vil Appeal No 62 N of 1970 etc
From the Judgment and Order dated 1310
1969 of the Madras High Court in WA No 464 of 1967
K Parasaran Attorney General Dr YS Chitale FS Nariman
TS Krishnamurthy Iyer AK Ganguli B Sen LN Sinha RN Sachthey RB Datar RF Nariman KJ John HN Salve Praveen Kumar AV Rangam TSridharan KD Prasad Mrs Naresh Bakshi K Rajendra Choudhary Ms Seita Vaidialingam V Krishnamurthy Ms A Subhashini N Net tar GS Narayan Badrinath Babu Anip Sachthey and SK Agnihotri for the appearing parties
The Judgment of the Court were delivered by SABYASACHI MUKHARJI J
The question involved in these appeals special leave petitions and writ petitions is whether levy of cess on royalty is within the competence of the State Legislature
In order to appreciate the question it is necessary to refer to certain facts
Civil appeal No 6279 is an appeal by special leave from the judgment and order of the High Court of Madras dated 13th October 1969 in writ appeal No 46467
The appellant is a public limited 698 company incorporated under the Indian Companies Act 1913
The Company at all relevant times used to manufacture cement in its factory at Talaiyuthu in Tirunelveli district and at Sankaridrug in Salem district of Tamil Nadu
By GO Ms No 3668 dated 19th July 1963 the Govt
of Tamil Nadu sanctioned the grant to the appellant mining lease for limestone and kankar for a period of 20 years over an extent of 13391 acres of land in the village of Chinnagoundanur in Sankaridrug Taluk of Salem district
Out of the extent of 13391 acres comprised in the mining lease an extent of 12614 acres was patta land and only the balance extent of 777 acres Govt
The lease deed was in accordance with the Mineral Concession Rules 1960
The rates of royalty dead rent and surface rent were as follows Royalty LIMESTONE Government Lands ReO75 per tonne but subject to a rebate of ReO38 per tonne to be given on Imestone beneficiated by froth flota tion method
Patta Lands ReO38 per tonne but subject to a rebate of ReO 19 per tonne to be given on limestone beneficiated by froth flotation method
KANKAR Government Lands Five per cent of the sale price at the pit s mouth
Patta Lands 2 12 of the sale price at the pit s mouth Dead rent Government lands Rs25 Rupees twentyfive only per hectare per annum
Patta lands Rs 1250 Rupees twelve  naya paise fifty only per hectare per annum
Surface rent and water rate At such rate as the land revenue and cess assessable on the land are paid
 The appellant started mining operations soon after the execution 699 of the lease deed and has ever since been paying the royal ties dead rents and other amounts payable under the Deed
Under section 115 of the Madras Panchayats Act XXXV of 1958 hereinafter called the Act  as amended by Madras Act XVIII of 1964 herein after called the amended Act  as royalty the appellant was required to pay local cess  45 paise per rupee
It may be mentioned that the said imposi tion was with retrospective effect along with local cess surcharge under section 116 of the Act
The contention of the appellant is and was at all relevant times that cess on royalty cannot be levied
This is the common question which falls for consideration and requires determination in these appeals and petitions
To complete the narration of events however it has to be noted that the Collector sent a communication on 10th April 1965 demanding cess or royalty payable under the Act on minerals carried on during the period 171961 to 31121964 and the petitioner was threatened of serious consequences in case of default of payment on receipt of that communication
Thereafter writ petition No 186465 was filed in the High Court of Madras
By the judgment delivered and order passed on 23rd February 1967
a learned Single Judge of the Madras High Court Justice Kailasam dismissed the writ petition holding that the cess levied under section 115 of the act is a tax on land and as such falls under Entry 49 of the State List of the Schedule VII of the Constitution and was within the competence of the State legislature
Reliance was placed by the learned single Judge on the decision of this Court in HRS Murthy vs Collector of Chittoor  Anr  He held that the cess levied under section 115 was a tax on land though fixed with reference to the land revenue
In regard to section 116 of the Act the learned Single Judge held that the maximum limit had been prescribed by the Government by rules flamed under the Act and therefore there was no arbitrariness about the levy
Sub section 1 of section 115 of the Act enjoins that there shall be levied in every panchayat development block a local cess at the rate of 45 paise on every rupee of land revenue payable to the Govt
in respect of any land for every Fasli
An Explanation to the said section was added and deemed always to have been incorporated by the Tamil Nadu Panchayats Amendment and Miscellaneous Provisions Act 1964 being Tamil Nadu Act 18 of 1964 which provided as follows Explanation
In this section and in section 116 land revenue  means public revenue due on land and includes 700 water cess payable to the Government for water supplied or used for the irrigation of land royalty lease amount or other sum payable to the Government in respect of land held direct from the Government on lease or licence but does not include any other cess or the sur charge payable under section 116 provided that land revenue remitted shall not be deemed to be land revenue payable for the purpose of this section Sub section 2 of section 115 of the Act provides that the local cess shall be deemed to be public revenue due on all the lands in respect of which a person is liable to pay local cess and all the said lands the buildings upon the said lands and their products shall be regarded as the security for the local cess
Sub section 3 4 a b c and d of section 115 of the said Act deal with the application of the cess so collected for various purposes mentioned therein
In the controversy before us the said provisions need not be considered
Section 116 of the Act is as follows 116
Every panchayat union council may levy on every person liable to pay land revenue to the Government in respect of any land in the panchayat union a local cess surcharge at such rate as may be considered suitable as an addition to the local cess levied in the panchayat development block under section 115 provided that the rate of local cess surcharge so levied shall not exceed two rupees and fifty paise on every rupee of land revenue payable in respect of such land
 The words shall not exceed two rupees  fifty paise on every rupee of land revenue were substituted for the words shall be subject to such maximum as may be prescribed by section 3 of the Tamil Nadu Panchayats  2nd Amendment and Validation Act 1970 and these words were substituted for the words shall not exceed one rupee and fifty paise on every rupee of land revenue by section 2 of the Tamil Nadu Panchayats Amendment Act 1972
There was an appeal from the said decision of the learned Single Judge to the division bench of the High Court
The division bench by its judgment and order dated 13th October 1969 dismissed the writ appeal and held that local cess authorised by section 115 as aforesaid was not land revenue but is a charge on the land itself and Section 115 701 merely quantified on the basis of the quantum of land reve nue
The division bench held that the meaning of the Expla nation added to section 115 was that the cess is levied as a tax on land and is measured with reference to land revenue royalty lease amount etc
as mentioned in the Explanation
The division bench also relied on the decision of this Court in HRS Murthy supra and further held that in the aforesaid view of the matter it was not possible to accept the contention that section 115 of the Act read with the Explana tion contravened in any manner section 9 of the Mines and Miner als Regulation and Development Act 1957
By leave granted by this Court on 12th January 1970 the appeal has been filed
The appellant is bound to pay royalty to the Govt
according to the rates provided in the Second Schedule to the said Act of 1957
Clause 1 of Part VII of the lease document provides as follows The lesseelessees shall pay the rent water rate and royalties reserved by this lease at such times and in the manner provided in Part V and VI of these presents and shall also pay and discharge all taxes rates assessment and impositions whatsoever being in the nature of public demand which shall from time to time be charged assessed or imposed by the authority of the Central and State Government upon or in respect of the premises and works of the lesseelessees in common with other premises and work of a like nature except demands for land revenue
 As mentioned hereinbefore there is an obligation of the lessee to pay rent and other charges mentioned in the said Clause and all other Central and State Government dues except demands for land revenue
The question therefore which arises is is cess on royalty a demand of land revenue or additional royalty For the appellants andor petitioners we have heard Mr Nariman_ Dr Chitale and Mr Salve and for the interven ers SShri KD Prasad Rajendra Choudhary and Ms Seita Vaidialingam have made their submissions
For the State of Tamil Nadu Mr Krishnamurthy Iyer and Mr V Krishnamurthy have made their submissions
We have had the advantage of the submissions made by learned Attorney General on behalf of Union of India
The issues are common in the writ peti tions as well as in the appeal and in the special leave petitions
The question involved in the appeals and the writ petition is about the constitutional validity of Section 1151 of the Act in so far as it 702 sought to levy as local cess  45 naya paise on every rupee of the land revenue payable to the Government the meaning of land revenue being artificially expanded by the explana tion so as to include royalty payable under the mining lease
In this connection it may be appropriate to refer to the Statement of Objects and Reasons for the amendment which stated inter alia as follows Under the Explanation to section 115 of the Act 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 but does not include any other cess or surcharge payable under section 116
The Explanation does not cover royal ties lease amount or other sum payable to the Government in respect of land held direct from the Government on lease or licence which were included in the definition of land revenue under the Madras District Boards Act 1920
As under the Madras District Boards Act 1920 certain panchayat union councils contin ued to levy the cess and surcharge under the Madras Panchayats Act 1958 also
It is con sidered that the levy should be on the same basis as under the Madras District Boards Act 1920
It is therefore proposed to include royalty lease amount and other sums payable to the Government in the definition of land revenue in the Explanation to section 115 of the Act and also to validate the levy and collection of the cess and surcharge made hitherto on the said basis
 It is obvious that the said amendment was intended to bring royalty within the Explanation and the definition of land revenue in section 115 as well as section 116 of the Act and was effected by the Gazette Notification of 2nd Septem ber 1964 by Act No 18 of 1964
In order to appreciate the controversy it has no be understood that in this case royalty was payable by the appellant which was prescribed under the lease deed the terms whereof have been noted hereinbefore
The royalty had been fixed under the statutory rules and protected under those rules
The royalty was fixed under the Mines and Minerals Regulation  Development Act 1957 which is a Central Act by which the control of mines and minerals had been taken over by the Central Government
It was an Act for the regulation of mines and development of minerals under the control of Union of India
That 703 Act was to provide for the regulation of mines and the development of minerals under the control of the Union of India
2 of the Act declares that it is expedient in the public interest that the Union of India should take under its control the regulation of mines and the develop ment of the minerals to the extent provided in the Act
Section 9 of the Act provides as follows 9
1 The holder of a mining lease granted before the commencement of this Act shall notwithstanding anything contained in the instrument of lease or in any law in force at such commencement pay royalty in respect of any mineral removed or consumed by him or by his agent manager employee contractor or sub lessee from the leased area after such commencement at the rate for the time being specified in the Second Schedule in respect of that mineral
2 The holder of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any mineral removed or consumed by him or by his agent manager employee contractor or sub lessee from the leased area at the rate for the time being specified in the Second Schedule in respect of that mineral
2A The holder of a mining lease whether granted before or after the commencement of the Mines and Minerals Regulation and Devel opment Amendment Act 1972 shall not be liable to pay any royalty in respect of any coal consumed by a workman engaged in a col liery provided that such consumption by the workman does not exceed one third of a tonne per month
3 The Central Government may by notifica tion in the Official Gazette
amend the Second Schedule so as to enhance or reduce the rate at which royalty shall be payable in respect of any mineral with effect from such date as may be specified in the notification Provided that the Central Government shall not enhance the rate of royalty in respect of any mineral more than once during any period of three years
 The Act was passed by virtue of the power of the Parliament 704 under Entry 54 of list I of the 7th Schedule
Since the control of mines and the development of minerals were taken over by Parliament the question that arises here is whether the levy or the impost by the State Legislature imposed in this case can be justified or sustained either under entry 49 50 or 45 of list II of the 7th Schedule
Courts of law are enjoined to gather the meaning of the Constitution from the language used and although one should interpret the words of the Constitution on the same princi ples of interpretation as one applies to an ordinary law but these very principles of interpretation compel one to take into account the nature and scope of the Act which requires interpretation
It has to be remembered that it is a Consti tution that requires interpretation
Constitution is the mechanism under which the laws are to be made and not merely an Act which declares what the law is to be
See the obser vations of Justice Higgins in the Attorney General for the State of New South Wales vs The Brawery Employees Union of New South Wales  at 611 2
In re CP and Berar Sales of Motor Spirit  Lubricants Taxation Act 1938 1939 FCR at p 1 Chief Justice Gwyer of the Federal Court of India relied on the observations of Lord Wright in James vs Common wealth of Australia and observed that a Constitution must not be con strued in any narrow or pedantic sense and that construc tion most beneficial to the widest possible amplitude of its powers must be adopted
The learned Chief Justice empha sised that a broad and liberal spirit should inspire those whose duty it is to interpret the Constitution but they are not free to stretch or pervert the language of the enactment in the interest of any legal or constitutional theory or even for the purposes of supplying omissions or correcting supposed errors
A Federal Court will not strengthen but only derogate from its position if it seeks to do anything but declare the law but it may rightly reflect that a Constitution of a country is a living and organic thing which of all instruments has the greatest claim to be con strued ut res magis valeat guam pereat It is better that it should live than that it should perish 
Certain rules have been evolved in this period and it is wellsettled now that the various entries in the three lists are not powers but fields of legislation
The power to legislate is given by article 246 and other articles of the Constitution
See the observations of this Court in Calcutta Gas Co vs State of West Bengal 1962 Suppl 3 SCR 1
The entries in the three lists of the Seventh Schedule to the Constitution 705 are legislative heads or fields of legislation
These demar cate the area over which appropriate legislature can oper ate
It is well settled that widest amplitude should be given to the language of these entries but some of these entries in different lists or in the same list may overlap and sometimes may also appear to be in direct conflict with each other
Then it is the duty of the court to find out its true intent and purpose and to examine a particular legislation in its pith and substance to determine whether it fits in one or the other of the lists
See the observa tions of this Court in HR Banthia  Ors etc
vs Union of India  Ors
  at 489 and Union of India vs Shri HS Dillon  at 792
The lists are designed to define and delimit the respective areas of respective competence of the Union and the States
These neither impose any implied restriction on the legislative power conferred by Article 246 of the Constitution nor prescribe any duty to exercise that legislative power in any particular manner
Hence the language of the entries should be given widest scope DC Rataria vs Bhuwalka Brothers Ltd   to find out which of the meaning is fairly capable because these set up machinery of the Govt
Each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it
In interpreting an entry it would not be reasonable to import any limitation by comparing or con trasting that entry with any other one in the same List
It is in this background that one has to examine the present controversy
Here we are concerned with cess on royalty
One can have an idea as to what cess is from the observations of Justice Hidayatullah as the learned Chief Justice then was in Ms Guruswamy  Co etc
vs State of Mysore  Ors where at page 571 the learned Judge ob served The word cess  is used in Ireland and_
is still in use in India although the word rate has replaced it in England
It means a tax and is generally used when the levy is for some special administrative expense which the name health cess education cess road cess etc indicates
When levied as an increment to an existing tax the name matters not for the validity of the cess must be judged of in the same way as the validity of the tax to which it is an increment The said observations were made in the dissenting judg ment but there was no dissent on this aspect of the matter
Relying on the aforesaid observations Mr Nariman appearing for the appellant and 706 the petitioners suggested that the impugned levy in this case is nothing but a tax on royalty and is therefore ultra vires the State legislature
Mr Krishnamurthy Iyer appear ing for the State of Tamil Nadu submitted that the cess in question in the instant case is a levy in respect of land for every fasli
He urged that the words a local cess at the rate of 45 naya paise on every rupee of land revenue payable qualify the words land revenue
These words were only intended according to Mr Krishnamurthy Iyer to mean cess payable
It is however not possible to accept this submission in view of the obligation indicated by the language of the provisions
Cess is not on land but on royalty which is included in the definition of land reve nue 
None of the three lists of the 7th Schedule of the Constitution permits or authorises a State to impose tax on royalty
This levy has been sought to be justified under Entry 45 of List II of the 7th Schedule
Entry 45 deals with land revenue which is a well known concept and has existed in India before the Constitution came into force
In NR Reddy  Ors
vs State of AP  Ors 1965 2 Andhra Law Times 297 Jaganmohan Reddy J as the learned Judge then was of the Andhra Pradesh High Court while sitting in a division bench observed that no land revenue Act existed in the composite State of Madras nor had the ryotwari system ever been established by legislative enactment
The learned Judge at p 306 of the report observed that in the earlier days sovereigns had in exercise of their prerogative right claimed a share of the produce of all cultivated land known as Rajabhagam  or by any of the various other names and had fixed their share or its commuted money value from time to time according to their will and pleasure
The learned Judge noted that as long as the share of the sovereign was being paid the sovereign had no right to the possession of the lands and the proprietorship of these lands was vested in the occupier who could not be removed because another offered more
The right of the sovereign to a share in the produce as observed by the Govt
of Madras in 1856 is not rent which consists of all surplus produce after paying the cost of cultivation and the profits of agricultural stock but land revenue only which ought if possible to be so lightly assessed as to leave a surplus or rent to the occu pier when he in fact lets the land to others or retains it in his own hands
 It was noted that the amount of tax that was levied before the Mohamedan Rule amounted to 18th 16th or 112th according to Manu depending on the differ ences in the soil and the labour necessary to cultivate it and it even went up to 14th part in times of urgent neces sity as of war or invasion
The later commentators Yajnav alkya Apastamba Gautama Baudhayana and Narada have all asserted not only the right but the extent of the share
When the British came to India they followed not only the precedent 707 of the previous Mohamedan Rulers who also claimed enormous land revenue with this difference that what the Mohamedan Rulers claimed they could never fully realise but what the British Rulers claimed they realised with vigour
It is not necessary to refer in detail how land revenue developed in India after the advent of the British Rule
There was an appeal from the said decision of the High Court of Andhra Pradesh and this Court dismissed the appeal in State of A P vs NR Reddy  Ors  It is however clear that over a period of centuries land revenue in India has acquired a connot active meaning of share in the produce of land to which the King or the Govt
is entitled to receive
It was contended on behalf of the appellants that the impugned measure being a tax not on share of the produce of the land but on royalty royalty being the return received from the produce of the land revenue was payable for winning minerals from the land
In the premises it was contended that it cannot be attributable to Entry 45 of List II of the 7th Schedule being not a land revenue
It has however to be borne in mind that Explana tion to Section 1151 was added and there was an amendment as we have noted before
That very Explanation makes a distinction between land revenue as such and royalty which by amendment is deemed to be land revenue
It is therefore recognised by the very force of that Explanation and the amendment thereto that the expression royalty  in sections 115  116 of the Act cannot mean land revenue properly called or conventionally known which is separate and dis tinct from royalty
It was also contended on behalf of the respondent State of Tamil Nadu of Mr Krishnamurthy Iyer that it could also be justified under Entry 49 of List II of the 7th Schedule as taxes on lands and buildings
This however cannot be accepted
In this connection reference may be made to the decision of this Court in Raja Jagannath Baksh Singh vs The State of UP  Anr  where at p 229 it was indicated that the expression lands  in Entry 49 is wide enough to include agricultural land as well as non agricultural land
Gajendragadkar J as the learned Chief Justice then was observed that the cardinal rule of inter preting the words used by the Constitution in conferring legislative power was that these must receive the most liberal construction and if they are words of wide amplitude the construction must accord with it
If general word was used it must be so construed so as to extend to all ancil lary or subsidiary matters that can reasonably be included in it
So construed there could not be any doubt that the word land  in Entry 48 List II of the 7th Schedule 708 includes all land whether agricultural or non agricultural
Hence since the impugned Act imposed tax on land and build ing which was within the competence of the State Legislature and its validity was beyond challenge but the Court observed that as there was Entry 46 in List H which refers to taxes on agricultural income it is clear that agricultural income is not included in Entry 49
If the State Legislature pur ports to impose a tax on agricultural income it would not be referable to Entry 49
Mr Krishnamurthy Iyer relied on the said principle
But in the instant case royalty being that which is payable on the extraction from the land and cess being an additional charge on that royalty cannot by the parity of the same reasoning be considered to be a tax on land
But since it was not a tax on land and there is no Entry like Entry 46 in the instant situation like the posi tion before this Court in the aforesaid decision enabling the State to impose tax on royalty in the instant situation the State was incompetent to impose such a tax
There is a clear distinction between tax directly on land and tax on income arising from land
The aforesaid decision confirmed the above position
In New Manek Chand Spinning  Weaving Mills Co Ltd  Ors vs Municipal Corpn
of the City of Allahabad  Ors
  at 696 this Court after referring to the several decisions observed that Entry 49 of list II of the 7th Schedule only permitted levy of tax on land and building
It did not permit the levy of tax on machinery contents in or situated on the building even though the machinery was there for the use of the building for a particular purpose
Rule 72 of the Bombay Municipal Corporation Rules was held to be accordingly ultra vires in that case
In SC Nawn vs WTO Calcutta  Ors  this Court had occasion to consider this and upheld the validity of the Wealth Tax Act 1957 on the ground that it fell within Entry 86 of List I and not Entry 49 of List II
Construing the said Entry this Court observed that Entry 49 list II contemplated a levy on land as a unit and the levy must be directly imposed on land and must bear a definite relationship to it
Entry 49 of list Il was held to be more general in nature than Entry 86 list I which was held to be more specific in nature and it is well settled that in the event of conflict between Entry 86 list I and Entry 49 of list II Entry 86 prevails as per Article 246 of the Constitution
In Asstt
Commissioner of Urban Land Tax  Ors
vs The Buckingham  Carnatic Co Ltd etc  at 278 this Court reiterated the principles laid down in SC Nawn s case supra and held that entry 49 of list II was confined to a tax that was directly on land as a unit
In Second Gift Tax Officer Mangalore etc
vs DH Nazareth etc
  at 200 it was held that a tax on the gift 709 of land is not a tax imposed directly on land but only on a particular user namely the transfer of land by way of gift
In Union of India vs HS Dhillon supra this Court approved the principle laid down in SC Nawn s case as well as Nazareth s case supra
In Bhagwan Dass Jain vs Union of India  at 816 this Court made a distinction between the levy on income from house property which would be an income tax and the levy on house property itself which would be referable to entry 49 list II
It is there fore not possible to accept Mr Krishnamurthy Iyer s sub mission and that a cess on royalty cannot possibly be said to be a tax or an impost on land
Mr Nariman is right that royalty which is indirectly connected with land cannot be said to be a tax directly on land as a unit
In this connec tion reference may be made to the differentiation made to the different types of taxes for instance one being profes sional tax and entertainment tax
In the Western India Theatres Ltd vs The Cantonment Board Poona Cantonment  at 69 it was held that an entertain ment tax is dependent upon whether there would or would not be a show in a cinema house
If there is no show there is no tax
It cannot be a tax on profession or calling
Profes sional tax does not depend on the exercise of one s profes sion but only concerns itself with the right to practice
It appears that in the instant case also no tax can be levied or is leviable under the impugned Act if no mining activi ties are carried on
Hence it is manifest that it is nor related to land as a unit which is the only method of valua tion of land under entry 49 of list II but is relatable to minerals extracted
Royalty is payable on a proportion of the minerals extracted
It may be mentioned that the Act does not use dead rent as a basis on which land is to be valued
Hence there cannot be any doubt that the impugned legislation in its pith and substance is a tax on royalty and not a tax on land
On behalf of the State of Tamil Nadu learned counsel Mr Krishnamurthy Iyer sought to urge that it can also be sustained under entry 50 list II
Entry 50 of list II of the 7th Schedule deals with taxes on mineral rights subject to limitation imposed by Parliament relating to mineral development
Entry 23 of List II deals with 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 and entry 54 in list I deals with regulation of mines and minerals under the control of Union declared by the Parliament by law to be expedient in public interest
Even though minerals are part of the State List they are treated separately and therefore the principle that the specific excluded the general must be applied
See the observations of Waverly Jute Mills Co Ltd vs Raymon  Co 1 Pvt Ltd 1963 3 710 SCR 209 at 220 where it was held that land in entry 49 of list II cannot possibly include minerals
In this connection learned Attorney General appearing for the Union of India submitted before us that in order to sustain the levy the power of the State Legislature has to be found within one or more of the entries of list II of the 7th Schedule
The levy in question has to be either a tax or a fee or an impost
If it is neither a tax nor a fee then it should be under one of the general entries under List II
The expression land  according to its legal significance has an indefinite extent both upward and downwards the surface of the soil and would include not only the face of the earth but everything under it or over it
See the obser vations in Anant Mills Co Ltd vs State of Gujarat  Ors 19751 3 SCR 220 at 249
The minerals which are under the earth can in certain circumstances fall under the expres sion land  but as tax on mineral rights is expressly cov ered by entry 50 of list II if it is brought under the head taxes under entry 49 of list II it would render entry 50 of list II redundant
Learned Attorney General is right in contending that entries should not be so construed as to make any one entry redundant
It was further argued that even in pith and substance the tax fell to entry 50 of list II it would be controlled by a legislation under entry 54 of list I
On the other hand learned Attorney General submitted that if it be held to be a fee then the source of power of the state legislature is under entry 66 read with entry 23 of list II
Here also the extent to which regulation of mines and mineral development under the control of the Union is declared by Parliament by law to be expedient in the public interest to the extent such legislation makes provi sions will denude the State Legislature of its power to override the provision under entry 50 of list II
In view of the Parliamentary legislation under entry 54 list I and the declaration made under section 2 and provisions of section 9 of the Act the State Legislature would be overridden to that extent
section 2 declares that it is expedient in the public interest that Union should take under its control the regu lation of mines and the development of minerals to the extent provided therein
In this connection reference may be made to the decision of this Court in The Hingir Rampur Coal Co Ltd  Ors
vs The State of Orissa  Ors  See also the observations in State of Orissa vs MA TuIloch  Co  and Baijnath Kedia vs State of Bihar  Ors  at 111 115
Our attention was drawn to the decision of the division bench 711 judgment of the High Court of Mysore in Ms Laxminarayana Mining Co Bangalore vs Taluk Der
Board
 AIR There speaking for the court one of us Venkataramiah J of the Mysore High Court as the learned Chief Justice then was observed that a combined reading of entries 23 and 50 in list II and entry 54 of list I establishes that as long as the Parliament does not make any law in exercise of its power under entry 54 the powers of the State Legisla ture in entries 23  50 would be exercisable by the State Legislature
But when once the Parliament makes a declara tion by law that it is expedient in the public interest to make regulation of mines and minerals development under the control of the Union to the extent to which such regulation and development is undertaken by the law made by the Parlia ment the power of the State Legislature under entries 23  50 of List II are denuded
There the court was concerned with the Mysore Village Panchayats  Local Boards Act 1959
Thus it was held that it could not therefore be said that even after passing of the Central Act the state legislature by enacting section 143 of the Act intended to confer power on the Taluk Board to levy tax on the mining activities carried on by the persons holding mineral concessions
It followed that the levy of tax on mining by the Board as per the impugned notification was unauthorised and liable to be set aside
At p 306 of the said report it was held that royal ty under section 9 of the Mines and Minerals Act was really a tax
To the similar effects are the observations of the High Court of Patna in M Lal  Ors
vs The State of Bihar  Ors
 AIR 1965 Patna 491 at 494
Mr Krishnamurthy Iyer however referred to the decision of this Court in HRS Murthy s case supra
There under the terms of a mining lease the lessee worked the mines and won iron ores in a tract of land in a village in Chittor district and bound himself to pay a dead rent if he used the leased land for the extraction of iron ore to pay a royalty on iron ore if it were used for extraction of iron and in addition to pay a surface rent in respect of the surface area occupied or used
In the said decision the legislative competence of sections 78  79 of the Madras District Boards Act was upheld by which land cess was made payable on the basis of royalty
This Court proceeded on the basis that other cess related to land and would therefore be covered by entry 49 of list II
It was held that land cess paid on royalty has a direct relation to the land and only a remote relation with mining
This with respect seems to be not a correct approach
It was further observed that it was not necessary to consider the meaning of the expression tax on mineral right  follow ing under Entry 50 of List II in as much as according to this Court Parliament has not made any tax on mineral rights
This is not a correct basis
712 In HRS Murthy s case supra at p 676 of the re port it was observed by this Court as follows When a question arises as to the precise head of legislative power under which a taxing statute has been passed the subject for enquiry is what in truth and substance is the nature of the tax
No doubt in a sense but in a very remote sense it has relationship to mining as also to the mineral won from the mine under a contract by which royalty is payable on the quantity of mineral extracted
But that does not stamp it as a tax on either the extraction of the mineral or on the miner al right
It is unnecessary for the purpose of this case to examine the question as to what exactly is a tax on mineral rights seeing that such a tax is not leviable by Parliament but only by the State and the sole limitation on the State s power to levy the tax is that it must not interfere with a law made by Parlia ment as regards mineral development
Our attention was not invited to the provision of any such law created by Parliament
In the context of sections 78 and 79 and the scheme of those provisions it is clear that the land cess is in truth a tax on lands within Entry 49 of the State List
 It seems therefore that attention of the Court was not invited to the provisions of Mines and Minerals Development  Regulation Act 1957 and section 9 thereof
section 93 of the Act in terms states that royalties payable under the 2nd Sched ule of the Act shall not be enhanced more than once during a period of 4 years
It is therefore a clear bar on the state legislature taxing royalty so as to in effect amend 2nd Schedule of the Central Act
In the premises it cannot be right to say that tax on royalty can be a tax on land and even if it is a tax if it falls within entry 50 will be ultra vires the State legislature power in view of section 93 of the Central Act
In Hingir Rampur Coal Co Ltd vs The State of Orissa supra Wanchoo J in his dissenting judg ment has stated that a tax on mineral rights being different from a duty of excise pertains only to a tax that is levi able for the grant of the right to extract minerals and is not a tax on minerals as well
On that basis a tax on royalty would not be a tax on mineral rights and would therefore in any event be outside the competence of the state legislature
The Rajasthan Punjab Gujarat and Orissa High Courts have held that royalty is not a tax
Bherulal vs State of Rajasthan  Anr AIR  Dr SS Sharma  Anr
vs State of 713 Pb
 Ors AIR at 84 Saurashtra Cement  Chemicals India Ltd vs Union of India  Anr AIR 1979 Guj
180 at 184 and LN Agarwalla  Ors
vs State of Orissa  Ors
 AIR 1983 Orissa 210
It was contended by Mr Krishnamurthy Iyer that the State has a right to tax minerals
It was further contended that if tax is levied it will not be irrational to corre late it to the value of the property and to make some kind of annual value basis of tax without intending to tax the income
In view of the provisions of the Act as noted hereinbefore this submission cannot be accepted
Mr Krish namurthy Iyer also further sought to urge that in entry 50 of list II there is no limitation to the taxing power of the State
In view of the principles mentioned hereinbefore and the expressed provisions of section 92 of the Mines  Minerals Regulation  Development Act 1957 this submis sion cannot be accepted
This field is fully covered by the Central legislation
In any event royalty is directly relatable only to the minerals extracted and on the principle that the general provision is excluded by the special one royalty would be relatable to entries 23  50 of list II and not entry 49 of list II
But as the fee is covered by the Central power under entry 23 or entry 50 of list II the impugned legisla tion cannot be upheld
Our attention was drawn to a judgment of the High Court of Madhya Pradesh in Miscellaneous Peti tion No 41083 Ms Hiralal Rameshwar Prasad  Ors
vs The State of Madhya Pradesh  Ors which was delivered on 28th March 1986 by a Division Bench of the High Court
JS Verma Acting Chief Justice as His Lordship then was held that development cess by section 9 of the Madhya Pradesh Karadhan Adhiniyam 1982 is ultra vires
It is not necessary in the view taken by us and further in view that the said decision is under appeal in this Court to examine it in detail
In the aforesaid view of the matter we are of the opinion that royalty is a tax and as such a cess on royalty being a tax on royalty is beyond the competence of the State Legislature because section 9 of the Central Act covers the field and the State Legislature is denuded of its competence under entry 23 of list II
In any event we are of the opinion that cess on royalty cannot be sustained under entry 49 of list II as being a tax on land
Royalty on mineral rights is not a tax on land but a payment for the user of land
Mr Krishnamurthy Iyer however submitted that in any event the decision in HRS Murthy s case supra was the decision of the Constitution Bench of this Court
Cess has been realised on that basis 714 for the organisation of village and town panchayats and comprehensive programme of measures had been framed under the National Extension Service Scheme to which our attention was drawn
Mr Krishnamurthy Iyer further submitted that the Directive Principle of State Policy embodied in the Consti tution enjoined that the State 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 if at all we should declare the said cess on royalty to be ultra vires prospectively
In other words the amounts that have been collected by virtue of the said provisions should not be declared to be illegal retrospec tively 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 s case supra 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
In that view of the matter the appeals must therefore be allowed and the writ petitions also succeed to the extent indicated above
We declare that the said cess by the Act under section 115 is ultra vires and the respondent State of Tamil Nadu is restrained from enforcing the same any fur ther
But the respondents will not be liable for any refund of cess already paid or collected
The appeals are disposed of accordingly
The special leave petitions and writ peti tions are also disposed of in those terms
In the facts and the circumstances of the case the parties will pay and bear their own costs
OZA J
While I agree with the conclusions reached by my learned brother Hon  Mukharji J I have my own reasons for the same
The main argument in favour of this levy imposed by the State Legislature is on the basis of Entry 49 in List II of the Seventh Schedule conferring jurisdiction on the State Legislature
The question therefore to be determined is whether the jurisdiction of the State Legislature under Item 49 of List II could be so exercised to impose a cess on the royality prescribed under Section 9 of the 
The entries which are relevant for the purpose of deter mining this questions are Entry 54 List I reads 715 Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest
 Entry 23 List II reads 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 49 List II reads Taxes on lands and buildings
 Entry 50 List II reads Taxes on mineral rights subject to any limi tations imposed by Parliament by law relating to mineral development
 The language of Entries 23 and 50 in List I1 clearly sub jects the authority or jurisdiction on the State Legislature to any enactment made by the Parliament
Entry 23 talks of regulation and Entry 50 talks of taxes on mineral rights
It therefore could not be disputed that if the cess imposed under section 115 of the Madras Village Panchayat Act is a cess or tax on mineral rights then that jurisdiction could be exercised by the State Legislature subject to the law enacted by the Parliament
The Parliament in Section 91 of the has fixed the limits of royality on the mining rights
It was therefore contended on behalf of the State that in fact what is imposed under Section 115 is not a cess on the mining rights or on royality but is a tax on land which clearly falls within the authority of the State legislature in Entry 49 of List II
Section 9 of the reads 91 The holder of a mining lease granted before the commencement of this Act shall notwithstanding anything contained in the instrument of lease or in any law in force at such commencement pay royalty in respect of any mineral removed or consumed by him or by his gent manager employee contractor or sub lessee from the leased area 716 after such commencement at the rate for the time being specified in the Second Schedule in respect of that mineral
2 The holder of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any mineral removed or consumed by him or by his agent manager employee contractor or sub lessee from the leased area at the rate for the time being specified in the Second Schedule in respect of that mineral
2A The holder of a mining lease whether granted before or after the commence of the Mines and Minerals Regulation and Develop ment Amendment Act 1972 shall not be liable to pay any royalty in respect of any coal consumed by a workman engaged in a colliery provided that such consumption by the workmen does not exceed one third of a tonne per month
3 The Central Government may by notifica tion in the Official Gazette amend the Second Schedule so as to enhance or reduce the rate at which royalty shall be payable in respect of any mineral with effect from such date as may be specified in the notification
Provided that the Central Government shall not enhance the rate of royalty in respect of any mineral more than once during any period of three years
 It is clear that by this Act alongwith Schedule limits on royality has been fixed and the authority has been given to Parliament alone to vary it and that too not more than once in a period of three years
Admittedly royality as not based on the area of land under mining but per unit of minerals extracted
Section 115 of the Madras Village Panchayat Act reads as under 1 There shall not be levied in every pan chayat development block a local cess at the rate of 45 naye paise on every rupee of land revenue payable to the Government in respect of any land for every Fasli
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 717 or used for the irrigation of land royalty lease amount for other sum 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 land revenue remitted shall not be deemed to be land revenue for the purpose of this Section
2 The local cess payable under this Sub section 1 shall be deemed to be public revenue due on the lands in respect of which a person is liable to pay local cess and all the said lands the buildings upon the said lands and their products shall be regarded as the security for the local cess
3 The provisions of the Madras Revenue Recovery Act 1864 Madras Act II of 1864 shall apply to the payment and recovery of the local cess payable under this Act just as they apply to the payment and recovery of the revenue upon the lands in respect of which the local cess under this act is payable
4a Out of the process of the local cess so collected in every panchayat development block a sum representing four ninths of the proceeds shall be credited to the Panchayat Union Education Fund
b Out of the proceeds of the local cess collected in every panchayat town in a pan chayat development block a sum representing two ninths of the said proceeds shall be cred ited to the town panchayat fund
c Out of the balance of the local cess credited in the panchayat development block such percentage as the panchayat union council may fix shall be credited to the village panchayat fund and the percentage shall be fixed so as to secure as nearly as may be that the total income derived by all the village panchayats in the panchayat union does not fall short of an amount calculated at 20 naye paise for each individual of the village population in the panchayat union
d The balance of the proceeds of the local cess collected in the panchayat develop ment block shall be cre 718 dited to the funds of the panchayat union council
 The explanation to sub clause I is the subject matter of controversy in this case
Sub clause I provides for levy of 45 naye paise for every rupee of land revenue payable to the Government in the explanation a fiction is created thereby even the royalty payable have been included within the definition of land revenue
As it provides royalty lease amount or any other sum payable to the Government in respect of land
 This phraseology has been incorporated by an amendment in 1964 by the Madras Village Panchayat Amendment Act 1964 Section 13 wherein the explanation to Section 115 was substituted and substituted retrospectively wherein this royalty has also been included in the definition of land revenue  and it is on this ground that it was mainly con tended that land revenue being a tax on land is within the authority of the State Legislature under Item 49 of List II and therefore the cess which is a tax on land revenue itself or an imposition on the land revenue and hence could not be anything else but a tax falling within the ambit of tax on land as provided by entry 49 List II and it was therefore contended that it would not fall within the ambit of entry 50 List II as if it falls within the ambit of entry 50 of List II it would be beyond the authority of the State legislature as by passing the Parliament has denuded the State Legislature of its authority to levy any tax on mining rights
Whether royality is a tax is not very material for the purpose of determination of this question in this case
It is admitted that royality is charged on the basis of per unit of minerals extracted
It is no doubt true that mineral is extracted from the land and is available but it could only be extracted if there are three things 1 Land from which mineral could be extracted
2 Capital for providing machinery instruments and other requirements
3 Labour It is therefore clear that unit of charge of royalty is not only land but land  Labour  Capital
It is therefore clear that if royalty is a tax or an imposition or a levy it is not on land alone but it is a levy or a tax on mineral land labour and capital employed in extraction of the mineral
It therefore is clear that royalty if is imposed by the Parlia 719 ment it could only be a tax not only on land but no these three things stated above
It is not in dispute that the cess which the Madras Village Panchayat Act proposes to levy is nothing but an additional tax and originally it was levied only on land revenue apparently land revenue would fall within the scope of entry 49 but it could not be doubted that royalty which is a levy or tax on the extracted mineral is not a tax or a levy on land alone and if cess is charged on the royalty it could not be said to be a levy or tax on land and therefore it could not be upheld as imposed in exercise of jurisdic tion under Entry 49 List II by the State Legislature
Thus it is clear that by introducing this explanation to Section 115 clause 1 widening the meaning of word land revenue  for the purposes of Section 115 and 116
When the Legislature included Royalty it went beyond its jurisdic tion under entry 49 List II and therefore clearly is without the authority of law
But this also may lead to an interest ing situation
This cess levied under Section 115 of the Madras Village Panchayat Act is levied for purposes indicat ed in the scheme of the Act and it was intended to be levied on all the lands falling within the area but as this cess on royalty is without the authority the result will be that the cess is levied so far as lands other than the lands in which mines are situated are concerned but lands where mines are situated this levy of cess is not in accordance with that law
This anomaly could have been averted if the Legislature in this explanation had used words surface rent  in place of royalty
Even if the lands where mines are situated and which are subject to licence and mining leases even for those lands there is a charge on the basis of the surface of the land which is sometimes described as surface rent or sometimes also as dead rent 
It could not be doubted that if such a surface rent or dead rent is a charge or an impo sition on the land only and therefore will clearly fall within the purview of entry 49 List H and if a cess is levied on that it will also be justified as tax on land falling within the purview of entry 49 and it will also be uniform as this cess would be levied in respect of the lands irrespective of the fact as to whether the land is one where a mine is situated or land which is only used for other purposes for which land revenue is chargeable
RSS Appeal allowed


Summary:
Under Heading No 4401 of Schedule to the  timber was chargeable to customs duty basic effective duty at 60
However under a Notification issued by the Government under Section 251 of the  timber imported from certain countries was ex empted but an additional duty auxiliary duty was payable on Such imports in terms of Notification No 265 dated 1121982 and its successor Notifications No 53 of 1983 and 126 of 1984
The assessee imported logs of timber from an exempted country and as it was not liable to pay the basic duty it cleared the goods by paying the auxiliary duty at 40 with reference to the effective basic duty at 60 as prescribed under Notification No 126 of 1984
Subsequently however the assessee felt that it should have paid an auxiliary duty of only 30 and not 40 since no basic effective duty was payable on the goods imported
It therefore applied to the respondent for refund of the excess duty paid by it
This claim was rejected by the Assistant Collector
On appeal the Collector of Customs Appeals held that the assessee was entitled to the refund claimed
This order was confirmed by the Customs Excise and Gold Control Appellate Tribunal CEGAT on the view that the explanation would come into operation only if there was more than one notification granting concession or exemption in respect of basic duty providing for different rates in respect of articles import ed from different countries
Hence the appeals by the Department
Allowing the appeals this Court HELD 1
The Tribunal has erred in its interpretation of the Notification No 126 of 1984
The assessee s case is clearly covered by 780 the explanation in the notification
The auxiliary duty paid by the assssee was perfectly in order and its refund appli cations are not maintainable
783D 785E 21 The notification and the explanation make it clear that the auxiliary duty has to be paid with reference to each article based on the effective basic duty applicable to such article in terms of the First Schedule read with any relevant notification under Section 25
785D 22 No doubt the main part of Notification No 126 of 1984 provides for auxiliary duty at 40 where rate of effec tive basic duty is 60 or above ie rates set out in First Schedule read with any relevant notification and at 30 where such effective rate is nil or less than 60
However the explanation to the notification has made an inroad into this simple rule by providing that where two or more effec tive basic rates are applicable in respect of any article and the differentiation in rates is referable to the country of origin then the auxiliary duty payable will be the higher of the two or highest of the rates
783E G 23 In the instant case when timber is imported from the countries specified in the notification or notifications under Section 251 the rate of basic duty is nil but if the goods are imported from other countries the notifica tion does not apply and a basic duty of 60 would be levi able under the entry in the First Schedule
Thus when the rates specified in the First Schedule are read along with the relevant notifications it is found that the effective basic duty is leviable on it at two rates and this differen tiation in rates is attributable to the country of origin in regard to the import
Hence the explanation squarely comes into operation and the auxiliary duty will have to be paid by reference to the higher of the two rates of the effective basic duty namely 60
783G H 784A 24 The differentiation referred to in the explanation need not arise on account of the existence of more than one notification altering the basic duty set out in the Sched ule
It does not matter whether the difference in the rates is because the First Schedule applies in certain cases and a concession notification in other cases
If there is no notification the rate specified in the First Schedule has to be taken into account for purpose of the notification in question
784D E 25 A person will have to pay an auxiliary duty even though the effective basic duty is nil
That is the clear intention of the statutory instrument and the explanation is based on good reason
It is equitable 781 that all importers should pay the additional duty at the same rate and that they should have no advantage or disad vantage inter se
A grant of concession in the matter of auxiliary duty as well would result in widening the gulf between one importer and another and also that between such an importer and the local trader
784F 785A