# STATE OF ORISSA AND ORS v. MAHANADI COALFIELDS LTD. AND ORS

- **Citation:** [1995] 3 S.C.R. 639
- **Court:** Supreme Court of India
- **Decided:** 1995-04-21
- **Case number:** Civil Appeal Nos. 330-604 \ of 1995
- **Bench:** A.M. Ahmadi, S.P. Bharucha, B K.S. Paripoornan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-orissa-and-ors-v-mahanadi-coalfields-ltd-and-ors-13189
- **Pages:** 30

## Headnote

"'!"' I
Orissa Rural Employment, Education and Production Act, 1992.
Section 3(2)(cf-Levy of tax on-Coal bearing lands-Beyond the com- c
petence of the State legislature-Struck down-<:onstitution of India-Seventh
Schedule-List II-Entries 23, 32, 50.
Mines and Minerals (Regulation & Development) Ac~ 1957.
Levy of tax on-Coal and mineral bearing lands-Provides for all kinds D
of taxation-State Legislature deprived of the power to impose tax.
··""!
The respondents assailed the validity of the Orissa Rural Employment, Education and Production Act, 1992 before the High Court. The
main controversy in the cases was regarding the levy of tax under the Act
on 'Coal bearing lands'. The High Court held that the State Legislature E
did not have the competence to levy the tax on coal bearing lands and
struck down section 3(2)(c) of the Act as well as the schedule attached to
the Act levying tax of Rs. 32,000 per acre on coal bearing lands. Aggrieved
by the High Court's judgment the appellants preferred the present appeal.
On behalf of the appellants It was contended that the levy of ·tax F
would fall under Entry 49, List II of the Seventh Schedule; and that even
if it is not so, the levy of taxes would fall under Entry 23 or 50, List II.
On behalf of the respondents It was contended that the levy is on
minerals and mineral rights alone and not a tax on land covered by Entry G.
49, List II; that since the levy Is on minerals or on mineral rights even If .
the levy falls under Entry 23 or 50 List Il It is subject to limitation imposed
,
by Parliament; that Parliament bas legislated on the subject under. Entry
/
54, List I and bas enacted the Mines and Minerals (Regulation and
Development) Act, 1957 which covers the field; and that the Act is ultra
vires and beyond legislative competence.
H
639
640
SUPREME COURT REPORTS
[1995) 3 S.C.R.
A
Disposing of the appeal, this Conrt
HELD : 1. The combined effect of section 3(1) of the Orissa Rnral
Employment, Edncation and Prodnction Act, 1922 and the Orissa Cess Act
of 1962, as amended, is that only mineral bearing and Coal bel\ring lands
will be subject to the levy of tax under the Act. Thus there is no donbt that
B the substance of the levy under the Act is really on "mineral bearing land"
and "Coal bearing land". [662-D, 663-D]
2. Sections 2, 3(a), 3(d), 9 and 9-Aofthe Mines and Minerals (Regulation & Development) Act, 1957 clearly point out that taxation on mineral
C and mineral rights, viz; any tax, royalty, fee or rent are provided in the said
Act. Exhaustive provisions regarding all kinds of taxation on minerals and
mineral rights have been made in the M.M.R.D. Act. 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 Ust II Entry 50, Therefore,
the levy of tax on mineral bearing and Coal bearing lands ls beyond the
D competence of the State Legislatuno and is ultra vires. [664-B, D, E, F]
Harakchand Ratanchand Banthia and Ors. v. Union of India and Ors.,
AIR (1970) SC 1453; K. C. Gajapati Narayan Deo & Ors. v. The State of
Orissa, [1954] SCR I; A.S. Krishna & Ors. v. State of Madras, AIR (1957)
E SC 297; K.P. Varghese v. Income Tax Officer Emakulam & Anr., AIR (1981)
SC 1922; Divan Brothers v. Central Bank of India, Bombay and Ors., AIR
(1976) SC 1503 and Shashikant Laxman Kale and Anr. v. Union of India
and Anr., AIR (1990) SC 2114, relied on.
..
3. The Act purports to impose a tax on Coal bearing land and
F mineral bearing land as defined in section 2(a-1) and 2(d) of the Act, which
is fully covered by Parliamentary legislation, the M.M.R.D. Act. [667-A)
India Cement Ltd. v. State of Tamil Nadu, [1989) Supp. 1 SCR 692
and Federation of Mining Associations of Rajasthan v. State of Rajasthan
G and Anr., [1992] Supp. 2 sec 239, relied on.
t

## Text

_Characters 0–39,851 of 62,268. This is a partial read: ask again with offset=39851 for what follows._

STATE OF ORISSA AND ORS.
A
v.
MAHANADI COALFIELDS LTD. AND ORS.
APRIL 21, 1995
[A.M. AHMADI, C.J., S.P. BHARUCHA AND
B
K.S. PARIPOORNAN, JJ.]
"'!"' I
Orissa Rural Employment, Education and Production Act, 1992.
Section 3(2)(cf-Levy of tax on-Coal bearing lands-Beyond the com- c
petence of the State legislature-Struck down-<:onstitution of India-Seventh
Schedule-List II-Entries 23, 32, 50.
Mines and Minerals (Regulation & Development) Ac~ 1957.
Levy of tax on-Coal and mineral bearing lands-Provides for all kinds D
of taxation-State Legislature deprived of the power to impose tax.
··""!
The respondents assailed the validity of the Orissa Rural Employment, Education and Production Act, 1992 before the High Court. The
main controversy in the cases was regarding the levy of tax under the Act
on 'Coal bearing lands'. The High Court held that the State Legislature E
did not have the competence to levy the tax on coal bearing lands and
struck down section 3(2)(c) of the Act as well as the schedule attached to
the Act levying tax of Rs. 32,000 per acre on coal bearing lands. Aggrieved
by the High Court's judgment the appellants preferred the present appeal.
On behalf of the appellants It was contended that the levy of ·tax F
would fall under Entry 49, List II of the Seventh Schedule; and that even
if it is not so, the levy of taxes would fall under Entry 23 or 50, List II.
On behalf of the respondents It was contended that the levy is on
minerals and mineral rights alone and not a tax on land covered by Entry G.
49, List II; that since the levy Is on minerals or on mineral rights even If .
the levy falls under Entry 23 or 50 List Il It is subject to limitation imposed
,
by Parliament; that Parliament bas legislated on the subject under. Entry
/
54, List I and bas enacted the Mines and Minerals (Regulation and
Development) Act, 1957 which covers the field; and that the Act is ultra
vires and beyond legislative competence.
H
639
640
SUPREME COURT REPORTS
[1995) 3 S.C.R.
A
Disposing of the appeal, this Conrt
HELD : 1. The combined effect of section 3(1) of the Orissa Rnral
Employment, Edncation and Prodnction Act, 1922 and the Orissa Cess Act
of 1962, as amended, is that only mineral bearing and Coal bel\ring lands
will be subject to the levy of tax under the Act. Thus there is no donbt that
B the substance of the levy under the Act is really on "mineral bearing land"
and "Coal bearing land". [662-D, 663-D]
2. Sections 2, 3(a), 3(d), 9 and 9-Aofthe Mines and Minerals (Regulation & Development) Act, 1957 clearly point out that taxation on mineral
C and mineral rights, viz; any tax, royalty, fee or rent are provided in the said
Act. Exhaustive provisions regarding all kinds of taxation on minerals and
mineral rights have been made in the M.M.R.D. Act. 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 Ust II Entry 50, Therefore,
the levy of tax on mineral bearing and Coal bearing lands ls beyond the
D competence of the State Legislatuno and is ultra vires. [664-B, D, E, F]
Harakchand Ratanchand Banthia and Ors. v. Union of India and Ors.,
AIR (1970) SC 1453; K. C. Gajapati Narayan Deo & Ors. v. The State of
Orissa, [1954] SCR I; A.S. Krishna & Ors. v. State of Madras, AIR (1957)
E SC 297; K.P. Varghese v. Income Tax Officer Emakulam & Anr., AIR (1981)
SC 1922; Divan Brothers v. Central Bank of India, Bombay and Ors., AIR
(1976) SC 1503 and Shashikant Laxman Kale and Anr. v. Union of India
and Anr., AIR (1990) SC 2114, relied on.
..
3. The Act purports to impose a tax on Coal bearing land and
F mineral bearing land as defined in section 2(a-1) and 2(d) of the Act, which
is fully covered by Parliamentary legislation, the M.M.R.D. Act. [667-A)
India Cement Ltd. v. State of Tamil Nadu, [1989) Supp. 1 SCR 692
and Federation of Mining Associations of Rajasthan v. State of Rajasthan
G and Anr., [1992] Supp. 2 sec 239, relied on.
t
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 330-604
\
of 1995 Etc. Etc.
From the Judgment and Order dated 26.4.94 of the Orissa High
H Court in O.J.C. Nos. 2015, 5382, 5814, 6061, 6760, 6550, 6338, 8801, 5641,
' ...
STATE v. MAHANADI COALF1EWS
641
5642, 5877, 7148, 7149, 7113, 6226, 6491, 6493, 7003, 7040, 7101, 7106, A
7107, 7109, 7131, 7132, 7161, 7166, 7227, 7228, 7321, 7322, 7401, 7403,
7513, 6062, 8556, 8405, 8404, 8098, 8078, 8062, 8017, 7825, 7525, 7516,
7344, 7343, 7342, 7277, 7276, 7248, 7219, 7146, 7145, 7144, 7143, 7142,
7079, 7078, 7077, 7076, 6450, 6437, 6144, 5992, 5991, 5990, 5989, 5974,
5973, 5941, 5934, 5933, 5932, 5931, 5930, 5929, 5928, 5867, 5866, 5787, B
5786, 5778/93, 125/94, 10/94, 9, 600, 599/94, 9447/93, 9198/93, 9146/94,
I
9178, 9143, 9198, 8531, 8527, 8559, 8558, 8200, 9326, 6538, 9330, 9328,
9327/93, 8187/94, 6065, 8696, 9499, 9461, 9165, 7982, 6442, 9332, 9333/93,
9323, 9669, 9025, 9251, 6791, 6790, 6407, 6406, 6405, 5861, 5860, 9573/93,
/ I
114, 19, 18, 17, 554/94, 8880, 8642, 8498, 8422, 8421, "8215, 8214, 7988, c
7961, 7960, 7941, 7437, 6279, 6278, 6277, 6153, 5874, 5873, 1102/93, 298/94,
9807, 9305, 9651, 9752, 9751, 1077, 9230, 9065, 9064, 9066, 9285, 9229,
9228/93, 253/94, 7255, 9648, 9992, 6558, 6557/93, 251, 11/94, 9388, 9215,
9419, 9200, 9199, 8434, 8403, 8402, 7417, 7416/93, 984/94, 7418, 8964, 8965,
9761, 9194, 8412, 8411, 8410, 8409, 7442/93, 195/94, 9445, 9444/93, 191, D
123, 122/94, 9256, 9255/93, 99, 560, 157/94, 9655/93, 131, 130/94, 9177,
9163, 9162, 9471, 9470/93, 54, 53, 52/94, 8233, 8090, 8089, 7980, 8414, 7549,
7352, 7253, 7455, 9921, 6368, 6367, 6365, 6504, 6351, 6350, 9913, 6896,
6891/93, 149/94, 6304, 5815, 6216, 6434, 7042, 7039/93, 133/94, 7463,
6282/93, 153/94, 9775/93, 132/94, 9788, 9325, 9464, 9916/93, 274, 276, 246,
254/94, 9986, 9924, 9216, 8693, 9858, 9854, 8963/93, 9498/92, 9175/93, 8594, E
9860, 110, 109/94, 9381/93, 9380/94, 9379, 8652, 6328, 7100/93, 718/94, 9254
of 1993.
M.K. Banerjee, Attorney General, Altaf Ahmad and V.R. Reddy, F
Additional Solicitor Generals, B. Sen, N.S. Hegde, K. Parasaran, AK.
Ganguli, Shanti Bhushan, K.K. Venugoal, Kapil Sibal, V.A. Bahde, R.F.
Nariman, S.C. Roy Adv. Genl. for Orissa, R.K. Mehta, Ms. Mana C:hak·
raborty, Sanjit Mohanty, D. Manda!, Krishan Mahajan, Gaurav K. Baner-
. je_e, Soll\ Manda! Adv. for M/s. Fox Manda! & Co., Narasimba P.S., V.G.
Pragasam, P.N. Gupta, Ms. Vijay Laxmi Menon, S. Sukurnaran, P.O. Tyagi, G
Dhruv Agrawal, Irshad Ahmad, U.A. Rana, Anand Prasad, Rajl\.umar
Gupta, Rajesh, G.K. Mishra, Mrs. Hemantika Wahl, Vinoo Bhagat,
Ravinder Kumar, K.K. Lahiri, Ashok Poaija, Gaurav Kumar, Rakesh K.
Sharma, C. Mukhopadhya, Ms. Kitty Kumaramangalam, S.K. Bhattacharya,
Arvind Kr. Sharma, Sanjay Das, S.P. Singh and K.P. Sinib for the appear- H
642
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A ing parties.
The Judgment of the Court was delivered by
PARIPOORNAN, J. The State of Orissa and the authorities in the
B Mines Department of the State are the appellants in this batch of appeals.
Mis. Mahanadi Coalfields Ltd., a Government company, in whom the lands
in question vests in accordance with section 11 of the Coal Bearing Areas
{Acquisition and Development) Act, 1957 (Cen(ral Act 20 of 1957), and
Union of ·India are the respondents in the main appeal. In the other
appeals, the consumers of coal who purchase coal from Mahanadi Coale fields Ltd for their own consumption as well as some traders in coal are
the respondents. The Mahanadi Coalfields Ltd., the consumers of coal who
purchase coal from Mahanadi Coalfields Ltd., and some traders in coal
assailed the validity of the Orissa Rural Employment, Education and
Production Act, 1992 (Orissa Act 36 of 1992), as amended, hereinafter
D referred to as 'the Act', before the High Court of Orissa in a series of writ
petitions. The main controversy in the cases was regarding the levy of tax
under the Act on "coal bearing lands''. By a common Judgment dated
26.4.1994 the Division Bench of the High Court held that the State Legislature did not have the competence to levy the tax on coal bearing lands
and struck down section 3(2)(c) of the Act as well as the schedule attached
E to the act levying tax of Rs. 32,000 per acre on coal bearing lands and also
the consequential demand notices and certificate proceedings. As a sequel
thereto, the demands raised by Mahanadi Coalfields Ltd. against the
traders and consumers on account of additional burden of tax on lands
were also quashed. The High Court also took the view that the levy would
F be hit by sectioh 9A of Mines and Minerals (Regulation and Development)
Act, 1957, (Act 67 of 1957) hereinafter referred to as 'M.M.R.D. Act' and
the levy is also discriminatory and hit by Article 14 of the Constitution of
India'. The question of passing on the burden by Mahanadi Coalfields Ltd.
was left open, though the High Court opined that if the tax is on lands, the
burden cannot be passed on to the consumer or the trader. A few other
G pleas taken up by the petitioners were also negatived. The High Court
allowed the batch of writ applications. In S.L.P.(C) Nos. 12477-12751 of
1994, by an order dated 10.1.1995, a three Member - Bench of this Court
granted leave to appeal to the State of Orissa against the aforesaid Judgment of the High Court dated 26.4.1994. Apart from the competence of
H the Orissa Legislature to enact the law, M/s. Mahanadi Coalfields Ltd.
t
'
I
STATEv. MAHANADICOALF1ELDS [PARIPOORNAN,J.]
643
raised various other pleas to assail the levy under Orissa Act 36/1992 'as A
invalid. Important among such pleas, involved interpretation of Article 286
of the Constitution read with Sections 9, 10 and 11 of Coal Bearing Areas
(Acquisition and Development) Act, 1957 and the provisions of Colliery
Contract Order framed under Section 3 of the Essential Commodities Act.
The said pleas were negatived by the High Court by the same common
judgment of 26.4.1994 and M/s. Mahanadi Coalfields Ltd. have come up in B
appeals against that portion of the judgmen~ which replied their pleas
aforesaid, amongst others. The appeals so filed are C.A. Nos. 42-43/94,
605195 and 2660-2932/95. Accordingly the above Civil Appeals and special
leave petitions have come up before this bench for hearing.
2. We heard counsel for the appellants Sri B. Sen, Senior Advocate
and counsel who appeared for the respondents, the learned Attorney
General of India Sri M.K. Banerjee, Senior Counsel Sri Shanti Bhushan,
Sri A.K. Ganguli & Others. Sri B. Sen, learned counsel who appeared for
c
the appellants contended in the main that the High Court was in error in D
holding that Orissa Rural Employment, Education and Production Act,
1992, is without legislative competence and is also discriminatory and hit
by Article 14 of the Constitution of India. It was argued :
(a) That the levy of tax in the instant case would squarely fall under
Entry 49, List II of the Seventh Schedule (Taxes on land and buildings). It E
was alternatively contended that even if it is not so, the levy of tax in the
instant case will fall under Entry 23 or 50, List II of the Seventh Schedule
(Regulation of mines and mineral development; taxes on mineral and
mineral rights).
(b) That the High Court erred in holding that the levy is discriminatory and so hit by Article 14 of the Constitution, since there is no
material much less a finding to the effect that the levy is confiscatory. On
F
the other hand, learned Attorney General Sri M.K. Banerjee and the other
counsel who supported him, contended that in substance, the levy is on G
minerals and mineral rights alone and not a tax on land covered by Entry
49, List II of the Seventh Schedule. Since substantially the levy is on
minerals or on mineral rights, even if the levy falls under Entry 23 or 50,
List II of the Seventh Schedule (Regulation of mines & mineral develop-.
ment or Tax on mineral rights), it is subject to limitation imposed by
Parliament under the law relating to regulation of mines and mineral H
644
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A development. Parliament has legislated on the subject under Entry 54, List
I of the Seventh Schedule and has enacted the M.M.R.D. Act, which covers
the field. In this view, the Orissa Act 36 of 1992 is ultra vires an<! beyond
legislative competence. It was also contended that in effect and substance
the levy is only on coal bearing lands without any basis, and so arbitrary
B and hit by Article 14 of the Constitution. Various other pleas taken up
before the High Court to assail the levy were also taken up before us.
3. In order to evaluate the merits of the rival pleas urged before us,
it is necessary to bear in mind the relevant provisions of the Constitution
of India, the Orissa Rural Employment, Education and Production Act,
C 1992 (Orissa Act 36 of 1992) as amended, and M.M.R.D. Act. The relevant
provisions of the Constitution of India are as follows:
D
E
F
G
"246. Subject-matter of laws made by Parliament and by the Legislatures of States.-(1) Notwithstanding anything in clauses (2) and
(3), Parliament has exclusive power to make laws with respect to
any of the matters enumerated in List I in the Seventh Schedule
(in this Constitution referred to as the 'Union Lisf).
(2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1) the Legislature of any State also, have power to
make laws with respect to any of the matters enumerated in List
III in the Seventh Schedule (in this Constitution referred to as the
'Concurrent List').
(3) Subject to clauses (1) and (2), the Legislature of any State has
exclusive power to make laws for such State or any part thereof
with respect to any of the matters enumerated in List II in the
Seventh Schedule (in this Constitution referred to as the 'State
Lisf)."
"SEVENTH SCHEDULE
(Article 246)
List I - Union List
xxx
xxx
xxx
xxx
xxx
xxx
H
54. Regulation of mines and mineral development to the extent to
I
STATE v. MAHAN ADI COALFIELDS [P ARIPOORNAN, °J.]
645
which such regulation and development under the control of Union A·
is declared by Parliament by law to be expedient in the public
interest.
xxx
xxx
xxx
xxx
xxx
xxx
97. Any other matter not enumerated in List II or List III including B
any tax not mentioned in either of those Lists."
.
"List II - State List
xxx
xxx
xxx
xxx
xxx
xxx
23. Regulation of mines and mineral development subject to the
provisions of List I with respect to regulation and development
under the control of the Union.
xxx
xxx
xxx
xxx
xxx
xxx
49. Taxes on lands and buildings.
50. Taxes on mineral rights subject to any limitations imposed by
Parliament by law relating to mineral development."
c
D
The relevant provisions of the Orissa Rural Employment, Education and E
Production Act, 1992 (Orissa Act 36 of 1992) which came into force on
1.2.1993, are as follows :
"ORISSA ACT 36 OF 1992
THE ORISSA RURAL EMPLOYMENT, EDUCATION AND F
PRODUCTION ACT, 1992
AN ACT TO PROVIDE FOR ADDITIONAL RESOURCES
FOR PROMOTION OF EDUCATION AND EMPLOYMENT
IN RURAL AREAS AND FOR IMPLEMENTING RURAL
EMPLOYMENT, EDUCATION AND PRODUCTION G
PROGRAMMES.
Be it enacted by the Legislature of the State of Orissa in the
Forty-third Year of the Republic of India as follows :-
H
646
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A
2. In this Act, unless the context otherwise requires,-
B
c
D
E
F
G
(a) "annual value" in relation to a finaocial year meaos-
(i) in relation to land held by a raiyat, the rent payable by such
raiyat to the landlord immediately under whom he holds the laod:
(a-1) 'coal-bearing laod' meaos aoy land acquired or declared from
time to time under aoy law for the purpose of obtaining coal;
( c) 'laod' means land of whatever description which is cultivated,
uncultivated or covered with water, and includes all benefits to
arise out of land aod things attached to the earth or permanently
fastened to aoything which is attached to the earth, but does not
include crops of aoy kind, or houses, shops or other buildings;
( d) 'mineral-bearing laod' meaos mllieral-bearing laod or quarry
held for carrying on mining operations;
( e) 'prescribed' meaos prescribed by rules;"
"3. (1) On aod from the commencement of this Act, all laods shall
be liable to payment of rural employment, education aod production tax assessed in the prescribed manner subject to provisions
hereinafter co~tained.
.
. Provided that aoy laod which is liable to payment cess under
the Orissa Cess Act, 1962 shall not be liable to payment of rural
employment, education aod production tax.
(2) The rate per year at which such tax shall be levied shall be -
(a) in the case of laod other thao mineral-bearing land, fifty
percentum of the annual value thereof
(b) in the case of aoy mineral-bearing land other thao coal-bearing
laod, the rate as may be prescribed from time to time in respect
H
thereof;
I
',.i
STATEv.MAf!ANAD!COALFIELDS [PARIPOORNAN,J.]
647
(c) in the case of coal-bearing land, the rate as specified in the A
Schedule.,_ and
(3) The State Government may, by notification, amend the
Schedule from time to time so as to enhance or reduce the rate of
tax specified therein;
Provided that every such notification shall, as soon as it is
published, be laid before the State Legislature for a total period
of fourteen days )llhich may be comprised in one or more sessions.
B
( 4) The rate of tax that may either be prescribed in pursuance of C
clause (b) of sub-section (2) or enhanced or reduced by amend:
men! of the Schedule under sub-section (3), shall be so prescribed
or, as the case may be, enhanced or reduced that the rate fixed in
the case of -
(i) any mineral bearing land other than coal-bearing land, does ncit D
exceed the average annual income from all such mineral bearing
lands in the State during the two consecutive years immediately
preceding the year in which the rate is so fixed; and
(ii) coal-bearing land, does not exceed, in the aggregate, fifty per
cent of the rate specified in the Schedule on the date of publication E
of this Act in the Gazette."
"SCHEDULE
[Clause (c) of sub-section {2) of section 3]
F
Description of mineral bearing land
Rate of tax per year per acre
{1)
(2)
I. Coal bearing land
Rs. 32,000"
It may be. noted at this juncture that Government of Orissa constituted a Committee to recommend rates of taxes on mineral bearing lands G
(other than coal-bearing lands) levied under section 3{2)(b) of the Act, as
per notification dated 4.3.1993 and in pursuance to the report of that
Committee, the Government promulgated notification dated 26.9.1994, No.
12372-VII(A)SM- 23/94/SM, adding Schedule C prescribing rates of taxes
for various mineral bearing lands (Annexure-B, page 270 of Paper Book). H
648
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A (This is subsequent to the decision of the High Court). Schedule C is as
follows :
B
c
D
E
F
G
H
"SCHEDULE - C
(See rule 2-A)
Serial
Description of mineral
Rate of tax per
No.
bearing lands.
acre.
1.
Land bearing Asbestos
Rs.
20.00
2.
Land bearing Bauxite
Rs.
4,965.00
3.
Land bearing Chromite
Rs. 26,960.00
4.
Land bearing Graphite
Rs.
702.00
5.
Land bearing Lead Ore
Rs.
9,942.00
6.
Land bearing Mica
Rs.
710.00
7.
Land bearing Quartz and Quartzite
Rs.
217.00
8.
Land bearing Sand (Stowing)
Rs. . 5,312.00
The relevant provisions of the Mines and Minerals (Regulation and
Development) Act, 1957 (Act 67 of 1957) are as follows:
"An Act to provide for the regulation of mines and development
of minerals under the control of the Union ....
2. Declaration as to expediency of Unfon control:- It is hereby
declared that it is expedient in the public interest that the Union
should take under its control the regulation of mines and the
development of minerals to the extent hereinafter provided.
3. Definitions:- In this Act, unless the context otherwise requires-
(a) 'minerals' includes all minerals except mineral oils; .....
( d) 'mining operation' means any operations undertaken for the
purpose of winning any mineral;"
"9. Royalties in respect of mining leases:- (1) The holder of a mining
lease granted before the commencement of this Act shal~ notwithstanding anything contained in instrument of lease or in any
' .
\
I
J
STATE v. MAHANADI COALFlELDS (P ARIPOORNAN, J.)
649
Jaw in force at such commencement, pay royalty in respect of any A
mineral removed or consumed by him or by his agent, manager,
employee, contractor or sub- Jessee from the leased area after such
commencement, at the rate for the time being specified in the
Second Schedule in respect of that mineral.
(2) The holder of a mining lease granted on or after the commenB
cement of this Act shall pay royalty in respect of any mineral
removed or consumed by him or by his agent, manager, employee,
contractor or sub-Jessee from the leased area at the rate for the
time being specified in the Second Schedule in respect of that
mineral.
C
(2-A) The holder of a mining lease, whether granted before .or
after commencement of the Mines and Minerals (Regulation and
Development) Amendment Act, 1972, (56 of 1972), shall not be
liable to pay any royalty in respect of any coal consumed by a
workman engaged in a colliery provided that snch consumption by D
the workman does not exceed one-third of a tonne per month.
(3) .The Central Government may, by notification in the Official
Gazette, amend the Second Schedule so as to enhance or reduce
the rate at which royalty shall be payable in respect of any mineral E
with effect from such date as may be specified in the notification;
Provided that the Central Government shall not enhance the
rate of royalty in respect of any mineral more than once during
any period of three years."
"9-A. Dead rent to be paid by the lessee:- (1) The holder of a
· mining lease, whether granted before or after the commencement
F
of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, (56 of 1972), shall, notwithstanding anything contained in the instrument of lease or in any other law for the time G
being in force, pay to the State Govemmen~ every year, dead rent
at such rate as may be specified for the time being, in the Third
Schedule, for all the areas included in the instrument of lease.
Provided that where the holder of such mining lease becomes
liable, under Section 9, to pay royalty for any mineral removed or H
650
SUPREME COURT REPORTS
[199513 S.C.R.
A
consumed by hini or by his agent, manager, employee, contractor
or sub-lessee from the teased area, he shall be liable to pay either
such royalty or the dead rent in re;pect of that area, whichever is
greater.
B
c
D
E
F
G
H
(2) The Central Government may, by notification in the Official
Gazette, amend the Third Schedule so as to enhance or reduce
the rate at which the dead rent shall be payable in respect of any
area covered by a mining lease and such enhancement or reduction
shalt take effect from such date as may be specified in the notification:
Provided that the Central Government shall not enhance the
rate of the dead rent in respect of any such area more than once
during any period of three years."
(emphasis supplied)
"THE SECOND SCHEDULE
(See Section 9)
RATES OF ROYALTY
1. Agate
Fifty five rupees per tonne.
2. All precious and
Twenty percent of the sale price
Semiprecious stones
at the pit's mouth.
(except agate and diamond}
3. Apatite and rock Phosphate:
(a} Ores with more than
Fourty five rupees per tonne.
27% P205
(b) Ores with 20% P205 to
Twenty five rupees per tonne.
27% P205
( c} Ores with less than 20% Ten rupees per tonne.
P205
4. Asbestos:
r
'
' .
STATE v. MAHANADI COALF1ELDS (P ARIPOORNAN, J.]
651
(a) Chrysotile
Two hundred and eighty-five A
rupees per tonne.
{h) arnphibole
Fifteen rupees per tonne.
5. Barytes:
B
(a)_ White {including snow
Twenty rupees per tonne.
wliite & super snow white)
{h) off-colour
Ten rupees per tonne.
6. Bauxite
Ten rupees per tonne.
c
7. Cadmium
Sixteen rupees per unit
percent of cadmium ·metal
per tonne of ore and on
prorata basis.
D
8. Calcite
Fifteen rupees per tonne.
9. China clay; also called
kaolin {including ball clay)
and white shale;
E
(a) Crude
Eight rupees per tonne.
{h) Processed
Thirty five rupees per tonne.
(including washed)
10. Chromite {both lumpy nonF
friable ore and concentrates)
(a) containing 48%
Sixty rup~es per tonne.
Cr203 and above.
{h) Containing less than
Thirty rupees per tonne.
G
48% Cr203 and more
than 40% Cr203
( c) Containing 30% to 40%
Twenty rupees per tonne.
Cr203
H

•
;.
~
I
STATE v. MAHANADI COALFIELDS (PARIPOORNAN, J.]
653
(iv) Group IV Coals:
Non-coking coal Grade D
Four rupees and thirty
Non-coking coal Grade E
paise per tonne
(v) Group V coals:
Non-cokiug coal Grade F
Two rupees and fifty
Non-cokiug coal Grade G
paise per tonne
(vi) Group VI Coals:
Coal produced in Andhra
Five rupees per tonne
Pradesh (Singareni Collieries
Company Limited)"
"THE THIRD SCHEDULE
(See Section 9A)
Dead Rent
(1) The rates of dead rent applicable to the leases other than those
obtained for supply of raw materiai to the industry owned by the concerned
lessee:
(RATES OF DEAD RENT IN RUPEES
PER HECTARE PER ANNUM)
Category of the. Mining
!st year 2nd to 5th 6th to 10th
Lease
of the
year of
year of the
lease
the lease
lease
1
2
3
4
1. Lease area npto 50
Nil
30
60
hectares
2. Lease area (above 50
hectares
but
not
Nil
40
80
exceeding 100 hectares.)
3. Lease area above 100
Nil
100
hectares.
60
11th year of
the leases
& onwards
5
90
120
150
A
B
c
D
E
F
G
(2) In the case of lease obtained for the supply of raw material for the
industry owned by the concerned lessee, the rates of dead rent would be H
654
SUPREME COURT REPORTS
[1995) 3 S.C.R.
A applicable as given in respect of item No. 1 above, irrespective of the lease
~ ;
area.
11
4. During the course of arguments, it was fairly agreed by all parties
that if the Orissa Rural Employment, Education and Production Act, 1992
B
(Orissa Act 36 of 1992) as amended, is without legislative competence, it
is unnecessary to adfudicate upon the other points raised before the High
Court and reiterated before us. Therefore, we shall first go into the
' -
question as to whether Orissa Act 36 of 1992 is within the legislative
competence. According to the appellants the Act in question would fall
c
under "Entry 49", List II of the Seventh Schedule (Taxes on buildings), and
even it if it not so, it will fall under "Entry 23 or 50", List II of the Seventh
Schedule. The respondents emphatically contend that in reality and substance the levy is on mineral lands and particularly on coal bearing lands
and mineral rights. The legislation has no nexus with land. It concerns only
minerals. The legislation purports to be one on "lands" and the nomenclaD ture states so; but it is only a colourable device. The legislation being one
I '
on mineral lands and mineral rights and Parliament having enacted the
Mines and Mineral (Regulation and Development) Act, 1957, the field is
entirely covered and Orissa State Legislature is incompetent to enact
Orissa Act 36 of 1992. To substantiate their respective pleas, emphasis was
E placed on the following three decisions of this Court: (1) India Cement Ltd.
v. State of Tamil Nadu, [1989) Supp. 1 SCR 692 = [1990) 1 SCC 12 = AIR
(1990) SC 85, (2) Orissa Cement Ltd. v. State of Orissa and Ors., [1991) 2
SCR 105 = AIR (1991) SC 1676 = [1991) Supp. 1 sec 430, (3) Buxa
Dooars Tea Company Ltd. and Others v. State of West Benga~ (1989) 3 SCR
F
793 = (1989) 3 sec 211 = AIR (1989) SC 2015.
5. At this juncture, it will be useful to remember the following well
settled principles in Constitutional Law. In Harakchand Ratanchand Banthia and Ors. v. Union of India and Ors., AIR (1970) SC 1453, at page 1458,
a C.:>nstitution Bench of this Court stated thus:
G
"The power to legislate is given to the appropriate legislatures by
""~
Article 246 of the Constitution. The entries in the three lists are
only legislative head of fields of legislation; they demarcate the
area over which the appropriate legislatures can operate. It is well
H
established that the widest amplitude should be given to the
I
STATEv. MAHA"IADI COALFIELDS (PARIPOORNAN,J.]
655
language of the entries. But some of the entries in the different A
lists or in the same list may overlap or may appear to be in direct
conflict with each otqer. It is then the duty of this Court to
reconcile the entries and bring about a harmonious construction.
In in re The Central Provinces and Berar Sales of Motor Spirit
and Lubricants Taxation Act, 1938, 1939 FCR 18 = AIR (1939) B
FC 1, Sir Maurice Gwyer proceeded to state:
'Only in the Indian Constitution Act can the particular problem
arise which is now under consideration; and an endeavour must
be made to solve it, as the Judicial Committee have said by having
recourse to the content and scheme of the Act, and a reconciliation C
attempted between two apparently conflicting jurisdictions by
reading the two entries together and by interpreting, and, where
necessary, modifying, the language of the one by that of the other.'
In KC. Gajapati Narayan Deo and Ors. v. The State of Orissa, (1954] SCR
1, the Constitution Bench of this Court stated at page 11 thus:
D
"If the Constitution of a State distributes the legislative powers
amongst different bodies, which have to act within their respective
spheres marked out by specific legislative entries, or if there are
limitations on the legislative authority in the shape of fundamental E
rights, questions do arise as to whether the legislature in a particular case has or has not, in respect to the subject-matter of the
statute or in the method of enacting it, transgressed the limits of
its constitutional powers. Such transgression may be patent,
manifest or direct, but it may also be disguised, cove~! ·and indirect
and it is to this latter class of cases that the expression 'colourable F
legislation' has been applied in certain judicial pronouncements.
The idea conveyed by the expression is that although apparently a
legislature in passing a statute purported to act within the limits of
its powers, yet in substance and in reality it transgressed these powers,
the transgression being veiled by what appears, on proper examina- G
tion, to be a mere pretence or disguise."
Again at page 12 the Court stated:
" .... it is the substance of the Act that is material and not merely the
form or outward appearance and if the subject matter in substance H
A
B
c
D
E
F
G
656
SUPREME COURT REPORTS
(1995] 3 S.C.R.
is something which is beyond the powers of the legislature to
legislate upon, the form in which the law is clothed would not save
it from condemnation. The legisl&ture cannot violate the constitutional prohibitions by employing an indirect method. In cases like
these, the enquiry must always be as to the true nature and
character of the challenged legislation and it is the result of such
investigation and not the form alone that will determine as to
whether or not it relates to a subject which is within the power of
the legislative authority. For the purpose of this investigation the
Court could certainly examine the effect of the legislation and take
into consideration its object, purpose or design. But these are only
relevant for the purpose of ascertaining the trne character and
substance of the enactment and the class of subjects of legislation
to which it really belongs and not for finding out the motives which
induced the legislature to exercise its powers."
( emph~:s supplied}
Speaking for the Constitution Bench in A.S. Krishna and Others v. State of
Madras, AIR (1957) SC 297, at page 303, Venkatarama Ayyar, J., stated
thus:
"When a law is impugned on the ground that it is ultra vires the
powers of the legislature which enacted it, what has to be ascertained is the trne character of the legislation. To do that, one must
have regard to the enactment as a whole, to its objects and to the
scope and effect of its provisions. If on such examination it is found
that the legislation is in substance one on a matter assigned to the
legislation, then it must be held to be valid in its entirety, even
though it might incidentally trench on matters which are beyond
its competence."
(emphasis supplied}
In Buxa Dooars Tea Company Ltd. and Ors. (supra) a Bench of two
Judges of this Court held that in order to determine the true nature of a
levy, the substance of the legislation should be ascertained from the relevant
provisions of the statute.
H
In KP. Varghese v. Income Tax Officer, Emakulam and Anr., AIR
'
STATEv. MAHANAD!COALFIELDS [PARIPOORNAN,J.]
657
J
(1981) SC 1922, in eXplaining the-extent to which external aid can be A
resorted to in the interpretation of a statute, this Court held at page 1930,
thus:
" ... lhe speech ma4e by the Mover of the Bill explaining the reason
for the introduction of the Bill can certainly be referred to for the B
purpose of ascertaining the mischief sought to be remedied by the
legislation, and the object and purpose for which the legislation is
enacted. This is in accord with the recent trend in juristic thought
,
I
not only in Western countries but also in India that interpretation
of a statute being an exercise in the ascertainment of meaning,
everything which is logically relevant should be admissible."
c
(emphasis supplied)
In Divan Brothers v. Central Bank of India, Bombay and Others, AIR
(1976) SC 1503, (pp. 1507 & 1508), the learned Judges took the view that D
a perusal of the speech of the Minister, who introduced the Bill in Parlia-
;.-)
ment, will give a clear insight into the various objects of the Act and the
main pu~poses which the legislation sought to achieve. It was further held
that this will have an important bearing on the interpretation of the
provisions of the Act.
E
In Shashikant Laxman Kale and Anr. v. Union of India and Anr., AIR
(1990) SC 2114, Verma, J., speaking for a Three Member - Bench, stated
at page 2119:
"For determining the purpose or object of the legislation, it is F
permissible to look into the circumstances which prevailed at the
time when the law was passed and which necessitated the passing
of that law. For the limited purpose of appreciating the background
and the antecedent factual matrix leading to the legislation, it is
permissible to look into the Statement of Objects and Reasons of G
the Bill which actuated the step to provide a remedy for the then
existing malady."
I
~ I
/
6. It is in the light of the above principles of law laid down by this
Court, we have to scan the provisions of the Orissa Act 36 of 1992 and
,
adjudicate as to whether it really falls within "Entry 49" or "Entry 23 or 50" H
658
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A of List II of the Seventh Schedule of the Constitution, as contended by the
appellant, and the legal effect flowing therefrom.
7. Earlier similar legislations in the State of Orissa and judicial
decisions which adjudicated the validity or otherwise of those legislations
B are relevant in order to understand the historical background.
8. The legislations are Orissa Mining Areas Development Fund Act,
1952 (Act 27 of 1952), and Orissa Cess Act, 1962 (Act 2 of 1%2) as
amended by Act 40 of 1966. Of the two, the earlier legislation Act 27 of
1952 came up for consideration before this Court on two occasions. On the
C first occasion, Orissa Mining Areas Development Fund Act, 1952 (Act 27
of 1952) was considered in the light of the Mines and Minerals (Regulation
and Development) Act, 1948 (Central Act 53 of 1948). In Hingir Rampur
Coal Company v. State of Orissa and Ors., [1961] 2 SCR 537 the cess or
fee on minerals, levied by the Orissa Act was held to be neither a tax nor
D a duty of excise but a fee. The question turned on the impact of MMRD
Act, on the States' power to levy a fee under Entry 66 read with Entry 23
of List II as a consequence of the declaration contained in section 2 of the
Central Act 53 of 1948. The Court held that the declaration by Parliament
in terms of Entry 54 of List I of the Seventh Schedule operated as a
limitation on the legislative competence of the State Legislature itself. The
E Court was inclined to the view that if Central Act 53 of 1948 contained the
declaration referred to in Entry 23 of the List II, there would be no
difficulty in holding that the declaration covered the field of conservation
and development of minerals and the said field was indistinguishable from
the field covered by the Orissa Act. But it was found by the Court that
F the declaration made by section 2 of the Central Act (Act 53 of 1948) did
not constitutionally amount to the requisite declaration by "Parliament"
and that the declaration did not cover the field covered by the Orissa Act,
and so the limitation imposed by Entry 54 of List I does not come into
operation. On the second occasion, when Orissa Act 27 of 1952 came up
for consideration of this Court in State of Orissa v. MA. Tulloch &
G Company, AIR (1964) SC 1284 = [1964] 4 SCR 461, ''MMRD Act" of 1957
(Central Act 67of1957) had been enacted in place of the earlier 1948 Act.
The validity of the very same cess was considered in the light of the
declaration in section 2 of the MM.R.D. Act of 1957 (Central Act 67 of
1957) and this Court held after a detailed analysis of the State Act as well
H as the Central Act, that the levy of cess under the Orissa Act was invalid
\ .
I
STATE v. MAHANADI COALF1ELDS [P ARIPOORNAN, J.]
659
from 1.6.1958, on which date the MMRD Act of 1957 came into force. This A
Court reached the conclusion that the Central Act 67 of 1957 contained
the requisite Parliamentary declaration in section 2 of the Act to occupy
the entire field of legislation covered under Entry 54 of List I, and since
the aforesaid Central Act covered the same field as the State Act of 1952
in regard to mines and mineral development, the earlier decision in Hingir B
Rampur Coal Company v. State of Orissa and Ors., AIR (1961) SC 549,
concluded the matter and the State legislature was denuded of its powers
to enact ·any law on the subject. It is thereafter, Orissa Cess Act, (Act 2 of
1962), as amended, was enacted, and it came up for consideration before
this Court in Orissa Cement Ltd. v. State of Orissa, AIR (1991) SC 1976 =
(1991) Supp.1 sec 430. By then, thh law on the subject had been conC
sidered in detail by a 7-Judge Bench of this Court in India Cement Ltd. &
Ors. v. State of Tamil Nadu & Ors., [1989] Supp. 1 SCR 692 = 1990 Suppl
1 SCC 12. The matter was also discussed in detail in Orissa Cement case
(supra). Section 4 of the Orissa Act, (Act 2 of 1962), as amended in 1976,
imposed a cess on all lands (including mineral lands) determined and D
payable as provided in the Act. With regard to lands held for carrying on
mining operations, in relation to any mineral, the amendment of section
5(2) (a) of the Act read with the Notification issued, prescribed a percentage of the royalty or the dead rent, (as the case may be) as the cess in
respect of various items of specified minerals. The Court held that the E
measure of the levy is the royalty paid in respect of the land by the assessee
to his lessor; and considering the change in the scheme of taxation effected
in 1976, the importance and magnitude of the revenue by way of royalties
received by the State, the charge of the cess as a percentage and, indeed,
as multiples of the amount of the royalty, and the mode and collection ·of F
the cess amount along with the royalties and as part thereof, would point
out that the legislation in that regard is with respect to royalty rather than
with respect to land. It was held that the levy could not be justified under
Entries 45, 49 and 50 of List II of the Seventh Schedule. Even if the levy
was one which could fall under Entry 50 of List 11, it w.as held that the
MMRD Act of 1957 covered the entire field and so the State legislation to G
the extent it encroached on the field covered by MMRD Act of 1957, will
be ultra vires.