TMI Blog1995 (2) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... writ petitioners in the High Court. These respondents are purchasers of coal form Coal India Ltd. which was respondent 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 varieties of coal was illegal and inoperative in law on various grounds, that before 1.8.91 royalty was payable at the rate of ₹ 6.50 per ton vide earlier Notification but the same was sought to be increased to ₹ 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 to the Central Government to increase the 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 instance of excessive delegation of essential legislative power and hence it was void. That 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( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies have no objection to ,the Notification and are supporting the Central Government in this behalf The purchasers being consumers of coal were the affected parties who challenged the said Notification. About 60 petitions were filed before the M.P. High Court by various consumers of coal. The High Court heard learned counsel for all the respective parties. The Division Bench by its judgment dated 17th December, 1993 took the view that Section 9(3) of the Act was not invalid or illegal on any ground. However, so far as impugned Notification on Section 9(3) was concerned, the High Court was of the opinion that the said Notification was lacking in bonafides and as it was issued for meeting the financial deficiency suffered by States on account of the judgment of this Court in Orissa Cement Case (supra) it was outside the scope of Section 9(3) of the Act. Having reached that conclusion, 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 of refund of any amount could be issued as the burden of enhanced royalty was already passed on to the customers by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. Equally, 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 as wrongly held by the High Court. On the other 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 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 VIIth Schedule. It was next contended by Shri Sanghi that the impugned Notification enhancing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Ramaswamy, leamed senior counsel, who was permitted to intervene supported the contention of the aforesaid leamed 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 powereven including the power to exercise delegated legislative function. 7. In the light of the aforesaid rival conditions, the following points arise for our determination:- 1. Whether Section 9(3) of the Act is ultra vires the Constitution and/or is illegal on any other ground? 2. Whether the impugned Notification is beyond scope of Section 9(3) of the Act and, therefore, incompetent and invalid? 3. Whether the impugned Notification is a piece of colourable exercise of power? 4. Whether the impugned Notification is arbitrary and confiscatory in nature? As disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the time being specified in the Second Schedule in respect of that mineral. (2) The holder of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area at the rate for the time being specified in the Second Schedule in respect of that mineral. (2-A) The holder of a mining lease, whether granted before or after commencement of the Mines and Minerals (Regulation 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 such consumption by 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 minerals 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). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As the Section is silent on these vital aspects, it has to be held to be suffering from the vice of excessive delegation of legislative power. 12. In our considered opinion there is no substance in either of the twin contentions for challenging vires of Section 9(3). So far as to competence to enact Section 9 is concerned, the question is no longer res integral. It is covered by the Constitution Bench decision of this Court in the case India Cement Ltd. Others Vs. State of Tamil Nadu Others, (1990 (1) SCC 12). In that decision the Constitution Bench speaking through Sabyasachi Mukherji J., as he then was, expressly rules that royalty is a tax and for imposing such royalty the State legislature will have no power under Entry 50 of the Second list. Mr. Sanghi contended that strictly royalty cannot be said to be a tax and to that extent the decision of the Constitution Bench may appear to be erroneous. It is not possible to agree with this contention. In paragraph 34 of the report the Constitution Bench has made the following pertinent observations:- 34. In the aforesaid view of the matter we arc of the opinion that royalty is a tax, and as such a cess on the royalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortion of the minerals extracted. These observations in paragraph 23 clearly indicates that in view of the Constitution Bench, royalty was a tax which had a nexus with mining activities meaning thereby it was a tax on mineral rights. Similarly in para 27 of the report, the Constitution Bench noted with approval of the decision of the Division Bench of the High Court of Mysore in Laxminarayana Mining Co. Bangalore v. Taluk Dev. Board (AIR 1972 Mysore 299). In the case the Court was concerned with the Mysore village Panchayats and Local Boards Act, 1959. Under the said act the Board had sought to levy tax on mining activities carried on by the persons holding mineral concessions. The mysore Court had observed that once the Parliament made a declaration by law that it is expedient in the public interest to make regulation on mines and minerals development under the control of the Union to the extent to which such regulation and development is undertaken by the law made by the Parliament. the' power of the State legislature under entries 23 and 50 of List II got denuded. It would, therefore, be not said that even after passing of the Central Act, the State legislature by enacting S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was made to the case of H.R.S. Murthy v. Collector of Chittor 1964(6) SCR 666), where it was held that cess on minerals would be covered by Entry 49 of List II. The Constitution Bench with regard to H.R.S. Murthy's case observed in paragraphs 29 and 30 of India Cement Ltd. case that attention of the Court was not invited to provisions of Mines and Minerals (Development Regulation) Act, 1957 and Section 9(3) thereof Section 9(3) of the Act in terms states that royalties payable under the IInd Schedule of the Act shall not 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 in fact...amend IInd Schedule of the Central Act. As seen earlier inparagraph 32 of the report in India Cement Case, it has been clearly mentioned that in view of the express provisions of Mines Minerals Act, 1957, Entry 50 cannot be of any assistance to sustain such legislation by the, State. Oza. J. in his concurring judgment has highlighted one additional dimension of the matter in para 40 of the report. It has been observed by Oza J., that it is no doubt true that mineral is extracted from the land and is available b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances 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 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 covered by others specific entries in List II or List III. This conclusion squarely flows from the observations made by Oza J., in his concurring judgment in India Cement Ors.... It must, therefore, be held that Section 9 of the Act is within the legislative competence of the Parliament both under Entry 54 of the Union list as well as Entry 97 thereof The first ground of attack on Section 9 by Shri Sanghi is thus devoid of substance and is, therefore, -rejected. 16. Mr. Sanghi next submitted that Section 9(3) is an piece of 'delegated legislation and it should not suffer from the vice of excessive delegation. No exception can be taken to this submission of Shri Sanghi. Let us try to see whether Section 9(3) suffers from any such vice. It must be kept in view that Parliament itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts delegated legislative function in a just and proper manner keeping in view the uniform development of minerals through out the country. In this connection it is also necessary to keep in view Section 28 subsection (1) which provides that every rule or notification made by the Central Government be placed before each House of Parliament for a total period of 30 days in one session or two more successive session and if both Houses agree in making any modification in the rule or Notification should not be made, the rule or Notification shall thereafter have effect only in such modified form or be of no effect, as the case may be. When such a safety valve is provided it cannot be said that the exercise of delegated legislative power by 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 Parliament. 17. In our view the High Court correctly held that Section 9(3) does not suffer from any excessive delegation of legislative power. Before parting with this discussion we may deal with one more submission of Shri Sanghi. He submitted that earlier the legislation had itself ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position it cannot be held that Section 9(3) suffers from any excessive delegation of legislative power. 'Mere is full control of Parliament under Section 28 for checking such exercise of the delegate and for correcting the same, if found necessary. The second ground canvassed by Shri Sanghi for challenging the vires of Section 9(3) is also without any substance and stands rejected. Therefore,, point no. 1 is answered in the negative. Point No.2 19. Sofaras this point is concerned, wehaveto see the, background in which the impugned Notification dated 1.8.1991 saw the light of the day. After 1981 there was no enhancement of royalty though a clear power was conferred on the Central Government by Section 9(3) to enhance the rates of royalty at the end of every four years and then amended after every three years. Almost a decade had passed when the impugned Notification was issued, on 1.8.1991. In the meantime, at least on three occasions rates of royalty as found in earlier Notification of 1981 of the Act could have been enhanced by the Central Government in exercise of its power under Section 9(3) but that was not done. That was because the States themselves who were the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Judge has referred to what is stated at page 893 of (Wharton's Law Lexicon (14th edition) in para 15 to the following effect:- royalty is payment to a patentee by agreement on every article made according to his patent; or to an author by a publisher on every copy of his book sold; or to the owner of minerals for the right of working the same on every ton or other weight raised. The learned Judge also referred to various dictionary meanings of the term royalty. According to Stroud's Judicial Dictionary of Words and Phrases (3rd Edition) In its secondary sense the word 'royalty' signifies, in mining leases, that part, of the reddendum, which is variable and depends upon the quantity of minerals gotten (Att. Gen. Ontario V. Mercer (18838AC 767) Sup: see Hereon Greville Nugent V Mackenzie (1900) AC 83, cited RENT; Listowel v. Gibbings (1858-9 Ir CLR 223) Sup; or the agreed payment to a patentee on every article made according to the patent. According to Mozley and Whiteley's Law Dictionary (7th Edition) page 328 A pro rata payment to a granter or lessor on the working of the property leased, or otherwise on the profits of the grant or lease. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;. In the light of the aforesaid meaning of the term 'royalty', it was submitted by Shri Sorabjee that the Central Government under Section 9(3) can enhance the rates of royalty payable on the extracted minerals by the lessee and it is to be paid to the lessor, the State concerned in whose territory/jurisdiction the mines are situated but the impugned Notification was issued in exercise of that power not for developing mines but it is solely issued for the purpose of compensating the States exchequers for the loss of revenue suffered by them and that such a Notification has nothing to do with the development of minerals and therefore, is beyond the scope and ambit of Section 9(3). Same view was canvassed by learned counsel Shri Sanghi and Shri Ramaswamy. 20. Having given our anxious consideration we find there is no substance in this contention. The reasons are obvious. The legislature has entrusted the Central Government with the power to enhance the rates of royalty from time to time. It is of course true that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mineral development. S. 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. Sub-Section (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. At page 168 of the said report while dealing with the topic of development of minerals, Ranganathan J. examined the contention that imposition of such cesses had no nexus with the development of mineral. Relying upon the observations found in earlier judgment of this Court it was observed that these observations establish on the one hand that the distinction sought to be made between mineral development and mineral area development is not a real one as the two types of development are inextricably and integrally interc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such steps as may be necessary for the conservation and systematic development of minerals in India and for the protection of environment by preventing or controlling any pollution which may be caused by prospecting or mining operation and for such purposes, the Central Government may by Notification in the Official Gazette, make such rules as it thinks fit. Sub- Section (2) thereof lays down that in particular and v. without prejudice to the generality of the foregoing power such rules may provide for all or any of the following matters, namely, (a) the opening of new mines and the regulation of mining operations in any area (b) the regulation of the excavation or collection of minerals from any mine. It is obvious that rules framed under Section 18 (2) have a direct nexus with the development of minerals. In this connection we may refer to Minerals Conservation And Development Rules, 1988 framed under Section 18 sub-section (2) of the Act. It is true that these rules do not apply to coal but as laid down by Section 18(1) read with Section 30 A even for mining leases for coal such rules in appropriate cases may be made applicable. Rule 45 of these rules deals with monthly, quarte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n this connection we may keep in view the basic fact that minerals as found in the bowels of the earth 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. In this connection it is profitable to look at Section 3 of the Act. It defines minerals to include all minerals except mineral oils including natural gas and petroleum. Mining lease is defined to mean a lease granted for the purpose of undertaking mining operations and includes a sub-lease granted for such purpose. Mining operation means any operations undertaken for the purpose of winning any mineral. It is obvious that development of mineral as envisaged by Sec- tion 18 of the Act and even by Entry 50 of List 11 of the Seventh Schedule of the Constitution, necessarily would mean extraction of mineral out of the bowels of earth or 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. In Words and Phrases, Permanent Edition, Volum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has a limited coverage also cannot be of any assistance to him for the simple reason that whatever may be covered by Section 2 declaration, it has definitely covered the imposition of royalty by the Parliament as held in the Constitution Bench decision of this Court in India Cement Case (supra). As a result of this discussion it must be held that the impugned Notification cannot be said to be ultra vires of Section 9(2) of the Act. The second point is, therefore, answered in the negative. 24. The question is whether the impugned Notification is a piece of colourable exercise of power and, therefore, null and void. It has to be kept in view that it is an exercise of delegated legislative function entrusted to the Central Government by Parliament under Section 9(3). The concept of colourable legislation has a well defined connotation so far as parent legislation is concerned. If the legislation trespasses on a field not reserved for it under the relevant entry of the. Seventh Schedule it can be said to be a colourable legislation meaning thereby it purports to get covered by an entry which does not give legislative competence to the legislature concerned to enact such a law. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. and Others etc. etc. v. Union of India Others. (AIR 1986 SC 515). A Bench of three learned Judges of this Court speaking through Venkataramaiah J., as he then was, in connection with Notification issued under Section 25 of the Customs Act which was a piece of subordinate legislation has made the following observations:- A piece of subordinate legislation does not carry the same degree of immunity which is enjoyed by a Statute passed by a competent legislature. Subordinate legislation may be questioned on any of the grounds on which plenary legislation is questioned. In addition it may also be questioned in the ground that it does not conform to the statute under which it is made. It may further be questioned on the ground that it is contrary to some other statute. That is because subordinate legislation must yield to plenary legislation. It may also be questioned on the ground that it is unreasonable not in the sense of not being reasonable but in the sense that it is manifestly arbitrary. Keeping in view this legal position, let us examine the challenge to the impugned Notification on the ground that it is a colourable device. It was submitted by the writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on coal the incidence of which was much higher than that or royalty. Some of these taxes cesses were being levied as a percentage of the pithead value of coal by the State Governments. All the State Governments representated to the study group that the rates of royalty on coal should bear a close correlation with the prices of coal. The coal producing States, particularly West Bengal and Bihar pressed for fixation of royalty on ad valorem basis instead of the existing specific rates. The study group expressed its views that any levy of royalty on ad valorem basis, without a commitment from the State Governments to refrain from levying cesses, would not be equitable as it would have a cascading effect on the prices of coal paid by the consumers. Thereafter the counter re- ferred to the striking down of cesses imposed by various State legislatures by this Court and then at paragraph 'T' it is stated that Governments whose cess Acts were declared unconstitutional and collection of cesses was stopped were suffering substantial losses of revenues, they approached the Central Government to revise the rate of royalty on coal immediately to help the to get out of the financial cri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9(3) nor the State Governments could increase the rates of royalty and 1981 rates which have become illusory with the passage of time would continue to hold the field ad infinitum. It has to be kept in view that a fresh exercise of delegated legislative function in all the facts and circumstances did justify such enhancement at lease after 10 years of the earlier revision in 1981. The motive underlying the said enhancement to compensate the States for loss of revenue which they have suffered cannot be said to be totally irrelevant or having any vitiating effect on the exercise of power under Section 9(3) which is otherwise required to be resorted to in the facts and -circumstances of the case. 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. As we have already discussed earlier, the mineral belongs to the States, and so, if the Central Government has taken into consideration the fact that the States revenues are required to be re-compensated on account of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ground, we must hold that the original writ petitioners have failed to show how the enhanced rates of royalty as per the impugned Notification have become unreasonable or confiscatory in nature. Point No.4 is, therefore, answered in the negative. 28. As all the points raised by the writ petitioners are answered against them, the inevitable result is that the orders passed by the High Court in their favour by partly allowing the writ petitions will have to be quashed and set aside and their writ petitions will have to stand dismissed. In the result Civil Appeal Nos.275/94 and 276/ 94 are allowed. The judgment and order of the High Court in M.P.No. 10/93 dated 17.12.93 are quashed and set aside and the writ petition is dismissed. Similarly, appeal No. 1994/95 from SLP(C) No. 3395 of 1994 moved by, the State of Madhya Pradesh is also allowed. The judgment and order of the High Court in Misc. Petition No.7907/92 dated 17.12.93 are quashed and set aside and the said petition is also dismissed. Civil Appeal No.1995/95 arising out of SLP(C) No. 8190/94 moved by M/s. Birla Jute and Industries Ltd. is dismissed. In the facts and circumstances of the case, there will-be no order as to c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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