# STATE OF M.P. __;1_ v. MAHALAXMI FABRIC MILLS LTD. AND ORS

- **Citation:** [1995] 1 S.C.R. 756
- **Court:** Supreme Court of India
- **Decided:** 1995-02-01
- **Case number:** Civil AppeaCNo. 275 of 1994
- **Bench:** Kuldip Singh, B.L. Hansaria, S.B. Majmudar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-m-p-1-v-mahalaxmi-fabric-mills-ltd-and-ors-12904
- **Pages:** 38

## Headnote

Mines and Minerals (Regulation and Development) Act, 1957-Section
~
· 9-Validity of-Section 9 is within legislative competence of Parliament both
c
under entry 54 of Union List as well as entry 97 thereof-'-Section 9(3) does
not suffer from any excessive delegation of legislative power-Notification
dated 1-8- 91 issued u/s 9(3)-Whether beyond the scope of Sec. 9(3)-Held,
No-lt was not a colourable devise.
The respondents, purchasers of coal from Coal India Ltd. filed writ
D petitions before the High Court, complaining that the Notification dated
_)
1.8.1991 issued by the Union of India u/s 9(3) of the Mines and Minerals
(Regulation and Development) Act, 1957, fixing new rates of royalty on
various varieties of coal was Ulegal and inoperative in law on various
grounds;\ that before 1.8.1991 royalty was payable at the rate of Rs. 6.50
E
per ton vi~e earlier Notification but the same was sought to be increased
to Rs. 120. per ton by the new Notification; that Section 9(3) confers
I
unguided, ,unchannelized and arbitrary discretion to the Central Govern-
- ment to increase the rates of royalty to any higher amount and as no
guidelines were provided for effecting the said increases, the Section itself
is an instance of excessive delegation of essential legislative power and
_._
F hence it was void. The Division Bench of the High Court quashed the
..
Notification while holding that Section 9(3) of the Act was not invalid or
illegal on any ground, however, the Notification was lacking in bona fides
and as it was issued for meeting the financial deficiency suffered by States,
it was outside the scope of Section 9(3) of the Act. No direction for refund
G
of any amount was issued as according to the High Court the burden of
enhanced royalty was already passed on to the customers by the manufacturers. The State as well as the Union of India and also some consumers
~
filed these appeals against the order of the High Court.
The appellants contended that the High Court was patently in error
H in striking down the impugned Notification dated 1.8.1991; that once this
756
SI'ATEOFM.P.v. MAHALAXMIFABRICMILLSLTD.
757 ',
court took the view in Orissa Cement Company's case that royalty cool~ A
~ ~
not be imposed by States, that it was within the domain of the Central
Legislature in view of Entry 54 of List I of Schedule VII of the Constitution
-
-
and when the .Parliament had already occupied the field pertaining. to
regulation and development of mines and minerals in the country by
enacting the Act in 1957, if the rates of royalty were to be increased, it was
only the Central Government which could exercise power u/s 9(3) of the
Act and as the royalty had to be paid to the States, there was nothing wrong
in issuing the impugned notification under which increased rates of royalty
would be made available to the concerned states; that there was nothing
wrong in Section 9(3) which gives enough guidance to the Central Government for issuing such Notification and that such Notification could not be
said to be ultra vires or illegal or unconstitutional.
The respondents submitted that Section 9(3) of the Act was a piece
of excessive delegation of legislative power of Parliament, that it laid down
B
c
..+
no guidelines for the Central Government to follow for increasing the rates D
;,...
of royalty; that even otherwise it sought to tax mineral rights, the Section
was beyond the legislative competence of the Parliament as such legislation
would be covered by Entry 50 of list 2 of the Vllth Schedule and therefore,
legislative competence in connection with tax on mineral rights would be
exclusively of State Legislature and not of Parliament; that the impugned
Notification enhancing the royalty by almost 200 percent was ultra vire~ the E
putpose and object of the Act as the purpose of the Notification was to
increase the revenues of the State Governments and as it had nothing to
do with the development of .the mines, the Notification was beyond the
scope and

## Text

_Characters 0–38,912 of 99,730. This is a partial read: ask again with offset=38912 for what follows._

A
STATE OF M.P.
__;1_-,..-
v.
MAHALAXMI FABRIC MILLS LTD. AND ORS.
FEBRUARY 1, 1995
B
[KULDIP SINGH, B.L. HANSARIA AND S.B. MAJMUDAR, JJ.)
Mines and Minerals (Regulation and Development) Act, 1957-Section
~
· 9-Validity of-Section 9 is within legislative competence of Parliament both
c
under entry 54 of Union List as well as entry 97 thereof-'-Section 9(3) does
not suffer from any excessive delegation of legislative power-Notification
dated 1-8- 91 issued u/s 9(3)-Whether beyond the scope of Sec. 9(3)-Held,
No-lt was not a colourable devise.
The respondents, purchasers of coal from Coal India Ltd. filed writ
D petitions before the High Court, complaining that the Notification dated
_)
1.8.1991 issued by the Union of India u/s 9(3) of the Mines and Minerals
(Regulation and Development) Act, 1957, fixing new rates of royalty on
various varieties of coal was Ulegal and inoperative in law on various
grounds;\ that before 1.8.1991 royalty was payable at the rate of Rs. 6.50
E
per ton vi~e earlier Notification but the same was sought to be increased
to Rs. 120. per ton by the new Notification; that Section 9(3) confers
I
unguided, ,unchannelized and arbitrary discretion to the Central Govern-
- ment to increase the rates of royalty to any higher amount and as no
guidelines were provided for effecting the said increases, the Section itself
is an instance of excessive delegation of essential legislative power and
_._
F hence it was void. The Division Bench of the High Court quashed the
..
Notification while holding that Section 9(3) of the Act was not invalid or
illegal on any ground, however, the Notification was lacking in bona fides
and as it was issued for meeting the financial deficiency suffered by States,
it was outside the scope of Section 9(3) of the Act. No direction for refund
G
of any amount was issued as according to the High Court the burden of
enhanced royalty was already passed on to the customers by the manufacturers. The State as well as the Union of India and also some consumers
~
filed these appeals against the order of the High Court.
The appellants contended that the High Court was patently in error
H in striking down the impugned Notification dated 1.8.1991; that once this
756
SI'ATEOFM.P.v. MAHALAXMIFABRICMILLSLTD.
757 ',
court took the view in Orissa Cement Company's case that royalty cool~ A
~ ~
not be imposed by States, that it was within the domain of the Central
Legislature in view of Entry 54 of List I of Schedule VII of the Constitution
-
-
and when the .Parliament had already occupied the field pertaining. to
regulation and development of mines and minerals in the country by
enacting the Act in 1957, if the rates of royalty were to be increased, it was
only the Central Government which could exercise power u/s 9(3) of the
Act and as the royalty had to be paid to the States, there was nothing wrong
in issuing the impugned notification under which increased rates of royalty
would be made available to the concerned states; that there was nothing
wrong in Section 9(3) which gives enough guidance to the Central Government for issuing such Notification and that such Notification could not be
said to be ultra vires or illegal or unconstitutional.
The respondents submitted that Section 9(3) of the Act was a piece
of excessive delegation of legislative power of Parliament, that it laid down
B
c
..+
no guidelines for the Central Government to follow for increasing the rates D
;,...
of royalty; that even otherwise it sought to tax mineral rights, the Section
was beyond the legislative competence of the Parliament as such legislation
would be covered by Entry 50 of list 2 of the Vllth Schedule and therefore,
legislative competence in connection with tax on mineral rights would be
exclusively of State Legislature and not of Parliament; that the impugned
Notification enhancing the royalty by almost 200 percent was ultra vire~ the E
putpose and object of the Act as the purpose of the Notification was to
increase the revenues of the State Governments and as it had nothing to
do with the development of .the mines, the Notification was beyond the
scope and ambit of Section 9(3) of the Act; that the Notification issued u/s
9(3) must have direct nexus with royalty which would be a payment made p
for the privilege of removing the minerals and it had to be charged on the
quantity removed; that no Notification u/s 9(3) could be issued by the
Central Government only for increasing the general revenues of the States,
that such a purpose is outside the scope of Section 9(3) and in substance,
by the impugned Notification, the Central Government had imposed a tax G
for the purpos.e of swelling the revenues of the\ States and not for the
purpose of increasing royalty on any permissible ground which may be
within the scope of Section 9(3) of the Act; that Section 9 of the Act had
nothing to do with mineral development and, therefore, enactment of
Section 9 could not be supported under entry 54 of the Union List but
would be covered by the sweep of Entry 50 of the State List; that royalty is H
758
SUPREME COURT REPORTS
[1995] 1 S.C.R.
A a tax and there was no Entry in t_he Union List which could support such
a tax and it would clearly fall within the scope and ambit of entry 50 of the
/
.
State List; that every tax should have a tax entry and as there was no
specific entry regarding imposition of tax by way of royalty in the Union
List such tax could be governed by Entry 50 of the State List; and so,
B impugned Section 9(3) is beyond the legislative power of the Parliament;
that the impugned Notification, even if assumed partly to be based on
relevant grounds, it was not wholly issued for the purpose of development
of minerals but for the purpose of development of State coffers and,
therefore, the entire Notification had to be struck down as invalid and
incompetent as an alien purpose cannot be mixed with the relevant pu.rC pose for exercising any statutory power even including the power to ·exercise delegated legislative function.
I
The issues raised for determination were (i) whether Section 9(3) of
the Act is ultra vires the Constitution and/or is illegal on any other ground;
(ii) whether the impugned Notification is beyond sfope of Section 9(3.) of
D the Act and, therefore, incompetent and invalid? (iii) whether the impugued
Notification is a piece of colourable exercise of power? and (iv) whether the
impugned Notification is arbitrary and confiscatory in natur;e?
Disposing of the appeals, this Court
E
HELD : 1.1. The Mines ~nd Minerals (Regulation and Development)
Act, 1957, is enacted by Parliament under Entry 54 of the Union List. The
entire Act being within the exclusive domain of legislative power of the
Parliament, Section 9 which is part and parcel of the same Act would also
fall within Entry 54 which deals with regnlation of mines and development
_......
F
of minerals and for which a declaration is already found in Section 2 of the
•
G
Act to the effect that such regulation of mines and minerals development
under the contr~I of the Union is expedient in public interest.
[770-F, 771-B]
Baijnath v. State of Bihar, AIR (1970) SC 1436, relied. on.
1.2. Parliament while enacting Section 9 has already laid down the
rates of royalty to be charged on the removal and consumption of mineral
by any lessee of mining lease, his agent or manager or sub-lessee, from the
leased area. The rates of royalty are scheduled in the Act. So far as coal
is concerned it is by Entry 11 of the Second Scbedule. Separate rates of
H royalty are prescribed for different types of coal. However, the Parliament
STATEv. MAHALAXMIFABRICMILLS
759
felt that these rates of royalty may be required to be enhanced or reduced A
- __._
from time to time due to fall of money value with the passage of time or
vice vei:ra. For that very purpose the Central Government as per Section
9(3) is permitted by Parliament to amend the Second Schedule by Notification to be published in Official Gazette from time to time subject to the
proviso that the Central Government shall not enhance mineral and mines B
royalty for more than once during the period of three years. The power
conferred upon the Central Government under Section 9(3) is by way of
:....--'r
delegated legislative power. [772-B·D]
1.3. Royalty on mineral rights is a tax. It would be beyond legislative
competence of the State legislature as Entry 50 in List II would be of no c
avail once the Parliament has occupied the field by enacting the Act,
·especially Section 9 thereof. [772-F]
India Cement Ltd. and Ors. v. State of Tamil Nadu and Ors., [1990]
A
1 sec 12, relied on
D
1"-
2. Once the Parliament has occupied the field in connection with
regulation of mines and minerals development in the country and when
the Parliament declares that it is expedient in the public interest so to do,
Entry 23 of the State list regarding regulation of mines and minerals
E
development would be of no avail to the State legislature as Entry 23 List
II is subject to the provision of List I, nor will Entry 50 of the State List
can be of any assistance to the State authorities. Both the entries will be
out of way in enacting appropriate legislation imposing the rates of royalty
--+
\to be paid by those who extract minerals in the country. It is Entry 54 in
~
the Union list which will operate and the imposition of tax on minerals
F
· extracted would be squarely got covered by Entry 54 of the Union list. As
the entire Act has been upheld by this Court, Section 9 being part and
parcel thereof cannot be out of the sweep of Entry 54. However, there is no
such specific entry in Union list nor in State list or concurrent list
regarding taxing of royalty on mineral rights which can sustain such G
-f...
legislation. In these circumstances the state legislature cannot rely on any
entry in the _state list or concurrent list for imposing such a tax once a
/
valid legislation by Parliament under Entry 54 of the Union list is holding
the field. In the alternative imposition of such a hybrid tax on mines +
capital + labour would be covered by residuary Entry 97 of the Union list
which empowers the Parliament to enact laws on topics not coverea by H
760
SUPREME COURT REPORTS
(1995] 1 S.C.R.
A other specific entries in List n or List III. Section 9 of the Act is within
the legislative competence of the Parliament both under Entry 54 of the
Union list as well as Ent~ 97 thereof. [776-D-H, 777-A]
3. Parliament itself has laid do~ the rates of royalty in the II
Schedule of the Act. However, the Parliament felt that with passage of time
B these rates of royalty may have to be suitably modified as the Act was
enacted years back in 1957. The purchasing power of rupee went on falling
year after year and decade after decade. Therefore, instead of Parliament
itself every time being required to increase the rates, it left to the Central
Government to do so but it imposed certain fetters on the power of the
C Central Government, Firstly, the proviso of Section 9(3) clearly lays down
that such enhancement should not be made before the end of four years,
and now after amendment before the end of three years. This itself indicates
a guideline laid down by the Parliament that the rate of inflation and fall
of money value of the rupee should be considered once in these years and
that the royalty should be enhanced only once three years. The second
D guideline in Section 9 (3) is pertaining to the very topic of delegation of such
legislative power. The Central Government has to keep in view the original
rates mentioned in Ilnd Schedule in connection. with different type of
minerals and to suggest suitable enhancement once in three years depend·
ing upon the requirements of the State concerned for whom the royalty is
meant. It is to be paid by holder mining lease who extracts minerals. If a
E person is merely in occupation of land which contains mines and minerals,
he is not liable to pay any royalty but it is only when he holds a mining lease
and by virtue of that extracts one or more minerals then only he is called
upon to pay royalty to the State Government as the lease is in respect of the
land in which minerals vest in the State Government. This exercise is to be
F carried out keeping in view the very object and purpose of the Act, namely,
regulation of mines and development of minerals which are the catch words
of Entry 54 List II under which the Act is enacted. Therefore, fixation of
royalty should have a direct nexus with the minerals throughout the
country on uniform pattern so that activity of winning the minerals for the
benefit of the lessee of such mining leases in the first instance and ultimate• !
G ly for the economy as a whole should not get in any w~y frustrated. Section
28 sub-section (1) is another safety valve provided, therefore it cannot be
said that the exercise of delegated legislative power of Central Government
in the first instance under Section 9(3) would suffer from any excessive
delegation. of legislative power or effacement of legislative power of the
H
STATE v. MAHALAXMI FABRIC MILLS
761
Parliament. [777-C-H, 778-A-D]
N.K. Papiah· and Sons v. Excise Commissioner and Another, AIR
(1975) SC 1007 and Delhi Cloth and General Mills Co. Ltd. v. Union of India
& ors. etc. etc., AIR (1983) SC 937, relied on.
A
4.1. The legislature has entrusted the Central Government with the B
power to enhance the rates of royalty from time to time. Traditionally
speaking royalty is an amount which is paid under contract of lease by the
"' ~
lessee to the lessor, namely, the State Governments concerned and it is
commensurate with the quantity of minerals extracted. But since 1981 such
enhancement of royalty has not been done by the Central Government. C
Rates of royalty fixed before a decade, with the passage of time and fall in
money value and increase in inflation would naturally b~come illusory.
Therefore, the States would legitimately claim for inc .. easing the rates of
royalty. They unsuccessfully tried to do so themselves by imposing cesses ·
on royalty. In these circumstances, it was perfectly open to the central
~
Government to exercise its power under Section 9(3) and enhance the rates D
.,.._
of royalty so that loss to the State's exchequer of the amounts which
otherwise wou'd have been available to the States could be compensated.
It is not that the States were otherwise not entitled to the royalty amounts;
but because of the operation of Section 9, the power of the States to
enhance the royalty get vested in the Central Government. But once the E
rate are enhanced royalty is to be received by the States and same is to be
recovered from concerned lessee of minerals. There is no question of the
royalty amounts being distributed by the Central to the States as per
Articles 268 and 269 of the Constitution. [782-G-H, 783·A·C]
4.2 That once royalty amounts are fixed by the Central Government F
under section 9(3), the States automatically become entitled to receive the
same from lessees of minerals who are allowed to extract them on payment
of such amounts of royalty to the state wh: h ls the owner-lessor ~f tliese
minerals. Enhancement of rates of royalty cannot be said to have no nexus
with the development of minerals only because the enhanced rates of G
royalty are to go to swell the exchequers of concerned states. (783-D]
. 4J To have a uniform pattern of rates of royalty to be charged for
•tracting different qualities and quantities of minerals from different
parts of the country is a very vital aspect of the development of minerals.
On'e of the main objects of the Notification was for recompensatlng the H
762
SUPREME COURT REPORTS
[1995] 1 S.C.R.
A loss suffere_d by States; but the facts remains that they suffered loss since
the last hike in royalty was done in 1981 by the Central Government. It
cannot be said that en!n as purchasing power of rupee had fallen and
inflation had risen including the prices of coal in national and international market, there was no felt need for raising the rates of royalty to be
B charged for extraction of minerals like coal from the lease holders when
the mineral belonged to the State. If the amount of royalty is so enhanced,
it has to go to the coffers of the State concerned which is the owner of the
mineral. This is a logical corollary of enhanced rates of royalty. It cannot
be said to be an irrelevant consideration. On the contrary, it is a relevant
consideration because the State have to monitor the working of the mines
C and the income generating from extraction of minerals within their respective territories. If the Central Government exercised its power under
Section 9(3) of the Act though belatedly in 1991 for bringing out this result,
it could not be said that it had done what was ultra vires or beyond the
scope of Section 9(3) of the Act. Mineral as found in the bowels of the earth
'
D or attached to earth surface by itself cannot develop. For developing it, it
has to be brought on the surface and separated from the crust of the
mother earth and that can be done by mining operation for winning these
minerals. Development of mineral as envisaged by Section 18 of the Act
and even by Entry 50 of list II of the Seventh Schedule of the Constitution,
necessarily would mean extraction of mineral out of the bowels of earth or
E from crust of earth by mining operations. Therefore, the term development
of minerals has a direct linkage with mining operation. Without that
minerals cannot develop by themselves. Mineral in ordinary and common
meaning is comprehensive term including every description of stone and
rock deposit whether containing metallic or non-metallic substance. The
F word mineral in popular sense means those inorganic constituents of the
·earth's crust which are commonly obtained by mining or other process for
bringing to the surface for profit. Minerals hidden in the bowel of the earth
by themselves cannot yield profit to anyone and they become minerals
when they are brought on the surface of the earth by mining operations.
Regulation of mines and development of minerals are interconnected
G concepts. Therefore, impugned notification cannot be said to be ultra virus
of Section 9(2) of the Act. [785-H, 786-B-G, 787-B]
5.1 The concept of colourable legislation has a well defined connotation so far as parent legislation is concerned. If the legislation trespasses
H on a field not reserved for it under the relevant entry of the Seventh
STATEv. MAHALAXMIFABRICMiLLS
763
Schedule in can be said to be a co~ourable legislation meaning thereby it A
purports to get covered by an entry does not give legislative competence to
the legislature concerned to enact such a law. [788-B]
5.2. In the strict sense, there is no question of the said Notification
being a piece of colourable legislation touchiiig upon the power of some
other authority functioning under any other p.-ovision of delegated legislation. Even in cases of delegated legislation, there are well defined limitations beyond which if such an exercise projects itself, it would become ultra
vires the provision permitting such an exercise. [789-B]
B
Federation of Hotel and Restaurant v. Union of India and others, AIR C
(1990) SC 1637, relied on.
6.1 The motive of legislature or for that matter that of the delegate
in exercising delegated legislative function for enacting a provision within
its competence cannot be considered to be in any way having any relevant
nexus to the efficacy of the product of such an exercise. The mineral D
belongs to the States, and so, if the Central Government has taken into
consideration the fact that the states, revenues are required to be recompensated on account of the loss suffered by them in their abortive
efforts to escalate the royalty, it cannot be considered to be an irrelevant
consideration. It clearly appeared that after 10 years from 1981 during E
which the royalty rates remained static there was a crying need of the day
for the Central Government to exercise its power under Section 9(3) and
to revise upward the royalty rates in conformity with the rising prices of
the minerals alround and for which there was a strong representation by
the various State Governments to the Central Government. Therefore, it
cannot be held that the impugned Notification was colourable device and F
was issued for extraneous purpose. [792-B-E]
6.2 The exercise of delegated power can be challenged on the ground
that it is highly arbitrary, irrational and confiscatory in nature and would
not stand the test or Articles 14 and 19(1)(g). [792-G]
6.3 In the instant case, the writ petitioners had led no evidence to
show as to how this escalation of rates for different types of coal extracted
G
by the lessee of mines had adversely affected their business or that they
were thrown out of business because of such heavy burden of escalated
royalty. It was not the case of any of the writ petitioners that their mining H
764
SU~REME COURT REPORTS
[1995] 1 S.C.R.
A operations had to be closed down because of such high ra~es of royalty as
enhanced by the impugned Notification. Also there was nothing _on record
to show whether the burden of this enhanced rates of royalty was borne
only by the lessees of the mines who had extracted the minerals and had
not passed on to the customers by adding it to the price of coal. As all
B these are questions of facts there should be clear pleading and proof. There
was no such material on the record from which any decision could be
rendered. The original writ petitioners have failed to show how the enhanced rates of royalty as per the impugned Notification have become
unreasonable confiscatory in nature. [793-A-C]
C
Orissa Cement Limited v. State of Orissa, AIR (1991) SC 16741, relied
on.
M/s. International Tourist Corporation and Ors. etc. v. State of Haryana
and Others, State of U.P. and Ors., [1981]2 SCC 318; State of Mysore and Ors;
v. M/s. D. Cawasji and Co. and Ors., [1971] 2 SCR 799; H.R.S. Mwthy v.
D Collector of Chittor, [1964] 6 SCR666; Dr. Shanti Saroop Shamia and another
v. State of Punjab and others, AIR (1969) P and H 79, Saurashtra Cement and
Cf!emical Industries Limited, Ranavav v. Union of India, AIR (1979) Gujarat
180; Laxmi NarayanAgarwalla and other etc. v. State of Orissa and others, AIR
[1983] Orissa 210, Surajdin Laxmanlal v; State of M.P. Nagpur and Others,
E AIR (1960) M.P. 129 and D.K Trivedi and Sons and Ors. etc. etc. v. State of
Gujarat and Ors. etc. etc., [1986] 1 SCR479, referred to.
CIVIL APPELLATE JURISDICTION : Civil AppeaCNo. 275 of
1994. Etc. Etc.
F
From the Judgment and Order dated 17.12.93 of the Madhya
Pradesh High Court in M.A. No. 10 of 1993.
D.P. Gupta, Solicitor General, P.P. Rao Dr. Shankar Ghosh,
P.Chidambaram, Soli J. Soral:Jjee, G.L. Sanghi, S.K. Dholakia, R.K. Jain,
G.Ramaswamy,
S.K. Agnihotri, Sakesh Kumar, Ashok Kumar Singh,
G Deepak Dhingra, Gautam Khaitan for the O.P. Khaitan and Co., M.L.
Jaiswal, Vivek Gambir, D.A. Dave, R. N. Karanjawala, P;K. Mullick for
Ms. M. Karanjawala, Anand Prasad, U.A. Rana, Rajiv Tyagi for Gagrat
and Co., M.L. Lahoty, Prem Sunder Jha~ Ms. Shipra Khanzanchi, Pallav
Shisodia, Ravinder Narain, D.N. Mishra, Ms. Punit Singh for JBD and
H Co., K.N. Raval, Mukμl Mudgal, Praveen Kumar, Virender Kaushal, R.K.
STATEv. MAHAI.,AXMI FABRIC MILLS [MAJMUDAR, J.]
765
'
Khanna, Ajay Bhalla, for R.P. Singh, Amitabh Verma for Ashok Mathur, A
-.. ).
Pramod. Swarup, B.B. Singh, Ms. Rani Chhabra, Jana Kalan Das and ·
Ashok K. Mahajan for the appearing parties.
The Judgment of the Court was delivered by
MAJMUDAR, J. Leave granted in both the petitions.
B
Two main questions are involved in these four appeals, namely
\.
~-
whether Section 9(3) of the Mines and Minerals (Regulation & D~velopment) Act, 1957, (hereinafter referred to as 'the Act') is ultra vires the
Constitution and secondly whether the Notification dated 1st August 1991 c
issued by the Central Government under Section 9(3) of the Act is ultra
vires, illegal and inoperative in law. On these common questions we have
heard learned counsel for the contesting parties and are, therefore, disposing of these appeals by this common judgment.
A
A few relevant facts -leading to these cases may be sta_ted at the D
';>--
outset. Appellants in C.A. Nos. 275/94 and 276/94 being State pf M.P. and
Union of India respectively, were respondents before the High Court in
Special Civil Miscellaneous Petition No. 10/93. The respondents in these
appeals were the original writ petitioners in the High Court. These respondents are purchasers of coal from Coal India Ltd. which was respondent E
No. 3 in writ petition. The writ petitioners complained that the Notification
dated 1st August, 1991 issued by the Union of India fixing new rates of
royalty on various varities of coal was illegal and inoperative 1n law on
various grounds, that before 1.8.1991 royalty was payable at the rate of Rs.
6.50 per ton vide earlier Notification but the same was sought to be F
increased to Rs. 120 per ton by the new Notification. Since the said
Notification was issued under Section 9(3) of the Act, it was submitted that
the said provision confers unguided, unchannelized and arbitrary discretion
t
to the Central Government to increase ~he rates of royalty to any higher
amount and as no guidelines were provided for effecting the said increases
either under this Section or elsewhere in the Act, the Section itself is an G
.1....l
instance of excessive delegation of essential legislative power and hence it
':"as void. T.hat royalty on various varieties of coal was fixed in the year 1981
vide earlier Notification issued by the Central Government under Section
9(3). Proviso to Section 9(3) permits revision of the rates of royalty once
during every three years. In the year 1982, several coal producing States H
766
SUPREME COURT REPORTS
I
[1995] 1 S.C.R.
A imposed coal development cess and starting receiving revenue for effecting
"aevelopment of their mining areas, till they were challenged by consumers
of coal by ·filing several writ petitions in the High Courts. The controversy
ultimately came to be decided by this Court in Orissa Cement Limited v.
State of 01issa AIR (1991) SC 1674, whereby such cess was held to be
B invalid and beyond the legislative competence of the State Government. It
appears that soon after the aforesaid invalidation of the cess the coal
producing States were faced with problem of refunding the amounts obtained by them that far. They, therefore, approached the Central Government for help in the matter. In pursuance to the said approach, the
Parliament passed an Act validating the cess paid by the coal consumers
C upto the date of the Judgment by issuing an ordinance styled as 'The Cess
& Other Taxes on Minerals Validation Ordinance, 1992'. We are not
concerned with the said Ordinance and the subsequent Act in the present
proceedings. It appears that since the State Government had suffered
financial losses because of the invalidation of the cess, they also apD proached the Central Government for help in the matter. As- a consequence thereof, a working group was constituted in this behalf. The said
working group suggested an increase in the royalty to the extent of Rs. 70
per ton of the coal. The working group also found sufficient justification
for compensating the coal producing Staies to the extent of 100 per cent
E of the loss caused by the aforesaid judgment of this Court. Since the
recommendation was accepted by the Central Government, the impugned
Notification was issued by the Central Government. According to the writ
petitioners before the High Court, the increase in the rates of royalty
pursuant to the Notification was to the extent of 400 per cent to 2000 per
cent as compared to the royalty fixed in 1981 on various varieties of coal.
F It was further contended before the High Court by the writ petitioners that
the royalty fixed in the impugned Notification was payable to the concerned
State Governments by the coal companies. The coal companies passed on
this burden to their customers and showed this amount clearly and specifically in the bills issued by them. The coal companies have no objection to
G the Notification and are supporting the Central Government in this behalf.
The purchasers being consumers of coal were the affected parties who
.. - . •
I
challenge:d the said Notification. About 60 petitions whe filed.before the
M.P. High Court by various consumers of coal. The-.Migh Court heard
learned CO!lnsel for all the respective parties. The Division Bench by its
H judgment dated 17th December, 1993 took the view that Section 9(3) of
STATEv. MAHALAXMifiABRICMILLS [MAJMUDAR,J.]
767
the Act was not invalid or illegal on any ground. However, .so far as A
impugned Notification on Section 9(3) was concerned, the High Court was
of the opinion that the said Notification was lacking in bona /ides and as
it was issued for meeting the financial deficiency suffered by States 01!
account of the judgment of this Court in O;issa Cement case, (supra) it wa~
outside the scope of Section 9(3) of the Act. Having reached that coirclusion, the Division Bench of the High Court quashed the impugned
Notification dated 1.8.91 but so far as the question of refund was concerned, the High Court took the view that no direction for refund of any
amount could be issued as the burden of enhanced royalty was already
passed on to the customers by the manufacturers. Accordingly, the writ
petition was partly allowed. This order of the Division Bench dated
17.12.93 is brought in challenge by the State of Madhya Pradesh by filing
C.A. No. 275/94 after obtaining special leaveing to appeal against the said
order from this Court. The Union of India has also challenged the very
same order in C.A. No. 276/94 after obtaining special leave. So far as
Special leave petition No. 8190/94 is concerned, it is filed by M/s. Birla Jute D
& Industries Ltd., one of the consumers of coal, which has also felt
aggrieved by the hike in royalty of coal as imposed by the impugned
Notification. It raised the very same contention in the High Court by way
B
c
of Misc. Civil Case No. 833/93. The writ petition filed by M/s. Birla Jute
Industries Ltd., was also partly, allowed by the High Court following its
order dated 17.12.93. By the order dated 28.1.94 it was held that the
petitioner therein was entitled to the same benefit on the same lines as was
available to the writ petitioners in matter decided on 17.12.93. The
petitioner, M/s. Birla Jute Industries Ltd., by special leave has contended
that the High Court was in error in not granting refund of the illegally
collected royalty as impugned Notification was struck down by the High
Court. In appeal pursuant to SLP(C) No. 3395/94, the State of M.P. has
brought in challenge a similar order passed by the High Court on 17.12.93
in Misc. Petition No. 7907/92.
E
F
There are number of other civil appeals arising from the similar G
orders passed in the said writ petitions. But as we have heard learned
counsel in these four matters, we are disposing of only these four matters
in the first instance by this judgment.
Learned Solicitor Gen,eral and Additional Solicitor General in sup- H
768
SUPREME COURT REPORTS
[1995) 1 S.C.R.
A port of C.A. Nos.-275/9~, 276/94 and Civil Appeal arising out of SLP{C)
No. 3395/94, vehemently contended that the High Court was patently in
error in striking down the impugned Notification dated 1.8.91. It was
stlbmitted by . th,em that once this Court took the view in Orissa Cement
Company's case that royalty could not be imposed by States, that it was
B · within the domain of the Central legislature in view of the Entry 54 of List
1 of Schedule VII of the Constitution and when the Parliament nad already
occupied the field pertaining to regulation and development of mines and
minerals in the country by enacting the Act in 1957, if the rates of royalty
were to be increased, it was· only the Central Government which could
exercise power under Section 9(3) of the Act and as the royalty had to be
C paid to the States, there was nothing wrong in issuing the impugned
Notification under which increased rates of royalty would be made available to the concerned State. Equally, there was nothing wrong in Section
9(3) which enough guidance to the Central Government for issuing such
Notification and that such Notification could not be said to be ultra vires
D or illegal or unconstitt'.itibnal as wrongly held by· the High Court. On the
other othcer hand, Mr. Sanghi, senior counsel appearing for the respondents, submitted that section 9(3) of the Act was a piece of excessive
delegation of legislative power of Parliament, that it laid down no
guidelines for the Central Government to follow for increasing the rates of
E royalty. That even otherwise as it sought to tax mineral rights, the said
Section was beyond the legislative competence of the Parliament as such
legislation would be covered by Entry .50 of the List 2 of the Vllth
Schedule. It was next contended by Shri Sanghi that the impugned Notification enhancing the royalty by almost 200 per cent . was ultra vires the
purpose and object of the Act as the purpose of the Notification was to
F increase the revenues · of the State Governments in whose territories the
concerned mines were situated and as it had nothing to do with the
development of the mines, the Notification was beyond the scope and ambit
of Section 9(3) of the Act. Mr. Sorabjee, learned senior counsel appearing
for the appellant, M/s. Birla Industries Ltd. adopted the arguments of Mr.
G Sanghi and further submitted that the Notification issued under Section
9(3) must have direct nexus with royalty which would be a payment made
for the privilege of removing the minerals and it had to be charged on the
quantity removed. That no Notification under Section 9(3) could be issued
by the Central Government only for increasing the general revenues of the
States, that such a purpose is outside the ~cope of Section 9(3) and in
H
I
J..J :
STATEv. MAHALAXMIFABRICMILLS [MATMUDAR,J:]
769 ·
substance by the impugned Notification, the Central Government . Ma A
.
. I
imposed a tax for the purpose of swelling the revenues of the States and
not for the purpose of increasing royalty on any permissible ground which
may be within the scope of Section 9(3) of the Act. Mr. Dholakia, learned
senior counsel appearing for Respondent No. 1 in Civil Appeal 1994/95
arising out of SLP(C) No. 3395/94, broadly supported the aforesaid contentions of Shri Sanghi and Shri Sorabjee and further contended that
Section 9 of the Act has nothing to do with mineral development and,
therefore, enactment of Section 9 could not be supported under Entry 54
of the Union List but would be covered by the sweep of Entry 50 of the
State List. Mr. Chidambaram, learned senior counsel, appearing for some
B
c
of the original writ petitioners befqre the High Court in companion matters, also adopted the arguments of Shri Sanghi and Shri Sorabjee and
further contended that as laid down by this Court in Indian Cement case
(supra) royalty is a tax, and there was no Entry in the Union List which
could support such a tax and it would clearly fall within the scope and
ambit of Entry 50 of the State List. He further contended that every tax D
should have a tax entry and as there was no specific entry regarding
imposition of tax by way of royalty in the Union List such tax could be
covered by Entry 50 of the State list, and so, impugned Section 9(3) i~
1·'beyond the legislative power of the Parliament.
//
.
Mr. ~swamy, learned senior counsel, who was permitted to
intervene SJIPported the contention of the aforesaid learned counsel for the
writ petitioners and further contended that the impugned Notification,
even if assumed partly to be based on relevant grounds, at least partly was
not based on relevant grounds as it was not wholly issued for the purpose
of development of minerals but for the purpose of development of State
coffers and, therefore, the entire Notification has to. be struck down as
invalid and incompetent. An alien purpose cannot be mixed with the
relevant purpose for exercising any statutory power even including the
power to exercise delegated legislative function.
In the light of the aforesaid rival contentions, the following points
arise for our determination :
1. Whether Section 9(3) of the Act is ultra vires the Constitution
E
F
G
and/or is illegal on any other ground?
H
770
SUPREME COURT REPORTS
[1995] 1 S.C.R.
A
2. Whether theimpugned Notification is beyond scope of Section
..._ ...,_..
9(3j of the Act and, therefore, incompetent and invalid?
h. Whether the impugned Notification is a piece of colourable exercise of power?
B/
4. Whether the impugned Notification is arbitrary and confiscatory
in nature?
c
D
E
F
G
H
As discussed hereinafter, answers to the above points are as follows:
1st
In the negative;
2nd
In the negative;
3rd
In the negative; and
4th
In the negative,
We shall deal with these points seriatim.
Point No.I
So far as vires of Section 9 are concerned, it must be kept in view
that a Constitution Bench of this Court has held in the case Baijnath v.
State of Bihar, AIR 1970 SC 1436 that the Act is enacted by Parliament
under Entry 54 of the Union list. In this connection the Constitution Bench
speaking through Hidayatullah CJ., had made the following observations:
"Entry 54 ·of the Union List speaks both of Regulation of mines
and minerals development and Entry 23 of State list is subject to
Entry 54 of Union list. It is open to Parliament to declare that it
is expedient in the public interest that the control should vest in
Central Government. To what extent such a declaration can go is
for Parliament to determine and this must be commensurate with
public interest. Once this declaration is made and the extent laid
down, the subject of legislation to the extent laid down becomes
an exclusive subject for legislation by Parliament. Any legislation
by the State after such declaration and trenching upon the field
disclosed in the declaration must ~ecessarily be unconstitutional
)d
..
STATE v. MAHALAXMI FABRIC MILLS [MAJMUDAR, J.]
771
because that field is abstracted from the legislative competence of A
the State legislature."
·
Once it is held that the entire Act is within the exclusive domain of
legislative power of the Parliament under Entry 54 of the Union list it
becomes obvious that Section 9 which is a part and parcel of the same Act
would also fall within Entry 54 which deals with regulation of mines and
development of minerals and for which a declaration is already found in
Section 2 of the Act to the effect that such regulation of mines and minerals
development under control of the Union is expedient in public interest. We
may now turn to Section 9 which reads as under :
"9.