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

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the Act of 1952. In pursuance of the rule-making power conferred on it by the impugned Act, respondent No.1 purported to make the rules called the Orissa Mining Areas Development Act Rules, 1955 (hereinafter referred to as, “1955 Rules”). The liability for the payment of cess under the impugned Act was notified against the first petitioner’s Rampur colliery therein. Since a demand was made for the payment of cess, there was a challenge made to the same by filing the writ petition under Article 32 of the Constitution before this Court. According to the petitioners, cess levied under the impugned Act was not a fee but in substance a levy in the nature of a duty of excise on the coal produced at the first petitioner’s Rampur Colliery, and as such was beyond the legislative competence of the Orissa legislature. Alternatively, it was urged that even if the levy imposed by the impugned Act is a fee relative to Entries 23 and 66 - List II, it would nevertheless be ultra vires having regard to the provisions of Entry 54 - List I read with Central Act 53 of 1948 (MMRD Act, 1948). According to the respondent-the State of Orissa, the levy imposed by the impugned Act was a fee relatable to Entries 23 and 66 - List II and its validity was not affected either by Entry 54 read with Act 53 of 1948 or by Entry 52 read with Act 65 of 1951. In the alternative, it was contended that if the said levy is held to be a tax and not a fee, it would be a tax relatable to Entry 50 - List II and as such the legislative competence of the State legislature to impose the same cannot be successfully challenged. 11.1 The scheme of the impugned Act was considered in paragraph 15 of the judgment and it was observed by this Court that the object of the Act was for the purpose of development of mining areas in the State. That the method in which the fee is recovered is a matter of convenience that by itself cannot fix upon the levy the character of duty of excise though the method in which an impost is levied may be relevant in determining its character, its significance and effect. Therefore, it was observed that under the impugned Act, the mere fact that the levy imposed by the impugned Act had adopted the method of determining the rate of the levy with reference to the minerals produced by the mines would not by itself make the levy a duty of excise. The method thus adopted may be relevant in considering the character of the impost but its effect must be weighed along with and in the light of the other relevant circumstances; where an impugned

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statute passed by a State legislature is relatable to an Entry in List II, it is not permissible to challenge its vires only on the ground that the method adopted by it for the recovery of the impost can be and is generally adopted in levying a duty of excise. Therefore, it was held that cess in question was neither a tax nor a duty of excise but a fee. 11.2 If the cess was held to be a fee relatable to Entries 23 and 66 - List II, its validity was still open to challenge because the legislative competence of the State Legislature under Entry 23 is subject to the provisions of List I with respect to regulation and development under the control of the Union. 11.3 According to this Court, on a combined reading of two Entries, namely, Entry 23 - List II and Entry 54 - List I, what emerged was that the jurisdiction of the State legislature under Entry 23 - List II 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 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 - List I, 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 Entry 23 - List II is a limitation on the legislative competence of the State legislature itself and this position was not in dispute. It was urged that the field covered by the impugned Act was already covered by the Mines and Minerals (Regulation and Development) Act, 1948, (53 of 1948) and in view of the declaration made by Section 2 of the Act, the impugned Act was ultra vires. Section 2 of the said Act contained a declaration as to the expediency and control by the Central Government. This Court opined that if it was held that this Act contained the declaration referred to in Entry 23 - List II, there would be no difficulty in holding that the declaration covered the field of conservation and development of minerals and the said field is indistinguishable from the field covered by the impugned Act. What Entry 23 - List II, provides is that the legislative competence of the State Legislature is

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subject to the provisions of List I with respect to regulation and development under the control of the Union, and Entry 54 - 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, then it would not be competent of the State legislature to pass an Act in respect of the subject-matter covered by the said declaration. In such a case, the test must be whether the legislative declaration covers the field or not. It was observed that field covered by the impugned Act was covered by the Central Act 53 of 1948. 11.4 Wanchoo, J. (as His Lordship then was) gave a separate opinion in the said case by stating that cess levied on all extracted minerals from any mine in any mining area at a rate not exceeding five per centum of the value of the minerals at the pit’s mouth by the Orissa State legislature under Section 4 of the Act of 1952 (Act 27 of 1952) was a fee properly so called and not a duty of excise. 11.5 The next contention considered by Wanchoo, J. was that if the cess is not justified as a fee, it is a tax under Item 50 of List II. Item 50 List II provides for taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development. The question was as to what are taxes on mineral rights. It was held by Wanchoo, J. that taxes on mineral rights would be confined to taxes on leases of mineral rights and on premium or royalty. Taxes on such premium and royalty would be taxes on mineral rights while taxes on the minerals actually extracted would be duties of excise. Consequently, the writ petition was dismissed. M.A. Tulloch:

12. In M.A. Tulloch, also before a Constitution Bench, the question was with regard to the validity of the imposition of the Orissa Mining Areas Development Fund Act, 1952 (Orissa Act 27 of 1952) and cancellation of the notices of demand issued. The High Court had allowed the petition of the respondents therein by observing that the Orissa Act had been rendered ineffective or suppressed by a Central Act, namely, MMDR Act, 1957, w.e.f. 01.06.1958. Considering Entry 23 - List II and Entry 54 - List I, the High Court held that the Orissa Act ceased to be operative by reason of the withdrawal of legislative

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competence by force of the Entry in the State List being subject to the Parliamentary declaration and the law enacted by Parliament. Therefore, w.e.f. 01.06.1958 the Orissa Act was deemed to be non-existent as there was lack of power to enforce and realise the demands for the payment of the fee at the time when the demands were issued and were sought to be enforced. The correctness of this judgment was considered by a Constitution Bench of this Court. 12.1 It was observed that to the extent to which the Union Government had taken under “its control” “the regulation and development of minerals” so much was withdrawn from the ambit of the power of the State legislature under Entry 23 - List II and the legislation of the State which had rested on the existence of power under that Entry would, to the extent of that “control”, be superseded or be rendered ineffective. This was because there was a denudation of State legislative power by the declaration which Parliament was empowered to make and had made (vide Section 2 of MMDR Act, 1957). It was observed that the States would lose legislative competence only to the “extent to which regulation and development under the control of the Union had been declared by Parliament to be expedient in the public interest”. The crucial enquiry had therefore to be directed to ascertain this “extent” for, beyond it, the legislative power of the State remained unimpaired. 12.2 Thus, the scheme of Orissa Act, which was a 1952 Act, was considered in juxtaposition of the MMDR Act, 1957, also called as ‘Central Act’. The question considered was “whether the extent of control and regulation” provided by the Central Act took within its fold the area or the subject covered by the Orissa Act. The test was if the entire field of mineral development was taken over by the Central Act that would include the provision of amenities to workmen employed in the mines which was necessary in order to stimulate or maintain the working of mines. The test was, therefore, if under power confirmed by Section 18(1) of the Central Government had made rules providing for the amenities for which provision was made by the Orissa Act and if the Central Government had imposed a fee to defray the expenses of the provision of these amenities, would such rules be held to be ultra vires the Central Act, particularly, when taken in conjunction with the matters for which rules could be made under Section 13 to which reference has been made.

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12.3 The Court observed that in Hingir-Rampur case, the Orissa Act was a post-Constitution enactment (1952 Act), whereas the Central Act of 1948 was a pre-Constitution law and under Entry 54 - List I “Parliament” had not made the requisite declaration. The previously existing Central law was held not to be within the terms of Entry 54 - List I and therefore, the State enactment was held to continue to be operative. But later when the Central law i.e. MMDR Act, 1957 contains the requisite declaration by the Union Parliament under Entry 54 - List I and that Act covers the same field as the Act of 1948 (Central Act) in regard to mines and mineral development, it was observed that unless there were any material differences between the scope and ambit of the Central Act 53 of 1948 and that of the Act of 1957, the matter was concluded. Consequently, the writ petition was dismissed. Baijnath Kedia:

13. A Constitution Bench of this Court had the occasion to consider the provisions of the MMDR Act, 1957 in light of the Bihar Land Reforms Act and the amendment thereto. In Baijnath Kedia, it was the contention that amendment of Section 10 of the Bihar Land Reforms Act was ultra vires the Constitution and that Rule 20(2) did not legally entitle recovery of the dead rent, royalty, etc. as mentioned in the Schedules to the Bihar Minor Mineral Concession Rules, 1964. The dispute arose on account of the appellants therein receiving letters to the effect that in view of the amendment to Section 10 of the Bihar Land Reforms Act, 1950 and all leases for minor minerals having stood statutorily substituted by the corresponding terms and conditions by the Bihar Minor Mineral Concession Rules, 1964, the rent and royalty etc. in respect of minor minerals in the State (irrespective of the date on which the lease was granted) were to be paid as per the aforesaid Rules with effect from 27.10.1964. The appellant therein denied their liability to pay. The State of Bihar submitted that the terms of the original lease having being validly altered by the operation of the second proviso to Section 10(2) of the Bihar Land Reforms Act, 1950 in addition to Section 10A of the said Act, the State Government was entitled to collect dead rent, royalty etc. from the lessees who had been granted lease so long as there was a lease subsisting on the date of the commencement of the amendment.

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13.1 M. Hidayatullah, C.J. speaking for the Bench traced the history of the legislation on the subject of mines and minerals by referring to Entry 36 of the Federal Legislative - List I and Entry 23 of the Provincial Legislative - List II of the Seventh Schedule of the Government of India Act, 1935 and also made reference to Entry 54 - List I - Union List, Entry 23 – List II - State List. That the Mines and Minerals (Regulation and Development) Act, 1948, (“MMRD Act, 1948”) had a declaration under Section 2 to the same effect as the declaration under Section 2 of the MMDR Act, 1957. This Court held that once the MMDR Act, 1957 was enacted by the Parliament, the Union had taken all the powers to itself and had authorised the State Government to make Rules for the regulation of leases. By the declaration and the enactment of Section 15 of the MMDR Act, 1957, the whole of the field relating to minor minerals came within the jurisdiction of Parliament and no scope was left for the enactment of the second proviso to Section 10(2) in the Bihar Land Reforms Act. The enactment of the proviso was, therefore, without jurisdiction. Consequently, the appeals were allowed and the State of Bihar was restrained from enforcing the second proviso to Section 10(2) added to the Bihar Land Reforms (Amendment) Act, 1964. HRS Murthy:

14. HRS Murthy vs. Collector of Chittoor, AIR 1965 SC 177 (“HRS Murthy”) is also a decision of the Constitution Bench. In this case, the validity of notices of demand for the payment of land cess under the Madras District Boards Act, 1920 (‘Madras Act’, for short) and the legality of the procedure for the recovery of the amount of the said cess was questioned. The impugned notices made a demand also for education cess which was merely a proportion of the land-cess. 14.1 In the year 1953, the appellant’s father therein had obtained a mining lease from the Government of Madras under which he was permitted to work and win iron ore in a tract of land in a village in Chittoor district. On separation of State of Andhra from State of Madras a demand was made upon the father of the appellant therein for the payment of land cess calculated in accordance with the provisions of Sections 78 and 79 of the aforesaid Act. The notices issued were questioned before the Madras High Court and thereafter by way of a Special

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Leave Petition the matter was heard by this Court along with a Writ Petition also filed by the very same appellant. One of the contentions raised was with regard to the meaning of the expression royalty under Section 79(1) of the Madras Act. Did it include the royalty payable under a mining lease on the ore won by the lessee? On the meaning of the word, royalty, it was contended that the said expression under Section 79(1) of the Madras Act was something other than the return to the lessor or licensor and it connotes the payment made for the materials or minerals won from the land. The expression royalty under Section 79(1) of the said Act did not signify royalty as commonly understood but was confined to the rent payable for beneficial use of the surface of the land. This contention was rejected and it was observed that royalty which follows the expression lease-amount is something other than the return to the lessor or licensor for the use of the land surface and represents, as it normally connotes, the payment made for the materials or minerals won from the land. 14.2 The judgments in Hingir-Rampur and M.A. Tulloch were considered. It was observed that the power to impose the cess was not available after the Central Acts of 1948 and 1957 came into force. It was contended that since the cess was payable only in the event of the mining lessee winning the mineral and no royalty was paid when no minerals were extracted, it was in effect a tax on the minerals won and, therefore, on mineral rights. However, this argument was not accepted. It was observed that when a question arises as to the precise head of legislative power under which a taxing statute has been passed, the subject for enquiry is, what in truth and substance, is the nature of the tax. It was observed that, no doubt, cess has a remote connection to the mineral won but that does not stamp it as a tax on either the extraction of minerals or on the mineral rights. The Court found it unnecessary for the purpose of this case to examine the question, as to what exactly is a tax on mineral rights seeing that such a tax is not leviable by Parliament but only by the State and the sole limitation on the State’s power to levy the tax is that it must not interfere with a law made by Parliament as regards mineral development. It was observed that there was no law enacted by Parliament which

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was contrary to the State power to levy the tax and in effect the cess under Sections 78 and 79 of the Madras Act was a “tax on lands” within Entry 49 - List II. In the circumstances, it was observed that the cess was lawfully imposed upon land and hence, the appeals and writ petitions were dismissed. 14.3 This Court, in India Cement held at para 34 that royalty is a tax and did not approve the dictum in HRS Murthy. It is the above conclusion which was doubted by a five-judge Bench in Kesoram and other cases which has led to the constitution of this nine-judge Bench in order to consider the correctness of the aforesaid verdicts. Therefore, it is necessary to consider the facts and the reasoning in India Cement. India Cement:

15. In India Cement, Section 115 of Madras Panchayats Act, 1958 as amended by the Madras Act, 1964 came up for consideration. The demand of a local cess on royalty on exercise of a mineral right was questioned. The appellant therein was engaged in mining operations and on execution of the lease deed had paid royalties, dead rents and other amounts payable on the said deed. The imposition of the local cess was with retrospective effect along with local cess surcharge under Section 116 of the aforesaid Act. The contention of the appellant therein was that the cess on royalty could not be levied. According to the seven-judge Bench, the question which fell for consideration and determination was whether cess on royalty could be a valid levy imposed by the State of Tamil Nadu. 15.1 Under Section 115(1) of the amended Act a local cess at the rate of 45 paisa on every rupee of land revenue payable to the Government in respect of any land for every fasli was envisaged. An Explanation to the said Section was added and was deemed always to have been incorporated by the Tamil Nadu Panchayats (Amendment and Miscellaneous Provisions) Act, 1964 (Amending Act) which provided as under: “Explanation- In this section and in Section 116, “land revenue” means public revenue due on land and includes water cess payable to the Government for water supplied or used for the irrigation of land, royalty, lease amount or other sum payable to the

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Government in respect of land held direct from the government on lease or licence, but does not include any other cess or the surcharge payable under Section 116, provided that land revenue remitted shall not be deemed to be land revenue payable for the purpose of this section.” (emphasis by me) Sub-section 2 of Section 115 of the amended Act provided that the local cess shall be deemed to be a public revenue due on all the lands in respect of which a person is liable to pay local cess and all the buildings upon the said land and their products shall be regarded as security for the local cess. Section 116 of the amended Act reads as follows: “116. Every panchayat union council may levy on every person liable to pay land revenue to the government in respect of any land in the panchayat union a local cess surcharge at such rate as may be considered suitable as an addition to the local cess levied in the panchayat development block under Section 115 provided that the rate of local cess surcharge so levied shall not exceed two rupees and fifty paise on every rupee of land revenue payable in respect of such land.” (emphasis by me) 15.2 A writ petition was filed in the Madras High Court by the appellant therein, which was dismissed by a learned Single Judge holding that cess levied under Section 115 of the amended Act was a tax on land and as such, fell under Entry 49 - List II-State List and was within the competence of the State legislature. Reliance was placed on a decision of this Court in HRS Murthy. Against the order of the learned Single Judge, a writ appeal was filed before the Division Bench of the High Court, which was also dismissed by holding that local cess authorised by Section 115 of the amended Act “was not land revenue but is a charge on the land itself and Section 115 merely qualified the basis of quantum of the land revenue.” The Division Bench of the Madras High Court held that the meaning of the Explanation added to Section 115 was that the cess was levied as a tax on land and

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was measured with reference to land revenue which also meant, royalty, lease amount etc., as mentioned in the Explanation. The Division Bench of the High Court also relied on the decision of this Court in HRS Murthy and held that it was not possible to accept the contention of the appellant therein that Section 115 of the said Act read with the Explanation contravened in any manner Section 9 of the MMDR Act, 1957. 15.3 In the said case, this Court at the outset observed that under the Second Schedule of the MMDR Act, 1957 rates have been provided with regard to the payments of royalty to the Government under the lease deed. Thus, there was an obligation on the lessee to pay rent and other charges mentioned under the clauses of the lease deed and all other Central and State Government dues “except demands for land revenue”. The question which was framed by the seven-judge Bench of this Court was whether cess on royalty was a demand of land revenue or additional royalty. 15.4 As already noted, the aforesaid Explanation added to Section 115 of the said Act by virtue of the Amended Act was to include “royalty, lease amount and other sums payable to the government” in the definition of “land revenue” and also to validate the levy and collection of the cess and surcharge by giving the Explanation a retrospective effect. As a result, the said amendment was intended to bring royalty payable on a mining lease as per Section 9 of the MMDR Act, 1957 within the Explanation which was the definition of “land revenue” applicable to Section 115 as well as Section 116 of the said Act. 15.5 This Court noted that the appellant, India Cement Limited, was paying royalty which was prescribed under the lease deed as fixed under MMDR Act, 1957 and as per the Rules made thereunder, the same being a Parliamentary Act by which the control of mines and minerals has been taken over by the Union. That the MMDR Act, 1957 is an Act for the regulation of mines and development of the minerals under the control of the Union of India. It was noted that Section 2 of the Act declares that it is expedient in the public interest that the Union of India should take under its control the regulation of mines and the development of the minerals to the extent provided in

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the Act. Section 9 of the MMDR Act, 1957 deals with payment of royalty in respect of mining leases. This Court observed that the MMDR Act, 1957 was passed by virtue of the power of the Parliament under Entry 54 - List I. Since the control of mines and the development of minerals were taken over by Parliament, the question whether the impugned levy or the impost by the State Legislature, under the provision of the State Legislation referred to above, could be justified or sustained either under Entries 49, 50 or 45 - List II was considered. In paragraph 19 of India Cement, this Court considered Guruswamy & Co., vs. State of Mysore, AIR 1967 SC 1512, (“Guruswamy”) to indicate what a cess is. On analysing Sections 115 and 116 of the Madras legislation referred to above, this Court observed that the expression royalty in the Explanation could not be included in the definition of “land revenue” properly called or conventionally known, which is separate and distinct from royalty. 15.6 Reference was also made to the Judgments of the Mysore High Court in M/s Laxminarayana Mining Co., Bangalore vs. Taluk Development Board, AIR 1972 Mys 299 (“Laxminarayana Mining Co.”) and Patna High Court in Laddu Mal vs. The State of Bihar, AIR 1965 Pat 491, (“Laddu Mal”) and the Judgment of this Court in HRS Murthy. It was observed that in the latter case attention of this Court was not invited to the provisions of MMDR Act, 1957 and Section 9 thereof and the Second Schedule to the said Act. Under the above provisions, there was a clear bar on the State legislature taxing royalty payable under Section 9 of the said Act so as to in effect amend the Second Schedule of the said Act. Therefore, it was held that tax on royalty can be a tax on land or called land revenue. Even if it is a tax, which falls within Entry 50 - List II it will be ultra vires the State legislative power in view of Section 9(3) read with Section 2 of MMDR Act, 1957, which is a Parliamentary law. In the above legislative background, this Court held that royalty was a tax or “land revenue” under the Explanation clause referred to above, which could not be the basis for levy of cess as, by that, cess on royalty payable would not be in consonance with what is stipulated under Section 9(3) of the MMDR Act, 1957 but would exceed the amount so stipulated which would not be within the legislative competence to levy in view of Section 2 of MMDR Act, 1957 read with Entry 50 - List I.

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15.7 This Court further referred to the judgments of Rajasthan, Punjab, Gujarat and Orissa High Courts, which had held that royalty is not a tax, namely, Bherulal vs. State of Rajasthan, AIR 1956 Rajasthan 161, (“Bherulal”); Dr. Shanti Saroop vs. State of Punjab, AIR 1969 P & H 79, (“Dr. Shanti Saroop”); Saurashtra Cement and Chemical Industries Ltd. Ranavav vs. Union of India, AIR 1979 Guj 180 (“Saurashtra Cement and Chemical Industries”); and Laxmi Narayan Agarwalla vs. State of Orissa, AIR 1983 Ori 210, (“Laxmi Narayan Agarwalla”) but did not find it necessary to discuss the same in the view it was taking and having regard to there being no discussion of the constitutional provisions in the aforesaid cases. 15.8 The contention of the State of Tamil Nadu in India Cement was that the State has a right to tax minerals and that in Entry 50 - List II, there was no limitation to the taxing power of the State. This was not accepted and it was held that in view of Section 9(2) of the MMDR Act, 1957 the field was fully covered by the said Act which is a Central legislation. In paragraph 33, it was further observed that royalty is directly relatable only to the minerals extracted and on the principle that the general provision is excluded by the special one, royalty would be relatable to Entry 50 - List II and not Entry 49 - List II. That as the field is covered by the Central legislation i.e. the MMDR Act, 1957, the impugned provisions of the State legislation cannot be upheld. Ultimately in paragraph 34 of the Judgment of this Court, it is observed as under: “34. In the aforesaid view of the matter, we are of the opinion that royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State legislature because Section 9 of the Central Act covers the field and the State legislature is denuded of its competence under Entry 23 of List II. In any event, we are of the opinion that cess on royalty cannot be sustained under Entry 49 of List II as being a tax on land. Royalty on mineral rights is not a tax on land but a payment for the user of land.”

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A reading of paragraph 34 would indicate as follows: (i) Cess on royalty being a tax on royalty, is beyond the competence of the State legislature because Section 9 of the Central Act ie., MMDR Act, 1957, covers the field. (ii) As a result, the State Legislature is denuded of its competence under Entry 50 - List II to impose any cess on royalty which is collected under Section 9 of the MMDR Act, 1957. (iii) Cess on royalty cannot be sustained under Entry 49 - List II as being a tax on land. (iv) Royalty on mineral rights is not a tax on land but a payment for the user of land. (v) However, under the Tamil Nadu legislation, royalty paid under the provisions of MMDR Act, 1957 was construed to be “land revenue” on which cess was levied, which was beyond the competence of the State Government as royalty is paid by a holder of a mining lease under the MMDR Act, 1957, a Central Act as a tax. (vi) Thus, royalty is a tax. 15.9 The aforesaid conclusion was so arrived, inter alia, because the Explanation to Section 115 of the aforesaid amended Tamil Nadu Act defined ‘land revenue’ to include royalty, lease amount or any other sum payable to the Government in respect of land held direct from the Government on lease or licence. Local cess on every rupee of “land revenue” was payable as per the above definition which meant royalty. This meant that on royalty payable on mining leases in respect of mineral bearing lands in the State of Tamil Nadu, which was included in the definition of land revenue, a further local cess was payable. Therefore, payment of royalty on a mining activity in exercise of a mineral right was construed to be “land revenue” and the basis for imposing a local cess. The payment of cess was in addition to payment of royalty under the provisions of the MMDR Act, 1957, which is a Central enactment. Thereby the payment to be made by a holder of a mining lease was a local cess to be paid under the Tamil Nadu Act in addition to royalty being

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paid under the MMDR Act, 1957. Moreover, under Section 116 of the Tamil Nadu Act, a Panchayat Union Council could also levy a local cess surcharge on every person liable to pay land revenue to the State Government in respect of any land in the Panchayat Union. The levy of local cess and local cess surcharge on the payment of royalty by a holder of a mining lease would inevitably increase the price of minerals extracted in the State of Tamil Nadu over and above what is otherwise the price that could be fixed which would include, inter alia, only the royalty charges. Therefore, the increase in the price of a particular mineral extracted in the Tamil Nadu by virtue of the local cess and surcharge on local cess would not be in the interest of mineral development as it would lead to price escalation in the State of Tamil Nadu. This is not in the interest of mineral development as this would lead to every State imposing local cesses/imposts/tax on the minerals extracted in the respective States over and above royalty payable under the MMDR Act, 1957 which is a structured levy in the form of a tax to be determined only by the Central Government in order to maintain uniformity in the price of a mineral extracted throughout the country. But if over and above payment of royalty by a holder of a mining lease, local cesses and surcharges are also imposed based on the royalty paid, it would be contrary to Entry 54 - List I and the declaration made under Section 2 of the MMDR Act, 1957 and the scheme of the said Act which envisages only payment of royalty on the minerals extracted. 15.10 Further, royalty could not be the basis for levy of cess construed as “land revenue” by the Tamil Nadu Act as this would make royalty a tax on land and cess on royalty would make it a tax which a State is not permitted to levy on mineral bearing land in view of Section 9 of the MMDR Act, 1957. Having regard to the provisions of MMDR Act, 1957, it was held that royalty is a tax. The same cannot be included within the definition of “land revenue” which itself is a tax which a State cannot make as the basis for imposing a cess or a surcharge on cess. Therefore, in paragraph 34 of the Judgment in India Cement, the seven-judge Bench of this Court held that royalty is a tax and therefore cess on royalty being a tax on royalty was beyond the competence of the State legislature. This

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was having regard to the scheme of MMDR Act, 1957 and the Rules made thereunder as discussed above. Further, Entry 49 - List II could not be relied upon by the State Government to impose a cess on royalty by treating it as a land revenue and as a tax on land. This was because payment of royalty was under Section 9 of the MMDR Act, 1957 as a tax on exercise of mineral rights. Hence, it was observed in paragraph 34 itself that “Royalty on mineral rights is not a tax on land but a payment for the use of land.” It is in the above legal framework of the Tamil Nadu Act and the Entries in List I and List II and having regard to the object and scheme of MMDR Act, 1957 and the Rules made thereunder that the conclusion in paragraph 34 was arrived at. Ultimately, it was held that the levy of cess and surcharge on cess on the royalty payable was ultra vires the power of the State Legislature. As a result, the appeals filed by the appellant in India Cement, were allowed. As already noted, reference was made in detail to two decisions of the Patna and Mysore High Courts in arriving at the above conclusion by this Court which could be discussed at this stage. Laddu Mal:

16. In Laddu Mal, notices issued to the brick-layers by the Assistant Mining Officer, Purnea, Bihar calling upon them to pay royalty were assailed. The petitions challenged the notices mainly on the ground that what were being used by them for manufacture of bricks, which were minor minerals and therefore, the Bihar State Government had no authority in law to impose any royalty in respect of minor minerals. In the said case, the High Court considered the definition of “taxation” under Article 366(28) of the Constitution of India to include the imposition of any tax or impost and observed that the expression royalty is used in a secondary sense to signify that part of the reddendum which is variable and depends upon the quantity of minerals taken out. It is a payment made to the land owner by the lessee of the mine, in return of the privilege of working which is different from rent. Royalty is a levy in proportion to the minerals worked. Royalty is an impost by the Government and was in the nature of tax because it was a compulsory exaction recoverable, in the event of non-payment, as if it was arrears of land revenue. That royalty on mines and minerals is not a fee but a levy which is in

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the nature of a tax. Article 265 of the Constitution provides that no tax shall be levied or collected except by authority of law and the State Government had no authority to impose and demand royalty for mines and minerals. 16.1 With reference to Entry 54 - List I and Entry 23 - List II, it was observed that the area of operation of the two Entries has been kept separate and distinct. Anything beyond what is declared by Parliament to be expedient in the public interest to be kept under the control of the Union, will be under the legislative ambit of the State in regard to mines and mineral development in the State. The MMDR Act, 1957 is an enactment of the Parliament for the regulation of mines and the development of minerals under the control of the Union. Referring to various provisions of the MMDR Act, 1957 such as Section 3(a) which defines “minerals” to include all minerals except mineral oils; “mining lease” in Section 3(c) and ”mining operations” in Section 3(d) and the definition of ‘minor minerals” in Section 3(e) of the said Act, it was observed that Section 2 of the said Act declared that it was expedient in public interest that the Union should take under its control the regulation of mines and the development of minerals to the extent provided. Further, on a reading of Sections 4 to 13 of the said Act, it was clear that the Parliament gave control of all mines and minerals except mineral oil, to the Union Government. However, in Sections 14 and 15, an exception was carved with regard to minor minerals. Therefore, Entry 54 - List I gave the power to the Union Government to regulate all mines and development in minerals except oils thereby leaving no area for legislation in that respect to the State Legislature. That, insofar as ‘minor minerals’ are concerned, the State Governments were authorised to make rules for regulation of grant of prospective licenses and mining leases and for purposes connected therewith and it is also a delegated authority given to the State Government and not the State Legislature. 16.2 Taking into consideration Entry 50 - List II, which deals with taxes on mineral rights subject to any limitation imposed by the Parliament by law relating to mineral development, it was observed that in view of the limitation imposed by the Parliament under the MMDR Act, 1957, it was doubtful if any legislative competency has been left for the State Legislature to impose

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any tax on mineral rights. Discussing Section 9 of the MMDR Act, 1957, it was observed that the same mandates payment of royalty by the holder of a mining lease in respect of any mineral removed by him after the commencement of the Act at a rate specified in the Second Schedule thereof. The Union Government had been empowered to enhance or reduce such rate, subject to certain conditions. That the Parliament had given power to the Union Government to modify the rates of royalty for all minerals except for minor minerals in respect of which the matter was left to the States. Insofar as minor minerals are concerned, imposition of royalty was within the power of the State Government by way of rules. Also, rules made by the State Government prior to the enforcement of the MMDR Act, 1957 continued to be operative till fresh rules were enforced, being the Bihar Minor Mineral Concession Rules, 1984. It was reasoned that, Entry 54 - List I uses the expression “mines and minerals” which includes (i) regulation of mines and (ii) mineral development. Therefore, widest possible meaning should be given to the said expression considering the question in the context of the Bihar Minor Minerals Concession Rules, 1954 and the impugned notices demanding royalty. Consequently, the notices issued by the Assistant Mining Officer calling upon the petitioners to pay royalty on account of brick-earth were quashed. Laxminarayana Mining Co.:

17. Reference was made to the judgment of the Mysore High Court in Laxminarayana Mining Co. authored by Venkataramiah, J. (as His Lordship then was), in India Cement. In the said case it was observed that on a combined reading of Entries 23 and 50 - List II and Entry 54 - List I it established that as long as the Parliament did not make any law in exercise of its power under Entry 54 - List I the powers of the State Legislature in Entries 23 and 50 - List II would be exercisable by the State Legislature. But once the Parliament makes a declaration by law that it is expedient in the public interest to make regulation of mines and development of minerals under the control of the Union, to the extent to which such declaration is made, such regulation and development is undertaken by law made by Parliament and the powers of the State Legislature under Entries 23 and 50 - List II are denuded.

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17.1 In this case, the Mysore Village Panchayats and Local Boards Act, 1959, (‘State Act’, for short) by enacting Sections 143 and 144 intended to confer power on the Taluk Board to levy a licence fee on the mining of manganese ore, iron ore etc carried on by persons holding mineral concessions i.e. on the activity of mining. 17.2 By Notification issued under the aforesaid provisions, persons engaged in mining of manganese iron ore, etc. with the help of machinery or without the help of machinery, as the case may have been, under Entries 62 and 63 of the Schedule to the aforesaid State Act had to pay a licence fee. Aggrieved by the notices of demand and the Notification issued under Sections 143 and 144 of the aforesaid State Act, the petitioners therein had filed the writ petition seeking quashing of the notices of demand and the Notification in so far as they levied licence fee under the aforesaid provisions. Further, Sections 143 and 144 of the State Act provided for regulation of certain trades and the relevant part of Schedule II of the State Act, on the basis of which the impugned Notification was issued which provided for the levy of a licence fee on any purpose or the doing in the course of any industrial process, which, in the opinion of the Taluk Board, was likely to be dangerous to human life, or health or property or was likely to create or cause a nuisance. The following three main contentions were urged by the petitioners therein: - (i) that the State Legislature could not have made a law authorising the imposition of the impugned levy after the Mines and Minerals (Regulations and Development) Act, 1957 (Central Act LXVII of 1957) came into force; (ii) that the Notification in so far as it levied licence fee on the mining activities carried on by the petitioners therein was outside the scope of Sections 143 and 144 of the State Act; and (iii) that the licence fee in question which was in the nature of a tax and could not have been levied because Sections 143 and 144 of the State Act did not confer power on the Taluk Development Board to levy a tax.

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17.3 The respondent-State of Mysore had sought to contend that the demand notices as well as the Notification were rightly issued and that the licence fee demanded by the them was in the nature of a tax and that the Taluk Development Board had the competence to levy the same as the State Legislature was authorised by Entry 23 - List II to make law with respect to regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union. It was further contended that Entry 50 – List II of the same list authorised the State Legislature to levy tax on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development. 17.4 After referring to the scheme of the MMDR Act, 1957 as well as the Mineral Concession Rules, 1960, the High Court reasoned that the State enactment was passed in the year 1959 whereas the MMDR Act, 1957 was passed in the year 1957. Section 143 of the State Act dealt with regulation of certain trades. The notification issued under Sections 143 and 144 of the aforesaid State Act had mandated that the owner or occupier of a place for the purpose of mining of manganese ore or iron ore etc. with the help of machinery or without the help of machinery had to pay a licence fee for the use of such place. Relying upon Hingir-Rampur and M.A. Tulloch, and distinguishing HRS Murthy, it was observed that this Court had in unequivocal terms had held that in respect of matters dealt with by the Central Act, i.e. MMDR Act, 1957, the State Legislature had no authority to make any law. 17.5 It was also observed that this Court in Hingir-Rampur or in HRS Murthy did not decide the question as to what meaning should be given to the expression ‘tax on mineral rights’ appearing in Entry 50 – List II. It was further reasoned in paragraphs 17 and 18 as under: “17. Entry 50 in List II which authorises the levy of tax on mineral rights is subject to limitations imposed by Parliament by law relating to mineral development made in exercise of its power under Entry 54 of List I. It was contended on behalf of the respondents that in the instant case the tax was not

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on mineral rights, but on the activity of mining carried on in certain areas. We find it difficult to accept the said contention. As observed by the Supreme Court in State of Orissa v. M.A. Tulloch, AIR 1964 SC 1284 by making a declaration under Section 2 and enacting Section 18 of the Central Act, the intention of the Parliament to cover the entire field of mineral development including tax on mineral rights is made clear. The levy of royalty under Section 9 of the Central Act and the provision for making rules with regard to the fixation and collection of dead rent, fines and fees or other charges and the collection of royalties on prospecting licence and mining lease and the provisions of Section 25 of the Central Act authorising the recovery of any tax payable under the Central Act as arrear of land revenue, clearly shows that the Parliament intended that the power to legislate with regard to taxation on mineral rights also should be assumed by it to the exclusion of the State Legislatures. The expression ‘royalty’ is used differently in different contexts. Sometimes it is used as equivalent to a tax also and in some other cases it is used as representing the amount payable by a lessee in respect of minerals removed by the lessee even though the lessor is not the sovereign Government we are of the opinion that the expression ‘royalty’ in Section 9 which requires payment of royalty to the State Government as prescribed in the II Schedule connotes the levy of a tax. Vide Laddu Mal v. The State of Bihar, AIR 1965 Pat 491. It is a levy falling outside the scope of Entry 84 in List I which provides for levy of excise duty by Parliament but within the scope of the expression ‘tax on mineral rights’ within the meaning of that expression in Entry 50 of List II. To us it appears the expression ‘tax on mineral rights’ includes within its scope the royalty payable on minerals extracted. Mineral rights and mining activity carried on in exercise of those mineral rights appear to us to be indistinguishable in the above

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context. That appears to be the true intendment of the declaration contained in Section 2 of the Central Act and that it is so enacted in order to see that throughout the ‘Indian Union, the rents, royalties and other taxes payable in respect of mining and minerals are uniform. It may be recalled here that in Hingir Rampur Coal Company’s case, AIR 1961 SC 459 the Supreme Court has stated that the scope of the Central Act is wider than the scope of the Central Act LIII of 1948 which by Section 6(2) provided for making rules regarding levy and collection of royalties fees or taxes on minerals mined, quarried or excavated (vide paragraph 24 of the judgment).

18. We are, therefore, of the opinion that by the enactment of the Central Act, the State Legislature lost its legislative power under Entries 23 and 50 of List II to the extent indicated in the Central Act. Hence, we cannot accept the contentions of the respondents that even after the passing of the Central Act, the State Legislature by enacting Section 143 of the State Act intended to confer power on the respondents to levy tax on the mining activities carried on by persons holding mineral concessions. It follows that levy of tax on mining by respondents as Per the impugned notification is Unauthorised and is liable to be set aside. … … What is however liable to be set aside is the notification issued by respondent 1 in exercise of its power under Section 143 of the State Act to the extent it levies a tax on mining of manganese or iron ore.” The Mysore High Court held that royalty under Section 9 of the MMDR Act, 1957 is in the nature of a tax. Therefore, the levy of a licence fee on mining activity by the Taluk Board as per the impugned notification issued under the aforesaid provision was unauthorised and was set aside as there was no power vested under Entry 50 – List II after the enforcement of MMDR Act, 1957. This was because Section 9 was a limitation imposed by Parliament on Entry 50 – List II.

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17.6 This judgment is instructive inasmuch as it put into perspective what was required to be decided, i.e. whether royalty is a tax within the scope and meaning of Section 9 and other relevant provisions of the MMDR Act, 1957 and not from any other perspective. Orissa Cement:

18. Subsequent to the judgment in India Cement, the validity of the levy of a cess, based on the royalty derived from mining lands, by the States of Bihar, Orissa and Madhya Pradesh was challenged in Orissa Cement in the respective appeals filed by the State. On discussing the legislative Entries and earlier decisions of this Court and having regard to Section 2 of the MMDR Act, 1957 and the various State enactments under which cess on royalty was sought to be levied, this Court raised two questions as under: “(1) Can the cess be considered as “land revenue” under Entry 45 or as a “tax on land” under Entry 49 or as a “tax on mineral rights” under Entry 50 of the State List? (2) If the answer to question (1) is in the negative, can the cess be considered to be a fee pertaining to the field covered by Entry 23 of the State List or has the State been denuded of the legislative competence under this Entry because of Parliament having enacted the MMRD Act, 1957?” After a detailed discussion, in paragraph 37 of Orissa Cement, it was observed by this Court that if royalty were to be regarded as a tax, it can perhaps be described properly as a tax on mineral rights and has to conform to the requirements of Entry 50 - List II. If the cess is taken as a tax, then, unless it can be described as land revenue or a tax on land or a tax on mining rights, it cannot be upheld under Entry 45, 49 or 50 - List II. It was further observed that the question whether royalty is a tax or not does not assist much in furnishing an answer to the two questions posed in the case. 18.1 Considering the Scheme of the MMDR Act, 1957 and the Rules made thereunder, it was opined that levy of tax had to be struck down insofar as the Bihar Act was concerned. As far as the Madhya Pradesh Act was concerned, the levy of cess was not on land in general but only on land held in connection with mineral rights, which, in the State of Madhya Pradesh is

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principally in regard to coal and limestone. Reiterating that cess is not referrable either under Entry 49 or 50 - List II, the State’s petition was dismissed. It was held that the State legislature had no competence to impose the cess. The same reasoning was also applied insofar as the levy of cess in the State of Orissa was concerned. Mahalaxmi Fabric Mills:

19. In Mahalaxmi Fabric Mills, two questions fell for consideration in the said appeals – firstly, whether Section 9(3) of the MMDR Act, 1957 was ultra vires the Constitution; and, secondly, whether the notification dated 01.08.1991 issued by the Central Government under Section 9(3) of the Act was ultra vires, illegal and inoperative in law. This Court followed the earlier dicta in India Cement as well as Orissa Cement and was observed that the contention of the Central Government that prices of minerals for exports were fixed and could not be escalated with the enhancement of the royalties by different States as their working would become impossible. Therefore, the Parliament had placed an embargo on enhancement of the royalty directly or indirectly except by the Union and in the manner specified under the MMDR Act, 1957. In paragraph 20 of the judgment, it was observed that enhancing uniformly the rates of royalty for the entire country even though minerals might be extracted from different States is necessary for having a uniform pattern of price of minerals and that has a direct linkage with the development of minerals. Further, regulating the rates of royalty on extraction of minerals also has an important role to play in opening up new mining areas for winning minerals. In this connection, Section 18 of the Act which deals with mineral development was referred to and it was observed that fixation of royalty rates is in the realm of development of minerals as envisaged by Section 18 of the MMDR Act, 1957 and the contrary submission to the above was not accepted. 19.1 Referring to the definition clause which defines, inter alia, ‘minerals and minding operations’, it was observed that ‘mining operation’ means any operation undertaken for the purpose of winning any mineral. It was obvious that development of mineral as envisaged by Section 18 of the MMDR Act, 1957 and even by Entry 50 - List II necessarily would mean extraction of mineral from the earth or from the crust of the earth by mining operations.

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Therefore, the term development of minerals has a direct linkage with mining operation. Without that, minerals cannot develop by themselves. Therefore, it was held that regulation of mines and development of minerals are interconnected concepts. This was because minerals hidden in the earth by themselves cannot yield profit to anyone and they become minerals only when they are brought out on the surface of the earth by mining operations. Therefore, imposition of royalty is in the context of development of minerals on a uniform pattern throughout the country. It was further observed that the original writ petitioners had failed to show how the enhanced rate of royalty as per the impugned notification had become unreasonable or confiscatory in nature. Consequently, the appeals were dismissed. Mahanadi Coalfields:

20. The main controversy in this case was with regard to levy of tax under the Orissa Rural Employment, Education and Production Act, 1992, on coal-bearing lands. The Division Bench of the High Court of Orissa held that the State Legislature did not have the competence to levy the tax on coal-bearing lands and had struck down Section 3(2)(c) of the said Act as well as the Schedule appended to the said Act. The High Court took the view that the levy was hit by Section 9-A of the MMDR Act, 1957 and was also discriminatory and hit by Article 14 of the Constitution. On discussing the earlier judgments of this Court in light of the constitutional Entries in Lists I and II and the Scheme of the MMDR Act, 1957 as well as the combined effect of the proposed levy, the civil appeals were disposed of by concurring with the conclusions of the High Court of Orissa to the effect that the State had no legislative competence to levy the cess under the aforesaid Act of 1992. Saurashtra Cement.:

21. In this case, the interesting question was regarding the constitutional validity of Section 9(3) of the MMDR Act, 1957, inter alia, on the ground that the levy of royalty on minerals is a tax and the Union Legislature did not have the power under Entry 54 - List I to enact such a law which denudes the right of the State Legislature to levy tax on minerals right under Entry 50 - List II. The Gujarat High Court followed the dicta in India Cement and Mahalaxmi Fabric Mills and disposed of the writ petitions.

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Goodricke:

22. In Goodricke Group Ltd. vs. State of West Bengal, 1995 Supp. (1) SCC 707 (“Goodricke”), the validity of the levy of education cess and rural employment cess created by the West Bengal Taxation Laws (Second Amendment) Act, 1989 was called in question by way of writ petitions preferred by several tea estates in West Bengal. The first question considered was, whether, the impugned levy was a levy upon the lands within the meaning of Entry 49 - List II. In this case, the judgment of this Court in India Cement was considered and it was observed that what was of crucial relevance in India Cement was that the levy of cess was not upon the land or upon its yield (or its income) but upon the royalty amount payable to the lessor, which was included within the definition of “land revenue” under the Madras Panchayats Act. The question in India Cement, therefore, arose whether such cess levied with reference to or calculated on the basis of amount of royalty can be called a tax on land. It was held that it could not be so. It was pointed out that the royalty varies according to the particular mineral quarried in a given year and if no mineral was quarried, no royalty would be payable. However, the basis of the judgment was that it was a case where tax was measured not with reference to or on the basis of the income or yield of the land but with reference to the amount of royalty payable by the lessee to his lessor. It was for this reason that the cess was held to be not upon the land. Royalty is a matter of agreement between the lessor and the lessee. It may also be determined by a statutory provision. But royalty is not the produce of the land; royalty is not the income of the land nor is royalty the yield of the land and that is the distinction. In India Cement, the petitioners’ contention was that the impugned measure being a tax not on the share of the produce of the land but on “royalty” payable, the levy of cess was bad. This contention was upheld. It was held that cess on royalty cannot be sustained under Entry 49 - List II as being a tax on land. It was observed that the cess impugned in India Cement was “an additional charge on royalty ” which was impermissible as it was not a tax on land but an impost on royalty paid for exercising mineral rights. 22.1 The aforesaid reasoning in India Cement was therefore distinguished in Goodricke. Similarly, Orissa Cement was also distinguished. It was observed that the levy should not be an

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indirect levy on land like the one in India Cement wherein it was on the royalty but not on land itself. However, levy on land quantified on the basis of its yield could be treated as direct levy upon the land. Therefore, in Goodricke, it was observed that the mere fact that the tax was measured with reference to the yield of the land did not make it any the less tax upon the land directly and within the scope of Entry 49 - List II. 22.2 In my view, the aforesaid distinction brought out in Goodricke between the levy of cess on royalty and levy of cess on yield from land, clearly indicates that in India Cement, the cess was struck down as not coming within the scope and ambit of Entry 49 - List II as the cess was not on land directly. Cess was on a payment of royalty by a lessee conducting a mining operation which is not a cess directly on the land but on exercising a mineral right which aspect was under the control of the Union by virtue of the MMDR Act, 1957. 22.3 However, in Goodricke, it was observed that tax imposed on land measured with reference to or on the basis of its yield, is certainly a tax directly on the land. Apart from income, yield or produce, there can perhaps be no other basis for levy. Merely, because a tax on land or building is imposed with reference to its income or yield, it does not cease to be a tax on land or building. The income or yield of the land/building is taken merely as a measure of the tax; it does not alter the nature or character of the levy. It remains a tax on land or building. The aforesaid reasoning would not apply to the present case. The payment of royalty on exercise of mineral right is itself a tax and the royalty being considered as a measure for the purpose of payment of tax on land within the scope and ambit of Entry 49 – List II would not arise in view of there being a separate Entry 50 – List II. 22.4 Moreover, in Goodricke, what was considered was Entry 52 – List I and not Entry 54 – List I. Entry 50 – List I which is subjected to Entry 54 – List I and the same being a unique Entry, would not apply while considering Entry 49 – List II in the context of Entry 52 – List I. This is because Entry 52 – List I does not impose any limitation on Entry 49 – List II and if the tax on exercise of mineral right squarely falls within the ambit

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of Entry 50 – List II then the limitation in the context of Entry 54 – List I would have to be borne in mind before the State can embark upon levying any further tax on the basis of royalty as a measure. 22.5 Having noted this sui generis relationship above, I may observe the difficulty in drawing any further analogy between Goodricke and the instant case. Every facet concerning minerals, whether it be taxation, regulation, or development, is without an iota of doubt an important question of national concern for, it has ramifications on the stability of national economy, environmental degradation, labour laws, rights of tribal communities, etc. That the aforesaid sentiment was shared and acted upon by our Constitutional framers is explicit vide insertion of a unique and special apparatus in the Constitution through Entry 54 - List I, Entry 23 – List II and Entry 50 – List II. In my opinion, it would be incongruous with the constitutional intent to hold that the conscious provision for Union supremacy through the insertion of aforesaid apparatus, specifically through insertion of Entry 50 – List II, denudes the States’ power to use mineral rights or royalty levied upon them as a measure to tax land. To do so would simply render Entry 50 – List II nugatory. 22.6 The contention that land cannot be decoupled from mineral rights is attractive at first blush. But, on closer examination, this proposition goes against the cardinal rule of interpreting Entries in the Lists. It is settled law that there must be a reasonable nexus between the nature of tax and the measure of tax. In India Cement, this Court had noted that royalty is only indirectly connected with land and cannot be said to be a tax directly on land as a unit. In my opinion, this finding requires no second look. The contention that royalty can be used a measure to tax land under Entry 49 – List II would, in my opinion, inevitably lead to conflation with the nature of tax that is reserved for Entry 50 – List II subject to any limitations imposed by Parliament by law relating to mineral development. Kesoram:

23. The dictum in India Cement by a seven-judge Bench and subsequent decisions which followed it was doubted by a majority of a five-judge

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Bench of this Court in Kesoram. It would be useful to highlight the relevant portions of the said judgment as the real controversy stems from this Judgment. In the said case, three sets of matters arose from West Bengal, which, for the sake of convenience, were called as (A) “coal matters” (B) “tea matters” and (C) “brick earth matters”. The other set of matters which arose from the State of Uttar Pradesh was (D) “minor mineral matters”. 23.1 In the coal matters, the constitutional validity of the amendment made to the Cess Act, 1880 and West Bengal Rural Employment and Production Act, 1976 by which the expression “coal-bearing land” was defined to mean holding or holdings of land having one or more seams of coal comprising the area of a coal mine, given effect to from 01.04.1992, was successfully impugned before the High Court. Therefore, the State of West Bengal had filed the appeal before this Court. The High Court had placed reliance on the judgments of this Court in India Cement and Orissa Cement wherein the levy of cess impugned therein was struck down as unconstitutional. The Calcutta High Court had held that the levy was without legislative competence of the State and hence, was liable to be struck down. The High Court had also concluded that the Cess cannot be said to be on land so as to be covered by Entry 49 - List II. 23.2 A similar cess was levied by the State Legislature of Orissa as the Orissa Rural Employment, Education and Production Act, 1992 on land-bearing coal and other minerals. A challenge to the constitutional validity of such cess was successfully laid before this Court and the Section 3(2)(c) of the Orissa legislation was struck down as unconstitutional as ultra vires the competence of the State Legislature in Mahanadi Coalfields. 23.3 Insofar as the cases arising from the Allahabad High Court concerning constitutional validity of a cess on mineral rights levied under Section 35 of the Uttar Pradesh Special Area Development Authorities Act, 1986 read with Rule 3 of Shakti Nagar Special Area Development Authority (Cess on Mineral Rights) Rules, 1997 (“the SADA Act” and “the SADA Cess Rules”, respectively), the challenge was to the imposition of cess on mineral rights at such rates as may be prescribed, subject to any limitations imposed by Parliament by law relating

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to mineral development. The SADA Cess Rules as well as Section 35 of the SADA Act were challenged on the ground that MMDR Act, 1957 having been enacted, containing a declaration under Section 2 thereof as contemplated by Entry 54 - List I and the Act being applicable to the State of Uttar Pradesh as well, the State legislature was denuded of its power to enact the impugned law and levy impugned cess. It was contended that the impugned cess would have the impact of adding to the royalty already being paid and thereby increase the same, which was ultra vires the power of the State Government as that power could only be exercised by the Central Government. The Allahabad High Court held that SADA Act and SADA Rules and the levy of cess thereunder was within the competence of the State Legislature with reference to Entry 50 - List II. Since this Court, through a three-judge Bench, had noted a conflict of decisions, the matters were placed before Hon’ble the Chief Justice for appropriate directions. Thereafter, the matters were listed before a five-Judge Constitution Bench. 23.4 The Constitution Bench in Kesoram noted the question of constitutional significance centring around Entries 52, 54 and 97 - List I and Entries 23, 49, 50 and 66 - List II, as also the extent and purport of the residuary power of legislation vested in the Union of India. In Paragraph 52 of the judgment, this Court noted the questions which arose in India Cement and encapsulated the ratio of the said judgment. 23.5 In India Cement, the judgment of the Mysore High Court in Laxminarayana Mining Co. was cited with approval. As already noted, the Mysore High Court had struck down as violative of the MMDR Act, 1957 imposition of a licence fee on mining manganese, iron ore, etc., under a State legislation by issuance of a notification. In Kesoram, while considering the ratio of the judgment of the Division Bench of the Mysore High Court in Laxminarayana Mining Co., which had held that, licence fee was a step trenching upon the field of regulation and mineral development, was liable to be struck down on that ground alone, in paragraph 55, observed as under: “55. In our view, the decision by the Mysore High Court cannot be read so widely as laying down the

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law that the Union’s power to regulate and control results in depriving the States of their power to levy tax or fee within their legislative competence without trenching upon the field of regulation and control. There is a distinction between power to regulate and control and power to tax, the two being distinct and that difference has not been kept in view by the Mysore High Court.” In substance, this Court observed that Union’s power to regulate and control is distinct from the State’s power to levy tax and the distinction between the two had not been borne in mind by the Mysore High Court which aspect shall be discussed later. 23.6 Moving further in paragraph 56, this Court in Kesoram observed as under: “(A diversion from the main issue) Royalty, if tax?

56. We would like to avail this opportunity for pointing out an error, attributable either to the stenographer’s devil or to sheer inadvertence, having crept into the majority judgment in India Cement Ltd. case [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 1990 SC 85] . The error is apparent and only needs a careful reading to detect. We feel constrained — rather duty-bound — to say so, lest a reading of the judgment containing such an error — just an error of one word — should continue to cause the likely embarrassment and have adverse effect on the subsequent judicial pronouncements which would follow India Cement Ltd. case [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 1990 SC 85], feeling bound and rightly, by the said judgment having the force of pronouncement by a seven-Judge Bench. Para 34 of the Report reads as under: (SCC p. 30) “34. In the aforesaid view of the matter, we are of the opinion that royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature because Section 9 of the Central Act covers the field and the State Legislature is denuded of its competence under Entry 23 of List II. In any event,

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we are of the opinion that cess on royalty cannot be sustained under Entry 49 of List II as being a tax on land. Royalty on mineral rights is not a tax on land but a payment for the user of land.” 23.7 In paragraph 57, this Court made its inferences on what was observed by the seven-judge Bench of this Court in paragraph 34 (extracted above) of India Cement as under: “57. In the first sentence the word “royalty” occurring in the expression “royalty is a tax”, is clearly an error. What the majority wished to say, and has in fact said, is “cess on royalty is a tax”. The correct words to be printed in the judgment should have been “cess on royalty” in place of “royalty” only. The words “cess on” appear to have been inadvertently or erroneously omitted while typing the text of the judgment. This is clear from reading the judgment in its entirety. Vide paras 22 and 31, which precede para 34 abovesaid, Their Lordships have held that “royalty” is not a tax. Even the last line of para 34 records “royalty on mineral rights is not a tax on land but a payment for the user of land”. The very first sentence of the para records in quick succession “… as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature….” What Their Lordships have intended to record is “… that cess on royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature …”. That makes correct and sensible reading. A doubtful expression occurring in a judgment, apparently by mistake or inadvertence, ought to be read by assuming that the Court had intended to say only that which is correct according to the settled position of law, and the apparent error should be ignored, far from making any capital out of it, giving way to the correct expression which ought to be implied or necessarily read in the context, also having regard to what has been said a little before and a little after. No learned Judge would consciously author a judgment which is self-inconsistent or incorporates passages repugnant to each other. Vide para 22, Their Lordships have clearly held that there is no

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entry in List II which enables the State to impose a tax on royalty and, therefore, the State was incompetent to impose such a tax (cess). The cess which has an incidence of an additional charge on royalty and not a tax on land, cannot apparently be justified as falling under Entry 49 in List II.” (underlining by me) 23.8 Thereafter, this Court discussed the meaning and content of the expression royalty from various dictionaries and other authorities and referred to the judgments of the High Courts of Orissa, Punjab and Haryana, and Gujarat High Court and in paragraph 64 observed as under: “ 64. We need not further multiply the authorities. Suffice it to say that until the pronouncement in India Cement [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 1990 SC 85] nobody doubted the correctness of “royalty” not being a tax.” (underlining by me) And ultimately in paragraph 69, it was inferred as under: “69. In India Cement [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 1990 SC 85] (vide para 31, SCC) decisions of four High Courts holding “royalty is not tax” have been noted without any adverse comment. Rather, the view seems to have been noted with tacit approval. Earlier (vide para 21, SCC) the connotative meaning of royalty being “share in the produce of land” has been noted. But for the first sentence (in para 34, SCC) which we find to be an apparent error, nowhere else has the majority judgment held royalty to be a tax.” (underlining by me) 23.9 The inference being that there is an apparent error in holding that “royalty to be a tax”, whereas “royalty is not a tax”. However, the above inference loses sight of the fact that in paragraph 34 of the India Cement it has been observed that “Royalty on mineral rights is not a tax on land, but a payment for the user of the land”. This has been held to be a contradiction in

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Kesoram. However, what was actually meant in India Cement was that royalty is a tax on mineral rights. The majority in Kesoram thereafter noted how the matter was dealt with in Mahalaxmi Fabrics Mills and Saurashtra Cement and made observations therein, as noted in paragraph 70 of the judgment. Ultimately, in paragraph 71, it was observed that royalty is not a tax and royalty cannot be a tax and that even in India Cement it was not the finding of the Court that royalty is a tax. 23.10 With regard to decisions post India Cement, the majority expressed its dissent with that part of the judgment in Mahalaxmi Fabrics Mills, which stated that there was “no typographical error” in India Cement. The reasoning in Mahanadi Coalfields was also not subscribed to in Kesoram and it was held that the said case was not correctly decided inasmuch as they applied India Cement and Orissa Cement and therefore, it was over-ruled. 23.11 With great respect to the majority in Kesoram, the aforesaid strong observations were in fact premised on a “typographical error” in para 34 of the judgment in India Cement when there was none. The entire reasoning in paragraph 57 of Kesoram extracted above proceeded on the basis that a typographical error was inadvertently or erroneously committed while typing the correct text of the judgment and therefore, what was a “sensible reading” was supplied by the majority to make an omission or error, namely, “cess on royalty” instead of “royalty” only. 23.12 With respect, I find that the aforesaid understanding by the majority in Kesoram is incorrect, a departure from all precedents right from the judgment of this Court in Hingir- Rampur and contrary to the scheme of Entry 54 – List I and Entry 50 – List II and the architecture of the MMDR Act, 1957 enacted pursuant to Entry 54 - List I and particularly, having regard to Section 2 of the said Act. Therefore, there was no necessity to doubt the proposition that royalty is a tax. On a non-appreciation of what exactly the import of the judgment in the India Cement was, this doubt expressed by the majority in Kesoram has ultimately led to the constitution of this nine-

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judge Bench to answer eleven points for reference which, in my view, was wholly unnecessary. This aspect would become more clear if the judgment of this Court in P. Kannadasan vs. State of Tamil Nadu, (1996) 5 SCC 670 (“Kannadasan”) is perused which is discussed later. 23.13 By contrast, Sinha J., in his dissenting opinion in Kesoram at paragraph 309, has appreciated the controversy in the following words: “309. The decisions of the Privy Council in Governor General in Council v. Province of Madras [1945 FCR 179 : AIR 1945 PC 98] on the question of interpretation as regards conflicting legislative entries in general and tax entries in particular may not be apposite in the instant case inasmuch as herein we are concerned with only one question, namely, whether the field of taxation of mines and minerals which are extracted and cease to be a part of the surface, is wholly covered or not. One of the principles for reconciling conflicting tax entries is to ascertain as to whether a person, thing or activity is the subject-matter of tax and the amount of the tax to be levied. The question which has to be answered on the basis of the aforementioned principle is, is it a tax on land or tax on mineral. If having regard to the nature of tax and keeping in view the history of the legislation to the effect that the State of West Bengal has all along been trying to impose tax on minerals as opposed to tax on land, is taken into consideration, it will be noticed that endeavours have been made to continue to impose “cess” on mineral and mineral rights in the garb of “land tax”.” (underlining by me) 23.14 Therefore, the pith and substance of the controversy being, whether in the garb of imposition of impugned land tax on the strength of Entry 49 - List II, the State has the power to impose cess on royalty, or, in other words, cess on mineral and mineral rights was rightly identified. This is because royalty

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is a payment for the exercise of mineral rights and not a tax on land and if cess is levied on royalty, then the same is an imposition on the exercise of mineral rights, which is covered under Section 9 of the MMDR Act, 1957. It is in the aforesaid context that Sinha, J. also referred to Section 25 of the MMDR Act, 1957 which states that any rent, royalty, tax, fee or other impost under the said Act or the Rules made thereunder can be recovered as arrears of land revenue. Therefore, in paragraph 321, it was opined by Sinha, J. as under: “321. Section 25 of the MMRD Act, 1957 by necessary implication refers to the taxing power of Parliament. Imposition of taxes on mineral rights would affect the development of mines and minerals. Parliament’s authority to regulate and control mineral development would be seriously impaired and affected if it is held that the matter relating to imposition of tax on minerals is also vested in the State. The vires of Sections 9 and 9-A of the 1957 Act has not been questioned. In fact, they have been held to be intra vires in State of M.P. v. Mahalaxmi Fabric Mills Ltd. [1995 Supp (1) SCC 642] , Saurashtra Cement and Chemical Industries Ltd. v. Union of India [(2001) 1 SCC 91] and South Eastern Coalfields Ltd. [(2003) 8 SCC 648 : (2003) 7 Supreme 539] Unless power to levy compulsory impost is held to be ultra vires the Constitution, it cannot be held that Parliament has encroached upon the States’ power of taxation.” (underlining by me) The aforesaid observations are significant in light of the history of legislation as regards regulation of mines and development of minerals and the logical corollary would be that in the field of levy of tax, fee or other charges, the Parliament by virtue of Section 9 read with Section 25 of the MMDR Act, 1957 has covered the field of legislation which act as a limitation on the State’s power under Entry 23 - List II of the Constitution. Therefore, Sinha, J. rightly observed that once it is held that the entire field of mines and minerals is covered by the MMDR

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Act, 1957 the impugned levy by way of cess on coal-bearing land is nothing but an imposition of tax on exercise of mineral rights which is barred having regard to the field being covered by the provisions of the MMDR Act, 1957.

24. What is of significance is that in India Cement, the seven-judge Bench of this Court considered the judgments of the Patna High Court in Laddu Mal and that of the Mysore High Court in Laxminarayana Mining Co. and approved the same. However, there was a reference made to four other judgments of the High Courts of Punjab and Haryana, Gujarat, Orissa and Rajasthan. The criticism by the majority in Kesoram is that there was no discussion on those judgments in India Cement. The reasons for there being no necessity for discussion of the said judgments are not far to see. The judgments of the Patna and Mysore High Courts considered at length the concept of royalty in the context of the constitutional Entries in Lists I and II, as discussed above and in light of the declaration made in Section 2 and the scheme of the MMDR Act,

1957. It was observed by the Patna and Mysore High Courts that having regard to the constitutional scheme vis-à-vis the legislative fields, in the context of making laws on mineral rights and mineral development and Section 2 of the MMDR Act, 1957 payment of royalty on a mining lease being covered under the Parliamentary Act, i.e. MMDR Act, 1957, the same acted as a limitation imposed by the Parliament by law relating to mineral development on the States’ competence to also tax on exercise of mineral rights by levying a cess or any other impost on royalty. Therefore, by a logical deduction, it was held that royalty is a tax within the meaning of Entry 50 - List II. Consequently, any cess on royalty or any other impost on royalty or royalty being a basis for a further tax or impost being levied by a State Government was impermissible. In other words, the MMDR Act 1957 insofar as and to the extent dealt with the aspect of royalty being payable by a holder of a mining lease imposed a limitation on the States’ right to levy any other impost/ tax on mineral rights as royalty was payable for exercise of mineral rights resulting from a mining operation and extraction of minerals. It was in this context that it was reasoned that royalty is a tax. Also, royalty could not be a basis for levy of any other tax on mineral bearing land as land revenue.

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24.1 On the other hand, the judgments of four other High Courts, namely, Punjab and Haryana, Orissa, Rajasthan and Gujarat did not consider the controversy from the perspective of the constitutional Entries and Section 2 of the MMDR Act, 1957. The said judgments proceeded on the dictionary meaning of ‘royalty’ under various types of transactions under which royalty has to be paid and concluded that royalty was not an impost or tax, which approach was also adopted by the majority in Kesoram. Thereby, Entry 54 - List I and Entry 50 - List II as well as Section 2 of the MMDR Act, 1957 was given a complete go-by while arriving at such a conclusion. Consequently, the said judgments and also the majority in Kesoram concluded that the States have the legislative competence to tax mineral rights or make royalty a basis for any other exaction such as cess etc. This was contrary to the view expressed in India Cement by this Court. Therefore, it was unnecessary for the seven-judge Bench in India Cement to have discussed the judgments of the High Courts of Punjab and Haryana, Gujarat, Orissa and Rajasthan referred to above. In fact, in my view, the judgments of the aforesaid High Courts were impliedly overruled in India Cement, which aspect has not been noticed by the majority in Kesoram.

25. Insofar as the judgment of this Court in the case of Mahalaxmi Fabric Mills is concerned, the said judgment followed India Cement. However, it was overruled in Kesoram. So also, the judgments in Saurashtra Cement and other cases. Reference was made to Mahanadi Coalfields wherein the levy by the State Legislature was a tax of Rs.32/- per thousand acre on coal-bearing lands. The attack on the legislation was that the provision was one on mineral lands and mineral rights and the Parliament had enacted the MMDR Act, 1957 and the field was entirely covered and the State Legislature was incompetent to levy the tax. The three-judge Bench concluded that the charging Section of the impugned Act imposed a tax on the minerals also and was not confined to a levy on land or surface characteristic of the land. This was because non-mineral-bearing lands and non-coal-bearing lands were left out of the levy. The levy was struck down as the levy was not a tax on land, but on minerals and mineral rights.

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Kannadasan:

26. In this context, it is significant to refer to another judgment of this Court in Kannadasan wherein this Court, by following the observations in India Cement and Orissa Cement, held that the States are denuded of the power to levy any tax on minerals and therefore, the State enactments were declared to be lacking in legislative competence as in the aforesaid cases, insofar as they pertained to levy of tax/cess on royalty paid on minerals extracted. It was observed that the denudation of the States’ powers was not partial but total and the States cannot levy any tax on mining and minerals, so long as the declaration in Section 2 of the MMDR Act, 1957 stands. Once the denudation is total, there is no occasion or necessity for any further declaration of denudation, or for that matter, for repeated declarations of denudation. Kannadasan was partially overruled by a three-judge Bench in District Mining Officer vs. Tata Iron and Steel Company, (2001) 7 SCC 358 (“Tata Iron and Steel”), but on a different question which I shall also advert to later. 26.1 However, what is relevant for the purposes of this reference could be discussed in the first instance. In Kannadasan, the appellants therein had challenged the validity of the Cess and Other Taxes on Minerals (Validation) Act, 1992 (“Validation Act” for short) enacted by Parliament. The High Court had rejected the writ petitions. The background of the said Act was that in India Cement, this Court had held that (i) the levy could not be sustained under and with reference to Entry 49 - List II as a tax on land; (ii) the levy was a levy on minerals and was relatable to Entries 23 and 50 - List II; (iii) that on account of the declaration made by Parliament contained in Section 2 of the MMDR Act, 1957, the State Legislatures had been denuded of the power to levy tax on minerals. That regulation of mines and mineral development takes within its purview the levy of tax on minerals. This Court held that Sections 9 and 9A of the MMDR Act, 1957 provides for levy of royalty/dead rent on minerals. The State Legislatures cannot, therefore, impose any tax on minerals or exercise of mineral rights and HRS Murthy was wrongly decided. Having so declared, this Court in India Cement, however, directed that the said decision

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shall only have a prospective effect. This was for the reason that the States had been levying and collecting the cesses on the basis of the decision of this Court in HRS Murthy. The decision in India Cement was rendered on 25.10.1989. 26.2 Thereafter, a three-judge Bench in Orissa Cement declared identical levies imposed by the States of Orissa, Bihar and Madhya Pradesh as being lacking in legislative competence. The Bench again directed that the said decision shall be operative prospectively with effect from the date of the said judgment i.e., 04.04.1991 in the case of State of Bihar, with effect from 22.12.1989 in the case of State of Orissa and with effect from 28.03.1989 in the case of State of Madhya Pradesh. In view of the States not having the competence to make the said levies, the Union had to step in and promulgated the Cess and other Taxes on Mineral (Validation) Ordinance, 1992 on 15.02.1992 and thereafter replaced it by a Parliamentary enactment called the Cess and other Taxes on Minerals (Validation) Act, 1992 with effect from 04.04.1992. The Act was enforced in order to validate the imposition and collection of cesses and certain other taxes on minerals under certain State laws. The Act was deemed to come into force on 04.04.1991. Under the said Act, a person could claim refund of any cess or tax paid by him in excess of the amount due from him under any such State law. The Schedule to Section 2 named the Acts of various States which were validated. For immediate reference, Section 2 of the Validation Act is extracted as under: “2. Validation of certain State laws and actions taken and things done thereunder. - (1) The laws specified in the Schedule to this Act shall be, and shall be deemed always to have been, as valid as if the provisions contained therein relating to cesses or other taxes on minerals had been enacted by Parliament and such provisions shall be deemed to have remained in force up to the 4th day of April, 1991. (2) Notwithstanding any judgment, decree or order of any court, all actions taken, things done, rules made,

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notifications issued or purported to have been taken, done, made or issued and cesses or other taxes on minerals realised under any such laws shall be deemed to have been validly taken, done, made, issued or realised, as the case may be, as if this section had been in force at all material times when such actions were taken, things were done, rules were made, notifications were issued, or cesses or other taxes were realised, and no suit or other proceeding shall be maintained or continued in any court for the refund of the cesses or other taxes realised under any such laws. (3) For the removal of doubts, it is hereby declared that nothing in sub-section (2) shall be construed as preventing any person from claiming refund of any cess or tax paid by him in excess of the amount due from him under any such laws.” Section 2 was the validation clause stating that the laws specified in the Schedule to the Act shall be, and shall be deemed always to have been, as valid as if the provisions contained therein relating to cesses or other taxes on minerals had been enacted by Parliament and such provisions shall be deemed to have remained in force up to 04.04.1991. The Act was deemed to have come into force on 15.02.1992, which was the date on which the Ordinance was promulgated by the President. According to this Court, the Parliament adopted the device of legislation by incorporation as a result of which all the relevant provisions of the Scheduled Acts (State Acts) were deemed to have been enacted by Parliament and read into Section 2(1) of the Validation Act. As a corollary, all the taxes which were set aside by this Court and the High Courts were deemed to be the taxes/levies of the Parliament itself. This was on the clear understanding that the power of Parliament to levy such taxes was not in dispute and States had no power to levy such cesses or taxes. This was also on the acceptance of the judgment in India Cement. The provisions of the Act were declared to be in force up to 04.04.1991 though the law was enforced from 04.04.1992, which was unique by itself.

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26.3 The validity of the Validation Act was questioned before this Court on several counts by the private parties and defended by the Union of India. This Court observed that the object and purpose of enacting the MMDR Act, 1957 was to bring about, inter alia, a uniformity in taxes and royalties throughout the country in the interest of mineral development in the country for which only the Union or the Central Government could impose a levy such as royalty or any other tax. There is not a precondition to a law made by Parliament under Entry 54 - List I nor is there a limitation upon Parliament’s power. If Parliament has enunciated the principle, it can also create an exception thereto in appropriate circumstances or to meet an exigency. The Validation Act was in order to meet such an exigency. The said Act was both an addition to as well as an exception to Section 9 of the MMDR Act, 1957. With regard to Section 9 of the MMDR Act, 1957, it was reasoned that in light of the decisions of this Court in India Cement and Orissa Cement, the States were totally denuded of the power to levy any taxes on minerals. The denudation of the State is not partial; it is total insofar as the levy of any tax or cess on mineral is concerned. So long as the declaration in Section 2 stands, it is unnecessary to have a fresh declaration to be made by Parliament whenever the Union increases the rate of royalties. 26.4 It was further observed that what was sought to be levied under the impugned enactment was a tax/cess and not a fee and therefore, the Parliament was not bound to utilize the taxes realized under the impugned Act, i.e., the Validation Act, only for the purpose of regulation of mines and mineral development. That even in the matter of fees, it is not necessary that an element of quid pro quo should be established in each and every case as fees can be both regulatory and compensatory and that in the case of regulatory fees, the element of quid pro quo is totally irrelevant vide Corporation of Calcutta vs. Liberty Cinema, AIR 1965 SC 1107, (“Liberty Cinema”). 26.5 It was further observed that the Validation Act though a temporary statute did not have an expiry date, in the sense it

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was deemed to come into force on 15.02.1992 and validated all imposts up to 04.04.1991 and not thereafter. By this, it didn’t mean that the statute itself expired on 04.04.1991 as it was deemed to come into force on a later date, i.e. on 15.02.1992. The Validation Act was also not a temporary statute. It was observed that the duration of the levy validated under the Act and the life of the Act are two different things which are not necessarily coextensive. The Validation Act would remain in force till Parliament chooses to repeal it. Therefore, the argument that the Validation Act being a temporary statute was not effective from 04.04.1991, was rejected by this Court. It was observed that levies were validated by the Validation Act notwithstanding the cessation of levy after 04.04.1991 and the machinery created to recover and refund the said cesses/taxes was kept alive. 26.6 The judgment of this Court in Kannadasan is a clear indication of the fact that it was the Parliament, by enacting a legislation in the year 1992 in the form of a Validation Act which had to step in to support the States for validation of the States’ incompetent levies, namely, cesses or taxes on royalty which had been set aside over decades by this Court. This legislation was also in the interest of mineral development and in exercise of powers and relatable to Entry 54 - List I. But for the Validation Act enacted by the Parliament, the levies being declared invalid by this Court as well as the High Courts, it was the bounden duty of the States to have refunded the levies collected in the form of cesses or surcharge on cesses on royalties as directed by this Court which would have been a drain on the States’ exchequers. Realising the financial predicament in which the States were, the Parliament, in exercise of its unitary powers and as the Union of the States, came to rescue all the States by passing the Validation Act so that till 04.04.1991, by a fiction the States’ levies in the form of cesses or other taxes on royalty were validated as if the State laws were enacted by Parliament itself. Therefore, all judgments which had struck down the levies imposed by the State on mineral rights discussed above if had directed to refund the levies collected by them would now not have been necessary. Further,

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all such State levies being validated, arrears till 04.04.1991 could be collected by the States. Such an Act was passed by way of an abundant caution as in certain other judgments of this Court, there could be directions to refund the taxes or levies collected and attended complications on the refund of the said incompetent levies or in order to collect the arrears till 04.04.1991. These aspects constrained the Parliament to pass the Validation Act. In the circumstances, the appeals and the writ petitions were dismissed. 26.7 The judgment in Kannadasan clearly established the fact that the Parliament has supremacy over the regulation of mines and development of minerals in view of Entry 54 - List I read with Section 2 and the other provisions of MMDR Act, 1957, as Entry 23 – List II is also subject to Entry 54 – List I. That levying of a uniform impost in the form of royalty and dead rent imposed under Sections 9 and 9A of the MMDR Act, 1957 throughout the length and breadth of the country, insofar as a particular mineral is concerned, without letting any State to impose any other levy over and above royalty is in the interest of mineral development. Thus, Sections 9 and 9A are an embargo and a limitation on the power of the State to impose any tax on exercise of mineral rights. This is because royalty is paid on exercise of mineral rights. It is a statutory exaction under the MMDR Act, 1957 and is compulsory for every holder of a mining lease to pay royalty to the State Government which executes the lease deed in the status of a lessor. Payment of royalty being compulsory by the holder of a mining lease, it makes it a tax as the rate of royalty is fixed by the Central Government as per Section 9 of the MMDR Act, 1957 and as notified in the Second Schedule to the aforesaid Act. Thus, royalty being a tax could be collected as arrears of land revenue in the event of non-payment. Such being the construction and interpretation of the provisions of MMDR Act, 1957 in light of the Entries in the Lists, royalty as a compulsory exaction has met all the parameters of a tax and hence the provisions regarding collection of royalty under the MMDR Act, 1957 and the Rules made thereunder acted as a limitation under Entry 50 – List II. Hence, the States are denuded of