# SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES v. UNION OF !NOIA AND ORS

- **Citation:** [2000] Supp. 4 S.C.R. 44
- **Court:** Supreme Court of India
- **Decided:** 2000
- **Case number:** Civil Appeal No. 7000of1994
- **Bench:** G.B. Pattanaik, Umesh C. Banerjee
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/saurashtra-cement-and-chemical-industries-v-union-of-noia-and-ors-17642
- **Pages:** 30

## Headnote

Constitutional law :
Mines and Minerals (Regulation and Development) Act, 1957-Section
C 9(3)-Constitutional validity-levy of royalty on minerals-Whether power
of Parliament under Entry 54 of list I to enact such law denudes right of
State legislature to levy tax on mineral rights under Entry 50 of list 11Held, it is constitutionally valid and Parliament is competent to enact such
law-Constitution of India-Articles 246, 268, 269 & 270-Seventh Schedule.
D
Precedents-Applicability of the doctrine of stare decisis-Held, the
doctrine is applicable to avoid confusion and uncertainty.
The appellants challenged the constitutional validity of Section 9(3) of
Mines and Minerals (Regulation and Development) Act, 1957 on the ground
E that levy of royalty on minerals is not a tax and the Parliament has no power
under Entry 54 of List I to enact such a law which takes away the right of the
State Legislature to levy tax on mineral rights under Entry 50 of List II of
the Seventh Schedule of the Constitution. Some of the appellants contended
that the matter should be referred to a larger Bench in view of the threeF Judge Bench decision of this Court in Mahalaxmi Fabric Mills case. The
appellants further contended that Section 9(3) of the Act should be declared
ultra vires as it violates the provisions of Artides 268, 269 and 270 of the
Constitution.
G
H
Dismissing the appeals, this Court
HELD : (Per Pattanaik, J.)
1. It is not appropriate to refer the appeals for the decision of a larger
Bench. Royalty on minerals is a tax and the power of the State Legislature
under Entry 50 in List II namely tax on minerals vis-a-vis Section 9(3) of the
44
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES v. U.0.1.
45
Mines and Minerals (Regulation and Development) Act, 1957 made by A
Parliament is outside the competence of the State Legislature in view of
Sections 9 and 9(3) of the Act. [56-G-H)
~
India Cement Ltd & Ors. v. State of Tamil Nadu & Ors., 11990) 1 SCC
12; State of Madhya Pradesh v. Mahalaxmi Fabric Mills Ltd & Ors., (1995) B
Supp. 1 SCC 642 and State of UP. & Anr. v. Synthetics and Chemicals Ltd. &
Anr., (1991) 4 SCC 139, relied on.
The Hingir-Rampur Coal Co. Ltd & Ors. v. The State ofOrissa & Ors.,
(1961) 2 SCR 537; State ofOrissa v. MA. Tulloch & Co., (1964) 4 SCR 461;
H.R.S. Murthy v. Collector of Chittoor & Anr., (1964) 6 SCR 666; Orissa C
Cement Ltd. v. State of Orissa & Ors., (1991) Supp. 1 SCC 430 and State of
Orissa & Ors. v. Mahanadi Coalfields Ltd. & Ors., (1995) Supp. 2.SCC 686,
referred to.
B.A. Jayaram & Ors. v. Union of India & Ors., (1984) 1 SCC 168,
distinguished.
D
2. Articles 268 to 272 in Part XII of the Constitution deal with the
distribution of revenue between the Union and the States. In Part XII of the
Constitution, Article 265 provides that there cannot be any levy of collection
of tax without authority of law. The expression "authority of law" refers to a E
valid law which means the tax proposed to be levied must be within the
legislative competence of the legislature imposing the tax; and the law must
be validly enacted; the law must not be a colourable use of or a fraud upon the
legislative power to tax; the law must not violate the conditions of fundamental
right as that in Article 19(1)(3) or 19(1)(g); it must not also contravene the
specific provisions of the Constitution which impose limitation on legislative F
power relating to particular matters like Articles 276 to 286 or 301 and the
tax must be authorised by such valid law. The Constitutional prm·isions dealing
with the distribution of revenue between the Union and the States contained
in Articles 268, 269 and 272 depends upon the fact when a particular
legislation is attacked on any one of these grounds and an examination of G
those assertions. The Act of 1957 and its validity has been upheld in the anvil
of Article 265 in as much as it has been held that the tax levied on minerals
under section 9(3) of the Act is by virtue of a valid legislation made by the
Parlia

## Text

_Characters 0–39,931 of 77,845. This is a partial read: ask again with offset=39931 for what follows._

A
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES
v.
UNION OF !NOIA AND ORS.
OCTOBER I7, 2000
B
[G.B. PATTANAIK AND UMESH C. BANERJEE, JJ.]
Constitutional law :
Mines and Minerals (Regulation and Development) Act, 1957-Section
C 9(3)-Constitutional validity-levy of royalty on minerals-Whether power
of Parliament under Entry 54 of list I to enact such law denudes right of
State legislature to levy tax on mineral rights under Entry 50 of list 11Held, it is constitutionally valid and Parliament is competent to enact such
law-Constitution of India-Articles 246, 268, 269 & 270-Seventh Schedule.
D
Precedents-Applicability of the doctrine of stare decisis-Held, the
doctrine is applicable to avoid confusion and uncertainty.
The appellants challenged the constitutional validity of Section 9(3) of
Mines and Minerals (Regulation and Development) Act, 1957 on the ground
E that levy of royalty on minerals is not a tax and the Parliament has no power
under Entry 54 of List I to enact such a law which takes away the right of the
State Legislature to levy tax on mineral rights under Entry 50 of List II of
the Seventh Schedule of the Constitution. Some of the appellants contended
that the matter should be referred to a larger Bench in view of the threeF Judge Bench decision of this Court in Mahalaxmi Fabric Mills case. The
appellants further contended that Section 9(3) of the Act should be declared
ultra vires as it violates the provisions of Artides 268, 269 and 270 of the
Constitution.
G
H
Dismissing the appeals, this Court
HELD : (Per Pattanaik, J.)
1. It is not appropriate to refer the appeals for the decision of a larger
Bench. Royalty on minerals is a tax and the power of the State Legislature
under Entry 50 in List II namely tax on minerals vis-a-vis Section 9(3) of the
44
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES v. U.0.1.
45
Mines and Minerals (Regulation and Development) Act, 1957 made by A
Parliament is outside the competence of the State Legislature in view of
Sections 9 and 9(3) of the Act. [56-G-H)
~
India Cement Ltd & Ors. v. State of Tamil Nadu & Ors., 11990) 1 SCC
12; State of Madhya Pradesh v. Mahalaxmi Fabric Mills Ltd & Ors., (1995) B
Supp. 1 SCC 642 and State of UP. & Anr. v. Synthetics and Chemicals Ltd. &
Anr., (1991) 4 SCC 139, relied on.
The Hingir-Rampur Coal Co. Ltd & Ors. v. The State ofOrissa & Ors.,
(1961) 2 SCR 537; State ofOrissa v. MA. Tulloch & Co., (1964) 4 SCR 461;
H.R.S. Murthy v. Collector of Chittoor & Anr., (1964) 6 SCR 666; Orissa C
Cement Ltd. v. State of Orissa & Ors., (1991) Supp. 1 SCC 430 and State of
Orissa & Ors. v. Mahanadi Coalfields Ltd. & Ors., (1995) Supp. 2.SCC 686,
referred to.
B.A. Jayaram & Ors. v. Union of India & Ors., (1984) 1 SCC 168,
distinguished.
D
2. Articles 268 to 272 in Part XII of the Constitution deal with the
distribution of revenue between the Union and the States. In Part XII of the
Constitution, Article 265 provides that there cannot be any levy of collection
of tax without authority of law. The expression "authority of law" refers to a E
valid law which means the tax proposed to be levied must be within the
legislative competence of the legislature imposing the tax; and the law must
be validly enacted; the law must not be a colourable use of or a fraud upon the
legislative power to tax; the law must not violate the conditions of fundamental
right as that in Article 19(1)(3) or 19(1)(g); it must not also contravene the
specific provisions of the Constitution which impose limitation on legislative F
power relating to particular matters like Articles 276 to 286 or 301 and the
tax must be authorised by such valid law. The Constitutional prm·isions dealing
with the distribution of revenue between the Union and the States contained
in Articles 268, 269 and 272 depends upon the fact when a particular
legislation is attacked on any one of these grounds and an examination of G
those assertions. The Act of 1957 and its validity has been upheld in the anvil
of Article 265 in as much as it has been held that the tax levied on minerals
under section 9(3) of the Act is by virtue of a valid legislation made by the
Parliament in exercise of its legislative competence under Entry 54 of List l
and no question ofviolation offundamental right arises. 158-E-H)
H
46
SUPREME COURT REPORTS [2000] SUPP. 4 S.C.R.
A
Per Banerjee; J. (supplementing) :
B
1.1. It is clear from a plain reading of the Mines and Minerals
(Regulation and Development) Act, 1957 and upon a declaration under section
2 of the Act, the Central Government alone has the power to legislate in regard
to regulation of Mines and Mineral Development. [63-F]
~,
~ 1.2. Doctrine of pith and ·substance of the legislation stands accepted
and it requires no dilation that as long as the legislation is within the
permissible limit in its substance, no objection can be entertained as regards
the legislative competency. The field is firmly covered by reason of the
C incorporation of the Act by the Parliament. (65-B]
1.3. The mandate of the Constitution has been expressly laid down and
there is no scope or authority or even jurisdiction for the law courts to read
in between the lines to attribute a further authorisation though not specifically
envisaged and more so by reason of specific incorporation of such a power to
D the State Legislature in terms of Entry 50 of List II in the Seventh Schedule
to the Constitution. (65-F]
1.4. The word 'regulation' in Entry 54 of List I cannot but be said to be
of broad impact encompassing all the facets not only specifically mentioned
in the Entry itself but it is inclusive of its inherent impiications thereto as
E well. The interpretation shall have to be attributed to the words used in the
Constitution having regard to the public good and public interest. It has been
expressly recorded in the Entry itself that the regulation is in public interest.
The regulation has to be interpreted in the context in which it is used and not
de hors the context. There must be regulated development and mineral
development is thus the only criteria. A La1·ger Bench judgment, with an
F express finding that section 9 of the. Act of 1957 is within the legislative
competence of Parliament both under Entry 54 and Entry 97 of the Union List,
has a binding effect. [68-H; 69-A-D]
India Cement Ltd & Ors. v. State of Tamil Nadu & Ors., (1990) 1 SCC
G 12; State of Madhya Pradesh v. Mahalaxmi Fabric Mills Ltd & Ors., (1995]
Supp. l SCC 642 and State of UP. & Anr. v. Synthetics and Chemicals Ltd &
Anr., (1991] 4 SCC 139, relied on.
Orissa Cement Ltd v. State of Orissa & Ors., (1991) Supp. l SCC 430;
Krishna Chandra Gangopadhyaya & Ors. v. The Union of India & Ors.,
H (1975) 2 SCC 302; Chandeswar Prasad Singh & Anr. v. Sub-Divisional Land
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES v. U.0.1.
47
Reforms Officer, Barrackpore and Ors., AIR (1986) Calcutta 1 and Municipal A
Committee, Malerkotla v. Haji Ismail & Anr., AIR (1967) Punjab 32, referred to.
Corpus Juris Secundum (vol. 76:615), referred to.
2. Distribution of revenue as mandated under the Constitution cannot
possibly be interpreted to whittle down Entry 54 of List I. Entry 54 of List I B
cannot but be read as the authorisation as conferred on to the Central
Government pertaining to regulation of Mines and Minerals Development and
as declared by Parliament by law in public interest. It is in pursuance of this
..
authorisation that the Act of 1957 came into the Statute Book and on the
wake of the Legislation of 1957, Entry SO of List II cannot but be read subject C
to the provisions of the Act of 1957 and when so read, there is an inescapable
conclusion that the field in issue under Entry 50 already stands covered by
Parliamentary legislation of 1957. (70-B-CI
3. Taking recourse to the doctrine of stare decisis would be an
imperative necessity, so as to avoid uncertainty and confusion, since the basic D
feature of law is its certainty and in the event of any departure therefrom the
society would be in utter confusion and the resultant effect of which would be
legal anarchy and judicial indiscipline - a situation which always ought to be
avoided. The Central legislature introduced the legislation in the year 1957
and several hundreds and thousands of cases have already been dealt with on
the basis thereof and the effect of a declaration of a contra law would be totally E
disastrous affecting the very basics of the revenue jurisprudence. It is true
that the doctrine has no statutory sanction but it is a rule of convenience,
expediency, prudence and above all the public policy. It is to be observed in its
observance rather than in its breach to serve the people and sub-serve the
ends of justice. (70-E-Gl
Mishri Lal (d) by LRs. v. Dhirendra Nath (d) by LRs. & Ors., (1999) 4
SCC I I and Kattite Valappil Pathumma & Ors. v. Taluk land Board & Ors.,
,.,.
119971 4 SCC 1 I 4, referred to.
F
Admiralty Commrs. v. Valverda Owners, (1938) Appeal Cases 173at194; G
Button v. Director of Public Prosecution and Swain v. Director of Public
Prosecutions, (1966) Appeal Cases 591, referred to.
4. The direction to pay interest@ 18o/o per annum must be held to be
unreasonable in the contextual facts since the validity of the legislation itself
is in question before this Court. The same is modified to the extent that the H
48
SUPREME COURT REPORTS [2000) SUPP. 4 S.C.R.
A interest would be paid@ 9% per annum. 173-B-q
B
c
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7000of1994.
From the Judgment and Order dated 25. 7 .94 of the Gujarat High Court
....._'
in S.C.A. No. 3370 of 1992.
WITH
C.A. Nos. 7001-02/94,7192/94, 7472, 7389, 7388, 7387, 8166-67, SLP. (C)
No. 21620/94, C.A. Nos. 3117-18/95, 3119/95, 4010, 4071-79/95, 6637/95, 7607,
5133/95, W.P. (C) No. 14861/97.
WITH
I.As. 5 & 6 in C.A. Nos. 3117-18/95.
R.N. Trivedi, Additional Solicitor General, P. Chidambaram, V.A. Bobde,
Shanti Bhushan, A.K. Chitale, Sudhir Chandra, S.K. Gambhir, K.N. Shukla,
D S.K. Dholakia, B.V. Desai, Siddhartha Choudhury, Ms. Kumud Singh, Ravinder
Narain, Sanjiv Sen, Ranjan Narain, Ms. Pooja, M.L. Lahoty, P.K. Sharma,
Himanshu Shekhar, Niraj Sharma, Amitabh Verma, Mannan, Anupam Verma,
Anil K. Sharma, Awanish Sinha, R.K. Maheshwari, Jana Kalyan Das, T.N.
Singh, S.K. Dwivedi, K.K. Dhawan, D.S. Mehra, S.K. Agnihotri, Adhyaru
Yashank P., Ms. Hemantika Wahi, P.H. Parekh, Amit Dhingra and Rohit Alex
E Advocates with them for the appearing parties.
The Judgments of the Court were delivered by
PATTANAIK, J. These appeals raise a common question of law as to
the Constitutional validity of Section 9(3) of the Mines and Minerals
F (Regulation and Development) Act, 1957 [hereinafter referred to as 'the Act'],
inter a/ia on the ground that the levy of royalty on minerals is not a tax and
the Union Legislature do not have the powers under Entry 54 of List I to enact
such a law which denudes the right of the State Legislature to levy tax on
mineral rights under Entry 50 of List II. A further contention also has been
advanced in some of these appeals that the enactment of the Act, violates
G the provisions of Articles 268, 269 and 270 of the Constitution, and, therefore,
Section 9(3) must be declared to be ultra vires. When the writ petition,
challenging the vires of the provisions of Section 9(3) of the Act was filed
before the Gujarat High Court, a Bench of the Gujarat High Court, dismissed
the same, following the decision of the Supreme Court in the case of India
H Cement Ltd. and Ors. v. State of Tamil Nadu and Ors., (1990] I SCC 12, and
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES v. U.0.1. [PA TTANAIK, J.] 49
following an earlier decision of the said High Court in Special Civil Application A
No. 6226/94. Subsequent to the decision of this Court in India Cement, all the
questions raised in these appeals have been considered by a three Judge
Bench in the case of State of Madhya Pradesh v. Maha/axmi Fabric Mills
Ltd. and Ors., [ 1995] Supp. 1 SCC 642, and this Court in Mahalaxmi 's case,
rejecting the contentions raised by the consumers of minerals, upheld the B
validity of the Act and set aside the order of the High Court. Since .the
judgment of this Court in Mahalaxmi, deals directly on all issues raised in this
batch of appeals, Mr. Chidambaram, the learned senior counsel, submitted
with force that this batch of appeals should be referred to a larger Bench, as
the Bench while disposing of Mahalaxmi 's case, had assumed some legal
position erroneously, to be the law laid down by this Court in India Cement. C
Mr. Shanti Bhushan, the learned senior counsel, appearing for the appellants
in some other appeals, however contended that the Constitutional validity of
Section 9(3) of the Act has not been tested in the anvil of Articles 268, 269
and 270 of the Constitution and, therefore the matter remains wide open for
being re-considered by this Court notwithstanding the three Judge Bench
judgment in Maha/axmi.
D
Before dealing with the contentions raised by the learned counsel,
appearing for the appellants, we think it appropriate to briefly notice how this
Court has dealt with the law relating to the Mines and Minerals (Regulation
and Development) Act, 1957 in different cases. The first decision which E
requires to be noticed in this connection is the case in The Hingir-Rampur
Coal Co., Ltd. and Ors. v. The State o/Orissa and Ors., [1961] 2 S.C.R. 537.
In the said case, the competency of the State Legislature to enact Orissa
Mining Areas Development Fund Act, 1952, was under consideration and one
of the contentions in this Court was such a legislation made by the State
Legislature is ultra vires the law made by Parliament under Entry 54 of List F
I. The majority judgment answered the question and held that in the absence
of requisite parliamentary declaration necessary under Entry 54 of List I, the
State Legislature cannot be denuded of its power under Entry 23 of List II
and the competence of the State Legislature under Entry 23 read with Entry
66 of List II was not impaired in any manner. The Court, therefore, upheld the G
validity of the legislation made by the State Legislature. In elaborating the
discussion, this Court had observed that the limitation imposed by the latter
part of Entry 23 of List II is a limitation on the legislative competence of the
State Legislature itself and the test whether a statute passed by the State
Legislature thereunder was ultra vires would be whether the requisite
declaration under Entry 54, List I has been made by Parliament by law covering, H
50
SUPREME COURT REPORTS [2000] SUPP. 4 S.C.R.
A the same field or not. Considering the effect of Entries 23 and 66 of List II
and Entry 54 of List I, the Court observed:
B
c
"The effect of reading the two Entries together is clear. The jurisdiction
of the State Legislature under Entry 23 is subject to the limitation
imposed by the latter part of the said Entry. If Parliament by its law
has declared that regulation and development of mines should in
public interest be under the control of the Union, to the extent of such
declaration the jurisdiction of the State Legislature is excluded. In
other words, if a Central Act has been passed which contains a
declaration by Parliament as required by 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 Jaw."
In the case of State ofOrissa v. MA. Tulloch and Co., [1964] 4 S.C.R.
D 461, the question for consideration before this Court was whether the continued
operation of the Orissa Mining Areas Development Fund Act, 1952 and the
continued exigibility of the fees leviable from mine-owners under the said
enactment, is legally an~ constitutionally permissible. The contention raised
was that the Mines and Minerals (Regulation and Development) Act, 1957
E called the Central Act was brought into force from June I, 1953 and the Orissa
Act which had been enacted by virtue of the legislative power conferred by
Entry 23 of the State Legislative List would ceased to be operative, once the
Parliament made a declaration and enacted the law. The High Court of Orissa
had upheld the contention ~n_d ~ame to hold that the Orissa Act should be
deemed to be non~ic~istent as from June I, 1958 for every purpose, with the
F consequence that there was lack of power to enforce ~nd realise the demands
for the payment of the fee at the time when the demand was issued and was
sought to be enforced. After noticing the Entry 23 in List II and Entry 54 i!1
List J, the Court observed that it does not need much argument to realise that
to the extent to which the Union Government had taken under "its control"
G "the regulation and development of minerals" so much was withdrawn from
the ambit of the power of the State Legislature under Entry 23 and legislation
of the State which had rested on the existence of power under that entry
, would to the extent of that "control" be suspended or be rendered ineffective,
for here we have a case not of mere repugnancy between the provisions of
the two enactments but of a. denudation or deprivation of State legislative
H power by the declaration which Parliament is empowered to make and has
~-
-
---
.>
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES v. U.0.1. [PA TT A NAIK, .I.] 5 J
made. It would, however, ~e apparent that the States would lose legislative A
competence on'ly 1Q_ the "extent to which regulation and development under
the control of the Union has been declared by Parliament to be expedient in
the Public interest." But having held so, as the liability to pay the fee, which
was the subject of t~tices of demand had accrued prior to June I, 1958,
the date on which the Central Legislation occupied the field , the Court held B
that those notices were valid and the amount due thereunder would be
recovered notwithstanding the disappearance of the Orissa Act by virtue of
the superior legislation by the Union Parliament. In India Cement Ltd. and
Ors. v. State of Tamil Nadu and Ors., [1990] I S.C.C., 12, the question for
consideration was whether levy of cess on royalty is within the competence
of the State Legislature? In the aforesaid case, under Section 115 of the C
Madras Panchayats Act, as amended by the Madras Act 18 of 1964, the
lessee ofi:nin~als was required to pay local cess @45 paise/rupee, as royalty.
The contenti-0n on behalf of the State, relying upon the observation made by
this Court in H.S.R. Murthy's case, [1964] 6 S.C.R., 666, was repelled and it
was held:
"It seems, therefore, that attention of the Court was not invited
to the provisions of Mines and Minerals (Development and Regulation)
Act, 1957 and Section 9 thereof. Section 9(3) of the Act in tenns states
that royalties payable under the Second Schedule of the Act shall not
D
be enhanced more than once during a period of four years. It is,
therefore, a clear bar on the State legislature taxing royalty so as to E
in effect amend Second 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
legislative power in view of Section 9(3) of the Central Act."
The Court also rejected the contention on behalf of the State that under Entry F
50 of List II, there is no limitation to the taxing power of the State and held
that in view of express provisions of Section 9(2) of the Mines and Minerals
·(Regulation and Development) Act, 1957, the submission cannot be accepted
and the field is fully covered by the Central Legislation. In paragraph 34 of
the judgment, the Court concluded:
G
"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 H
A
52
SUPREME COURT REPORTS [2000] SUPP. 4 S.C.R.
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 Jand."
•
In Orissa Cement Ltd. v. State of Orissa and Ors., [ 1991] Supp. l S.C.C.
430, the levy of cess on royalty, charged for mining lease under Orissa Cess
B Act, came up for consideration. After elaborate discussion of the legislative
entries as well as the history leading to the enactment and considering the
different decisions right up to the decision of the Supreme Court in India
Cement, the Court held in para 39:
c
D
E
F
G
"To take up Entry 50 first, a perusal of Entry 50 would 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.
Section 9 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. Subsection (3) of Section 9 in terms states that the royalties payable
under the Second Schedule to that 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."
Considering, the provisions of Entry 23 of List II, the Court observed:
"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 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, follows 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
H
beyond the purview of the State legislature by reason of the enactment
-
....
....
-
>
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES''· U.0.1. [PATTANAIK, J.) 53
of the MMRD Act. It would appear, prima facie that the contention A
has to be upheld on the basis of the trilogy of decisions referred to
at the outset viz. Hinger-Rampur, Tulloch and Indi; Cement. They
seem to provide a complete answer to this question."
In State of Orissa and Ors. v. Mahanadi Coalfields ltd. and Ors., [ 1995]
Supp. 2 S.C..C., 686, the validity of the Orissa Rural Employment, Education B
and Production Act, 1992 was under challenge and the Orissa High Court had
struck down the Act on the ground that the levy is a tax on minerals and
mineral rights and the subject is fully covered by the Central Legislation by
enacting Mines and Minerals (Regulation and Development) Act. This Court
examined the different relevant entries in List I and List II, more particularly, C
Entry 54 of List I and Entry 23 and Entry 50 of List II and came to hold :
"It appears to us that Entry 49 of List II is the general entry which
enables the State Legislature to impose taxes on lands and buildings.
A particular category or specie is taken out of the general entry, and
is provided by Entry 50 of List II. But the tax that can be levied under D
List II Entry 50 is subject to limitations imposed by Parliament by law
relating to regulation of mines and mineral development. Similarly,
under List II Entry 23, though the State Legislature can enact a law
relating to regulation of mines and mineral development, it is subject
to the provisions of List I (Legislation by Parliament) with respect to E
regulation and development under the control of the Union. In other
words, if.the impugned Orissa Act 36 of 1992 falls either under List
II Entry 50 or List II Entry 23, it is subject to the law made by
Parliament relating to the regulation of mines and mineral development
(List I Entry 54). A perusal of the Mines and Minerals (Regulation and
Development) Act, 1957 (Central Act 67 of 1957), Section 2, 3(a) and F
3(d), Section 9 and 9-A and Second and Third Schedules to the Act1
quoted in para 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 9A provides payment of dead rent as
provided therein by the holder of a mining lease to the State G
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 dead rent by amending the Third H
54
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SUPREME COURT REPORTS (2000] SUPP. 4 S.C.R.
Schedul~. The Second and the Third Schedules provide varying rates
for different minerals including coal. Si.nee exhaustive provisions as
also the Parliamentary declaration, contemplated by List I Entry S4,
have been made in the Mines and Mineral (Regulation and
Development) Act, 1957, regarding all kinds of taxation on minerals
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."
It is no doubt true that in all the aforesaid decisions, it is only the
C validity of the Legislation made by State Legislature, which was under challenge
but that will not in any way alter the ratio of the cases, referred to above, in
construing the different legislative entries and the competence of the Union
Legislature as well as the State Legislature. In Mahalaxmi 's case, [ 1995] Supp.
I S.C.C. 642, the validity of the Central legislation was under challenge and
the three Judge Bench upheld the legislative competence of the Union
D Legislature, in enacting Mines and Minerals (Regulation and Development)
Act, I 957, more particularly, Section 9 thereof as well as the power of the
Central Government to enhance or reduce the rate of royalty, payable in
respect of minerals and it was held that the parliamentary legislation under
1957 Act, having occupied the entire field, neither Entry 23 of List II nor Entry
E 50 of the said List, could be attracted. The Court also in addition, came to
hold that the royalty being a tax on mineral including land, labour and capital
employed in extraction of the mineral, it would fall under the residuary Entry
97 of List I.
In view of the aforesaid decisions of this Court, on interpreting the
F different legislative entries, conferring power on the Union Legislature as well
as the State Legislature and the law made by the Parliament in enacting the
Mines and Minerals (Regulation and Development) Act, 1957, we would now
examine the contentions raised by Mr. Chidambaram and Mr. Shanti Bhusan,
appearing for the appellants. According to Mr. Chidambaram, Entry 50 of List
II deals with the power of the State Legislature to levy taxes on mineral rights
G subject to any limitation imposed by Parliament by law relating to mineral
development. Entry 54 of List I is the competence of the Union Legislature
to make law, regulating Mines and Minerals 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 and the
H Mines and Minerals (Regulation and Development) Act, 1957 has been enacted,
-
-
-
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES v. U.0.1. [PA TTANAIK, J.] 55
which can be referable to the aforesaid Entry 54 in List I. In List II, the A
Regulation of Mines and Minerals Development is provided under Entry 23,
and, therefore, State Legislature would have the power to make law, regulating
Mines and Minerals Development, but it would be subject to the provisions
of List I with respect to Regulation and Development under the.control of the
Union. It cannot be disputed that the Mines and Minerals (Regulation and B
Development) Act, 1957 is a legislation made for the development of mines
and minerals and has been declared by Parliament to be expedient in the
public interest. Mr. Chidambaram contends that the aforesaid Act of 1957
covers the field, so far as Entry 23 in List II is concerned but does not, in
any way affect the competency of the State Legislature in the field covered
by Entry 50 of List II and in that view of the matter, the provisions of Section C
9(3) of the Act which purports to denude the power of the State Legislature
from levying tax on mineral rights, must be held to be unconstitutional. Mr.
Chidambaram, also contends that the power of regulation and control, n:ferable
to Entry 54 of List I is separate and distinct from the power of taxation,
referable to Entry 50 of Li>t II and such specific power of the State Legislature D
under Entry 50 of List II, cannot be cut down or fetter in any manner by the
general power of control exercised by Parliament by a legislation on a matter
falling under Entry 54 of List I. In support of this contention, reliance has
been placed on the decision of this Court in the case of State of UP. and Anr.
v. Synthetics and Chemicals Ltd. and Anr., [1991] 4 S.C.C.139. Mr.
Chidambaram, also urged that in a federal system of governance, as in our E
country, the Constitution itself has clearly demarcated the legislative field for
levying tax by the Union and the State and so far as, the Union is concerned,
those entries are Entries 82 to 92 in List I and so far as the State is concerned,
those entries are Entries 45 to 63 in List II of the Seventh Schedule. The field
of levy of tax having been clearly demarcated and limitations and restrictions F
having also mentioned therein, the Mines and Minerals (Regulation and
Development) Act, 1957, cannot be held to be an Act, authorising levy of tax
on minerals, as the competence of the Union Legislature in the aforesaid
legislation is referable to Entry 54 of List I and by such general enactment,
the distinct taxing power of State on Minerals under Entry 50 of List II of the G
Seventh Schedule, cannot be obliterated and denuded and, therefore, the
provisions of the 1957 Act, purporting to takmg away the power of the State
Legislature must be struck down. Mr. Chidambaram, being conscious of the
Three Judge Bench of this Court in Mahalaxmi, submitted that it would be
only appropriate to refer the matter to a larger Bench. Mr. Chidambaram, also
lastly urged that in Mahalaxmi, the Court was not sure about the legislative H
56
SUPREME COURT REPORTS [2000] SUPP. 4 S.C.R.
A competence of the Parliament under Entry 54 of List I, for upholding the
validity of Section 9 of the 1957 Act and that is why, it took recourse to the
residuary power under Entry 97 of List I and in view of the specific taxing
power under Entry 50 of List II, the residuary power of the Parliament under
Entry 97 of Cist I will not over-ride.
.
B
Mr. Shanti Bhusan, the learned senior counsel for the appellants in
so~e of these appeals, contended that in none of the cases, this Court has
considered the provisions of Articles 268 to 272, contained in Part XII of the
Constitution, and, therefore, the matter requires further examination.
After the conclusion of the arguments on behalf of the appellants, the
C decision of this Court in B.A. Jayaram and Ors. v·. Union of India and Ors.,
[ 1984] l SCC 168, has been brought to the notice, where-under the Court was
construing Entry 57 of List II and Entry 35 of List III and the power of levying
tax on vehicles suitable for use on roads and the Court held that it is the State
Legislature, which has the power to levy taxes on vehicles suitable for use
D on roads, though it may be open to Parliament to lay down the principles on
'.:Vhich taxes may be levied on mechanically propelled vehicles.
Mr. S.K .. Dholakia, the learned senior counsel, appearing for the State
of Gujarat as well as the learned counsel, appearing for the Union of India,
on the other hand submitted that Entry 50 of List II itself contains an in-built
E limitation, the same being limitation imposed by the Parliament by law relating
to mineral development. Since MMRD Act is a law made by Parliament,
relating to minerals development, any provision in the aforesaid Act would
over-ride the taxing power of the State on minerals and in this view of the
matter, the MMRD Act, must prevail. It was also contended that this Central
F
Legislation has been in the field for more than 45 years and the provisions
thereof have been interpreted by this Court in several cases, as referred to,
both in India Cement and Mahalaxmi, and, therefore, it would be futile to
refer the matter to a larger Bench for reconsideration. According to Mr.
Dholakia, the Three Judge Bench Judgment in Mahalaxmi, covers all the
points urged and, therefore, these appeals should be dismissed.
G
Having considered the rival submissions, although, we find the arguments
advanced by Mr. Chidambaram are attractive, but in view of the series of
decisions, already referred to, we do not think it appropriate to refer these
appeals for the decision of a larger Bench and in our opinion, the contentions
raised have been fully covered by the Three Judge Bench Judgment of this
H Court in Mahalaxmi. Royalty on minerals is a tax, is concluded by the Seven
...
_I -
SAURASHTRA CEMENT AND CHEMICAL INDUSTRIES v. U.0.1. [PATTANAIK, J.] 57
Judge Judgment of this Court in India Cement. The power of State Legislature A
under Entry 50 in List II namely tax on minerals vis-a-vis Section 9(3) of the
MMRD Act, 1957 made by Parliament under Entry 54 of List I was also
considered in the case of India Cement and it was held that in any event,
it would be outside the competence of the State Legislature in view of
Sections 9 and 9(3) of the Mines and Minerals (Regulation and Development)
Act, 1957. In fact, the Court in India Cement, did not accept the earlier
judgment of this Court in H.S.R. Murthy's case, on the ground that in Murthy,
the attention of the Court had not been invited to MMRD Act and Section
9 thereof. In paragraph 30 of the Judgment in India Cement, the Court held:
B
"It is, therefore, a clear bar on the State legislature taxing royalty C
so as to in effect amend Second Schedule of the Central Act."
In the aforesaid India Cement case, the Court had also further held that
since the control of mines and minerals development were taken over by
Parliament, the impost by the State Legislature either under Entry 49 or 50 of
List II, cannot be upheld. The Court had also held that tax on minerals is D
covered by Section 9 of the Central Act and the entire field is thus covered.
Though, the validity of a State legislation was under consideration, but the
conclusion of this Court was that for levying a tax on minerals under the
MMRD Act, the Central Legislature was fully competent in view of the
declaration made by the Parliament and on the other hand State Legislatures E
have been denuded of its power. I.n Mahalaxmi, however, as already stated,
the validity of the Central Legislation was under challenge, as in the present
case and the Court upheld the provisions of MMRD Act and Section 9 and
9(3) thereof, by holding that by Entry 54 of List I, it was within the legislative
competence of Parliament to make the law in question and neither Entry 23
of List II nor Entry 50 of List II would be attracted. It is no doubt true that F
in the aforesaid case, the Court had also held that Entry 97 of List I will confer
the legislative competence, but not because the Parliament has no competence
under Entry 54 of List I, but that was an additional prop, and, therefore Mr.
Chidambaram is not right in his submission that the Court took recourse to
the residuary power under Entry 97 of List I. In Synthetic Chemicals' case, G
(1991) 4 S.C.C. 139, this Court no doubt had observed that the power of
regulation and control is separate and distinct from power of taxation, but
while considering Entry 50 of List II and comparing with Entry 54 of List II,
this Court had observed that the wide taxing power of the State under Entry
54 of List II and its conditional or restricted taxing power, for example, over
mineral rights, mentioned in Entry 50 of the said List is significantly different. H
58
SUPREME COURT REPORTS [2000] SUPP. 4 S.C.R.
A Thus, the Court itself noticed the conditional or restricted taxing power of the
State Legislature under Entry 50, the same being limitations imposed by
Parliament by law, relating to mineral development and the MMRD Act being
a law made by Parliament relating to mineral development, obviously because
of Section 9 in the Central Act, the State Legislature is denuded of its power
and at the same time, the Parliament's competence to have the law made, no
B longer remains in doubt. The aforesaid decision, therefore is of no assistance.
In B.A. Jayaram and Ors. v. Union of India and Ors., [ 1984] I S.C.C., 168, the
two entries, which were for consideration before this Court were Entry 57 of •
List II and Entry 35 of List III. Entry 57 is itself subject to Entry 35 of List
Ill and, therefore, question for consideration was, what was the content and
C extent of power under Entry 35 of List Ill which reads: "Mechanically propelled
vehicles including the principles on which taxes on such vehicles are to be
levied." In construing Entry 35 of List 111, this Court held that it would be
open to Parliament to lay down the principles on which taxes may be levied
on Mechanically propelled vehicles, but Parliament, while enacting the Motor
Vehicles Act, more particularly, Section 63(7) thereof, refrain from indicating
D any such principles, either expressly or by necessary implication and, therefore,
the State's power to tax on such motor vehicles under Entry 57 of List II was
left'im-inhabited. But in the case in hand, the Seven Judge B~nch judgment
in India Cement as well as the other decisions including the three Judge
Bench Judgment in Mahalaxmi, have already held that the Union Legislature
E did have the competence under Entry 54 of List I to enact MMRD Act, 1957
and Section 9 and 9(3) thereof provide for levy of royalty on minerals and,
therefore, we are bound by the same and the aforesaid decisions relied upon
by Mr. Chidambaram will not assist the appellants.
Articles 268 to 272 in Part XII of the Constitution deal with the
F distribution of revenue between the Union and the States. In Part XII of the
Constitution, Article 265 provides that there cannot be any levy of collection
of tax without the authority of law. The expression "authority of law" refers
to a vaJid law which ,means the tax proposed to be levied must be within the
legislative competence of the legislature imposing the tax ; and the law must
G be validly enacted; the law must not be a colourable use of or a fraud upon
the legislative power to tax; the law must not violate the conditions of
fundamental right as that in Article 19(1)(a) or 19(1)(g); it must not also
contravene the specific provisions of the Constitution which impose limitation
on legislative power relating to particular matters like Articles 276 to 286 or
301 and ; the tax must be authorised by such valid law.