Case: State of Orissa and others Vs. Mahanadi Coalfields Ltd. and others

20.In Federation of Mining Associations of Rajasthan v. State of Rajasthan and Anr., 1992 (S2) SCC 239 , the Rajasthan Land Tax Act of 1985 (Act 6 of 1985) by section 3 read with section 2(a) &(d) of the Act, imposed a tax on annual value of mineral bearing land based on dead rent or royalty whichever is higher. Holding that the levy in the said case is practically on all fours with the levy in Orissa Cements case (supra), a three Member Bench of this Court observed at page 244 thus: "The question of validity of levies of this type has come up for consideration by a seven Judge bench of this Court in India Cement Ltd. v. State of Tamil Nadu and by a three Judge bench in Orissa Cement Ltd. v. State of Orissa." *"...For the reasons set out in India Cement and Orissa Cement cases, we are of the opinion that the State legislature did not have the competence to legislate for the levy of a tar on mineral bearing lands based on the royalty derived from the land." 21. In the light of the aforesaid decisions, we have no hesitation to hold that Orissa Act 36 of 1992 purports to impose a tax on coal bearing land and mineral bearing land as defined in section 2(a-1) and 2(d) of the Act, which is fully covered by Parliamentary legislation Mines and Mineral (Regulation &Development) Act, 1957, 22. Mr. B. Sen, Counsel for the appellants submitted that in India Cements case ( 1989 (S1) SCR 692 = 1990 (1) SCC 12 ) the sole question that arose for consideration was whether royalty was a tax and whether cess on royalty amounts to a tax on tax thereby denuding the legislation of its true character as a tax on land. It was held that royalty being within the purview of section 9 of Act, the levy was invalid. But, in the instant case, tax is levied on land, and so clearly within List II Entry 49. Support was sought from certain observations in Orissa Cement case ( 1991 (S1) SCC 430 ) and also the latest decision in Goodricke Group Ltd. 1994 (7) JT 577 ) and in particular, the following observations contained in paragraph 29 of the latter Judgment: "It is thus clear from the aforesaid decisions that merely because a tax on land or building is imposed with reference to its income or yield, it does not cease to be a tax on land or building. The income or yield of the land/ building is taken merely as a measure of the tax; it does not alter the nature or character of the levy. It still remains a tax on land or building. There is no set pattern of levy of tax on lands and buildings indeed there can be no such standardization. No one can say that a tax under a particular entry must be levied only in a particular manner, which may have been adopted hitherto. The Legislature is free to adopt such method of levy as it chooses and so long as the character of levy remains the same, i.e., within the four corners of the particular entry, no objection can be taken to the method adopted. " * Stress was also laid on the fact that the decisions in India Cements and Orissa Cements case were distinguished in Goodricke case. On the other hand, counsel for the respondents submitted that reliance placed on Goodricke case is erroneous since the Orissa Rural Employment, Education and Production Act, 1992 is in substance and effect a levy on minerals and mineral rights and not on land; and in Goodricke case, the Act was held to be a law relating to tax on land and that makes all the difference. The respondents also took up the plea that some of the observations in Goodricke case are not in accord with India Cements case and the Orissa Cements case. We are of the view that it is unnecessary to consider the rival pleas on this score, since we have held that the levy under Orissa Rural Employment, Education and Production Act, 1992 is not on land, but on minerals and mineral rights.23. We concur with the conclusion of the High Court of Orissa that section 3 (2) (c) of the impugned Act as well as the Schedule attached to the impugned Act, levying a tax of Rs. 32, 000/- per acre of coal bearing land, should be declared illegal and ultra vires. The consequential notices issued in Form V and the demand notices in Form VII and the certificate proceedings pending before any forum for the realisation of the dues under the impugned Act are also illegal and infirm. We further concur with the decision of the High Court that the demands raised by the Mahanadi Coalfields Ltd against the traders and consumers on account of the additional burden of tax on land are invalid and illegal. The judgment of the High Court of Orissa dated 26.4.1994 is affirmed but in the circumstances of the case without any order as to costs. 24. We should hasten to add that we have not pronounced on any other question raised either before the High Court of Orissa or before us by any of the parties, in this batch of cases, and they are left open for consideration in the future as and when occasion arises therefore. It is un- necessary to pronounce on those questions at this stage, in view of the fundamental infirmity regarding the competency of the State Legislature to enact Orissa Act 36 of 1992 as stated by us earlier. Mr. Shanti Bhushan, senior counsel, submitted that M/s. Mahanadi Coalfields Ltd. should be afforded sufficient time to re turn the amounts collected from the traders and consumers of coal, as, more than one crore of rupees has been collected and unless sufficient time is given, it will cause irreparable hardship. We see force in this plea.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]16. From the above, it will be seen that the combined effect of section 3(1) of Orissa Act 36 of 1992 and the Orissa Cess Act of 1962, as amended by Act 10 of 1994, is that only mineral bearing land and coal bearing land will be subject to the levy of tax under Orissa Rural Employment, Education and Production Act, 1992 (Orissa Act 36 of 1992). It is not all types of land that will be subject to the levy but only the two types of land mentioned above which will be caught by the taxing-net. This is in accord with what the Hon. Minister stated in introducing the Bill to the effect that "stress has been given on imposing tax particularly on the mineral bearing lands." The earlier levy in that regard was rendered futile by the decisions referred to by the Hon. Minister himself in his speech and the main purpose of the legislation was only to levy the tax on mineral bearing and coal bearing lands. We may incidentally observe that it is common ground that 85% of the coal bearing lands are in "F" and "G" category in the State of Orissa.17. The above aspect can be looked at from a different angle also. The Orissa Rural Employment, Education and Production Act, 1992 (Orissa Act 36 of 1992) provided that all lands shall be liable to the payment of tax under the Act. Land is defined in section 2(c) of the Act to mean, "land of whatever description.... and includes all benefits to arise out of land". Lands held for carrying on mining operations would be taken in by the said definition. It is patently clear that "minerals", which are benefits to arise out of land, will be roped in within the purview of the levy under section 3(1) read with section 2(c) of the Act. So the charging section of the impugned Act imposes a tax on the "minerals" also and not confined to a levy on land or surface characteristic of the land. Yet another aspect that is self-evident is that for all lands, other than mineral bearing land, t he tax is levied at a percentage of the "annual value of the land". So far as tax on mineral bearing land is concerned, it is for the State Government to prescribe the same and it has been so fixed in accordance with section 3(4)(i) of the Act based on "average annual income". As stated in paragraph 3 (supra), by adding Schedule C as per Notification dated 26.9.1994 (Annexure-B, page 270 of Paper Book), the rates of tax are fixed for different kinds of minerals per acre, obviously based on "average annual income". With regard to coal bearing land, as per section 3(2)(c), the statute itself has specified the rate of tax in the Schedule at Rs.32, 000/- per acre. We have already seen that lands other than mineral bearing lands and coal bearing lands will fall outside the purview of the impugned Act since they are dealt with under the Orissa Cess Act, 1962. it Is only the "coal bearing land" and "mineral bearing land", as defined in section 2(a-1) and sect ion 2(d), which have to bear the brunt of taxation. In the light of the above, we have no doubt in our mind that the substance of the levy under the Orissa Rural Employment, Education and Production Act, 1992 is really on "mineral bearing land" an d "coal bearingother words, if the impugned Orissa Act 36 of 1992 falls either under List II Entry 50 of List II Entry 23, it is subject to the lam made by Parliament relating to the regulation of mines and mineral development. (List I Entry 54). A perusal of the Mines and Minerals (Regulation &Development) Act, 1957 (Central Act 67 of 1957), sections 2, 3(a), &3( d), sections 9 and 9-A and Second and Third Schedules to the Act, quoted in paragraph 3 (supra) will clearly point out that taxation on mineral and mineral rights, viz., any tax, royalty, fee or rent, are provided in the said Act. In particular, section 9-A provides payment of dead rent as provided therein by the holder of a mining lease to the State Government at the rates specified in the Third Schedule to the Act. And the proviso thereto states that in cases where the holder of the mining lease is to pay royalty under section 9, he shall be liable to pay either royalty under section 9 or the dead rent, as provided under section 9-A, whichever is greater. Section 9-A enables the Central Government to enhance or reduce de ad rent by amending the Third Schedule. The Second and the Third Schedules provide varying rates for different minerals including coal. Since exhaustive provisions as also the Parliamentary declaration, contemplated by List I Entry 54, have been made in the Mines and Minerals (Regulation &Development) Act, 1957, regarding all kinds of taxation on mineral and mineral rights tax, royalty fee dead rent etc., the State Legislature is denuded or deprived of the power to enact any law or to impose any tax or other levy with reference to List II Entry 23 or List II Entry 50. We have already held that levy of tax under Orissa Act 36 of 1992 is in substance on minerals and mineral rights, which has nothing to do with surface characteristic of the land. In this view of the matter, the levy of tax, on mineral bearing lands and coal bearing lands, under section 3 read with section 2(a)(1) and 2(d) of the Act is beyond the competence of the State Legislature and is ultra vires.In the light of the aforesaid decisions, we have no hesitation to hold that Orissa Act 36 of 1992 purports to impose a tax on coal bearing land and mineral bearing land as defined in section 2(a-1) and 2(d) of the Act, which is fully covered by Parliamentary legislation Mines and Mineral (Regulation &Development) Act, 1957, 22. Mr. B. Sen, Counsel for the appellants submitted that in India Cements case ( 1989 (S1) SCR 692 = 1990 (1) SCC 12 ) the sole question that arose for consideration was whether royalty was a tax and whether cess on royalty amounts to a tax on tax thereby denuding the legislation of its true character as a tax on land. It was held that royalty being within the purview of section 9 of Act, the levy was invalid. But, in the instant case, tax is levied on land, and so clearly within List II Entrywas also laid on the fact that the decisions in India Cements and Orissa Cements case were distinguished in Goodricke case. On the other hand, counsel for the respondents submitted that reliance placed on Goodricke case is erroneous since the Orissa Rural Employment, Education and Production Act, 1992 is in substance and effect a levy on minerals and mineral rights and not on land; and in Goodricke case, the Act was held to be a law relating to tax on land and that makes all the difference. The respondents also took up the plea that some of the observations in Goodricke case are not in accord with India Cements case and the Orissa Cements case. We are of the view that it is unnecessary to consider the rival pleas on this score, since we have held that the levy under Orissa Rural Employment, Education and Production Act, 1992 is not on land, but on minerals and mineral rights.23. We concur with the conclusion of the High Court of Orissa that section 3 (2) (c) of the impugned Act as well as the Schedule attached to the impugned Act, levying a tax of Rs. 32, 000/- per acre of coal bearing land, should be declared illegal and ultra vires. The consequential notices issued in Form V and the demand notices in Form VII and the certificate proceedings pending before any forum for the realisation of the dues under the impugned Act are also illegal and infirm. We further concur with the decision of the High Court that the demands raised by the Mahanadi Coalfields Ltd against the traders and consumers on account of the additional burden of tax on land are invalid and illegal. The judgment of the High Court of Orissa dated 26.4.1994 is affirmed but in the circumstances of the case without any order as to costs. 24. We should hasten to add that we have not pronounced on any other question raised either before the High Court of Orissa or before us by any of the parties, in this batch of cases, and they are left open for consideration in the future as and when occasion arises therefore. It is un- necessary to pronounce on those questions at this stage, in view of the fundamental infirmity regarding the competency of the State Legislature to enact Orissa Act 36 of 1992 as stated by us earlier.