excavation of the minerals
Thus there can be no doubt that the primary and the principal object of the Act is to develop the mineral areas in the State and to assist more efficient and extended exploitation of its mineral wealth
A little later at pare 559 the provisions of Central Act LIII of 1948 which were less far reaching that those of 1957 ACt as can be seen from the observations at page 476 of Tulloch were analysed and the Court concluded  Amongst the matters covered by S62 is the levy and collection of royalties fees or taxes in respect of minerals mined quarried excavated or collected
It is true that no rules have in fact been framed by the Central Government in regard to the levy and collection of any fees but in our opinion that would not make any difference
If it is held that this Act contains the declaration referred to in Entry 166 23 there would be no difficulty in holding that the declaration covers the field of conservation and development of minerals and the said field is indistinguishable from the field covered by the impugned Act
What Entry 23 provides is that the legislative competence of the State Legislature is subject to the provisions of List 1 with respect of regulation and development under the control of the Union the Entry 54 in List 1 requires a declaration by Parliament by law that regulation and development of mines should be under the control of the Union in public interest
Therefore if a Central Act has been passed for the purpose of providing for the conservation and development of minerals and if it contains the requisite declaration then it would not be competent to State Legislature to pass an Act in respect of the subject matter covered by the said declaration
In order that the declaration should be effective it is not necessary that rules should be made or enforced all that this required is a declaration by Parliament that it is expedient in the public interest to take the regulation and development of mines under the control of the Union
In such a case the test must be whether the legislative declaration covers the field or not
Judged by this test there can be no doubt that the field covered by the impugned Act is covered by the Central Act LIII of 1948
The following observations in Tulloch are also apposite in this context  On the other hand Mr Setalvad learned counsel for the respondent urged that the Central ACt covered the entire field of mineral development that being the extent to which Parliament had declared by law and it was expedient that the Union should assume control
In this connection he relied most strongly on the terms of s181 which laid a duty upon the Central Government to take all such steps as may be necessary for the conservation and development of minerals in India and  for that propose the Central Government may by notification make such rules as it deems fit
If the entire field of mineral development was taken over that would include the provision of amenities to workmen employed in the mines which was necessary in order to stimulate or maintain the working of mines
The test which he suggested was whether if under the power 167 conferred by s181 of the Central Act the Central Government has made rules providing for the amenities for which provision was made by the Orissa Act and if the Central Government had imposed a fee to defray the expenses of the provision of these amenities would such rules be held to be ultra vires of the Central Government and this particularly when taken in conjunction with the matters for which rules could be made under s13 to which reference has already been made
We consider there is considerable force in this submission of learned counsel for the respondent and thus would require very detailed and careful scrutiny
We are however relieved from this task of detailed examination and discussion of this matter because we consider that it is concluded by a decision of the Court in the Hingir Rampur Coal Co Ltd  Ors
vs The State of Orissa  Ors 1961 2SCR 537 The above argument was accepted by the Court vide page 476 Reference may also be made here to the recent decision of this Court in Bharat Coking Coal vs State of Bihar  The question whether the State of Bihar had the authority to grant a lease for lifting coal slurry coming out of the appellants washeries and getting deposited on the river bed or other lands was answered in the negative the court came to the conclusion that the slurry was a mineral and that its regulation was within the exclusive jurisdiction of Parliament
The Court in coming to the conclusion held that no rules had been framed under S181 or 182 k disposal or discharge of waste slime or tailing arising from any mining or metallurgical operations carried out but held that this was immaterial in view of the principles laid down in Hingir Rampur Tulloch and Baijnath Kedia
These observations establish on the one hand that the distinction sought to be made between mineral development and mineral area development is not a real one as the two types of development are inextricably and integrally interconnected and on the other that fees of the nature we are concerned with squarely fall with the scope of the provisions of Central Act
The object of S9 of the Central Act cannot be ignored
The terms of S13 of the Central Act extracted earlier empower the Union to frame rules in regard to matters concerning roads and environment
S181 empowers the Central Government to take all such steps as may be necessary for the conservation and development of minerals in India and for protection of environment
These in the very nature of things cannot mean such amenities only in the mines but take in also the areas leading to and all 168 around the mines
The development of mineral areas is implicit in them
S25 implicitly authorises the levy of rent royalty taxes and fees under the Act and the rules
The scope of the powers thus conferred is very wide
Read as a whole the purpose of the Union control envisaged by Entry 45 and the MMRD Act 1957 is to provide for proper development of mines and mineral areas and also to bring about a uniformity all over the country in regard to the minerals specified in Schedule I in the matter of royalties and consequently prices
Sri Bobde who appears for certain Central Government undertakings points out that the prices of their exports are fixed and cannot be escalated with the enhancement of the royalties and that if different royalties were to be charged in different States their working would become impossible
There appears to be force in this submission
As pointed out in India Cement the Central Act bars an enhancement of the royalty directly or indirectly except by the Union and in the manner specified by the 1957 Act and this is exactly what the impugned Act does
We have therefore come to the conclusion that the validity of the impugned Act cannot be upheld by reference to Entry 23 or Entry 50 of List II
An attempt was made to rest the legislation of Entry 18 of List II viz land 
This attempt cannot succeed for the reasons whichever have set out to negative the plea that it falls under Entry 49
A similar pleas in Baijnath was rejected by Hidayatullah CJ in the following words  Mr LN Sinha argued that the topic of legislation concerns land and therefore falls under entry 18 of the State List and he drew our attention to other provisions on the subject of mines in the Land Reforms Act as originally passed
The abolition of the rights of intermediaries to the mines and vesting these rights as lessors in the State Government was a topic connected with land and land tenures
But after the mining leases stood between the State Government and the lessees any attempt to regulate those mining leases will fall not in entry 18 but in entry 23 even though the regulation incidentally touches land
The pith and substance of the amendment to s10 of the Reforms Act falls within entry 23 although it incidentally touches land and not vice versa
Therefore this amendment was subject to the overriding power of Parliament as declared in Act 67 of 1957 in S15
Entry 18 of the State List therefore is no help
169 It will be seen that if the levy in question cannot be described as a tax on land it cannot be described as fee with regard to land either
For the reasons above mentioned we hold that the levy of cess under S5 to 7 of the Orissa Cess Act 1962 is beyond the competence of the State Legislature
Bihar The relevant provisions of the Bihar statutes have been set out earlier
While S5 only lays down that all immovable property shall be liable to a local cess and S6 provides for the levy to be based on the annual value of lands and sale value of other immovable properties the latter section specifically enacts that the cess will be on royalty from mines and quarries and on the annual net profit the railways and tramways
The further amendments of S6 have not changed this basic position
Though the section refers also to the value of the mineral bearing land that furnishes only the maximum upto which the cess based on royalty could go
In other words the cess is levied directly on royalties from mines and quarries
The case is therefore indistinguishable from India Cement
The notifications place the matter beyond all doubt
The levy is a percentage or multiple of the royalty depending upon the kind of mineral and in the case of iron ore the method of extraction and nature of the process employed
There are no clear indications in the stature that the amounts are collected by way of fee and not tax
The provisions of S9 extracted earlier would indicate that only a small percentage goes to the district fund and the remaining forms parts of the consolidated fund of the State for the construction and maintenance of other works of public utility
However the proviso does require at least ten percent to be spent for purposes relating to mineral development
We shall therefore assume that the levy can be treated in part as a fee and in part as a tax
But even this does not advance the case of the respondents for the reasons already discussed
Shri Chidambaram submits that in the original counter affidavit filed on behalf of the State no case was sought to be made out that it was a tax on land the case was that it was a tax on mineral rights
He urged that this being out of question because of India Cement para 23 and 30 a belated attempt is made to bring it under Entry 49
we do not need to discuss the contentions here in detail because this is a clearer case of levy on royalty than in Orissa and for the reasons we have outlines in our discussion in regard to the Orissa Acts this levy 170 has also to be declared invalid
Shri Chidambaram also contended that the State cannot seek sustain the levy by relying of article 277 of the Constitution  in view of the fact that the cess is being levied since 1880
Article 277 is in these terms  Any taxes duties cesses or fees which immediately before the commencement of this Constitution were being lawfully levied by the Government of any State or by an municipality or other authority or body for the purposes of the State municipality district or other local area may notwithstanding that those taxes duties cesses or fees are mentioned in the Union List continue to be levied and to be applied to the same purposes until provision to the contrary is made by Parliament by law
We think as rightly contended by Sri Chidambaram that a reliance on article 277 will be misplaced for three reasons  a The levy that is challenged is under S6 as amended in 1975 ie a post constitution levy b S6 on its own language is operative only until provision to the contrary is made by the Parliament and as we have held that the field is covered by the MMRD Act is supersedes the effect of S6 remineral lands and c Article 277 only saves taxes duties and cesses mentioned therein if they continue to be applied for the same purposes and until Parliament by law provides to the contrary and with the enactment of the MMRD Act 1957 they cease to be valid
In this context the following observations of this Court in Ramakrishna Ramanath vs Janpad Sabha1962 Supp 3 SCR 70 quoted in Town Municipal Committee vs Ramachandra  at 959 are quire apposite  Dealing next with the import of the words may continue to be levied  the same was summarized in these terms 1 The tax must be one which was lawfully levied by a local authority for the purpose of a local area 171 2 the identity of the body that collects the tax the area for whose benefit the tax is to be utilised and the purposes for which the utilization is to take place continue to be the same and 3 the rate of the tax is not enhanced not its incidence in any manner altered so that it continues to be the same tax
It is obvious that if these tests were applied the attempt to sustain the tax on the basis of article 277 cannot succeed
Indeed no such attempt was made before us
We therefore hold that the levy of cess has to be struck down
It has also been brought to our notice that a Bench of two Judges of this Court has already allowed an appeal by an assessee from a judgement of the Patna High Court to the contrary viz CA No1521 of 1990
It has been brought to our notice also that the Patna High Court has recently invalidated the levy of the cess in Central Coalfields Ltd vs State CWJC 208589 and connected cases in a judgement dated 61190 following India Cement
Madhya Pradesh  We now turn to the provisions of Madhya Pradesh Act 15 of 1982
We are concerned only with Part IV which levies a cess not on land in general which could be referred to Entry 18 or Entry 49 but only on land held in connection with mineral rights which in the State are principally in regard to coal and limestone
Under S9 the proceeds are to utilised only towards the general development of mineral bearing areas
Although there is no provision for the constitution of a separate fund for this purpose as is found in relation to the cesses levied under Part II or Part III of the Act this considerations alone does not preclude the levy from being considered as a feevide Srinivasa Traders V STate 1983 3SCR 843 at 873
The clear ear marking of the levy for purposes connected with development of mineral areas was considered by the High Court in our view rightly sufficient to treat it as a fee
However the High Court pointed out such fee would be referable to item 23 and hence out of bounds for the State Legislature after the enactment of MMRD Act 1957
For the reasons which have already been discussed in relation to the Orissa Statute we uphold this conclusion
172 The other statute viz the Madhya Pradesh Upkar Adhiniyam Act 1 of 1982 came up for consideration of a Full Bench of the Madhya Pradesh High Court in MP Lime Manufacturer s Association vs State and connected cases in AIR 1989 MP 264
The Full Bench held that in view of s12 of the Act having been deleted by the 1989 amendment the levy under s11 of the Act ceased to be a fee and become a tax
It held further that the levy was not covered by Entry 49 or Entry 50 of List II and was therefore ultra vires
It observed  It is significant to note that cess is not imposed on all land and that it is not dependent either on the extent of the land held in connection with mineral rights or on the value thereof
The subject matter of tax therefore is major mineral raised from the land held in connection with mineral right
If no minerals are raised tax is not livable
The tax is not dependent on the extent of the land held in connection with mineral rights
It is not case where all land is liable to payment of cess that the liability is assessed on the basis of the value of the land and that the measure of the tax in so far as land held under a mining lease is concerned is the value of the minerals produced
Under the impugned Act value of the land or of the minerals produced does not play any part in the levy of cess
The quantity of major minerals produced from the land determines the liability to pay tax
In these circumstances the impugned levy cannot be held to be a tax on land which is covered by Entry 49 of the State List
After distinguishing Ajay Kumar Mukherjea vs Local Board  and referring to Union vs Bombay International Ltd AIR 1984 SC 420 the Courted concluded   The character of impost in the instant case is that though in form it appears to be a tax on land in substance it is a tax on minerals produced therefrom
The subject matter of tax is therefore not covered by Entry 49 of the State List As for Entry 50 after referring Hingir Rampur the Court observed  Now from a perusal of S11 of the Act it would be clear that in the instant case by the charging section tax is not imposed on the mineral rights of every holder of mining 173 lease
The tax is levied on minerals produced in land held under mining lease
In these circumstances the tax levied by the Act cannot be held to be a tax covered by Entry 50 of List II of the Seventh Schedule to the Constitution
In our opinion therefore it has not been shown that the State Legislature is competent to levy the impugned cess
 This conclusion is obviously correct in the light of our earlier discussion
The court however expressed an opinion in paras 10 to 12 of the judgment that in case the levy could be treated as a tax imposable under Entry 49 or 50 of List II in the Second Schedule to the Constitution such power has not been taken away by the provision of the MMRD Act
We think as already pointed out by us that though the MMRD Act 1957 unlike s62 of the 1948 Act does not contain a specific provision for the levy of taxes s25 of the former does indicate the existence of such power
The above observations of the High Court therefore in our view do not attach sufficient importance to s25 of the MMRD Act and the field covered thereby
This aspect however is not of significance in view of the conclusion that the tax is not referable to Entry 49 or Entry 50
We may add that a Bench of this Court has already dismissed the State s petition for leave to appeal from the judgment of the Full Bench SLP 1005289 1269684 etc
disposed of on 5290 in limine as squarely covered by India Cement
It is brought to our notice that the Madhya Pradesh High Court after India Cement has reaffirment its conclusions in Hiralal and MP Lime Manufacturers  Association in Ankur Textiles and Another vs South Eastern Coalfields MP No 1547 of 1990 in the light of India Cement
THE REFUND ISSUE Having thus concluded that the levy of cess under the Orissa Bihar and Madhya Pradesh enactments is invalid it becomes necessary to consider the logical consequences of such a conclusion
Prima facia it would seem that the levy should be considered bad since its inception and that all cess levied under the impugned provisions should be directed to be refunded to the assessees particularly in view of Article 265 of the Constitution
For the States however reliance is placed on the following observations in para 35 of the judgement in India Cement to contend to the contrary
Towards the conclusion of his judgement Sabyasachi Mukherjee CJ dealt with this issue thus  174 Mr Krishnamurthy Iyer however submitted that in any event the decision in HRS Murthy case was the decision of the Constitution Bench of this Court
Cess has been realised on that basis for the organisation of village and town panchayats and comprehensive programme of measures had been framed under the National Extension of Service Scheme to which our attention was drawn
Mr Krishnamurthy Iyer further submitted that the Directive Principles of State Policy embodied in the Constitution enjoined that the States should take steps to organise village panchayats and endow them with power and authority as may be necessary to enable them to function as units of self government and as the amounts have been realised on that basis it at all we should declare the said cess on reality to be ultra vires prospective In other words the amounts that have been collected by virtue of the said provisions should not be declared to be illegal retrospectively and the State made liable to refund the same
We see good deal of substance in this submission
After all there was a decision of this Court in HRS Murthy case and amounts have been collected on the basis that the said decision was the correct position
We are therefore of the opinion that we will be justified in declaring the levy of the said cess to be ultra vires the power of the State Legislature prospectively only
Relying on the above observations it is submitted for the States that they should not be directed to refund a cess which they have been levying for several years in the past on the basis of the law declared by the Supreme Court in Murthy
Certain other circumstances have also been brought to our notice in this connection  i Several States have preceded on the basis that they are entitled to levy a cess of the nature in question
In addition to the States referred to earlier in the judgement Rajashtan and Andhra Pradesh have also similar statues
ii The levy accounts for a substantial part of the States finances particularly in States which are rich in minerals
For eg State of Madhya Pradesh accounts for a good percentage of this country s mineral resource
It produces 2653 of the country s production in limestone
36 in dolomite 2814 in coal 215 in iron ore 13 in bauxite 2138 in Manganese ore 175 1443 in rock phosphate 33 in copper ore and so on
The amounts of cess run to several crores
A direction to refund the cess collected thus far will result in crying halt to all developmental activities initiated and put through and cause irreparable loss to the State
iii As pointed out for eg in pars 5 to 8 in CMP Nos 31187 to 31196 of 1984 in CA Nos 1640 to 164316451649 1654 16551659 and 1662 of 1986 the impact of the cess has already been passed on by the assessees which are leading industries that can easily bear the brunt of the same to their customers
A refund granted to them will only result in their unjust enrichment and this should be safeguarded against applying the principles in UP State Electricity Board Lucknow  Ors
vs City Board Mussoorie  Ors  at page 824 and State of Madhya Pradesh vs Vyankatlal  Anr  at page 568
The above request was vehemently opposed by the assessees counsel
Presenting their case on this issue Sri Nariman appear for the appellants in CA 4353 4 of 1983 and CA 2053 80 of 1980 contended that we should ignore the dicta in para 35 of India Cement as per incuriam
He submitted first that the Court there has acted on the assumption that a doctrine of prospective overruling had been enunciated in Golaknath  Analysing the various judgments delivered in that case he submitted that while Subba Rao CJ and four other judges pp 805 813 approved of the applicability of this doctrine in India five other judges spoke against it pp 890 897 899 922 921 and 952 and the eleventh judge was neutral p408
He therefore submitted that the judges who decided Golaknath were equally divided on the issue and so there is no reason disdained of the Court binding on us
Second he submitted that the doctrine of prospective overruling was evolved by the Supreme Court of the United States in the absence of any constitutional provision militating against it vide sunburst at page 366 and Linkletter  at page 604 8
In India however the application of the doctrine particularly in the context of an issue regarding the validity of a tax levy would run counter to specific provisions contained Articles 246 and 265 of the Constitution
Where the Court finds that a legislation is beyond the competence of the concerned legislature it stands uprooted altogether because Articles 246 and 265 say so
There is no scope for and no room for the exercise of any discretion by the Court to say that there articles of the Constitution notwithstanding they 176 would treat the legislation to be valid for a certain period or for certain purposes
Third he submitted that the above objection cannot be circumvented by a resort to Article 142
Sri Nariman referred us in this context to the observations in the following decisions of this Court Re Article 246 Pesikaka at pp652654656 Chamarbaugwala at p 940 Sundararamier  Co  at pp 1468 1474 West Ramnad at p764 ML Jain 1963 Supp 1SCR 912 at pp 530 41 Re Article 265 Moopil Nayar at p 89 Balaji at p 996 Chottachan 1962 Supp
2 SCR 1 at pp
29 30 Bakshi Singh at p 233 Re Article 142 Garg 1963 Suppl
1 SCR at pp
896 8 It is submitted  relying on Mahabir Kishore Ors
vs State of Madhya Pradesh 1989 4 SCC 1 that a refund is the automatic and inevitable consequence of the declaration of invalidity and should be granted proved a suit within a period of limitation or a writ for declaration and consequential relief is filed
Supplementing the above arguments Sri G Ramaswamy appearing for some of the assessees contended that there can be no question of the Court exercising any discretion under Article 142 so as to destroy a fundamental right of the assessees
Learned counsel also submitted that considerations of hardship of the States in case they are called upon to refund huge amounts can be no relevant consideration at all
He urged that in some at least of the cases here there is no averment much less evidence of any irreparable hardship that is likely to result if a refund is ordered
He also pointed out that in the 177 converse situation where a retrospective levy is held to be valid assessees have been held entitled to no relief from payment of back duty on grounds of hardship vide Chhotabhai Jethabhai Patel  Cov
Union of India 1962 2 Supp
at Pp1213 and urged that there cannot be a different rule for the State
Sri B Sen submitted that the ruling in Murthy could not be invoked to seek prospective invalidation as at least so far as Orissa was concerned as the decision in Tulloch had clearly defined the limitations of the State s power to make such levies
In addition to the above general arguments reliance had also been placed by the assessees on certain specific interim orders passed in these cases and it has been contended that these orders should be given effect to or at least taken into account in deciding the issue of the final relief to be granted
It is therefore necessary to refer to these orders  i In CA Nos
4353 4 of 1983 there is no interim order staying recovery of the cess at all except of the arrears for the period from 111983 to 3131983 and even this was made subject to the furnishing of a bank guarantee by the assessee
ii In CA 2053 80 of 1980 there was initially on 221981 an order of stay of recovery of cess on the furnishing of bank guarantees
But this was later substituted by an order of 2531983 by which the amounts of cess were to be deposited in the High Court every quarter and then withdrawn by the State but this was on the undertaking buy the State s Advocate General to refund the amount if deposited in the event the appeal succeeds
This continued till 30190 when the Counsel of the State of Orissa undertook in view of the decision in India Cement that the levy of the cess for the quarter ending December 1989 onwards will not be enforced until further orders
Presumably therefore there has been no collection for cess in Orissa since that period
iii The position in the Orissa case of Orient Paper  Industries Ltd is somewhat different
It is pointed out that when the levy of cess first came into force wef
141977 the Western Coalfields Ltd who supplied coal to the assessees had challenged the levy of cess by a writ petition and obtained an interim injunction order but eventually withdrew the writ petition
But simultaneously the said company wrote to the assessee that the amounts of cess which were collected from the assessee would be kept in a suspense account and that after a deci 178 sion is rendered by a court of law it will be decided whether they should be deposited with the State against cess or be refunded to the assessees
It was made clear that in case the levy of cess is held invalid there will be no hitch in refunding the amount
This arrangement went on between 1977 and 1982
On 2191982 the assessee filed a writ petition challenging the levy as it was enahanced from 25 to 100 from 1480
An interim stay was granted by the High Court restricted to be enhanced demand but even this was vacated by the High Court on 1351983 in view of the decision in Lakshmi Narain Agarwala vs State AIR 1983 Orissa 210 that the levy was valid
Finally the High Court by its judgement dated 22121989 followed India Cement and allowed the writ but directed that the collections so far made shall be allowed to be retained by the State as was directed by the Supreme Court in the case of India Cement supra
This judgement is the subject matter of SLP 1479 of 1990 by the State
The assessee thereupon file a review petition in regard to the above direction contending  a that a High Court had no jurisdiction to declare provision to the unconstitutional only prospectively b that the cess in the case had been collected only by Western Coalfields Ltd and had not been deposited in the State coffers and c that the principle of unjust enrichment  should equally apply to the State which should not be permitted to enrich itself by the levy of an illegal exaction
The application for review was dismissed by the High Court on 13790
Thereupon the assessee has preferred the unnumbered SLP on 1990 and SLP 11939 on 1990 respectively against the original judgement dated 22121989 and the order on the review petition dated 1371990
It is contended that the High Court having regard to the circumstances set out earlier should have directed a refund of the cess
collected
IT is stated that subsequently Western Coalfields have paid over the amounts of cess to the Government vide orders of this Court referred to in sub para v below
It is also submitted that the averments by the State now made that the amounts collected have been utilized by the State on objects enumerated in Part IV of the Constitution are the result of an afterthought and are being put forward to defeat the rightful entitlement of the assessee to the refund
iv In the Bihar case there was an interim order on 1021986 to the following effect 179 On the stay application there will be no stay of recovery of cess but in case appellants succeed in appeal in this Court the excess amount so recovered will bepaid to the appellants with interest at the rate of 12 from the date of recovery This was modified on 30190 in view of the judgement in India Cement which had been delivered by this time and it was directed that the State of Bihar should not also enforce any demand for cess for the quarters ending December 1989 and thereafter until further orders
Presumably therefore there has been no levy of cess in Bihar from the last quarter of 1989 onwards
Counsel for the assessees from Bihar Sri Chidambaram and Sri Shanti Bhushan stated that they seek compliance with the order dated 10286 and would not insist on refund of cess collected earlier to that date
v Turning to the Madhya Pradesh matters the position is this The High Court by its judgement dated 2831986 held the levy to be invalid
In CA 1640 to 1662 of 1986 the initial order passed on 251986 was this   There will be stay of refund of the cess already collected pending disposal of the appeals
Learned counsel for the State states that in the event of the appeals being dismissed the State is prepared to pay interest at 12 per annum
There will however be no stay of operation of the judgement
 As a result of the order there should have been no collection of cess by the State subsequent to the date of the judgement and only issue could have been regarding the refund of the cess already collected from 1982 to 2831986
However the Western Coalfields Ltd approached the Court with an application in one of the appeals viz CA 164986 praying that pending disposal of the appeals it should be permitted to collect the amount of cess and deposit the same in a separate account in the Bank vis a vis each of its customers
This application was ordered on 1886
When this order was passed the State Government moved an application praying that instead of the monies being kept in deposit in bank account by Western Coalfields Ltd it will be conducive to public interest if the State is permitted to utilise the moneys in mineral areas development programs and that the State would abide by such 180 terms as the Court may impose at the time of final decision
It was therefore prayed that the Western Coal fields should be directed to deposit the amounts collected by it to the State Government
The Court found this request reasonable and passed the following order on 151086  The order dated 1886 passed in the above appeal is modified as follows  The amount deposited by the Western Coalfields Ltd in a separate account in the Bank in accordance with the directions issued by this Court on 181986 shall be paid to the State Government of Madhya Pradesh
In the event of the State Government failing in this appeal the amount received by the Madhya Pradesh Government under this order shall be refunded by that Government within three months from the date of the judgement to the Western Coalfields Ltd with interest at 12 per annum to disburse in favour of those who had paid it subject to such directions which this court may give in its judgement
The amount received by the Madhya Pradesh State Government shall be spent in accordance with the provisions contained in the impugned Act Fresh applications were filed by the State in a number of the other appeals seeking similar direction as in CA 164986 but the request does not show that any such order were passed in appeal other than CA 164986
However it seems that in the case of coal the cess is being collected by Western Coalfields Ltd and other like public sector organisation which are subsidiaries of Coal India Ltd from all their customers and passed on to the State not only in Madhya Pradesh but also in Orissa as indicated in sub para iii above apparently on the understanding that it should be refunded by the concerned State Government with interest in case the levy is ultimately held invalid
Sri Bobde appearing for the Western Coalfields  made it clear that this company would abide by the direction of this Court in so far as the amounts of cess collected by it remain with it or are directed to be refunded by the State Government to it
We have given our earned consideration to these contentions and were are of opinion that the ruling in India Cement concludes the issue
There the Court was specifically called upon to consider an argument that even if the statutory levy should be found invalid the 181 Court may not give directions to refund amounts already collected and the argument found favour with the bench of seven judges
We are bound by their decision in this regard
It is difficult to accept the plea that in giving these directions the Court overlooked the provisions of Article 246 and 265 of the Constitution
The Court was fully aware of the position that the effect of the legislation is question being found beyond the competence of the State legislature was to render it void ab initio and the collections made thereunder without the authority of law
Yet the Court considered that a direction to refund all the cesses collected since 1964 would work hardship and injustice
The directions now impugned were given in the interest of equity and justice after due consideration and we cannot take a contrary view
In our view we need enter into a discussion of the principles of prospective validation enunciated by at lease some of the Judges in Golaknath supra as the direction in India Cement can be supported on another well settled principle applicable in the area of the writ jurisdiction of Courts
We are inclined to accept the view under on behalf of the state that a finding regarding the invalidity of a levy need not automatically result in a direction for refund of all collections thereof made earlier
The declaration regarding the invalidity of a provision and the determination of the relief that should be granted in consequence thereof are two different things and in the latter sphere the Court has and must be held to have certain amount of discretion
It is a well settled proportion that it is open to the Court to grant  could or restrict the relief in a inner most appropriate to the situation before it is insuch a way as to advance the interests of justice
It will be appreciated that it is not always possible in all situations to give a logical and complete effect to a finding
Many situations of this arise in actual practice 
For instance  there are cases where a comes to the conclusion that the termination of the services of an employee is invalid yet in refrains from giving him benefits of reinstatement ie continuity in service on back wages
In such cases the direction of the Court does not result in a person being denied the benefits that should flow to him as a logical consequence of a declaration inhis favour
It may be said that in such a case the Court s direction does not violate any fundamental right as happens in a case like this were an illegal exaction is sought to be retained by the State
But even in the latter type of cases relief has not been considered automatic
One of the commonest issue that arose in the context of the situation we are concerned with is where a person affected by an illegal exaction files an application for refund under the provisions of the relevant statute of files a suit to recover the taxes as 182 paid under a mistake of law
In such a case the Court can grant relief only to extent permissible under the relevant rules of limitation
Even if he files an application for refund or a suit for recovery of the taxes paid for several years the relief will be limited only to the period in regard to which the application for refund or a suit for recovery of the taxes paid for several years the relief will be limited only to the period in regard to which the application or suit is not barred by limitation
If even this instance is sought to be distinguished as a case where the Court s hands are tied by limitations inherent in the form of forum in which the relief is sought let us consider a very case where a petitioner seeks relief against an illegal exaction in a writ petition filed under Article 226
In this situation the question has often arisen whether the petitioner s prayer for refund of taxes collected over an indefinite period of years should be granted once the levy is found to be illegal
To answer the question in the affirmative would result in discrimination between persons based on their choice on the forum for relief a classification which prima facie is too fragile to be considered a relevant criterion for the resulting discrimination
This is one of the reasons why there has been an understandable hesitation on the part of Courts in answering the above question in the affirmative
The above aspect of the matter has been considered in several decisions of this Court
In State of Madhya Pradesh vs Bhailal Bhai  ORs
  the respondents who were dealers in tobacco in the State of Madhya Bharat filed a writ petition under Article 226 of the Constitution for the issue of writ of mandamus directing the refund of sales tax collected from them on the ground that the impugned tax was violative of Article 301 a of the Constitution and that they had paid the same under a mistake of law
It was contended on behalf of the State that even if the provision violated the fundamental rights the High Court should not exercise its discretionary power of issuing a writ of mandamus directing refund since there was unreasonable delay in filing the petition
This contention of the State was rejected by the High Court but on further appeal this Court tool a different view
While agreeing that the Courts have the power for the purposes of enforcement of fundamental rights and statutory rights to give a consequential relief by ordering repayment of any money realised by the government without authority of law the Court said At the same time we cannot lose sight of the fact that the special remedy provided under Article 226 is not intended to supersede completely the modes of obtained relief by an action in a civil court or to deny defends legitimately open in such actions
It has been made clear more than once that the power to give relief under Article 226 is a discretionary 183 power
This is specially true in the case of power to issue writs in the nature of mandamus
Among the several matters which the High Courts rightly take into consideration in the exercise of that discretion is the delay made by the aggrieved party in seeking the special remedy and what excuse there is for it
Another matter which can be rightly taken into consideration is the nature of the facts and law that may have to be decided as regarded the availability of consequential relief
Thus where as in these cases a person comes to the Court for relief under Article 226 on the allegations that he has been assessed to tax under a void legislation and having paid it under a mistake is entitled to get it back if it the Court finds that the assessment was void being made under a void provision of law and the payment was made by mistake it is still not bound to exercise its discretion directing repayment
Whether repayment should be ordered in the exercise of this discretion will depend in each case of its own facts and circumstances
It is not easy nor is it desirable to lay down any rules of universal application it may however be stated as a general rule that if there has been unreasonable delay the Court ought not ordinarily to lend its aid to a party by this extraordinary remedy of mandamus
 The Court further pointed out that the delay may be considered unreasonable even if it is less than the period of limitation prescribed for a civil action for the remedy but where the delay is more than this period it will almost always be proper for the court to hold that it is unreasonable
The relief given by the High Court was modified on this basis
In Tilokchand Mothichand vs Munshi the petitioners had collected sales tax from their customers and paid it over to the State
The Sales Tax Authorities directed a refund but on the condition that the amounts should be passed on to the customers
Since the petitioner did not comply with the condition the sales tax officer forfeited the sum under S214 of the Bombay Sales Tax Act 1953
A writ petition was filed by the petitioner contending that S214 infringed Articles 1910f and 365 of the Constitution and hence they were not liable to repay the amount
This was dismissed on the ground that they had defrauded their customers and therefore not entitled to any relief even if there was a violation of fundamental rights
An appeal to a Division Bench was also dismissed
Subsequently when coercive proceedings were taken for recovering the amounts as arrears of land revenue the petitioners paid the amounts 184 in 1959 60
Much later there was a decision of this Court striking down the corresponding provision of the Bombay Sales Tax Act 1946 as ultra vires
The petitioners thereupon filed a writ petition under Article 32 of the Constitution claiming a refund of the amounts paid by them in consequence of the recovery proceedings
It was held by four of the five learned Judges of this Court that the writ petition should be dismissed on the ground of laches
Chief Justice Hidayatullah held that though Article 32 gives the right to move the Court by appropriate proceedings for enforcement of fundamental rights and State cannot place any hindrance in the way of an aggrieved person once the matter reached this court the extent or manner of interference was for the Court to decide
The learned Chief Justice pointed out that this Court had put itself in restraint in the matter of petitions under Article 32
For example if a party had already moved High Court under Article 226 this court would refuse to interfere
Similarly in inquiring into belated and stale claims this Court should take note of evidence of neglect of the petitioner s own rights for a long time or of the rights of innocent parties which might have merged by reason of the delay
It was possible for this Court to lay down any specific period as the ultimate limit of action and the case will have to be considered on its own facts
On the facts of the case before it the majority found that the petitioner had by his own conduct abandoned his litigation years ago and could not be permitted to resume it several years later merely because some other person had got the statue declared unconstitutional
While Hidayatullah CJ was of the view that the Court should not on the facts of the case apply for analogy of the article in the Limitation Act in cases of mistake of law give relief Bachawat and Mitter JJ
felt that even for a writ petition the limitation period fixed for a suit would be a reasonable standard for measuring delay
Sikri J and Hegde J dissented
Sikri J was of the view that on the facts of the case there was no delay but that the period under the Limitation Act should not be applied to such cases and that a period of one year should be taken as a period beyond which the claim would be considered a stale claim unless the delay is explained
 Such a practice the learned Judge observed would not destroy the guarantee under Article 32 because the article nowhere lays down that a petition however late should be entertained
Only Hegde J was emphatic that laches or limitation should be no ground to deny relief
The learned Judge observed for brevity we quote from head note Since the right given to the petitioners under Article 32 is itself a fundamental right and does not depend on the discretionary powers of this Court as in the case of Article 185 226 it is inappropriate to equate the duty imposed on this Court to the powers of Chancery Court in England or the equitable jurisdiction of Courts in the United States
The facts that the petitioner have no equity in their favour is an irrelevant circumstance in deciding the nature of the right available to an aggrieved party under Article 32
This Court is charged by the Constitution with the special responsibility of protecting and enforcing the fundamental rights and hence laches on the part of an aggrieved party cannot deprive him of his right to get relief under Article 32
In fact law reports do not show a single instance of this Court refusing to grant relief on the grounds of delay
If this Court could refuse relief on the ground of delay  the power of the Court under Article 32 would be discretionary power and the right would cease to be a fundamental right
The provisions contained in the Limitation Act do not apply to proceedings under Articles 226 and 32 and if these provisions of the Limitation Act are brought in indirectly to control the remedies conferred by the Constitution it would be a case of Parliament indirectly abridging the fundamental rights which this court in Golaknath s case
19672 SCR 752 held that Parliament cannot do
The fear that forgotten claims and discarded right against Government may be sought to be enforced after the lapse of a number of years if fundamental rights are held to be enforceable without any time limit is an exaggerated one for  after all a petitioner can only enforce an existing right
 The above principles have been applied in several subsequent cases Ramchandra Shankar Deodhar vs State of Maharastara   Shri Vallabh Glass works Ltd vs union of India   State of MP vs Nandlal Jaiswal   D Cawasji  Co vs State of Mysore  and Salonah Tea Co Ltd vs Superintendent of Taxes1988 1 SCC 401
The above cases no doubt only list situations where directions for refund have been refused or considered to be liable to be refused on grounds of unreasonable delay or laches on the part of the petitioners in approaching the Court in the interests of justice and equity
The importance of these cases however lies not in the grounds on which refund has been held declinable but because they lay down unequivocally that the grant of refund is not an automatic consequence of a 186 declaration of illegality
Once the principle that the Court has a discretion to grant or decline refund is recognised the ground on which such discretion should be exercised is a matter of consideration for the Court having regard to all the circumstances of the case
It is possible that a direction for refund may be opposed by the State on grounds other than laches or limitation
To give an instance in recent years the question has often arisen whether a refund could be refused on the ground that the person who seeks the refund has already passed on the burden of the illegal tax to others and that to grant a refund to him would result in his unjust enrichment
Some decisions have suggested a solution of neither granting a refund nor permitting the State to retain the illegal exaction
This issue has been referred to a larger Bench of this Court and its is not necessary for us to enter into that question here
so far as the present cases are concerned it is sufficient to point out that all the decided cases unmistakably show that even where the levy of taxes is fount to be unconstitutional the Court is not obliged to grant an order of refund
It is entitled to refuse the prayer for good and valid reasons
Laches and undue delay or intervention of third party rights would clearly be one of those reasons
Unjust enrichment of the refundee may or may not be another
But we see no reason why the vital interests of the State taken note of by the learned judges in India Cement should not be a relevant criterion for deciding that a refund should not be granted
We are therefore unable to agree with the learned counsel for the petitioners that any different criterion should be adopted and that the direction in paragraph 35 of India Cement should not be followed in those cases
For the reasons discussed above we are of opinion that though the levy of the cess was unconstitutional there shall be no direction to refund the assessees of any amounts of cess collected until the date on which the levy in question has been declared unconstitutional
This in regard to the Bihar cases will be the date of this judgement
In respect of Orissa the relevant date will be 22121989 on which date the High Court following India Cement declared the levy by the State Legislature unconstitutional
In respect of Madhya Pradesh the relevant date will be the date of the judgement in Hiralal Ramswarup and connected cases viz MP 41083 decided on 2831986 in respect of the levy under State Act 15 th 1982
Though there are the dates of the Judgement of the appropriate High Court which may not constitute a declaration of law within the scope of Article 141 of the constitution it cannot be gainsaid that the State cannot on any grounds of equity be permitted to retain the cess collected on and after the date of the High Court s judgement
187 Another point that was raised was that in many of these cases the State or a Coal field Companies had given an undertaking that incase the levy is held to be invalid by this Court they would refund the amount collection with interest
It is submitted that the condition imposed or undertakings given to this effect and recorded at the time of passing interim orders in the various cases should be given implemented
The interim undertakings or directions cannot be understood in such a manner as to conflict with out final decision on the writ petitions set out above
But we agree that to the extend refunds of amounts of cess collected after the relevant dates are permissible on the basis indicated by us the State should refund those amounts to the assessees directly or to the Coalfields from whom they were collected with interest at the rate directed by this Court or mentioned in the undertaking from the date of the relevant judgment to the actual date of repayment
The Coalfields when hey get th refunds should pass on the same to their customers the assessees
The appeals are disposed of accordingly
There will be no order as to costs
TNA Appeals disposed of


Summary:
For the assessment year 1962 63 the Assessee family returned Rs11000 as the rent received from the lessee Company
Regarding the balance of Rs10000it was contended on behalf of the assessee that this amount being directly payable by the lessee company under the lease deed dated 5562 to the Trust College this ceased to be the income of the assessee
This contention was negatived by the Department right upto the Income Tax Appellate Tribunal
The other point of dispute concerned the income accruing from certain properties claimed to have been transferred by the family to a charitable Trust created under a Trust Deed dated 14111947
The ITO assessed the income from these properties in the hands of the family taking the view that the Trust deed only purported to transfer income from the properties and not the corpus and therefore this income was not eligible for exemption under section 4 3 i of the Indian Income Tax Act 1922
Assessee s appeal to the Appellate Assistant Commissioner failed but further appeal to the Tribunal succeeded
238 Thus the assessee aggrieved on the first contention and the department on the second contention sought references to the High Court
In respect of assessment year 1962 63 two questions were referred to the High Court on the above two points
A question in respect of the first point was also referred for the assessment years 1968 69 and 1969 70 and two questions on the two points mentioned above were referred to the High Court in respect of assessment Year 1972 73
As the High Court answered these questions against the assessee it preferred four appeals covering the four assessment year in question
Allowing the appeals in respect of assessment years 1968 69 and 1969 70 and party allowing the other two appeals in respect of assessment years 1962 63 and 1973 74 this Court HELD1 The assessee is the owner of the properties in question leased out to the company on an annual rent of Rs21000
This is income of the family
The Assessee s agreement with the company that Rs10000 out of the rent due to it should be paid directly to the College is only a mode of application of the income by the family which makes no difference in its liability to tax on the entire rent of Rs21000 nor does the fact that the college has been given a right to sue for and recover this sum directly from the company in case of default alter this position
The payment to or recovery of Rs10000 by the college will only discharge in part the liability of the company to pay a rent of Rs21000 to the assessee under the lease deed
The creation of a charge in favour of the college does not make any difference
It only obliges the company to pay a part of the rent to the college on behalf of the assessee but the existence of a mere obligation is not sufficient to constitute diversion of income
Where the obligation flows out of an antecedent and independent title in the former it effectively slices away a part of the corpus of the right of the latter to receive the entire income and so it would be a case of diversion
On the other hand where the obligation is self imposed or gratuitous it is only a case of an application of income
We therefore agree with the High Court that the assessee is liable to tax on the entire rental income of Rs21000
245F 246A E247C D248B 2 A registered conveyance of immovable property to the trustees is necessary where the trustees are persons other than the author
But this requirement does not arise where the author is himself to be the trustee
While a trust is not complete until the trust property is vested in trustees for the benefit of the cestui que trust this can be 239 done by the settlor where he is himself the trustee by a declaration of trust using language which taken in connection with his acts shows a clear intention on his part to divest himself of all beneficial interest in it and to exercise dominion and control over it exclusively as a trustee
Section 6 of the Indian Trusts Act makes this clear beyond all doubt
The assessee s full ownership of an unqualified right to enjoy the properties gets restricted by the trust deed which creates an overriding title in the beneficiaries regarding the use of the income from such properties in the manner set out therein and no other
In fact after the execution of such a trust deed the properties are no longer held by the assessee as the absolute owner thereof but as a trustee with a legal obligation to apply the income exclusively for charitable purposes thus attracting the provisions for exemption contained in the Act
We are inclined to take the view that the Trust deed of 1947 should be construed as a valid trust which has the effect of diverting the income at the source and that the income thereafter ceased to be the income of the assessee family248G 249B C D E F CIT vs Sitaldas Tirathdas 1961 41 ITR367 SCMurlidhar Himmatsingka vs ITO 1961 62 ITR323 SCMahaliram Santhalia vs CIT 1958 33 ITR261 referred to