Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc.

Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc.

land who may be a person and may not necessarily be the state.175 It held that India Cement (supra) was caused by “an apparent typographical error or inadvertent error” and should not be understood as a correct declaration of law. Kesoram (supra) also expressed its disagreement with Mahalaxmi Fabric Mills (supra) to the extent it had held that there was no “typographical error” in India Cement (supra). Importantly, Kesoram (supra) concurred with India Cement (supra) on the aspect that cess on royalty is beyond the legislative competence of the state legislatures.176

122Copy pinpoint122. The divergence on the point of law between India Cement (supra) and Kesoram (supra) is apparent and pertains to whether or not royalty is a tax. For the reasons to follow, we are of the opinion that royalty does not meet the characteristic requirements of a tax. c. Royalty is not a tax

123Copy pinpoint123. On first principles, royalty is a consideration paid by a mining lessee to the lessor for enjoyment of mineral rights and to compensate for the loss of value of minerals suffered by the owner of the minerals. The marginal note to Section 9 states that royalties are “in respect of mining leases.” The liability to pay royalty arises out of the contractual conditions of the mining lease.177 A failure of the lessee to pay royalty is considered to be a breach of the terms of the contract, allowing the lessor to determine the lease and initiate proceedings for recovery against the lessee.

124Copy pinpoint124. Section 9 of the MMDR Act statutorily regulates the right of a lessor to receive consideration in the form of royalty from the lessee for removing or carrying away minerals from the leased area. Prior to the enactment of the MMDR Act, such a condition was treated as part of a mining lease. The object of empowering the Central Government to specify rates of royalty for major minerals was to ensure a certain level of uniformity in mineral prices in view of the domestic and international market.

125Copy pinpoint125. The fact that the rates of royalty are prescribed under Section 9 of the MMDR Act does not make it a “compulsory exaction by public

175 Kesoram (supra) [71] 176 Kesoram (supra) [115] 177 See Rules 27 and 45, Mineral Concession Rules 1960

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authority for public purposes” because: (i) the compulsion stems from the contractual conditions of the mining lease agreed between the lessor and lessee; (ii) the demand is not made by a public authority, but the lessor (which can either be the State Government or a private party); and (iii) the payment is not for public purposes, but a consideration paid to the lessor for parting with their exclusive privileges in the minerals. Moreover, the fact that Section 25 allows recovery of royalty due to the Government under the MMDR Act or “under the terms of the contract” as arrears of land does not make royalty “an impost enforceable by law.” Section 25 is a standard recovery provision allowing the government to recover any dues payable to it, flowing from statute or the terms of a contract. Pertinently, contractual payments due to the government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears.

126Copy pinpoint126. There are major conceptual differences between royalty and a tax: (i) the proprietor charges royalty as a consideration for parting with the right to win minerals, while a tax is an imposition of a sovereign; (ii) royalty is paid in consideration of doing a particular action, that is, extracting minerals from the soil, while tax is generally levied with respect to a taxable event determined by law;178 and (iii) royalty generally flows from the lease deed as compared to tax which is imposed by authority of law.

127Copy pinpoint127. Under the MMDR Act, the Central Government fixes the rates of royalty, but it is still paid to the proprietor by virtue of a mining lease. In case the minerals vest in the government, the mining lease is signed between the State Government (as lessor) and the lessee in pursuance of Article 299 of the Constitution. Through the mining lease, the government parts with its exclusive privilege over mineral rights. A consideration paid under a contract to the State Government for acquiring exclusive privileges cannot be termed as an impost. Since royalty is a consideration paid by the lessee to the lessor under a mining lease, it cannot be termed as an impost.

128Copy pinpoint128. This Court has held that royalty is not a tax, in several decisions. In State of H P v. Gujarat Ambuja Cement Ltd,179 a three judge

178 Goodyear India Ltd v. State of Haryana (1990) 2 SCC 71 [27] 179 [2005] Supp. 1 SCR 684 : (2005) 6 SCC 499

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Bench of this Court held royalty not to be a tax. The subsequent decision in Indsil Hydro Power & Manganese Ltd. v. State of Kerala180 brought out the distinction between tax and royalty in the following terms: “56. Thus, the expression “royalty” has consistently been construed to be compensation paid for rights and privileges enjoyed by the grantee and normally has its genesis in the agreement entered into between the grantor and the grantee. As against tax which is imposed under a statutory power without reference to any special benefit to the conferred on the payer of the tax, the royalty would be in terms of the agreement between the parties and normally has direct relationship with the benefit or privilege conferred upon the grantee.”

129Copy pinpoint129. The principles applicable to royalty apply to dead rent because: (i) dead rent is imposed in the exercise of the proprietary right (and not a sovereign right) by the lessor to ensure that the lessee works the mine, and does not keep it idle, and in a situation where the lessee keeps the mine idle, it ensures a constant flow of income to the proprietor; (ii) the liability to pay dead rent flows from the terms of the mining lease;181 (iii) dead rent is an alternate to royalty; if the rates of royalty are higher than dead rent, the lessee is required to pay the former and not the latter; and (iv) the Central Government prescribes the dead rent not in the exercise of its sovereign right, but as a regulatory measure to ensure uniformity of rates.

130Copy pinpoint130. In view of the above discussion, we hold that both royalty and dead rent do not fulfil the characteristics of tax or impost. Accordingly, we conclude that the observation in India Cement (supra) to the effect that royalty is a tax is incorrect. G. Inter-relationship between Entry 23 of List II and Entry 54 of List I

131Copy pinpoint131. The subject of regulating mines and mineral development is enumerated in Entry 23 of List II. However, Parliament can under Entry 54 of List I bring the regulation of mines and mineral development

180 [2019] 10 SCR 647 : (2021) 10 SCC 165 [56] 181 Rules 27 and 45, Mineral Concession Rules 1960

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under its control to the extent that such control is declared by Parliament by law to be expedient in the public interest. Entry 54 of List I has three pre-requisites: (i) Parliament must make a law; (ii) the law must contain a legislative declaration that it is in the public interest to bring the regulation of mines and mineral development under its control; and (iii) the law must lay down the extent to which Parliament desires to control the field relating to the regulation of mines and mineral development. Entry 54 of List I exclude the legislative power of the state legislature under Entry 23 of List II to the extent to which the Parliamentary law covers the field. The interrelationship between Entry 54 of Union List and Entry 23 of State List has been dealt with by this Court in numerous decisions, which will be discussed in the following segments. i. Meaning of “regulation of mines” and “mineral development”

132Copy pinpoint132. Entry 54 of List I and Entry 23 of List II are general or regulatory entries dealing with the same subject matter, namely of “regulation of mines and mineral development.” These entries deal with regulation of two aspects: (i) regulation of mines; and (ii) mineral development. By making Entry 23 of List II subordinate to Entry 54 of List I, the Constitution tilts the balance of legislative powers with respect to the regulation of mines and mineral development in favor of the Union.

133Copy pinpoint133. Before delving further into the inter-relationship between the two entries, we deem it necessary to define the subject matter of the entries. The subject-matter of the entries has to be understood from both the text and the context in which the words have been used.

134Copy pinpoint134. The expression “regulation” generally means to manage the governance of an enterprise by means of rules or laws. 182 In K Ramanathan v. State of Tamil Nadu,183 this Court explained the meaning of the power to regulate in the following terms: “19. It has often been said that the power to regulate does not necessarily include the power to prohibit, and ordinarily the word “regulate” is not synonymous with the word “prohibit”. This is true in a general sense and in the sense that mere regulation is not the same as absolute

182 Ramanatha Aiyar Advanced Law Lexicon (Volume 3) 4778. 183 [1985] 2 SCR 1028 : (1985) 2 SCC 116 [19]

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prohibition. At the same time, the power to regulate carries with it full power over the thing subject to regulation and in absence of restrictive words, the power must be regarded as plenary over the entire subject. It implies the power to rule, direct and control, and involves the adoption of a rule or guiding principle to be followed, or the making of a rule with respect to the subject to be regulated. The power to regulate implies the power to check and may imply the power to prohibit under certain circumstances, as where the best or only efficacious regulation consists of suppression. It would therefore appear that the word “regulation” cannot have any inflexible meaning as to exclude “prohibition”. It has different shades of meaning and must take its colour from the context in which it is used having regard to the purpose and object of the legislation, and the Court must necessarily keep in view the mischief which the legislature seeks to remedy.”

135Copy pinpoint135. The word “regulate” is of wide import and the breadth of its meaning depends on the context in which it is used. This Court has construed the power to regulate to include the power to: (i) grant or revoke a permission or licence including incidental or supplemental powers;184 (ii) prohibit depending upon the context and circumstance; 185 (iii) control or adjust by rule or to subject to governing principles;186 and (iv) issue directions.187 Thus, the expression “regulation” appearing in Entry 54 of List I and Entry 23 of List II must also receive a wide meaning, in keeping with the principle that the words used in the legislative entries must be interpreted broadly.

136Copy pinpoint136. A “mine” is generally defined as an excavation in the earth for the purpose of obtaining minerals.188 The expression was defined under the Mines Act 1952 to primarily mean any excavation for the

184 State of Tamil Nadu v. Hindu Stone (1981) 2 SCC 205 [10]; State of Uttar Pradesh v. Maharaja Dharmander Prasad Singh (1989) 2 SCC 505 [52] 185 Talcher Municipality v. Talcher Regulated Market Committee (2004) 6 SCC 178 [14]; Union of India v. Asian Food Industries Ltd (2006) 13 SCC 542 [43] 186 UP Coop. Cane Unions Federations v. West UP Sugar Mills Association (2004) 5 SCC 430 [20]; Balmer Lawrie & Company Limited v. Partha Sarathi Sen Roy (2013) 8 SCC 345 [24] 187 Subramanian Swamy v. State of Tamil Nadu (2014) 5 SCC 75 [67] 188 Lord Provost and Magistrates of Glasgow v. Faire (1888) [L.R] 13 App. Cas. 657

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purposes of searching for or obtaining minerals189 and to include the place where such excavation is carried on.190 The Occupational Safety, Health and Working Conditions Code 2020191 has adopted a similar definition of mine under Section 2(1)(zl). The Working Conditions Code also defines “minerals” to mean all substances which can be obtained from the earth by mining, digging, drilling, dredging, hydraulicing, quarrying or by any other operation and to include mineral oils.192 These definitions are indicative of the fact that: (i) the expression “mines” includes both the process by which minerals are extracted from the earth as well as the place where such extraction takes place; and (ii) minerals are obtained from the mine by the process of mining.

137Copy pinpoint137. The expression “regulation of mines” can be understood in the backdrop of above discussion to mean the management of both the process of extracting minerals as well the place where such minerals will be extracted from sub-surface levels. The MMDR

189 Section 2(j) “mine” means any excavation where any operation for the purpose of searching for or obtaining minerals has been or is being carried on and include – (i) All borings, bore holes, oil wells and accessory crude conditions plants, including the pipe conveying mineral oil within the oil fields; (ii) All shafts, in or adjacent to and belonging to a mine, whether in the course of being sunk or not; (iii) All levels and inclined planes in the course of being driven; (iv) All open cast workings; (v) All conveyers or aerial rope-ways provided for bringing into or removal from a mine of minerals or other articles or for the removal of refuse therefrom; (vi) All adits, levels, planes, machinery, works, railways, tramways and sidings in or adjacent to and belonging to a mine; (vii) All protective works being carried out in or adjacent to a mine; (viii) All workshops and stores situated within the precincts of a mine and under the same management and used primarily for the purposes connected with that mine or a number of mines under the same management; (ix) All power stations, transformer sub-substations, convertor stations, rectifier stations and accumulator, storage stations for supplying electricity or mainly for the purpose of working the mine or a number of mines under the same management; (x) Any premises for the time being used for depositing sand or other material for use in a mine or for depositing refuse from a mine or in which any operations in connection with such sand, refuse or other material is being carried on, being premises exclusively occupied by the owner of mine; (xi) Any premises in or adjacent to and belonging to a mine on which any process ancillary to the getting dressing or preparation for the sale of minerals or of coke is being carried on. 190 Offshore Areas Mineral (Development and Regulation) Act 2002. Section 4(k) defines “mine” to mean “any place in the offshore area wherein any exploration or production operation is carried on, together with any vessel, erection, appliance, artificial island or platform and premises in the offshore area used for the purposes of exploration, winning, treating or preparing minerals, obtaining or extracting any mineral or metal by any mode or method, and includes any area covered by a composite licence, or an exploration licence, or a production lease where exploration or production operation has been, or is being, or may be, carried on under the provisions of this Act. 191 “Working Conditions Code 2020” 192 Section 2(1)(zm), Working Conditions Code 2020.

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Act gives shape and meaning to the expression “regulation of mines and mineral development” through its provisions and the subordinate rules. To that effect, we find provisions under the MMDR Act pertaining to prospecting or mining operations under lease or licence,193 restrictions on the grant of mineral concessions,194 periods for which prospecting licences195 or mining leases196 may be granted or renewed, and royalties in respect of mining leases.197 Chapter III deals with the procedure for obtaining mineral concessions in respect of land in which the minerals vest in the government. Chapter IV empowers the government to frame rules for regulating the grant of mineral concessions. Chapter V deals with the special powers of Central Government to undertake prospecting or mining operations in respect of lands in which the minerals vest in the Government of a State or any other person.198 Thus, Chapters II to V of the MMDR Act invariably deal with aspects regulating the place of extraction of minerals and the process by which mines are worked. These provisions govern aspects such as conceding land to a person for carrying out mining operations (mining concession) or granting licences for working mines and winning minerals, which are integral to the concept of “regulation of mines”. The fixation of rates of royalty under Section 9 read with the Second Schedule is also covered within the scope of “regulation of mines and mineral development.”

138Copy pinpoint138. Entry 54 of List I and Entry 23 of List II do not use the expression “minerals” simpliciter. The entries use the term “mineral development”. In Premium Granites v. State of Tamil Nadu, a two judge Bench observed that the MMDR Act and the rules framed thereunder furnish the scope and purport of the word “mineral development.”199 In that case, it was held that the scientific exploitation of minerals without waste is a part of “mineral development” as envisaged by the MMDR Act and the rules. In Quarry Owners Association (supra)

193 Section 4, MMDR Act 194 Section 5, MMDR Act 195 Section 7, MMDR Act 196 Section 8, MMDR Act 197 Section 9, MMDR Act 198 Section 17, MMDR Act 199 [1994] 1 SCR 579 : (1994) 2 SCC 691 [48]

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a two-Judge Bench defined the ambit of the expression “regulation of mines and mineral development”, observing: “31. […] The word “regulation” may have a different meaning in different context but considering it in relation to the economic and social activities including the development and excavation of mines, ecological and environmental factors including States’ contribution in developing, manning and controlling such activities, including parting with its wealth, viz. the minerals, the fixation of the rate of royalties would also be included within its meaning.”

139Copy pinpoint139. In Tata Iron & Steel Co. Ltd. v. Union of India,200 it was held that the concept of “mineral development” can include captive mining, an assessment of its requirement by different industries and equitable distribution of mining leases. Tata Iron & Steel (supra) was decided in the context of the unamended Section 8(3) of the MMDR Act which allowed the Central Government to renew mining leases “in the interests of mineral development.”

140Copy pinpoint140. As a concept, mineral development is a term of wide import. It encompasses exploitation of minerals, reduction of wastage in the beneficiation process, regulation of mining activities for ecological and environmental factors and equitable distribution of mineral resources and mining leases. Mineral development has been expressly recognized in Chapter VI of the MMDR Act. Section 18(1) mandates the Central Government to take all such steps as may be necessary by making rules for the conservation and systematic development of minerals in India and for the protection of the environment by preventing or controlling any pollution which may be caused by prospecting or mining operations. Section 18(2) indicates that the Central Government may make rules on matters pertaining inter alia to regulation of mining operations in any area; regulation of the excavation or collection of minerals from any mine; development of mineral resources in any area; regulation of arrangement of storage of minerals; and regulation of prospecting operations, disposal or discharge of waste slime or tailing arising from mining operations. In terms of Section 18, Parliament has framed the Mineral Conservation and Development Rules 2017 to provide a framework for conservation

200 [1996] Supp. 3 SCR 808 : (1996) 9 SCC 709 [64]

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of minerals, systematic and scientific mining, development of minerals and protection of the environment.201

141Copy pinpoint141. The expression “mineral development” has also been understood under the MMDR Act in a comprehensive manner, to include all activities and transactions relating to the working of mines, extracting of minerals, their storage and disposal, as well as the conservation of the environment. Having established the meaning and scope of the subject-matter in Entry 54 of List I and Entry 23 of List II, we now analyze the inter-relationship between the two entries in greater detail. ii. Analysis of Hingir-Rampur, M A Tulloch, and Baijnath Kedia

142Copy pinpoint142. In Hingir-Rampur Coal Co. Ltd. v. State of Orissa,202 writ petitions were filed before this Court challenging the Orissa Mining Areas Development Fund Act 1952203 which levied cess on the petitioner’s colliery. The petitioner argued that the cess levied under the Orissa Act was beyond the legislative competence of the State legislature because it was in reality a levy of excise duty on the coal produced. In the alternative, it was argued that the cess was relatable to Entry 23 of List II which would be ultra vires having regard to the provisions of Entry 54 of List I read with the MMRD Act 1948, which was the applicable legislation at the time. The respondent state sought to repel the petitioner’s contention by arguing that the cess was a fee relatable to Entries 23 and 66 of List II whose validity is not affected by Entry 54 of List I read with the MMRD Act. Thus, this Court was called upon to decide two issues: (i) whether the impugned levy was in the nature of a fee relatable to Entries 23 and 66 of List II; and (ii) the legislative competence of the State legislature to impose the levy in view of Entry 54 of List I read with the MMRD Act.

143Copy pinpoint143. The Orissa Act provided that the rate of the levy shall not exceed five percent of the valuation of minerals at the pit’s mouth. The statute further provided that the proceeds of the cess recovered shall be utilized to meet the expenditure for providing amenities such as communications, water supply and electricity for the better development of the mining areas and improve the welfare of labour

201 Mineral Conservation and Development Rules 2017 202 [1961] 2 SCR 537 203 “Orissa Act”

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and persons residing or working in the mining areas. This Court analyzed the scheme of the Orissa Act to observe that it was enacted for the purpose of the development of mining areas in the State. It was held that the cess was in the nature of a fee because: (i) it had an element of quid pro quo; (ii) it was collected into a specific fund; (iii) its application was regulated by a statute and confined to its purposes; and (iv) there was a definite co-relationship between the impost and the purpose of the legislation which was to render service to the notified area.204

144Copy pinpoint144. Having established that the cess was in the nature of a fee, the next issue before this Court was whether the State legislature had the competence to impose the levy in view of Entry 54 of List I read with the MMRD Act 1948. Justice P B Gajendragadkar (as the learned Chief Justice then was) writing for the majority, explained the inter- relationship between Entry 54 of List I and Entry 23 of List II in the following terms: “24. […] The jurisdiction of the State Legislature under Entry 23 is subject to the limitation imposed by the latter part of the said Entry. If Parliament by its law has declared that regulation and development of mines should in public interest be under the control of the Union, to the extent of such declaration the jurisdiction of the State Legislature is excluded. In other words, if a Central Act has been passed which contains a declaration by Parliament as required by Entry 54, and if the said declaration covers the field occupied by the impugned Act the impugned Act would be ultra vires, not because of any repugnance between the two statutes but because the State Legislature had no jurisdiction to pass the law. The limitation imposed by the latter part of Entry 23 is a limitation on the legislative competence of the State Legislature itself. This position is not in dispute.”

145Copy pinpoint145. This Court held that the test to determine the legislative competence of the state legislature in respect of a particular subject-matter relating to regulation of mines and mineral development is whether that matter is covered by the legislative declaration in the MMRD Act 1948.

204 Hingir-Rampur (supra) [19]

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This Court examined the provisions of the MMRD Act 1948 which contained a legislative declaration under Section 2.205 Section 6 of the MMRD Act 1948 empowered the Central Government to make rules for the conservation and development of minerals. Section 6(2) empowered Parliament to make rules in respect of several subject matters, including the levy and collection of royalties, fees or taxes in respect of minerals mined, quarried, excavated or collected. In this respect, the observations made by Justice Gajendragadkar are relevant and extracted below: “Section 6 of the Act, however, empowers the Central Government to make rules by notification in the Official Gazette for the conservation and development of minerals. Section 6(2) lays down several matters in respect of which rules can be framed by the Central Government. This power is, however, without prejudice to the generality of powers conferred on the Central Government by Section 6(1). Amongst the matters covered by Section 6(2) is the levy and collection of royalties, fees or taxes in respect of minerals mined, quarried, excavated or collected. It is true that no rules have in fact been framed by the Central Government in regard to the levy and collection of any fees; but, in our opinion, that would not make any difference. If it is held that this Act contains the declaration referred to in Entry 23 there would be no difficulty in holding that the declaration covers the field of conservation and development of minerals, and the said field is indistinguishable from the field covered by the impugned Act. What Entry 23 provides is that the legislative competence of the State Legislature is subject to the provisions of List I with respect to regulation and development under the control of the Union, and Entry 54 in List I requires a declaration by Parliament by law that regulation and development of mines should be under the control of the Union in public interest. Therefore, if a Central Act has been passed for the purpose of

205 Section 2, MMRD Act 1948. [It read: “2. Declaration as to expediency of control by Central Government:- It is hereby declared that it is expedient in the public interest that the Central Government should take under its control the regulation of mines and oilfields and the development of minerals to the extent hereinafter provided.”]

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providing for the conservation and development of minerals, and if it contains the requisite declaration, then it would not be competent to the State Legislature to pass an Act in respect of the subject-matter covered by the said declaration. In order that the declaration should be effective it is not necessary that rules should be made or enforced; all that this required is a declaration by Parliament that it is expedient in the public interest to take the regulation and development of mines under the control of the Union. In such a case the test must be whether the legislative declaration covers the field or not. Judged by this test there can be no doubt that the field covered by the impugned Act is covered by the Central Act 53 of 1948.” (emphasis added)

146Copy pinpoint146. The test laid down by this Court in Hingir-Rampur (supra) is whether the legislative declaration under a Parliamentary law enacted in pursuance of Entry 54 of List I covers the subject-matter. If the subject matter is covered by the legislative declaration, the legislative competence of the States with respect to that subject-matter is pro tanto denuded. Applying this test, it was held that the subject-matter of the levy of fees for conservation and development of minerals was covered by the MMRD Act 1948.

147Copy pinpoint147. The next issue before this Court was whether the declaration contained in the MMRD Act was constitutionally valid in view of Entry 54 of List I. The MMRD Act 1948 was a pre-constitutional legislation enacted by the Dominion Legislature governed by the GOI Act 1935. It was held that even though the state legislation covered the same field as the MMRD Act, the legislative declaration made under the MMRD Act did not constitutionally amount to the requisite declaration by Parliament in terms of Entry 54 of List I.206 Therefore, this Court concluded that the limitation imposed by Entry 54 of List I did not impair the legislative competence of the State to enact the legislation under Entry 23 read with Entry 66 of List II. In view of the conclusion

206 Hingir-Rampur (supra) [35] [“35. […] We reach this position that the field covered by Act 53 of 1948 is substantially the same as the field covered by the impugned Act but the declaration made by Section 2 of the said Act does not constitutionally amount to the requisite declaration by Parliament, and so the limitation imposed by Entry 54 does not come into operation in the present case.”]

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reached, the majority opined that it was unnecessary to consider the validity of the Orissa Act in terms of Entry 50 of List II.207

148Copy pinpoint148. Justice Wanchoo recorded his dissent from the opinion of the majority by holding that the cess in question was a duty of excise falling squarely within Entry 84 of List I,208 and consequently, beyond the legislative competence of the State legislature. The learned Judge held that the cess was levied at a rate not exceeding five percent of the value of the minerals at the pit’s mouth on all extracted minerals. Since all the extracted minerals were goods produced, a cess on the value of such extracted minerals was held to constitute excise duty.209 Unlike the majority opinion, Justice Wanchoo dealt with the issue of the legislative competence of the State legislature to impose the cess in view of Entry 50 of List II. The learned Judge held that the cess was not a tax on mineral rights, but rather a tax on minerals actually produced, and therefore not covered by Entry 50 of List II.

149Copy pinpoint149. In State of Orissa v. M A Tulloch,210 a Constitution Bench was concerned with the validity of the same Orissa Act which was under consideration in Hingir-Rampur (supra). The respondents challenged the demand for the payment of fees made by the State Government for the period from July 1957 to March 1958 under the Orissa Act for being ultra vires. It must be noted that the MMDR Act was brought into force as and from 1 June 1958. The Constitution Bench analyzed the relevant constitutional and statutory provisions, and precedent to reiterate the following principles of law: (i) The power of the State to enact legislation on the subject matter of “mines and mineral development” under Entry 23 of List II is plenary and subject to the provisions of Entry 54 of List I; (ii) Section 2 of the MMDR Act contains the requisite legislative declaration in terms of Entry 54 of List I. To the extent to which the Union Government has taken the regulation of mines

207 Hingir-Rampur (supra) [37] 208 Entry 84, before the Constitution (One Hundred and First Amendment) Act 2016, read as follows: “84. Duties of excise on tobacco and other goods manufactured or produced in India except – (a) Alcoholic liquors for human consumption; (b) Opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.” 209 Hingir-Rampur (supra) [47] 210 [1964] 4 SCR 461

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and development of minerals under its control, so much was withdrawn from the ambit of the power of the State legislature under Entry 23 of List II. The legislation of the State enacted under Entry 23 of List II would, to the extent of that “control”, be superseded or be rendered ineffective;211 (iii) The legislative power of the state remains intact beyond the “extent” of the MMDR Act. Therefore, the crucial enquiry has to be directed to ascertain the “extent” of the Parliamentary legislation; (iv) Where a competent legislature with superior legislative powers expressly or impliedly evinces by its legislation an intention to cover the whole field, the enactments of the other legislature whether passed before or after would be superseded on the ground of repugnance.212 Section 18(1) evinces the Parliamentary intention to cover the entire field relating to conservation and development of minerals. Therefore, the fact that the Central Government has not framed any regulation along the lines of the Orissa Act was not relevant; and (v) The declaration under Section 2 of MMDR Act has taken over the entire field of conservation and development of minerals. Resultantly, the particular subject matter would be subtracted from the scope and ambit of Entry 23 of List II and the State legislature would also lose the legislative competence to levy a fee under Entry 66 of List II.213

150Copy pinpoint150. In M A Tulloch (supra), the Constitution Bench held that the legislative competence of the States to levy fees under Entry 66 of List II is also affected to the extent to which the subject-matter of regulation of mines and mineral development is taken over by the Parliamentary declaration under Entry 54 of List I.

151Copy pinpoint151. The third major decision dealing with the inter-relationship between Entry 54 of List I and Entry 23 of List II is Baijnath Kedia v. State of Bihar.214 In that case, an amendment to the Bihar Land Reforms

211 M A Tulloch (supra) [5] 212 M A Tulloch (supra) [14] 213 M A Tulloch (supra) [15] 214 [1970] 2 SCR 100 : (1969) 3 SCC 838

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Act 1950 and the rules pertaining to the modification of the terms and conditions of leases of minor minerals were challenged. Having held that it was bound by Hingir-Rampur (supra) and M A Tulloch (supra), the issue before this Court was the extent to which the declaration by Parliament left any scope for the state legislature. The Court observed that by the legislative declaration under Section 2 read with Section 15, the whole of the field relating to minor minerals came within the jurisdiction of Parliament and no scope was left for the State legislature. Although Section 15 allowed the State legislature to make rules, it did not create a scope for legislation at the state level.215 Consequently, it was held that the amendment to the Bihar Act was without jurisdiction. In Hingir-Rampur (supra) and M A Tulloch (supra), it was held that the whole field of conservation and development of minerals was covered by the MMDR Act. In Baijnath Kedia (supra), it was held that the field of minor minerals was covered by the central legislation, thereby depriving the state legislation of its plenary legislative power under Entry 23 of List II to that extent.

152Copy pinpoint152. The Solicitor General has relied on the above decisions to submit that the consequence of the whole of the legislative field being occupied by Parliament under the MMDR Act is that the state legislatures possess only such powers as are expressly conferred on them by Parliament. The propositions put forth by the Solicitor General can be encapsulated as follows: a. Hingir-Rampur (supra) shows that the subject-matter of statutory levies pertaining to minerals is covered by the legislative declaration. Although the MMDR Act does not contain a provision similar to Section 6 of the MMRD Act 1948, it provides for statutory levies such as royalty and dead-rent. Thus, Parliament has covered the subject-matter of statutory levies relating to mineral rights and the state legislature has no power to impose a levy in the form of taxes on mineral rights under Entry 50 of List II; b. M A Tulloch (supra) held that a Parliamentary legislation enacted under Entry 54 of List I also impacts the independent legislative powers of States with respect to Entry 66 of List II.

215 Baijnath Kedia (supra) [21]

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This reasoning will be applicable to Entry 50 of List II with greater force, more so, because this entry is expressly subject to any law made by Parliament relating to mineral development; and c. In Baijnath Kedia (supra) there were no express provisions under the MMDR Act limiting the state legislature from enacting legislation relating to leases of minor minerals, but this Court held that such a limitation was implied. Similarly, the Parliamentary law, the MMDR Act, impliedly excludes the legislative competence of the state with respect to Entry 50 of List II.

153Copy pinpoint153. The above arguments will be dealt with in the ensuing segment relating to the interpretation of Entry 50 of List II. iii. Examination of the “extent” of the MMDR Act

154Copy pinpoint154. The respondents submit that the MMDR Act is a complete code and occupies the entire field relating to regulation of mines and mineral development, leaving nothing for the state legislature under Entry 23 of List II. It was also submitted that the scope of the MMDR Act and the rules made under it has to be given an exhaustive interpretation because they were enacted in the “public interest.” The Solicitor General recounted the following public interest considerations underpinning the MMDR Act: (i) provision of national legal landscape for protection, exploration, and extraction of minerals; (ii) ushering a uniform structure of regulation and development of minerals; and (iii) ensuring sustained development of the mineral sector at the national level to ensure availability of domestic minerals to industries.

155Copy pinpoint155. The MMDR Act and the Mineral Concession Rules 1960 comprise of a complete code, containing exhaustive provisions in respect of the grant and renewal of prospecting licenses and mining leases in lands belonging to government as well as lands belonging to private persons.216 Section 2 of the MMDR Act declares that the Union is acting in public interest to take under its control the regulation of mines and development of minerals to the extent provided. In State of Tamil Nadu v. Hindu Stone,217 the Court observed that “[t]he public interest which induced Parliament to make the declaration

216 State of Assam v. Om Prakash Mehta (1973) 1 SCC 584 [12]; 217 [1981] 2 SCR 742 : (1981) 2 SCC 205 [6]

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contained in Section 2 of the Mines and Minerals (Regulation and Development) Act, 1957, has naturally to be the paramount consideration in all matters concerning the regulation of mines and the development of minerals.”

156Copy pinpoint156. In Bharat Coking Coal Ltd. v. State of Bihar,218 the issue before a two judge Bench was whether the State Government had legal authority to execute leases in favor of the respondents for collection of slurry on payment of royalty. This Court held that the state legislature lacked authority in law to regulate the disposal of slurry. Section 18 of the MMDR Act was held to cover the field of the disposal of waste of a mine (including coal slurry), thereby denuding the legislative power of the state legislature with respect to that subject matter. It was further held that once the state legislature’s power under Entry 23 of List II is denuded, the State Government ceases to have any executive authority in the matter relating to the regulation of mines and mineral development in view of Article 162 of the Constitution.219 Thus, both the legislative and the executive powers of the State were held to be taken away to the extent to which the MMDR Act covered the subject matter dealing with regulation of mines and mineral development.220

157Copy pinpoint157. This Court has to give credence to the public interest considerations underpinning the MMDR Act while interpreting its scope and ambit. The expression “public interest” occurring in both Entry 54 of List I and Section 2 of the MMDR Act indicates that the provisions of the legislation do not merely cover the interests of private individuals (such as owners of private property or holders of mining leases) relating to the regulation of mines and mineral development. The public interest underpinning the MMDR Act synonymizes with the collective welfare of the people and is informed by the dictates of

218 [1990] 3 SCR 744 : (1990) 4 SCC 557 219 Article 162, Constitution of India. [It reads:

162. Extent of executive power of State – Subject to the provision of this Constitution, the executive power of a State shall extend to the matters with respect to which the Legislature of the State has power to make laws: Provided that in any matter with respect to which the Legislature of a State and Parliament have power to make laws, the executive power of the State shall be subject to, and limited by, the executive power expressly conferred by this Constitution or by any law made by Parliament upon the Union or authorities thereof.”] 220 Sandur Manganese & Iron Ores Ltd v. State of Karnataka (2010) 13 SCC 1 [39]

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the public trust doctrine.221 At the same time, the underlying public interest has to be construed in view of the entire legislative scheme, purpose, and object of the enactment.222

158Copy pinpoint158. The latter part of Entry 23 of List II makes the entry “subject to the provisions of List I with respect to regulation and development under the control of the Union.” Entry 54 of List I provide that Parliament can regulate mines and mineral development “to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest.” The text of Entry 54 of List I indicates that besides declaring that it is taking under its control any subject relating to the regulation of mines and mineral development, Parliament has to specify the extent to which the Parliamentary regulation is deemed expedient in the public interest. The legislative domain of the States under Entry 23 of List II is excluded only to the extent of the field covered by the provisions of the MMDR Act. The expression “to the extent provided” refers to the subject matter or fields covered by the Parliamentary legislation.

159Copy pinpoint159. During the proceedings of the Constituent Assembly pertaining to present Entry 23 of List II, Mr Brajeshwar Prasad moved a motion to move the entire field of “regulation of mines and mineral development” under the Union List. He reasoned that mines constitute a vital subject and should remain a subject under the Union List.223 Consequently, a motion was moved to transfer Entry 23 of List II (which was draft Entry 28 of List II then) to the Union List. However, the amendment was negatived by the Assembly.224 This indicates that the Constituent Assembly deemed it necessary that state legislatures must also have necessary legislative powers with respect to the regulation of mines and mineral development. The legislative field of the states would stand abstracted once Parliament makes a declaration evincing an intent to takeover the regulation and development of mines and

221 Sayyed Ratanbhai Sayeed v. Shirdi Nagar Panchayat (2016) 4 SCC 631 222 Meerut Development Authority v. Association of Management Studies (2009) 6 SCC 171 [67] 223 Constituent Assembly Debates, Volume IX, 898 (31st August 1949). [Mr. Brajeshwar Prasad explained his aim in introducing the motion in the following words: “My whole aim in moving this amendment is to make redundant entry 28, of List II. I am clear in my own mind that Mines constitute a vital subject as important as Defence, Foreign Affairs and Communications. I am of opinion that if the system of defence is going to be organized on sound line then Mines must remain a Central subject. I do not want to give the Provinces the power even to “regulate mines and oil fields and mineral development subject to the provisions of List I” as has been provided for in entry 28 of List II.”] 224 Constituent Assembly Debates, Volume IX, 898 (2nd September 1949)

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specifies the extent to which control of the field by the Union is deemed to be in the public interest.

160Copy pinpoint160. The requirement of a legal declaration under Entry 54 of List I serves twofold purposes: first, it enables a clear demarcation of the subject matter under the control of Parliament and determines the extent of such control; and second, it enshrines the precept of the rule of law where the basis for trenching upon the legislative powers of the State has to be found in a law made by Parliament. The Parliamentary enactment through which legislative control is being assumed by the Union, to the exclusion of state legislatures, cannot be abstract, vague, and general. While Parliament has the power to denude the field given to the states under Entry 23 of List II by making a declaration in the law which it enacts pursuant to the field reserved by Entry 54 of List I, the law enacted by Parliament must specify the field of regulation and development which it has taken over, and the extent to which the control of the Union is deemed to be in the public interest.

161Copy pinpoint161. The use of the expression “to the extent” under Entry 54 of List I carries the consequence that the Parliamentary legislation has to specify the subject matter or field over which it seeks to legislate. In M A Tulloch (supra), this Court held that the intention of the legislation to occupy a particular subject matter has to be gathered from the words of the provisions.225 As a consequence, the coverage of the fields by Parliament has to be express. The ambit of the MMDR Act has to be determined from the express words used in the provisions and not by mere implications or inference. This legal principle has already been accepted by this Court.226

162Copy pinpoint162. In Ishwari Khetan Sugar Mills v. State of Uttar Pradesh,227 a Constitution Bench was called upon to interpret the ambit of Entry 52 of List I and Entry 24 of List II. The Industries (Development and Regulation) Act 1951228 was enacted by Parliament to assume

225 M A Tulloch (supra) [14]. [It reads: “14. […] In the present case, having regard to the terms of Section 18(1) it appears clear to us that the intention of Parliament was to cover the entire field and thus to leave no scope for the argument that until the rules were framed, there was no inconsistency and no supersession, of the State Act.”] 226 Ishwari Khetan Sugar Mills v. State of Uttar Pradesh (1980) 4 SCC 136; Rajasthan Roller Flour Mills Association v. State of Rajasthan (1994) Supp. 1 SCC 413 [14] 227 [1980] 3 SCR 331 : (1980) 4 SCC 136 228 “IDR Act”

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control over specified industries in pursuance of Entry 52 of List I. Section 2 of the IDR Act contained the legislative declaration to the effect that the Union shall take under its control the industries specified in Schedule I. The majority, speaking through Justice D A Desai, observed that the legislative declaration under the IDR Act has the effect of denying the legislative powers to the state legislature under Entry 24 of List II.229 Therefore, it was held that the legislative declaration contained under Section 2 of the IDR Act has to be construed strictly. The Court held that the legislative competence of state legislature would be eroded only to the extent to which control was assumed by the Union in terms of the legislative declaration under the IDR Act. A legislative declaration which has the impact of denuding or depriving the legislative power of the state legislature has to be construed strictly.

163Copy pinpoint163. The inter-relationship between Entry 54 of List I and Entry 23 of List II can be formulated as follows: (i) The state legislatures possess plenary legislative power in respect of regulation of mines and mineral development under Entry 23 of List II; (ii) Entry 23 of List II is, however, subject to the operation of Entry 54 of List I; (ii) The field under Entry 23 of List II is subordinated to the extent to which Parliament has brought under its control the regulation of mines and development of minerals under the MMDR Act; (iii) The expression of the legislative intention to cover a particular field relating to mines and mineral development excludes or denudes the legislative powers of the State with respect to that particular field; and (iv) Parliamentary intention to cover a particular field relating to the regulation of mines and mineral development and the extent to which control of the Union is regarded to be in the public interest has to be ascertained from the language of the statute. Keeping these principles in mind, we now move on to analyzing the inter-relationship between Entry 54 of List I and Entry 50 of List II.

229 Ishwari Khetan Sugar Mills (supra) [11]

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H. Inter-relationship between Entry 50 of List II and Entry 54 of List I

164Copy pinpoint164. The respondents contend that the legislative declaration contained under Section 2 along with the other provisions of the MMDR Act serves as a “limitation” on the legislative powers of state legislatures to tax minerals under Entry 50 of List II. The main thrust of the argument of the respondents is that anything encompassed in a “law relating to mineral development” serves as a limitation on the field of taxation under Entry 50 of List II. Moreover, it was submitted that the MMDR Act leaves no legislative room for the state legislature in respect of the subject matter of mines and mineral development, including taxes on mineral rights. On the contrary, the petitioners submit that the MMDR Act can only have the effect of abstracting the State’s legislative field with respect to Entry 23 of List II. It was further contended that the MMDR Act does not contain any provision limiting the field of the states with respect to the taxation of mineral rights.

165Copy pinpoint165. To recap, Entry 50 of List II reads thus: “Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development.” Entry 50 of List II has two elements: (i) the legislative field governing taxes on mineral rights is given exclusively to the states; (ii) the field given to the states is subject to any limitations imposed by Parliament by law relating to mineral development. Entry 50 of List II is a taxing entry. The limitations on the field created by Entry 50 of List II is however, contemplated to be created by a law which relates to mineral development. The legislative competence of Parliament to enact a “law relating to mineral development” can be traced to Entry 54 of List I, which is a general entry. Therefore, the taxing powers of the state with respect to mineral rights under Entry 50 of List II can be restricted by Parliament by its regulatory power under Entry 54 of List I.

166Copy pinpoint166. To delve into the inter-relationship between Entry 54 of List I and Entry 50 of List II, we have to primarily address the following questions: (i) what is a tax on mineral rights; (ii) whether Entry 50 of List II is an exception to the general rule laid down in M P V Sundararamier (supra); (iii) what is the nature of the limitations envisaged by the

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Constitution on the taxing powers of the state; and (iv) whether the MMDR Act imposes limitations on the taxing powers of the state. i. Taxes on mineral rights a. Mineral rights duty

167Copy pinpoint167. The expression “taxes on mineral rights” was originally used in the GOI Act 1935. The Constitution uses a similar expression. Therefore, it is important to understand the context in which the term “taxes on mineral rights” (in its myriad forms) came to occupy the discourse.

168Copy pinpoint168. Under the law in England, landlords would receive royalties for exercising their mineral rights or assigning them to other persons or lessees.230 However, in the latter part of the nineteenth century and the early twentieth century, it was recognized that landlords received the benefits of royalty often at the cost of the welfare of the miners. The Royal Commission on Mining Royalties narrated in its report of 1893 that: “[W]itnesses examined on behalf of the working miners expressed the opinion that royalties and wayleaves, where fixed in amount, are often so high that in depressed times, when coal falls greatly in price, the royalty owner continues to receive his full royalty, whilst the miner suffers from a reduction in wages, or a closing of mines; their efforts to avert any reduction sometimes taking the form of a strike.”231 To counter the appropriation of royalties by landowners, the lawmakers decided to levy tax on royalties received by them232 with a view to increase revenue generation and enhance the welfare measures for miners.233

169Copy pinpoint169. The Parliament in England imposed a mineral rights duty by Finance Act 1910. Section 20 imposed a duty “on the rental value of all rights to work minerals and of all mineral way leaves” at the rate of “one

230 Lloyd George, ‘The Budget, The Land and The People: The New Land Value Taxes Explained and Illustrated’ (2nd edn, 1909) 48. 231 Royal Commission on Mining Royalties, Final Report of the Royal Commission appointed to inquire into the subject of mining royalties (1893) 14. 232 Lloyd George (n 230) 51 233 Mr. Lloyd George (Hansard, Volume 11) 28 September 1909

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shilling for every twenty shillings of that rental value.” The rental value was calculated in the following manner: (i) where the right to work the minerals was the subject of a mining lease, the amount of rent paid in the last working year; (ii) where minerals were being worked by the proprietor, an amount fixed by the Commissioners of Inland Revenue as equivalent to rent; and (iii) in case of mineral wayleave, the amount of rent paid by the working lessee in the last working year. Lloyd George, the Chancellor of the Exchequer, stated while introducing the legislative proposal that the duty on mineral rights imposed “tax upon royalties and way-leaves actually received by the owners of those rights.”234 The Chancellor further clarified that the mineral rights duty was introduced as part of taxes on land.235 It was in this context that the concept of taxes on mineral rights was introduced in England and was later entrenched in the colonial regime by the GOI Act 1935. b. Meaning of the expression “mineral rights”

170Copy pinpoint170. The Constitution does not define “mineral rights”. The expression has not been defined in the MMDR Act or the rules framed under it. Though the expression “mineral rights” is used in Entry 50 of List II, it does not find mention in any of the other related legislative entries – Entry 54 of List I and Entry 23 of List II. The expression has to be given its ordinary and natural meaning by adopting an interpretative approach which eschews rigidity. Mineral rights are inextricably connected to property. Any understanding of “mineral rights” must be prefaced on an understanding of the basics of property law.

171Copy pinpoint171. In a regime of private property, the rules governing access to and control of resources are organized around the idea that resources are on the whole separate objects belonging to particular individuals.236 These resources can comprise of immovable and movable property, both corporeal and incorporeal. In a social order based on private property, an owner’s decision of the manner in which they put the resource to use is generally upheld by society as final.237 A person who owns a resource has the right to determine its use. The ownership of

234 Hansard, Volume 11, 22 September 1909 235 Hansard, Volume 35, 5 March 1912 236 Jeremy Waldron, ‘What is Private Property?’ (1985) 5(3) Oxford Journal of Legal Studies 313, 327. 237 Ibid, 327.

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a resource also precludes the claims of other persons or individuals with respect to that particular resource.238

172Copy pinpoint172. In the context of land, it is well-established that the ownership of land includes the ownership of underlying minerals, unless the right to minerals has been expressly reserved by law.239 Therefore, an owner of land has rights to the surface of the land and to sub-soil resources.240 Surface rights are rights to the surface of the land and include the right to use land, construct buildings, install machinery and equipment, and plant trees or dig wells. Surface rights can also be sold or transferred to another person. The right to minerals entails the right to monetize mineral resources by either consuming them or selling them to third parties. The right to minerals emanates from the concept of the ownership of property.

173Copy pinpoint173. Counsel have drawn attention to dictionary meanings attributed to “mineral rights”. Black’s Law Dictionary defines “mineral right” as “an interest in minerals in land, with or without ownership of the surface of the land; a right to take minerals or a right to receive royalty.”241

174Copy pinpoint174. Corpus Juris Secundum defines the term “mineral right” as follows: “It is the right or title to all, or to certain specified, minerals in a given tract. It is a broader term and is more inclusive than the term “oil and gas”, and it has been held that, in the light of the surrounding facts and circumstances under which it is used, it may not be necessarily include the right to oil and gas.”242

175Copy pinpoint175. In Pennsylvania Coal Co. v. Mahon,243 the US Supreme Court observed that the right to coal consists of the right to mine it. Entry 50 of List II uses the expression “mineral rights” in the plural. It hence envisages a bundle of rights associated with the ownership of minerals. The owner of minerals may transfer the rights to the minerals to another person. Once transferred, the lessee stands in the

238 James Y Stern, ‘The Essential Structure of Property Law’ (2017) 115(7) Michigan Law Review 1167, 1176. 239 Thressiamma Jacob v. Geologist, Department of Mining & Geology (2013) 9 SCC 725 240 State of West Bengal v. Union of India [1964] 1 SCR 371 [18] 241 Black’s Law Dictionary (6th edn,1990) 995 242 Corpus Juris Secundum (Volume 58) 15 243 260 US 393 (1922)

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shoes of the owner/ lessor by acquiring his interest in the minerals, according to the terms and conditions of the agreement. Usually, the right to mine includes two related activities: (i) excavation of minerals; and (ii) removal or consumption of the extracted minerals. The process of excavating minerals generally entails the right to enter upon and occupy the land for the purpose of working the mines to extract minerals. The removal or consumption of minerals allows the lessee to monetize the extracted minerals.

176Copy pinpoint176. The meaning of the expression “mineral rights” has been discussed in a few judicial decisions in India. In a decision of the Calcutta High Court rendered in 1905, it was held that grant of mineral rights “must be taken to carry as incident to it the power not only to go upon the land and work the minerals known to be underground but to go to the land and conduct the ordinary preliminary operations by boring or otherwise to ascertain (when it is not known) if there are minerals underground.”244 In Tata Chemicals Ltd. v. State of Gujarat,245 the Gujarat Mineral Rights Tax Act 1985 imposed a tax on the mineral rights of holders of mining leases in respect of minerals specified in the Schedule.246 A Division Bench of the Gujarat High Court, speaking through Justice A M Ahmadi (as the learned Chief Justice then was) repelled the challenge to the validity of the legislation. The Court drew a distinction between mining rights and mineral rights thus: “51. [a] mining right is a right to enter upon and occupy land for the purpose of working it with a view to obtaining the minerals deposited therein whereas a mineral right is a right or title to all or to certain specified minerals in a given tract. It is, therefore, clear that a person having a mining right is entitled to work the mine with a view to winning the minerals deposited therein but unless he is given a right to remove or consume the mineral, he cannot do so. It is the latter right which is known as the mineral right which the impugned legislation seeks to tax.”

244 Kumar Ramessur Malia v. Ram Nath Bhattacharjee, 1905 SCC OnLine Cal 55 245 1988 SCC OnLine Guj 13 246 Section 3, Gujarat Mineral Rights Tax Act 1985. Section 3 reads: “On and from the commencement of this Act, there shall be levied and collected a tax on mineral rights at such rates not exceeding the maximum specified in Column 2 of the Schedule against minerals specified in column 1 of that Schedule as the State Government may, from time to time by notification in the Official gazette, fix.”

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The Gujarat High Court held that a mining right is a right to enter upon and occupy land for the purpose of working. A mineral right is a right or title to certain specified minerals in a given tract. Therefore, the High Court followed the principle that a lessee acquires mineral rights if the lessor grants them the permission to remove minerals from the leased area.

177Copy pinpoint177. In his dissenting opinion in Kesoram (supra), Justice S B Sinha sought to draw a distinction between “minerals” and “mineral rights” by observing that mineral rights “cannot be construed as mineral already extracted as contradistinguished from being capable of extraction or otherwise in a state or form when embedded in the earth.”247 The learned Judge observed that when a mineral is extracted, it may be a culmination of the right to deal in the mineral but the mineral rights would not include a right to dispatch extracted minerals. Justice Sinha observed that the right to receive royalty is also a mineral right. According to him mineral rights extend till the extraction of minerals from the earth and do not include the right to dispatch the extracted minerals. There is a fallacy in Justice Sinha’s observations. Statutorily, royalty is a consideration by the lessee to the lessor for winning the minerals and removing them from the leased area. Section 9 of MMDR Act imposes royalty on removal or consumption of minerals by lessee. Royalty, is paid on dispatch of minerals. Thus, mineral rights do not culminate with the extraction of minerals, but include the right to dispatch the extracted minerals as well.

178Copy pinpoint178. The Constitution is a living organic document and must be interpreted in that spirit.248 Enumerated legislative powers ought to be interpreted with a wide and liberal spirit to ensure that the legislatures have the requisite authority to legislate and to allow the executive to govern. The expression “mineral rights” must be construed in this spirit to ensure that the taxing powers of the State under Entry 50 of List II are not unnecessarily curtailed. The natural meaning of the expression “mineral rights” will include the entire bundle of rights that follow ownership of minerals, including rights which can be transferred to a lessee through a mining lease. These rights will

247 Kesoram (supra) [400] 248 Saurabh Chaudri v. Union of India (2003) 11 SCC 146 [71]; Navtej Singh Johar v. Union of India (2018) 10 SCC 1 [95].

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include the right to extract minerals by working the mines, winning the minerals, and monetizing the minerals obtained by removing or consuming them.

179Copy pinpoint179. The breadth and scope of mineral rights has also been recognized under the MMDR Act. In a situation where the minerals vest with the State by operation of law, the right to those minerals also vests with the State. However, the State can assign or transfer its mineral rights by way of a mining lease to a lessee. This has been contemplated by the Mineral Concession Rules read with Form K. In Part I of Form K, the Government grants its mineral rights to the lessee, including liberties, powers, and privileges. However, it is important to note that the lessee is only granted rights in the minerals specified in Part I of Form K. The Government can reserve to itself the right to work the other minerals found in the same demised land or to grant a lease to a separate person to work and remove these other minerals.249 Part II of Form K of the Mineral Concession Rules 1960 enumerates the liberties, powers, and privileges of the lessee. It provides that the lessee has the liberty and power at all times during the term of demise to enter upon the land demised and search, mine, bore, dig, drill, win, work, dress, process, convert, carry away, and dispose of the minerals. Part II of Form K further provides that a lessee has liberty and power to use the demised land to sink pits,250 use machinery equipment251 construct buildings, roadways, and railways,252 to beneficiate any ore produced from the lands and carry away such beneficiated ore,253 and clear undergrowth and brushwood and utilize any trees or timber standing or found on the demised lands.

249 Part IV, Form K, Mineral Concession Rules 1960. [“1. Liberty and power for the State Government, or to any lessee or persons authorized by it in that behalf to enter into and upon the said lands and to search for, win, work, dig, get, raise, dress, process, convert and carry away minerals other than the said minerals and any other substances and for those purposes to sink, drive, make, erect, construct, maintain and use such pits, shafts, inclines, drifts, levels and other lines, waterways, airways, water courses, drains, reservoirs, engines, machinery, plant, buildings, canals, tramways, railways, roadways, and other works and conveniences as may be deemed necessary or convenient. Provided that in the exercise of such liberty and power no substantial hindrance or interference shall be caused to or with the liberties, powers and privileges of the lessee/lessees under these presents and that fair compensation (as may be mutually agreed upon or in the event of disagreement as may be decided by the State Government) shall be made to the lessee/ lessees for all loss or damage sustained by the lessee/ lessees by reason or in consequence of the exercise of such liberty and power.”] 250 Form K, Part II, Rule 2, Mineral Concession Rules 1960 251 Rule 3, Mineral Concession Rules 1960 252 Rule 4, Mineral Concession Rules 1960 253 Rule 8(a), Mineral Concession Rules 1960

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180Copy pinpoint180. Having explained the scope of the expression “mineral rights”, the next issue pertains to the scope and ambit of “taxes on mineral rights.” c. Taxes on mineral rights

181Copy pinpoint181. The respondents have contended that the meaning of the term “taxes on mineral rights” must be derived from the related entries in List II, namely Entries 45 and 49. It was contended that since the incidence of the tax imposed in light of Entries 45 and 49 is on the owner of land, the incidence of tax on mineral rights is also on the owner of land, that is the private lessor. On the contrary, the petitioners have refuted the respondent’s submission on the ground that the tax under Entry 50 of List II can also be applied with respect to lessees who hold the land or building on lease from the Government.

182Copy pinpoint182. Conceptually, a tax has four elements – (i) the nature of the tax which prescribes the taxable event attracting the levy; (ii) the person who is liable to pay tax; (iii) the rate at which the tax is paid; and (iv) the measure or value to which the rate will be applied for computing the liability.254

183Copy pinpoint183. The subject matter of taxation has been exhaustively enunciated in the Union and State Lists in the Seventh Schedule of the Constitution.255 The occurrence of the taxable event creates or attracts the liability to tax.256 For example, In re Sea Customs Act, S.20(2),257 this Court held that in the case of excise duties, the taxable event is the manufacture of goods and the duty is not directly on the goods but the manufacture thereof. Thus, the activity of the manufacture of goods attracts the liability for the levy of excise duties.

184Copy pinpoint184. The incidence of taxation pertains to the manner in which the burden of tax would fall on a person.258 The incidence of tax was exemplified by the decision of this Court in State of Karnataka v. Drive-In Enterprise.259 While dealing with the validity of an entertainment

254 Govind Saran Ganga Saran v. CST (1985) Supp. SCC 205 [6]; Mathuram Agrawal v. State of M P (1999) 8 SCC 667 [12]; Union of India v. Mohit Minerals (P) Ltd. (2022) 10 SCC 700 [97] 255 Chhotabhai Jethabhai Patel and Co. v. Union of India [1962] Supp 2 SCR 1 [68] 256 Goodyear India Ltd. v. State of Haryana (1990) 2 SCC 71 257 [1964] 3 SCR 787 [23] 258 Godfrey Phillips India Ltd v. State of UP (2005) 2 SCC 515 [47] 259 [2001] 2 SCR 378 : (2001) 4 SCC 60 [13]

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tax imposed by the State of Karnataka, it was held that since an entertainment necessarily requires a person who is entertained, the incidence of the tax is on the persons entertained. The incidence of tax is relatable to the person who bears the ultimate burden of the tax.

185Copy pinpoint185. The subject matter of Entry 50 of List II is “taxes on mineral rights.” As discussed in the above segment, ‘mineral rights’ is a comprehensive term to mean the bundle of rights with respect to minerals. The taxable event under Entry 50 of List II would relate to the exercise of mineral rights.

186Copy pinpoint186. In his dissenting opinion in Hingir-Rampur (supra), Justice Wanchoo observed that taxes on mineral rights would mean taxes on the right to extract minerals and not taxes on the minerals actually extracted. He opined that a tax on mineral rights would be confined, for example, to taxes on leases of mineral rights and on premium or royalty for that. In the process, Justice Wanchoo differentiated between taxes on minerals produced and taxes on mineral rights. According to this view, the process of working mines to extract minerals has to necessarily precede the production of minerals. The process of working mines, according to the learned Judge, attracts liability under “taxes on mineral rights”, while taxes on minerals extracted form part of taxes on goods produced, in the nature of duties of excise.

187Copy pinpoint187. The working of a mine can be undertaken either by the owner or by another to whom the right to work the mine has been granted by a mining lease. In the latter case, the lessee has to pay royalty to the lessor as a consideration for removing or consuming the minerals from the leased area. The right to receive royalty is an integral part of the mineral rights of the lessor. However, as discussed in the segments above, royalty is not a tax. Therefore, royalty would not be comprehended within the meaning of the expression “taxes on mineral rights.” The scope of taxes on mineral rights includes taxes on the right to extract minerals. Taxes on mineral rights also take within their fold other aspects relating to the exercise of mineral rights such as working the mines and dispatching minerals from the leased area. However, the legislature has to ensure that the exercise of the taxing powers relatable to the field under Entry 50 of List II does not foray into a duty of excise or a tax on the sale of minerals.

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188Copy pinpoint188. The taxable event with respect to taxes on mineral rights will be the exercise of mineral rights. The incidence of the tax on mineral rights depends upon who is exercising the right. We do not agree with the respondents that the incidence of a tax on mineral rights would necessarily have to be on the owner of the land. A tax under Entry 49 of List II is not only levied on the owner of the land, but also an occupier.260 Similarly, a tax on mineral rights could be levied on any person who has an interest in the minerals.

189Copy pinpoint189. The measure of tax is a matter of legislative policy. The legislature can select any measure of tax to compute liability, as long as it has a reasonable nexus with the nature of the tax. Hence, it is for the legislature to devise an appropriate measure of tax to compute the tax liability, provided the measure has a nexus with the nature of levy, that is a tax on mineral rights. ii. The limitations on the taxing power of the State under Entry 50 of List II

190Copy pinpoint190. Entry 50 of List II is unique because though it is a taxing entry, it is made subject to “any limitations imposed by Parliament by law relating to mineral development.” Thus, the taxing power of the state is capable of being controlled by a non-fiscal enactment by Parliament relating to the development of minerals. This seems to recognize that a fiscal imposition in the nature of a tax on mineral rights by a state may impact on the development of minerals. That is why the former has been made subject to a law relatable to mineral development enacted by Parliament.

191Copy pinpoint191. The common thread between Entry 54 of List I and Entries 23 and 50 of List II is the use of the phrase “mineral development”. Entry 54 of List I and Entry 23 of List II deal with the same subject matter namely, of the regulation of mines and mineral development, where the latter is subordinated to the former to the extent to which Parliament brings the field under its control. In the above segments, we have analyzed the decisions of this Court in Hingir-Rampur (supra), MA Tulloch (supra), and Baijnath Kedia (supra) where it was held that Entry 23 of List II is pro tanto excluded to the extent to which the Parliamentary legislation enacted in terms of Entry 54 of List I covers the field.

260 See Anant Mills Co. Ltd. v. State of Gujarat (1975) 2 SCC 175

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a. Entry 50 of List II does not constitute an exception to the Sundararamier principle

192Copy pinpoint192. The position which was enunciated in M P V Sundararamier (supra) and accepted in Jindal Stainless Ltd (supra) is that the field of taxation is distinct from the general subjects of legislation in the Union and State lists of the Seventh Schedule. The issue which needs to be addressed is whether Entry 50 of List II is an exception to the position which has been laid down in M P V Sundararamier (supra) in view of the fact that the ambit of a taxing entry is sought to be restricted by a regulatory entry. A related issue is whether Parliament has the legislative competence to tax mineral rights under its residuary powers.

193Copy pinpoint193. The decision in Hoechst Pharmaceuticals (supra) interpreted the relationship between Entry 54 of List II and Entry 92A of List I. Entry 54 of List II, before amendment, was subject to the provisions of Entry 92A of List I.261 The entry was substituted by the Constitution (One Hundred and First Amendment) Act 2016. The Bihar Finance Act 1981 levied a surcharge on dealers. The law was made pursuant to the field of legislation in Entry 54 of List II. The Act prohibited dealers from collecting surcharge. It was contended that the prohibition on dealers recovering the surcharge was inconsistent with the Drug (Price Control) Order 1979 issued under the Essential Commodities Act, which allowed the manufacturer or producer of drugs to pass on the liability to pay sales tax. The Essential Commodities Act was enacted for the regulation, production, supply, distribution and pricing of essential commodities and is relatable to Entry 33 of List III.262 One of the issues before this Court was whether the State power to tax the sale of goods under Entry 54 of List II could be encroached upon by a law made by Parliament with respect to one of the matters enumerated in List III.

194Copy pinpoint194. This Court referred to M P V Sundararamier (supra) to reiterate that: (i) taxation is considered to be a distinct matter for purposes

261 Entry 54 of List II, before substitution by the Constitution (One Hundred and First Amendment) Act 2016 read: “54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I) 262 Entry 33, List III, Seventh Schedule, Constitution of India. (It reads: [“33. Trade and commerce in, and the production, supply and distribution of – (a) the products of any industry where the control of such industry by the Union is declared by Parliament by law to be expedient in the public interest, and imported goods of the same kind as such products; […]”]

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of legislative competence; (ii) the power to tax cannot be deduced from a general legislative entry; (iii) the taxing powers of the Union and the States are mutually exclusive without any overlap; and (iv) this is also evident from the fact that there is no taxing entry in List III. The Court held that a law made by Parliament under a general entry, that is, Entry 33 of List III, cannot intrude into the plenary power of the state legislature to levy taxes on the sale or purchase of goods under Entry 54 of List II. Further, it was held that the 1981 Act and the Control Order operated in separate and distinct fields without inconsistency or overlap.

195Copy pinpoint195. The decision in Hoechst Pharmaceuticals (supra) is an authority for the following legal propositions: (i) the principle of federal supremacy will not apply where there is no direct conflict between the legislative powers of Union and States; (ii) Parliament cannot acquire legislative competence with respect to subject matters of taxation enumerated under List II under the guise of regulatory entries; and (iii) since taxing entries are mutually exclusive, the principle of federal supremacy is not generally applicable with respect to taxing entries under Lists I and II.

196Copy pinpoint196. Entry 54 of List I is a regulatory entry dealing with the regulation of mines and mineral development. The regulatory entries in Lists I and II of the Seventh Schedule are distinct from taxing entries. Though the power to levy taxes is an incident of sovereignty, it is subject to constitutional limitations. Giving an extended interpretation to general entries to include the power of taxation will grant arbitrary and unconstitutional authority to the Union and States. Since Entry 54 of List I is a general entry, it will not include the power of taxation.

197Copy pinpoint197. The subject of Entry 54 of List I is “regulation of mines and mineral development”. In contrast, the subject of Entry 50 of List II is “taxes on mineral rights”. Each of these terms has a specific connotation. Whereas Entry 54 of List I encompass a broad subject matter covering the regulation of mines and mineral development, the taxing entry in Entry 50 of List II is confined to mineral rights. Entry 23 of List II also encompasses the “regulation of mines and mineral development” as a legislative field for the states. Since Entry 54 of List I also deals with the “regulation of mines and mineral development”, the states’ domain under Entry 23 of List II is subject to the limitations created by Entry 54 of List I. Despite the positioning of Entry 23 in List II, the Constitution has specifically enumerated the taxing field with

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respect to mineral rights in Entry 50 of List II. Taxation of mineral rights is hence, traceable to Entry 50 of List II. If the framers had intended that the field of taxing mineral rights would be subsumed in the general entry covering the regulation of mines and mineral development, namely, Entry 23 of List II, there would have been no reason to provide for a specific taxing entry on mineral rights in Entry 50 of List II. Therefore, just as the field of taxing mineral rights does not fall under Entry 23 of List II, it does not fall under Entry 54 of List I which uses similar language and is not a taxing entry. While the imposition of taxes on mineral rights is a field entrusted to the State legislatures in List II, it is subject to a law enacted by Parliament on mineral development. While the imposition of taxes on mineral rights is a field exclusively entrusted to the State legislatures (and not to Parliament) in the State List, Parliament can while making provisions in a law relating to mineral development make provisions which ensure that the exercise of the taxing power by the states does not adversely affect the development of minerals. This power of Parliament to impose limitations or conditions which ensure that that the exercise of the taxing power of the states does not impede mineral development distinct from the power to tax mineral rights which is entrusted to the state legislatures.

198Copy pinpoint198. If Parliament has no legislative competence to tax mineral rights under Entry 54 of List I, can it make use of its residuary powers to gain legislative competence? The answer has to be in in the negative. Article 246 exclusively empowers the state legislatures to make laws with respect to entries in List II, which includes taxes on mineral rights. Article 248 provides that the residuary powers of Parliament shall include the power of making any law imposing a tax not mentioned in either the State List or Concurrent List. Under Entry 97 of List I Parliament can make a law with respect to any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.

199Copy pinpoint199. During the debates in the Constituent Assembly, Dr. B R Ambedkar explained that the purpose of Entry 97 of List I is to include “anything not included in List II or List III.”263 In International Tourist

263 Constituent Assembly Debates, Volume 9 (1 September 1949)

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Corporation v. State of Haryana,264 this Court held that it is necessary to establish the legislative incompetence of the State legislature before Parliament can claim exclusive legislative competence by resorting to the residuary power. A matter can be brought under Entry 97 only if it is not enumerated in List II or List III and in the case of a tax if it is not mentioned in List II. Importantly, it was also observed that the residuary powers of the Union cannot be interpreted so expansively as to whittle down the power of the State legislatures. A subject can be brought under Entry 97 of List I only if it is not enumerated in either List II or List III.265

200Copy pinpoint200. In Province of Madras v. Boddu Paidanna,266 Chief Justice Maurice Gwyer speaking for the Federal Court observed that “[i]t is natural enough, when considering the ambit of an express power in relation to an unspecified residuary power, to give a broad interpretation to the former at the expense of the latter.” The enumeration of taxes on mineral rights in List II is a constitutional entrustment to the states. This Court is bound to abide by the constitutional distribution of legislative powers. The distribution also subserves the principles of fiscal federalism.

201Copy pinpoint201. In Mahalaxmi Fabric Mills (supra),267 the constitutional validity of Section 9(3) of the MMDR Act and a notification fixing new rates of royalty was in question. The Central Government sought to increase the rate of royalty to compensate the state, which had suffered financial losses as a result of the invalidation of the cess imposed by it by the decision in India Cement (supra). The notification was challenged before the High Court of Madhya Pradesh for excessively increasing the rates of royalty by 400 per cent to 2000 per cent as compared to the royalty fixed in 1981 on various varieties of coal. The High Court held that the notification was outside the purview of Section 9(3) of the MMDR Act. Against the decision of the High Court, appeals were filed before this Court. The main contention of the petitioners was that since royalty is a tax, as held in India Cement (supra), Entry 54 of List I is a general entry and did not empower Parliament to impose the tax.

264 [1981] 2 SCR 364 : (1981) 2 SCC 318 [6-A] 265 See All India Federation of Tax Practitioners v. Union of India (2007) 7 SCC 527 [46] 266 (1942) 4 FCR 90 267 (1995) Supp. 1 SCC 642

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202Copy pinpoint202. This Court held that once Parliament enacts a law under Entry 54 of List I and occupies the field in connection with the regulation of mines and mineral development, the state legislature will lose legislative competence with respect to both Entries 23 and 50 of List II. Further, it was observed that since royalty is a tax, the legislative competence of Parliament to enact Section 9 of the MMDR Act could be traced to both Entries 54 and 97 of List I.268

203Copy pinpoint203. The decision in Mahalaxmi Fabric Mills (supra) was followed by a two judge Bench in Saurashtra Cement (supra).269 In State of Orissa v. Mahanadi Coalfields Ltd.,270 a three judge Bench held that the MMDR Act has made exhaustive provisions for “all kinds of taxation on minerals and mineral rights – tax, royalty – fee – dead rent, etc.” which denudes the state legislature of the power to enact any law or to impose any tax or other levy with reference to Entry 23 or Entry 50 of List II.

204Copy pinpoint204. As discussed in the above segments, the field of tax on mineral rights vests with the state legislature. Parliament cannot impose a tax on mineral rights under Entry 54 of List I. Parliament cannot resort to its residuary powers to tax mineral rights when the subject matter is specifically enumerated in Entry 50 of the State List. The fixation of the rates of royalty under Section 9 can be validly traced to Entry 54 of List I because royalty is not a tax. The fixation of the rates of royalty falls with the regulatory powers of Parliament under Entry 54 of List I. The decisions in Mahalaxmi Fabric Mills (supra), Saurashtra Cement (supra), and Mahanadi Coalfields (supra) do not reflect the correct position of law.

205Copy pinpoint205. Entry 50 of List II is not an exception to the Sundararamier principle which is that taxing entries are enumerated separately from the general entries in Lists I and II of the Seventh Schedule. The field of taxation cannot be derived from regulatory legislative entries and has to be derived from a specified taxing entry. This principle has now been well-entrenched in our constitutional jurisprudence.271

268 Mahalaxmi Fabric (supra) [14] 269 [2000] Supp. 4 SCR 44 : (2001) 1 SCC 91 [11] 270 (1995) Supp. 2 SCC 686 271 Federation of Hotel & Restaurant Association of India v. Union of India (1989) 3 SCC 634 [74]; State of Karnataka v. State of Meghalaya (2023) 4 SCC 416 [66]

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A legislature has incidental and subsidiary powers with respect to a legislative entry. However, the power to tax is neither incidental nor subsidiary to the power to legislate on a particular matter in the nature of a regulatory entry.272

206Copy pinpoint206. Entry 50 of List II is subordinated only to the extent of any limitations that may be imposed by Parliament by law relating to mineral development. Unless Parliament imposes a limitation, the plenary power of the state legislature to levy taxes on mineral rights is unaffected.

207Copy pinpoint207. The question of an overlap between the taxing entry and general entry does not arise because Parliament cannot impose taxes on minerals under Entry 54 of List I. There is no direct conflict between the taxing powers of the States under Entry 50 of List II and the regulatory powers of the Union. Resultantly, the principle of federal supremacy has no application in the instant case. Hence, while Entry 50 of List II is sui generis, it does not constitute an exception to the position of law laid down in M P V Sundararamier (supra). b. Nature of “any limitation”

208Copy pinpoint208. Having established that the state legislature has exclusive power to enact laws relating to taxes on mineral rights under Entry 50 of List II the next issue is to determine the nature of the limitations that Parliament can constitutionally impose on the exercise of the taxing powers of the states. To recap, the latter part of Entry 50 of List II has three elements: (i) any limitations; (ii) imposed by Parliament by law; and (iii) relating to mineral development. As held in above segments, the element of “law relating to mineral development” can be traced to Entry 54 of List I. Parliament has enacted the MMDR Act in pursuance of Article 246 read with Entry 54 of List I.

209Copy pinpoint209. In respect to the first element, the petitioners have argued that Parliament has not expressly imposed any limitation under the MMDR Act on the taxing powers of the state under Entry 50 of List II. On the contrary, the respondents argue that the overall scheme of the MMDR Act in itself constitutes a limitation on the taxing powers of the state under Entry 50 of List II.

272 State of Mysore v. D Cawasji and Co (1970) 3 SCC 710 [8]

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210Copy pinpoint210. There is a significant distinction as regard the nature of the restraints imposable by Parliament on the legislative field of the states to regulate mines and the development of minerals, as contrasted with the Parliamentary restraints contemplated on the taxing power of the states over mineral rights. In relation to the former, this distinction emerges from the language of Entry 54 of List I and Entry 23 of List II. As regards the latter, the language of Entry 50 of List II needs analysis for this purpose. We will take up the regulatory power of the states over mines and mineral development under Entry 23 of List II. Entry 23 of List II is expressly subject to the provisions of List I with respect to regulation and development under the control of the Union. The expression “subject to” indicates that the Constitution subordinates Entry 23 of List II to the entries in List I with respect to regulation and development under the control of the Union. In other words, where there is an entry in List I relating to regulation and development under the control of the Union, Entry 23 of the State list has to yield to it. Entry 54 of List I is one such entry, which envisages the regulation of mines and mineral development. Entry 54 of List I is conditioned by three requirements – (i) a declaration by Parliament by law; (ii) envisaging that control of the Union is expedient in the public interest; and (iii) an indication by Parliament in the law of the extent of the control by the Union. Once these three conditions are fulfilled, the field for the states is abstracted away to the extent that is envisaged in the Parliamentary law. The relationship between Entry 23 of List II and Entry 54 of List I is that the latter results in a denudation of the legislative field of the states to the extent envisaged by Parliament by law. The expression ‘extent’ leaves it entirely to Parliament to determine whether the extent of the control by the Union is to be total or partial. The denudation of the legislative field of the states follows such a declaration by Parliament and the extent would be determined by the provisions of the law (the MMDR Act) enacted by Parliament.

211Copy pinpoint211. We may now contrast this with Entry 50 of List II. Entry 50 of List II gives the legislative field of taxing mineral rights to the states. But while doing so, it makes it subject to limitations imposed by Parliament by law relating to mineral development. The words “subject to” appear in both Entry 23 and in Entry 50 of List II. They are words which indicate primacy of Parliament. But in Entry 50 of

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List II, the Constitution envisages that the field of taxing mineral rights which is given to the states will be subject to (i) limitations; (ii) imposed by a law of Parliament relating to mineral development. The expression “regulation of mines” does not find place in Entry 50 of List II (as it does in Entry 23 of List II). Moreover, the law by Parliament relating to mineral development may impose limitations. Entry 50 of List II does not result in the field of taxing mineral rights being conferred on Parliament. This is clear also because there is no specific entry in List I giving the field of taxing mineral rights to the Union. The field of taxing mineral rights is exclusive to the states and continues to remain with them but the field is subject to the limitations imposed by Parliamentary law relating to mineral development. Parliament can determine whether, and if so, how the taxing power of the states over mineral rights should be limited in order to ensure that it does not impede or retard mineral development. If Parliament does so and indicates the nature of the limitations, the states are bound to abide by them while exercising the taxing power over mineral rights. The authority to impose a tax on mineral rights remains with the states but is subject to the limitations envisaged by a law enacted by Parliament in relation to the development of minerals. Under Entry 23, the regulatory power of the State is denuded by Parliament, while in case of Entry 50 the legislative field assigned to the states to tax mineral rights is only limited.

212Copy pinpoint212. The supremacy of Parliament is one of the fundamental features of the English legal system. Our constitutional democracy envisages the supremacy of the Constitution. The subjection of all constitutional authorities to the mandate of a written Constitution is the fundamental feature of our Constitution.273 This Court in In re Powers, Privileges and Immunities of State legislature, Special Reference No. 1 of 1964274 observed that the supremacy of the Constitution is fundamental to the existence of the federal unit and of the member States as a protection against destruction or impairment of the delicate balance of power. The Constitution is the source of the legislative powers of both Union and the states.

273 Kalpana Mehta v. Union of India (2018) 7 SCC 1 [218] 274 [1965] 1 SCR 413 [39]

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Any limitation on the exercise of plenary powers has to be situated within the Constitution and not beyond.

213Copy pinpoint213. In Umeg Singh v. State of Bombay,275 a Constitution Bench held that any limitation on the legislative power of the state legislature must be express: “13. […] The legislative competence of the State can only be circumscribed by express prohibition contained in the Constitution itself and unless and until there is any provision in the Constitution expressly prohibiting legislation on the subject either absolutely or conditionally, there is no fetter or limitation on the plenary powers which the State Legislature enjoys to legislate on the topics enumerated in the Lists 2 and 3 of the Seventh Schedule to the Constitution. […]” “14. The fetter or limitation upon the legislative power of the State Legislature which had plenary powers of legislation within the ambit of the legislative heads specified in the Lists 2 and 3 of the Seventh Schedule to the Constitution could only be imposed by the Constitution itself and not by any obligation which had been undertaken by either the Dominion Government or the Province of Bombay or even the State of Bombay. Under Article 246 the State Legislature was invested with the power to legislate on the topics enumerated in Lists 2 and 3 of the Seventh Schedule to the Constitution and this power was by virtue of Article 245(1) subject to the provisions of the Constitution. The Constitution itself laid down the fetters or limitations on this power e.g. in Article 303 or Article 286(2). But unless and until the court came to the conclusion that the Constitution itself had expressly prohibited legislation on the subject either absolutely or conditionally the power of the State Legislature to enact legislation within its legislative competence was plenary. Once the topic of legislation was comprised within any of the entries in the Lists 2 and 3 of the Seventh Schedule to the Constitution the fetter or limitation on such legislative power had to be found within

275 [1955] 2 SCR 164

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the Constitution itself and if there was no such fetter or limitation to be found there the State Legislature had full competence to enact the impugned Act no matter whether such enactment was contrary to the guarantee given, or the obligation undertaken by the Dominion Government or the Province of Bombay or even the State of Bombay.”

214Copy pinpoint214. In Firm Bansidhar Premsukhdas v. State of Rajasthan,276 this Court reiterated Umeg Singh (supra) by observing that the legislative competence of Parliament or of the State legislature can only be circumscribed by express prohibition contained in the Constitution. It was further observed that unless there is a provision in the Constitution expressly prohibiting legislation on the subject either absolutely or conditionally, there is no fetter or limitation on the plenary powers which the legislature is endowed with for legislating on the topics enumerated in the relevant Lists.

215Copy pinpoint215. Any limitation on the plenary legislative powers of either the Union or the States with respect to a subject in the relevant Lists must be express and specified by the Constitution. c. Scheme of the MMDR Act does not serve as “any limitation”

216Copy pinpoint216. The Union has argued that (i) the MMDR Act occupies the entirety of the subject matter pertaining to mineral development, leaving no scope for the State legislatures to legislate under Entry 50 of List II; (ii) the MMDR Act abstracts the legislative powers of the States under Entry 50 of List II; (iii) the MMDR is a complete code with respect to the regulation of mines and mineral development and no part of the field is left for the States to legislate including on taxation of mineral rights.

217Copy pinpoint217. The respondents have drawn our attention to the following architecture of the MMDR Act to press the point that the states have been deprived of legislative control in respect of mineral development: a. Although the State Government is the owner of minerals, the MMDR Act defines the rights which can be created in those minerals. Section 4 provides that no person can undertake prospecting or mining operations except in accordance with

276 [1966] Supp SCR 81 [7]

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