TMI Blog1989 (10) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... a separate opinion.] SABYASACHI MUKHERJI J.-The question involved in these appeals, special leave petitions and writ petitions is, whether levy of cess on royalty is within the competence of the State Legislature. In order to appreciate the question it is necessary to refer to certain facts. Civil Appeal No. 62 of 1979 is an appeal by special leave from the judgment and order of the High Court of Madras, dated October 13, 1969, in Writ Appeal No. 464 of 1967. The appellant is a public limited company incorporated under the Indian Companies Act, 1913. The company, at all relevant times, used to manufacture cement in its factory at Talaiyuthu in Tirunelveli district, and at Sankaridurg in Salem district of Tamil Nadu. By a G. 0. Ms. No. 3668 dated July 19, 1963, the Government of Tamil Nadu sanctioned a grant to the appellant of a mining lease for limestone and kankar for a period of 20 years over an extent of 133.91 acres of land in the village of Chinnagoundanur in Sankaridurg Taluk of Salem district. Out of the extent of 133.91 acres comprised in the mining lease, an extent of 126.14 acres was patta land and only the balance extent of 7.77 acres Government land. The lease deed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and, as such, falls under entry 49 of the State List of Schedule VII to the Constitution, and was within the competence of the State Legislature. Reliance was placed by the learned single judge on the decision of this court in H. R. S. Murthy v. Collector of Chittoor [1964] 6 SCR 666. He held that the cess levied under section 115 was a tax on land, though fixed with reference to the land revenue. In regard to section 116 of the Act, the learned single judge held that the maximum limit had been prescribed by the Government by rules framed under the Act, and, therefore, there was no arbitrariness about the levy. Sub-section (1) of section 115 of the Act enjoins that there shall be levied in every panchayat development block, a local cess at the rate of 45 paise on every rupee of land revenue payable to the Government in respect of any land for every fasli. An Explanation to the said section was added and deemed always to have been incorporated by the Tamil Nadu Panchayats (Amendment and Miscellaneous Provisions) Act, 1964, being Tamil Nadu Act, 1964 (18 of 1964), which provided as follows : Explanation.-In this section and in section 116, 'land revenue' means publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue . The Division Bench held that the meaning of the Explanation added to section 115 was that the cess is levied as a tax on land and is measured with reference to land revenue, royalty, lease amount, etc., as mentioned in the Explanation. The Division Bench also relied on the decision of this court in H. R. S. Murthy [1964] 6 SCR 666, and further held that, in the aforesaid view of the matter, it was not possible to accept the contention that section 115 of the Act read with the Explanation contravened in any manner section 9 of the Mines and Minerals (Regulation and Development) Act, 1957. By leave granted by this court on January 12, 1970, the appeal has been filed. The appellant is bound to pay royalty to the Government according to the rates provided in the Second Schedule to the said Act of 1957. Clause (1) of Part VII of the lease document provides as follows : The lessee/lessees shall pay the rent, water rate and royalties reserved by this lease at such times and in the manner provided in Part V and Part VI of these presents and shall also pay and discharge all taxes, rates, assessment and impositions whatsoever being in the nature of public demand which shall fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered that the levy should be on the same basis as under the Madras District Boards Act, 1920. It is, therefore, proposed to include 'royalty, lease amount and other sums payable to the Government' in the definition of land revenue in the Explanation to section 115 of the Act and also to validate the levy and collection of the cess and surcharge made hitherto on the said basis. It is obvious that the said amendment was intended to bring royalty within the Explanation and the definition of land revenue in section 115 as well as section 116 of the Act, and was effected by a Gazette notification of September 2, 1964, by Act No. 18 of 1964. In order to appreciate the controversy, it has to be understood that, in this case, royalty was payable by the appellant which was prescribed under the lease deed the terms whereof have been noted hereinbefore. The royalty had been fixed under the statutory rules and protected under those rules. The royalty was fixed under the Mines and Minerals (Regulation and Development) Act, 1957, which is a Central Act by which the control of mines and minerals had been take over by the Central Government. That Act was to provide for the regulation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion from the language used and although one should interpret the words of the Constitution on the same principles of interpretation as one applies to ordinary law, these very principles of interpretation compel one to take into account the nature and scope of the Act which requires interpretation. It has to be remembered that it is a constitution that requires interpretation. Constitution is the mechanism under which laws are to be made and not merely an Act which declares what the law is to be. See the observations of Justice Higgins in Attorney-General for the State of New South Wales v. Brewery Employees Union of New South Wales [1908] 6 CLR 469 at 611-12). In In re Central Provincess and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 [1939] FCR 18 , Chief Justice Gwyer of the Federal Court of India relied on the observations of Lord Wright in James v. Commonwealth of Australia [1936] AC 578 and observed that a Constitution must not be construed in any narrow or pedantic sense, and that construction most beneficial to the widest possible amplitude of its powers, must be adopted. The learned Chief Justice emphasised that broad and liberal spirit should inspire t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capable because these set up the machinery of the Government. Each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. In interpreting an entry, it would not be reasonable to import any limitation by comparing or contrasting that entry with any other one in the same list. It is in this background that one has to examine the present controversy. Here, we are concerned with cess on royalty. One can have an idea as to what cess is, from the observations of Justice Hidayatullah, as the learned Chief Justice then was, in Guruswamy and Co. v. State of Mysore, Shinde Bros. v. Deputy Commissioner, AIR 1967 SC 1512, 1525 ; [1967] 1 SCR 548, where at page 571, the learned judge observed: The word 'cess' is used in Ireland and it still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 1856 is not rent which consists of all surplus produce after paying the cost of cultivation and the profits of agricultural stock but land revenue only which ought, if possible, to be so lightly assessed as to leave a surplus of rent to the occupier when he in fact lets the land to others or retains it in his own hands. It was noted that the amount of tax that was levied before the Mohamedan rule, amounted to 1/8th, 1/6th or 1/12th according to Manu depending on the differences in the soil and the labour necessary to cultivate it, and it even went up to 1/4th part, in times of urgent necessity, as of war or invasion. The later commentators, Yajnavalkya, Apastamba, Gautama, Baudhayana and Narada, have all asserted not only the right but the extent of the share. When the British came to India, they followed not only the precedent of the previous Mohamedan rulers who also claimed enormous land revenue, with this difference that what the Mohamedan rulers claimed they could never fully realise, but what the British rulers claimed they realised with vigour. It is not necessary to refer in detail as to how land revenue developed in India after the advent of the British rule. There wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in entry 49, List II of the Seventh Schedule includes all land, whether agricultural or non-agricultural. Hence, since the impugned Act imposed tax on land and building which was within the competence of the State Legislature and its validity was beyond challenge but the court observed that as there was entry 46 in List II which refers to taxes on agricultural income, it is clear that agricultural income is not included in entry 49. If the State Legislature purports to impose a tax on agricultural income, it would not be referable to entry 49. Mr. Krishnamurthy Iyer relied on the said principle. But, in the instant case, royalty being that which is payable on the extraction from the land and cess being an additional charge on that royalty cannot, by parity of the same reasoning, be considered to be a tax on land. But, since it was not tax on land and there is no entry like entry 46 in the instant situation like the position before this court in the aforesaid decision, enabling the State to impose tax on royalty in the instant situation, the State was incompetent to impose such a tax. There is a clear distinction between tax directly on land and tax on income arising from land. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be referable to entry 49, List 11. It is, therefore, not possible to accept Mr. Krishnamurthy Iyer's submission that a cess on royalty cannot possibly be said to be a tax or an impost on land. Mr. Nariman is right in saying that royalty which is indirectly connected with land cannot be said to be a tax directly on land as a unit. In this connection, reference may be made to the differentiation made on the different types of taxes for instance, one being professional tax and the other entertainment tax. In Western India Theatres Ltd. v. Cantonment Board [1959] Suppl. 2 SCR 63 at 69 ; AIR 1959 SC 582, it was held that an entertainment tax is dependent upon whether there would or would not be a show in a cinema house. If there is no show, there is no tax. It cannot be a tax on profession or calling. Profession tax does not depend on the exercise of one's profession but only concerns itself with the right to practice. It appears that, in the instant case also, no tax can be levied or is leviable under the impugned Act if no mining activities are carried on. Hence, it is manifest that it is not related to land as a unit which is the only method of valuation of land under en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry 50 of List 11 redundant. The learned Attorney-General is right in contending that entries should not be so construed as to make any one entry redundant. It was further argued that, even in pith and substance, if the tax fell under entry 50 of List II, it would be controlled by a legislation under entry 54 of List I. On the other hand, the learned Attorney-General submitted that if it be held to be a fee, then the source of power of the State Legislature is under entry 66 read with entry 23 of List II. Here also, the extent to which regulation of mines and mineral development under the control of the Union is declared by Parliament by law to be expedient in the public interest, to the extent such legislation makes provisions, will denude the State Legislature of its power to override the provision under entry 50 of List II. In view of the Parliamentary legislation under entry 54, List I and the declaration made under section 2 and provisions of section. 9 of the Act, the State Legislature would be overridden to that extent. Section 2 declares that it is expedient in the public interest that the Union should take under its control the regulation of mines and the development of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the leased land for the extraction of iron ore, to pay a royalty on iron ore if it were used for extraction of iron and in addition to pay a surface rent in respect of the surface area occupied or used. In the said decision, the legislative competence of sections 78 and 79 of the Madras District Boards Act was upheld by which land cess was made payable on the basis of royalty. This court proceeded on the basis that other cess related to land and would, therefore, be covered by entry 49 of List II. It was held that land cess paid on royalty has a direct relation to land and only a remote relation with mining. This, with respect, seems to be not a correct approach. It was further observed that it was not necessary to consider the meaning of the expression tax on mineral right following under entry 50 of List II inasmuch as, according to this court, Parliament has not made any tax on mineral rights. This is not a correct basis. In H. R. S. Murthy's case, AIR 1965 SC 177; [1964] 6 SCR 666 at page 676 of the report, it was observed by this court as follows (at page 181 of AIR 1965 SC) When a question arises as to the precise head of legislative power under which a taxing s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jab, AIR 1969 Punj 79 at 84, Saurashtra Cement and Chemical Industries Ltd. v. Union of India, AIR 1979 Guj 180 at 184 and Laxmi Narayan Agarwalla v. State of Orissa, AIR 1983 Orissa 210 [FB]. It was contended by Mr. Krishnamurthy Iyer that the State has a right to tax minerals. It was further contended that if tax is levied, it will not be irrational to correlate it to the value of the property and to make some kind of annual value basis of tax without intending to tax the income. In view of the provisions of the Act, as noted hereinbefore, this submission cannot be accepted. Mr. Krishnamurthy Iyer also further sought to urge that, in entry 50 of List 11, there is no limitation to the taxing power of the State. In view of the principles mentioned hereinbefore and the express provisions of section 9(2) of the Mines and Minerals (Regulation and Development) Act, 1957, this submission cannot be accepted. This field is fully covered by the Central legislation. In any event, royalty is directly relatable only to the minerals extracted and on the principle that the general provision is excluded by the special one, royalty would be relatable to entries 23 and 50 of List II, and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s court in H. R. S. Murthy's case, AIR 1965 SC 177, and the amounts have been collected on the basis that the said decision was the correct position. We are, therefore, of the opinion that we will be justified in declaring the levy of the said cess to be ultra vires the power of the State Legislature prospectively only. In that view of the matter, the appeals must, therefore, be allowed and the writ petitions also succeed to the extent indicated above. We declare that the said cess, by the Act, under section 115, is ultra vires and the respondent State of Tamil Nadu is restrained from enforcing the same any further. But the respondents will not be liable for any refund of cess already paid or collected. The appeals are disposed of accordingly. The special leave petitions and writ petitions are also disposed of in these terms. In the facts and the circumstances of the case, the parties will pay and bear their own costs. OZA J.-While I agree with the conclusions reached by my learned brother hon'ble Mukharji J., I have my own reasons for the same. The main argument in favour of this levy imposed by the State Legislature is on the basis of entry 49 in List II of the Seve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, 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 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. (2A) The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 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 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 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 thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s nearly as may be that the total income derived by all the village panchayats in the panchayat union does not fall short of an amount calculated at 20 naye paise for each individual of the village population in the panchayat union. (d) The balance of the proceeds of the local cess collected in the panchayat development block shall be credited to the funds of the panchayat union council. The Explanation to sub-clause (1) is the subject-matter of controversy in this case. Sub-clause (1) provides for levy of 45 naye paise for every rupee of land revenue payable to the Government. In the Explanation a fiction is created and thereby even the royalty payable have been included within the definition of land revenue . It provides royalty, lease amount or any other sum payable to the Government in respect of land. This phraseology has been incorporated by an amendment in 1964 by the Madras Village Panchayats (Amendment) Act, 1964, section 13, wherein the Explanation to section 115 was substituted and substituted retrospectively wherein this royalty has also been included in the definition of land revenue and it is on this ground that it was mainly contended that land revenue be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Legislature included royalty, it went beyond its jurisdiction under entry 49 List 11 and, therefore, the levy clearly is without the authority of law. But this also may lead to an interesting situation. This cess levied under section 115 of the Madras Village Panchayats Act is levied for the purposes indicated in the scheme of the Act and it was intended to be levied on all the lands falling within the area but, as this cess on royalty is without authority, the result will be that the cess is levied so far as lands other than the lands in which mines are situated are concerned but with respect to lands where mines are situated, this levy of cess is not in accordance with that law. This anomaly could have been averted if the Legislature, in this Explanation, had used words surface rent in place of royalty. Even if the lands where mines are situated and which are subject to licence and mining leases even for these lands there is a charge on the basis of the surface of the land which is sometimes described as surface rent or sometimes also as dead rent . It could not be doubted that if such a surface rent or dead rent is a charge or an imposition on the land only it will clearly ..... 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