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their power to impose a cess or any other levy on royalty or define it as a land revenue which could be imposed by the States under Entry 49 – List II. Such State levies on royalty is against the interest of mineral development in the country and therefore the State levies on the basis of royalty was struck down by this Court and certain High Courts. The validation Act also established the fact that the Parliament by passing such an Act did so in the interest of mineral development in the country and to save the States from losing the revenue collection made though under incompetent levies prior to 04.04.1991. Therefore, the States were not required to refund the illegal levies collected by them and continued to collect the same till 04.04.1991. The sustaining of the Validation Act by this Court is also significant. Thus, as a result of the Validation Act, the decades’ old controversy between States’ attempts to levy taxes on royalty and the High Courts and this Court striking down the same by holding that it was the Parliament only which could do so by a law, brought down the curtains on the said controversy till its revival in Kesoram. 26.8 Justice Jeevan Reddy speaking for the Bench in Kannadasan cleared any lurking doubts about States having any power to levy any cess, tax or other impost on exercise of mineral rights; it was only the Parliament which could impose such a levy either by way of royalty or in any other form. 26.9 Thereafter, in Tata Iron and Steel, the controversy arose from the Patna High Court, in the context of the Validation Act, 1992 wherein it was held that the said Act did not authorise recovery of any tax or cess after 04.04.1991, even if the liability was incurred under the validated laws before 04.04.1991 and consequently, it restrained the State of Bihar from taking any steps to realise such demands. However, by then this Court in Kannadasan had upheld the right of the State to demand and collect levies which were collectable up to 04.04.1991. The decision of the Patna High Court to the extent it restrained the State from realising the demand was challenged before this Court by the State of Bihar. 26.10 The matter was considered by a three-judge Bench as Kannadasan was decided by a two-judge Bench. It was

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observed that the Validation Act had validated the levy of taxes by eleven States upto 04.04.1991. That the Validation Act fictionally held that the Parliament had in fact imposed the cess and other taxes on minerals by keeping those provisions of State Act, which had been struck-down, alive till 04.04.1991. Although, Parliament never in fact re-enacted the eleven Acts mentioned in the Schedule to the Validation Act but it merely provided legislative competence for those Acts which related to cesses or taxes on minerals. This was done owing to the judgments of this Court in India Cement and Orissa Cement that had led the to a situation that required a Validation Act to save the State from refunding the incompetent levies already collected. This was to allay the apprehension of the State Government that the incompetent levies already collected would have to be refunded. Therefore, Parliament, being also of the same opinion, through a legislative device of providing legislative competence in respect of the certain provisions of the States’ laws and by validating the levies which could be collected up to 04.04.1991 i.e. the date on which this Court delivered the judgment in Orissa Cement case, had enacted the Validation Act. 26.11 The controversy, however, revolved on the expression “imposition and collection” under Section 2(1) of the Validation Act. Whether it related to only imposition and collection already made under certain State laws or conferred further right of imposition and collection of cesses on the minerals extracted upto 04.04.1991. In Kannadasan this Court had interpreted the provisions to the effect that the Validation Act would confer a right on the State Government to make fresh levy and collection of dues which were collectable upto 04.04.1991. This interpretation was, however, not accepted by three-judge Bench. It was observed that the Validation Act could not be construed to confer a right to make a levy or collection of the cess and taxes on the minerals which were collected upto 04.04.1991, as was held in Kannadasan. It merely validated the collections already made so that the State will not be burdened with the liability of refunding the amount, already collected under void law. Therefore, the contrary view expressed in Kannadasan was held to be not correct.

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26.12 With reference to Article 265 of the Constitution, it was observed that the State laws which stood expired on various dates prior to 04.04.1991 and on 04.04.1991 did not authorise imposition and collection of taxes and cess on minerals after 04.04.1991 in respect of minerals extracted till 04.04.1991, on which the cess was collectable. It was observed that object of the Validation Act was only to confer the life to void statutes by fictional re-enactment and granting legislative competence for limited purpose so that the State would not be called upon to refund the cess already collected under such void law. Thus, the void laws never existed after 04.04.1991 and consequently, there was no right with the State to make any levy or collection of the cess, which was collectable up to 04.04.1991. Only past actions had been sought to be validated, that too, by a fictional enactment of the State laws by Parliament, keeping it alive till 04.04.1991. Even if imposition of levy had been made but not collected, the same could not be collected after 04.04.1991 as the Validation Act had not provided any provision permitting State to levy or collection after 04.04.1991. Therefore, it was held that the States cannot be conferred a right to levy or collection after 04.04.1991. Therefore, to that extent Kannadasan’s observations were not approved. 26.13 The overruling of certain observations made in Kannadasan by the three-judge Bench in Tata Iron and Steel does not touch upon the question whether imposition of cess and other taxes on the basis of royalty or in addition to royalty by a State legislature is competent. The judgment in Tata Iron and Steel on the other hand proceeds on the premise that India Cement and Orissa Cement were rightly decided. The Validation Act had been passed by the Parliament and there being a confusion with regard to the actual collection of the levies by the States on or after 04.04.1991 and in Kannadasan, this Court having held that it could be so in the form of arrears and dues, to that extent, disapproved Kannadasan. 26.14 I do not find any inconsistency between the judgments in Kannadasan and Tata Iron and Steel on the questions of whether royalty is a tax and whether the States had no

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competency to levy any tax on exercise of mineral rights. On the other hand, what is common to both Kannadasan and Tata Iron and Steel is the fact that they proceeded on the basis that this Court, having set aside the incompetent levies imposed by the States and the Parliament, coming forward to support the States vis-à-vis their apprehension regarding refund to be made on the basis of the principle of unjust enrichment, enacted the Validation Act. The challenge to the said Act otherwise failed in Kannadasan. The contention of the assessee was only with regard to levies to be collected up to 04.04.1991 under the Validation Act and not after that date. This aspect was answered by the three-judge Bench in Tata Iron and Steel by holding that the Validation Act was in fact a temporary statute which neither gave the State the right to levy any taxes or cesses etc. which were struck-down by this Court as being incompetent nor could the States collect arrears of such taxes/cesses after 04.04.1991. 26.15 In view of the aforesaid judicial and legislative history, can this Court once again confer powers on the States to levy taxes, etc. on the exercise of mineral rights in addition to royalty by way of a cess or a surcharge on cess or independently on the basis of royalty as a measure for imposing such taxes? The majority judgment in Kesoram has attempted to do that. This is by holding that royalty imposed under Section 9 of MMDR Act, 1957 is not a tax and therefore, the States can levy taxes on minerals rights either under Entry 50 or Entry 49 – List II. Thus, the legal quagmire has not ended but continued.

27. In my view, the majority judgment in Kesoram is liable to be overruled for holding that royalty is not a tax for the following reasons: Firstly, because the doubt expressed in the said judgment by the majority was premised on a “typographical error” in paragraph 34 of the main judgment in India Cement by failing to appreciate the entire reasoning of the seven-judge Bench. It also failed to notice that in the case of India Cement, Oza, J. penned a separate but concurring opinion and arrived at a conclusion that royalty is in the

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nature of a tax by separate reasoning. The majority in Kesoram did not find any “typographical error” in Oza, J.’s opinion. Secondly, the majority in Kesoram came to the conclusion that royalty is not a tax based on the definition of royalty in dictionary meanings, etc. without reference to the constitutional Entries, particularly, Entry 50 - List II being limited by Entry 54 - List I and a Parliamentary law MMDR Act, 1957 being made under the latter Entry and the declaration made in Section 2 thereof. In this regard, it would be useful to refer to the observations of this Court in State of Orissa vs. Titaghur Paper Mills Company Limited, 1985 Supp. SCC 280 (“Titaghur Paper Mills”), wherein this Court discussed the scope and ambit of the expression royalty and it was observed that while understanding the meaning of an expression, the dictionary meaning of a word cannot be looked at where that word has been statutorily defined or judicially interpreted (in light of the constitutional Entries in the Lists). Where there is no such definition or interpretation, the Court may take the aid of dictionaries to ascertain the meaning of a word in common parlance, bearing in mind that a word is used in different senses according to its context and a dictionary gives all the meanings of a word in several contexts. The Court has therefore to select the particular meaning which would be relevant to the context in which it has to interpret that word. Thirdly, the judgment in the India Cement was doubted even in the absence of their being a conflict of the judgment with any other seven-judge Bench decision. No doubt, at the Highest Court, one cannot really be bogged down by the Bench strength nor does the doctrine of stare decisis would apply strictly to this Court when a judgment of a larger Bench is questioned by a Bench of similar or smaller strength. But for that, there must be present a flagrant violation of law, a patent error or a blatantly erroneous approach in the matter so as to enable a Bench of a similar or smaller strength to doubt the correctness or otherwise of the decision of a larger Bench. There could also be a situation where a judgment is per incuriam or the doctrine of sub silentio would apply. For instance, a two-judge Bench of this Court doubted the correctness of a five-judge Bench decision in A.R. Antulay vs. R.S. Naik, 1986 Supp SCC 510 (“A.R. Antulay”) which led to the constitution of a seven-judge Bench by Hon’ble the Chief Justice of India. By a majority

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of 5:2, the seven-judge Bench in the aforesaid case answered the questions raised by the two-judge Bench and thereby set aside the judgment of the five-judge Bench. The circumstances as, they occurred in the case of A.R. Antulay did not present themselves in Kesoram so as to doubt India Cement. Fourthly, in my view, the opinion of the majority in the Kesoram is per incuriam as it failed to follow the dictum in India Cement on the basis of a “typographical error” in paragraph 34 thereof where there was none. Judgments of larger Benches cannot be questioned by smaller Benches on the basis of an imagined “typographical error”! The entire judgment must be read and understood including its under currents before negating it for what it stands. A judgment of a Court of law is not a piece of legislation but one pregnant with reasoning and it becomes the duty of a succeeding Bench considering a precedent to be cautious in opining something contrary on the premise of a “typographical error” in a judgment of a larger Bench by failing to understand the import of the reasoning. Fifthly, Kesoram also failed to note that the Parliament enacted the Validation Act, 1992 on the definite premise that the States did not have the legislative competence to levy the impugned levies which were rightfully set aside by this Court in a series of judgments starting from Hingir-Rampur. Sixthly, I may observe that the Validation Act, 1992 clearly established that the dicta of this Court in India Cement, Orissa Cement and other cases which followed the said judgment are correct and were accepted by the Parliament which acted on it by passing the Validation Act. Seventhly, in Kannadasan, the validity of the Validation Act, 1992 was upheld. This clearly established the fact that the State’s levies which were quashed and set aside by this Court in India Cement and other cases were not relatable to Entry 49 - List II. If that was so, then Parliament could not have enacted the Validation Act, 1992 as only States can levy taxes on lands and buildings under the Entry 49 – List II. Eighthly, the actual basis for the majority in Kesoram doubting the judgment in India Cement is on the premise that there is a distinction between the power to regulate and control and the power to tax, the

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two being distinct and different. It was held that the taxation Entry i.e. Entry 50 – List II could not be controlled by Entry 54 – List I which is a regulatory Entry which is meant for regulation for mines and mineral development under the control of the Union. That may be so in the case of many other Entries, however, Entry 50 – List II is unique inasmuch as the taxation Entry namely, the power to impose taxes on mineral rights is itself subject to any limitations imposed by Parliament by law relating to mineral development. In the context of mineral development, limitations could be imposed by Parliament by law vis-à-vis the power to impose taxes on mineral rights which is evident on a reading of Entry 50 – List II. The reason being, exercise of mineral rights is related to mineral development which is a subject under Entry 54 – List I. This coalescing of the subjects in Entry 50 – List II with Entry 54 – List I has not been noticed whereas in India Cement as well as in Laddu Mal and in Laxminarayana Mining Co., this aspect has been the foundation of the reasoning.

28. In view of the aforesaid discussion, I differ from the judgment of Hon’ble the Chief Justice of India, and hold that India Cement, Orissa Cement, Mahalaxmi Fabric Mills, Saurashtra Cement, Mahanadi Coalfields, Kannadasan excluding to the extent overruled in Tata Iron and Steel, and Tata Iron and Steel have been correctly decided and therefore, are binding precedent and cannot be overruled. Entries 49 and 50 – List II:

29. The second aspect of this case which also requires consideration is with regard to interplay of Entries 49 and 50 - List II in the context of mineral bearing lands.

30. In the judgment proposed by Hon’ble the Chief Justice of India, it has been concluded as under: "e. The State legislatures have legislative competence under Article 246 read with Entry 49 of List II to tax lands which comprise of mines and quarries. Mineral-bearing land falls within the description of “lands” under Entry 49 of List II; f. The yield of mineral bearing land, in terms of the quantity of mineral produced or the royalty, can be used as a measure

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to tax the land under Entry 49 of List II. The decision in Goodricke (supra) is clarified to this extent; g. Entries 49 and 50 of List II deal with distinct subject matters and operate in different fields. Mineral value or mineral produce can be used as a measure to impose a tax on lands under Entry 49 of List II; and h. The “limitations” imposed by Parliament in a law relating to mineral development with respect to Entry 50 of List II does not operate on Entry 49 of List II because there is no specific stipulation under the Constitution to that effect.”

31. In India Cement, the State of Tamil Nadu mainly contended that impugned levy, namely, imposition of cess on royalty under Entry 49 - List II as taxes on lands and buildings and therefore defining “land revenue”, as including royalty on mineral bearing land in exercise of mineral rights by the holder of a mining lease was justifiable. In this regard, reference was made by the State of Tamil Nadu to Raja Jagannath Baksh Singh vs. State of U.P., (1963) 1 SCR 220 (“Raja Jagannath Baksh Singh”), wherein it was indicated that the expression “lands” in Entry 49 - List II is wide enough to include agricultural as well as non-agricultural land. But this contention was repelled by this Court by observing that ‘royalty’ being that which is payable on the extraction of minerals from land and ‘cess’ being an additional charge on the basis of royalty cannot be considered to be a tax on mineral land under Entry 49 – List II. It was observed that there was a clear distinction between tax directly on land and tax on income arising from land such as from minerals extracted from the land. 31.1 In fact, this Court in New Manek Chowk Spinning & Weaving Mills Co. Ltd. vs. Municipal Corporation of the City of Ahmedabad, (1967) 2 SCR 679 (“New Manek Chowk Spinning & Weaving Mills”), had observed that Entry 49 - List II only permitted levy of tax on lands and buildings and not on machinery contents in or situated on the buildings even though the machinery was there for the use of the buildings for a particular purpose. Also construing the said Entry, this Court in Sudhir Chandra Nawn vs. Wealth Tax Officer, Calcutta, (1969) 1 SCR 108 (“Nawn”), observed that

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Entry 49 - List II contemplated a levy on land as a unit and the levy must be directly imposed on land and must bear a definite relationship to it. The aforesaid decision was affirmed in Assistant Commissioner of Urban Land Tax vs. The Buckingham & Carnatic Co. Ltd., (1970) 1 SCR 268 (“The Buckingham & Carnatic Co.”). Similarly, in Second Gift Tax Officer, Mangalore vs. D.H. Nazareth, (1971) 1 SCR 195 (“D.H. Nazareth”), it was held that a tax on the gift of land is not a tax imposed directly on land but only for a particular act, namely, the transfer of land by way of gift. In Union of India vs. Harbhajan Singh Dhillon, (1971) 2 SCC 779 (“Harbhajan Singh Dhillon”), the aforesaid two decisions were approved. 31.2 Further, it was observed in India Cement that royalty which is indirectly connected with land cannot be said to be tax directly on land as a unit. The cess impugned could not be levied if there was no mining activity carried on as no royalty was payable as payment of cess was on royalty. Hence, it was manifest that cess on royalty was not relatable to land as a unit which is the only method of valuation of land under Entry 49 - List II but was relatable to minerals extracted, i.e. royalty was payable on a proportion of the minerals extracted based on the rate fixed under the Second Schedule to MMDR Act, 1957. Therefore, the impugned cess on royalty was held in pith and substance to be a tax on royalty and not a tax on land. Hence, royalty could not be included within the definition of “land revenue” for the purpose of imposition of a cess on land revenue, which means cess on royalty, when royalty is itself a tax paid by a holder of mining lease for exercise of his mineral rights, which is in the interest of mineral development. 31.3 It was further observed in India Cement that Entry 23 - List II deals with regulation of mines and mineral development subject to the provisions of List I, i.e. Entry 54 - List I. Even though the subject mineral rights are part of the State List, taxes on mineral rights are treated separately and hence, the principle that the specific excluded the general must be applied. Therefore, it was observed that the word “lands” in Entry 49 - List II cannot include mineral bearing lands. In this connection, it was further observed that the extent to which

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regulation of mines and mineral development under the control of the Union is declared by Parliament by law to be expedient in the public interest (Entry 54 – List I), must be noted as, to that extent, denuding the State Legislation of its power under Entry 50 - List II. It was further observed that in view of the Parliamentary legislation under Entry 54 - List I, namely, the MMDR Act, 1957, and the declaration made under Section 2 and the provisions of Section 9 thereof, the State’s power would be overridden to that extent. 31.4 Further, in India Cement, reliance was placed by State of Tamil Nadu on the judgment of this Court on HRS Murthy wherein it was observed that land cess paid on royalty has a direct relation to the land and only a remote relation with mining. This was held to be an incorrect approach in the matter by the seven-judge Bench in India Cement. In paragraph 30 of India Cement, it was further clarified that in HRS Murthy, attention of this Court was not invited to the provisions of Section 9 of the MMDR Act. It was also observed that Section 9(3) of the MMDR Act, 1957 in terms states that royalties payable under the Second Schedule of the said Act shall not be enhanced more than once during a period of three years. Therefore, this created a clear bar on the State Legislatures taxing royalty in any manner so as to in effect amend Second Schedule of the MMDR Act as additional taxes on royalty imposed by the States would vary the tax structure from State to State leading to variance in the price of a particular mineral in the country which is not in the interest of mineral development. Therefore, it was observed that tax on royalty cannot be a tax on land. This is ultra vires the State legislative power particularly in view of Section 9(3) of the MMDR Act, 1957. It was also observed in India Cement that under Section 9 of the MMDR Act, 1957 the field was fully covered by the Central legislation and that royalty is directly relatable only to the minerals extracted. Hence, royalty was found relatable only to Entry 50 - List II and not Entry 49 - List II. As the field is covered by the MMDR Act, 1957, Entries 23 and 50 - List II will be subject to the declaration made under Section 2 of the MMDR Act, 1957 which has been enacted as per Entry 54 - List I.

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32. In view of the above, the reasoning in the proposed judgment of the learned Chief Justice of India, in paragraph 339 that “though Parliament can limit the taxing field entrusted to the State under Entry 50 - List II through a law relating to mineral development, the limitation operates on the field of taxing mineral rights. Such a limitation cannot operate on Entry 49 - List II because there is no specific stipulation under the Constitution to that effect. The nature of taxes under both the Entries, that is Entries 49 and 50 - List II, are distinct. The Constitution envisages the imposition of limitations by Parliament on the legislative field of the state of taxes on mineral rights, and not taxes on lands … Therefore, we are of the opinion that the doctrine of generalia specialibus non derogant has no application in the instant case because Entries 49 and 50 of List operate in different fields” in my view is contrary to what has been reasoned by the seven-judge Bench in India Cement and also the scheme of Entry 54 - List I and Entries 23 and 50 - List II as well as the object, intent and scheme of Parliament in making a declaration under Section 2 of the MMDR Act, 1957. Further, the Validation Act passed by the Parliament on the strength of Entry 54 – List I would have been wholly unnecessary if Entry 49 – List II was applicable to mineral bearing lands.

33. In view of what has been discussed above, in my view, Entry 49 - List II is an Entry of the widest amplitude. Taxes on lands and buildings would include taxes on agricultural land, non-agricultural land, etc. But insofar as mineral-bearing land is concerned, there cannot be a tax on such land per se to be levied by the State Legislature as well as tax on mineral rights exercised on such land which is based on the value of the minerals produced under a Central Act. The reasons for saying so are as follows: (i) Firstly, royalty as a tax on the value of the minerals extracted is paid by the lessee or the person who would exercise mineral rights to the State or lessor, as the case may be, under the provisions of MMDR Act, 1957 which is a Parliamentary law. Whereas, a tax or cess on land is paid by the owner or the occupier of the land as the case may be as per particular statute or by an agreement between the owner and the occupier.

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(ii) Secondly, on a reading of the lease-deed executed in terms of Form-K appended to the Mineral Concession Rules, 1960, which are Central Rules, in light of Section 9 of the MMDR Act, 1957 and the Second Schedule thereof, it is clear that the lessee is under an obligation to pay royalty to the Government on the mineral extracted which is in exercise of his mining rights as per the provisions of MMDR Act, 1957, which is a Parliamentary legislation enacted in terms of Entry 54 - List I for regulation of mines and mineral development uniformly throughout the country. (iii) Thirdly, the royalty is paid as a tax as a tax in respect of minerals removed or consumed by the holder of a mining lease from the leased area at the rate for the time being specified in the Second Schedule to MMDR Act, 1957 in respect of that mineral. There is no payment of royalty on the basis of a private negotiation between the lessor or lessee. The rate at which royalty has to be paid is prescribed in the Second Schedule of the MMDR Act, 1957 mineral wise. Only the Central Government by notification in the official gazette can amend the Second Schedule so as to enhance or reduce the rate at which the royalty shall be payable in respect of any mineral with effect from the date as may be specified in the notification. Provided that the Central Government shall not enhance the rate of royalty in respect of any mineral more than once during any period of three years. This power is reserved only with the Central Government, which is in the interest of mineral development in a uniform manner throughout the country. (iv) Fourthly, there is no value that can be attached to a mineral bearing land so as to impose tax on such land minus the minerals. Insofar as extraction of minerals is concerned, being an exercise of a mineral right, royalty is payable by a holder of a mining lease and when no mining activity is carried on, dead rent is payable by such a person. Thus, royalty being a tax or an exaction, there cannot be another tax imposed by the State under Entry 49 - List II on such mineral bearing land. Such land is valuable because of the mining activity that is carried thereon and the minerals are extracted. Such land is not the same as agricultural or non-agricultural land or land on which

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buildings are constructed that is subjected to tax under Entry 49 - List II by a State Government. (v) Fifthly, to reiterate, when the value of minerals extracted is the basis of payment of royalty under the scheme of the MMDR Act, 1957, which is a Parliamentary legislation, such land cannot be construed to be falling within the scope and ambit of Entry 49 - List II also so as to be subjected to a tax imposed by the State. In other words, there cannot be a tax on mineral bearing land twice over by the State Government: one, under Entry 49 - List II as land per se and another, under Entry 50 - List II which is subject to any limitation being made by Parliament by law i.e. MMDR Act, 1957 made pursuant to Entry 50 - List I and more particularly, Section 2 read with Section 9 of the said Act. If, for instance, Section 9 of the MMDR Act, 1957 is repealed and the Parliament leaves it to the wisdom of State legislatures to impose royalty, then, there cannot be a duplication of taxes on mineral bearing land: one under Entry 49 - List II and another under Entry 50 - List II. A tax on mineral bearing land cannot fall under two Entries of the same List. Taxation Entries are mutually exclusive from each other in a particular List, the State List – List II in the instant case, unless they are made subject to an Entry in another List i.e., Union List - List I as in the instant case, Entry 50 - List II is subject to Entry 54 - List I.

34. In view of the aforesaid discussion, I also observe that mineral value or mineral produce cannot be used as a measure to tax mineral bearing land under Entry 49 - List II; also, the word “lands” under Entry 49 - List II cannot include mineral bearing land as well. This would amount to “double taxation” so to say imposed by two different Legislatures: one, by the State Legislature on the mineral bearing land under Entry 49 - List II and again for conducting a mining operation which is for exercise of a mineral right under Section 9 of MMDR Act, 1957, which is a Parliamentary law also paid to the State Government. This is impermissible having regard to the constitutional intent and scheme of Entries in the Lists. Therefore, royalty cannot also be a measure to impose tax on mineral bearing land. Hence, the State Legislature using royalty on mineral produce as a measure to impose a cess under Entry 49 - List II on mineral

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bearing land would indeed overlap Entry 50 - List II. This is because minerals are extracted by virtue of mining activity which is in exercise of a mineral right and taxes on mineral rights are envisaged under Entry 50 – List II subject to any limitation imposed by the Parliament. Therefore, Entry 50 - List II would have to be viewed distinctly from Entry 49 - List II. If so viewed, it becomes subject to Parliamentary law in the form of MMDR Act, 1957 and the rules made thereunder which would be a limitation on the power of the State to tax under Entry 50 – List II. Hence to get over the rigour of Entry 50 – List II, the States cannot resort to Entry 49 – List II. Effect of Overruling India Cement:

35. A survey of cases on the aspect as to whether royalty is a tax or not would reveal that Hingir-Rampur, M.A. Tulloch, Baijnath Kedia, India Cement and the two judgments of Patna High Court and Mysore High Court have clearly held that royalty is a tax coming within the scope and ambit of Article 366(28) of the Constitution. There are other judgments which have followed India Cement. This is having regard to the interpretation of the Entries namely, Entry 50 – List II in light of Entry 54 – List I and the declaration made in Section 2 of the MMDR Act, 1957 and the scheme of the provisions of the said Act. On the other hand, in HRS Murthy and Kesoram, it has been held by this Court that royalty is not a tax. 35.1 What is significant is between India Cement and the cases that have followed the said dictum and Kesoram is the judgment of this Court in Kannadasan which marks a watershed in the entire controversy and in fact had put a closure to the same. The circumstance which led to the Parliament enacting the Validation Act was to validate all the incompetent levies imposed in the form of cesses and surcharge on cesses, licence fee, etc. on royalty which had been set aside by this Court. Parliament was constrained to enact the Validation Act having regard to Entry 54 – List I and Section 2 of the MMDR Act, 1957. This significant aspect has not been appreciated by the majority in Kesoram. Instead the judgment in Kesoram proceeded on an imagined “typographical error” in paragraph 34 of India Cement without appreciating the reasoning therein for holding that royalty is a tax.

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35.2 Apart from questioning the verdict of a larger Bench on the premise that there was a “typographical error”, the majority in Kesoram lost sight of the implication and the adverse impact that its view would have on mineral development in the country. If royalty is not held to be a tax and the same being covered under the provisions of the MMDR Act, 1957, it would imply that despite Entry 54 – List I and the declaration made in Section 2 of the MMDR Act, 1957 and Section 9, 9A and other provisions thereof, taxes on mineral rights could be imposed by the States over and above payment of royalty on a holder of a mining lease. This would also mean that the limitation that the Parliament has made by law on the taxing power of a State explicitly stated in Entry 50 – List II would be given a go by. This would further imply that despite such a Parliamentary limitation, the States could pass laws imposing taxes, cesses, surcharge on cess, etc. on the basis of royalty which is in addition to payment of royalty. Further, that such levies could also be imposed under Entry 49 – List II thereby making Entry 50 – List II redundant is not acceptable. As a sequitur, this would result in mineral development in the country in an uneven and haphazard manner and increase competition between the States and engage them into what has been termed by Louise Tillin in a ‘race to the bottom’ in a nationally sensitive market. There would be unhealthy competition between the States to derive additional revenue and consequently, the steep, uncoordinated and uneven increase in cost of minerals would result in the purchasers of such minerals coffing up huge monies, or even worse, would subject the national market being exploited for arbitrage. The steep increase in prices of minerals would result in a hike in prices of all industrial and other products dependent on minerals as a raw material or for other infrastructural purposes. As a result, the overall economy of the country would be affected adversely which may result in certain entities or even non- extracting States resorting to importing minerals which would hamper foreign exchange reserves of the country. There would lead to a breakdown of the federal system envisaged under the Constitution in the context of mineral development and exercise of mineral rights. It could also lead to a slump

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in mining activity in States which have mineral deposits owing to huge levies that have to be met by holders of mining licences. Further, another impact of this would be a unhealthy competition to obtain mining leases in States which have the mineral deposits and who do not wish to impose any other levy apart from royalty. It is, therefore, necessary to realise why the framers of the Constitution took a clue from the Government of India Act, 1935 in order to distribute the legislative powers between the Union and the State List insofar as regulation of mines and minerals is concerned. 35.3 At this juncture, I must also observe the overruling the judgment in India Cement would mean that all judgments which are akin to the ratio of India Cement whether prior to or subsequent thereto, stand overruled irrespective of whether they are the judgments of the High Courts or this Court. Consequently, all States would once again start levying taxes on mineral rights under Entry 49 - List II and thereby bypass Entry 50 - List II so as to not be bound by any limitation that the Parliament had imposed by law on the power of the States to levy taxes on mineral rights. The circle would come around when Parliament would have to again step in to bring about a uniformity in the prices of minerals and in the interest of mineral development so as to curb the States from imposing levies, taxes, etc. on mineral rights. Why should that happen again? There would then be legal uncertainty which would cause adverse economic consequences including on mineral development in India. For the above reason also, the majority judgment in Kesoram is not a good law and ought to be overruled to the extent that it holds that royalty is not a tax. Federalism in India:

36. According to Louise Tillin, in her article “Building a National Economy : Origins of Centralized Federalism in India” published by the Oxford University Press in 2021, India’s post-colonial Constitution introduced a new approach to federalism which has departed from the principle that federal and regional governments should each have independence in their own sphere of authority. According to Tillin, “the distinctive elements of Indian federalism were shaped at their

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foundations by the desire to boost industrial development and lay the foundation for a national welfare state in a post-colonial future by preventing the consolidation of ‘‘race to the bottom’’ dynamics arising from unregulated inter-provincial economic competition.” According to her, Indian federalism was influenced by emerging debates taking place within India and in the international fora established alongside the League of Nations after the First World War, about the regulation of economic competition and the development of the twentieth century welfare State. According to her, the distinctive element of Indian federalism is the combination of a strong Centre and a substantial sphere of shared Centre-State jurisdiction. This thinking was shaped by nationalist politicians, industrialists, and labour leaders in the decades prior to India’s Independence and the significant political and economic factors that influenced the constitutional design of federalism in India. 36.1 According to certain scholars, India’s founding fathers opted for Parliamentary supremacy with a strong centre to prevent further secessionist movements. That, Jawaharlal Nehru’s preference was for a centralized model of federalism was to hold together the fledgling Union and concerted efforts to foster a national, civic identity rather than parochial identification with local or linguistic identities. Therefore, the Constitution uses the word “Union” instead of “Federation”. 36.2 Nehru, who was the Chairman of the Union Powers Committee of the Constituent Assembly, was of the view that “it would be injurious to the interests of the country to provide for a weak central authority which would be incapable of ensuring peace, of coordinating vital matters of common concern and of speaking effectively for the whole country in the international sphere.” (Nehru cited in M.P. Jain, Nehru and the Indian Federalism, Journal of the Indian law Institute, Vol.19, No.4, 1977, p.408). 36.3 The Government of India Act, 1935 was the first comprehensive blueprint for legislative division of power in India between federal, provincial and concurrent spheres which resolved residuary powers to rest with the Federal Government. Though there are apparent similarities between the Government of

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India Act, 1935 and the Indian Constitution, yet factors, such as, regulation of economic competition and the development of twentieth century welfare States guided the constitutional blueprint for a model of federalism in which provincial initiative should not preclude national coordination, particularly, in the fields of socio-economic spheres. 36.4 According to Tillin, “in the case of India, political economy considerations intersect with the accommodation of diversity in shaping the resulting forms of federalism”. The question of a desirable balance between Central and the State Governments has to be viewed in the context of the country continuing to confront the need to promote economic growth while upholding and expanding social rights. Sarkaria Commission Report on Centre-State Relations:

37. Resolved to study and reform the existing arrangements between the Union and the States in an evolving socio-economic scenario, the Ministry of Home Affairs vide Order dated 09.06.1983 constituted a Commission under the Chairmanship of Justice R.S. Sarkaria with Shri B. Sivaraman and Dr. S.R. Sen having due regard to the framework of the Constitution. At this stage, reference to Section 5, Chapter II – Legislative Relations of the Report of the Sarkaria Commission (“Sarkaria Commission Report”) may be of assistance: “2.5.21 In every Constitutional system having two levels of government with demarcated jurisdiction, contents respecting power are inevitable. A law passed by a State legislature on a matter assigned to it under the Constitution though otherwise valid, may impinge upon the competence of the Union or vice versa. Simultaneous operation side- by-side of two inconsistent laws, each of equal validity, will be an absurdity. The rule of Federal Supremacy is a technique to avoid such absurdity, resolve conflicts and ensure harmony between the Union and State laws. This principle, therefore, is indispensable for the successful functioning of any federal or quasi-federal Constitution. It is indeed the kingpin of the federal; system. “Draw it out, the entire system falls to pieces”

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2.5.22 If the principles of Union Supremacy are excluded from Articles 246 and 254, it is not difficult to imagine its deleterious results. There will be every possibility of our two-tier political system being stultified by internecine strife, legal chaos and confusion caused by a host of conflicting laws, much to the bewilderment of the common citizen. Integrated legislative policy and uniformity on basic issues of common Union-State concern will be stymied. The federal principle of unity in diversity will be very much a casualty. The extreme proposal that the power of Parliament to legislate on a Concurrent topic should be subject to the prior concurrence of the States, would, in effect, invert the principle of Union Supremacy and convert it into one of State Supremacy in the Concurrent sphere. The very object of putting certain matters in the Concurrent List is to enable the Union Legislature to ensure uniformity in laws on their main aspects throughout the country. The proposal in question will, in effect, frustrate that object. The State Legislatures because of their territorially limited jurisdictions, are inherently incapable of ensuring such uniformity. It is only the Union, whose legislative jurisdiction extends throughout the territory of India, which can perform this pre-eminent role. The argument that the States should have legislative paramountcy over the Union is basically unsound. It involves a negation of the elementary truth that the ‘whole’ is greater than the ‘part’.” (emphasis supplied) As the paragraphs extracted above elucidate, the Commission was of the firm view that the principles of Union Supremacy cannot be undermined from Articles 246 and 254. While the immediate paragraph is concerned with legislative actions taken under the List III - Concurrent List, they provide us a beneficial lens to both the importance of Union supremacy in matters that demand national uniformity and the Commission’s following discussion on “Mines and Minerals” in Chapter XIII. 37.1 As the extract hereunder reflects, the Commission noted that the tug-of-interpretation between Centre and States

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was causing adverse impact on prices of petroleum which is necessarily not in the interest of national conformity and uniformity. It reads as under: “13.5.10 …….We are informed by the government of India that one State has levied mineral rights tax, approximately 300 percent of royalty on coal and lime-stone and 100 percent of royalty on other minerals. The Union Government, while conceding the States rights under Entries 49 and 50 (subject to such limitation as may be imposed by Parliament), has pointed out the need for the States to exercise restraint on imposition of such levies, so as not to affect uniformity or competitiveness.…… xxx 13.5.12 The controversy, is therefore, not of legal interpretation of their respective jurisdiction, but one of evolving an understanding in regard to the extent to which these sources of revenue can be exploited keeping in view the overall national interest. Such issues can best be sorted out through consultation and consensus. We are of the view that the NEDC proposed by us will be the best forum for this purpose. It is, however, quite clear that the issues are inter- linked. Mutual trust and confidence can be built up only if, on the one hand, the Union Government promptly revises royalty rates at reasonable intervals and on the other, the States abstain from arbitrary action in levy of cesses, etc. Parochial considerations must yield to the larger interests of the nation in such matters.” However, till the above situation is achieved constitutional courts would have to adjudicate by way of judicial review. 37.2 One has to also appreciate the pragmatic solution-oriented approach coupled with the acknowledgment that the subject matter of this lis-taxation on minerals-which are natural resources, should be exploited for the development of the country as a whole. Therefore, it is only Union legislation

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which can ensure the same successfully. The Report further states as under: “13.5.15 Exploitation of mineral resources will continue to increase. There is general agreement that minerals are national resources and they should be exploited and developed for the benefit of the country as a whole. Only Union legislation can ensure such regulation and development of minerals. The States have been given an unrestricted field in respect of ‘minor minerals’ which have little all-India implications. There is, however, need for periodic review of the First Schedule to the MMRD Act, in consultation with the States, say after every three years, as there is a possibility that a particular mineral, not included in the Schedule, may become a matter of national concern or vice versa. Any amendment of the Act should normally be preceded by consultation in the NEDC.” (emphasis supplied)

38. However, the controversy in this case would demonstrate how a State with substantial mineral reserves manages, regulates and taxes its resources without hurting the national interest and the development of the country in the context of mineral development. It is with the above background that the distribution of legislative powers between the Union and the States were thought of in a manner that would give an upper hand to Parliamentary supremacy, so to say, over the legislative power of the State. Therefore, the respective Entries in Lists I and II, namely, the Union List and the State List respectively, have been so drafted in order to ensure that there is overall mineral development in the country as a whole, rather than particular States possessing the mineral wealth acting contrary to the overall welfare of the country and against the economic interest of the other States.

39. In view of the aforesaid discussion, I find that the learned Attorney General is right in contending that the MMDR Act, 1957 contemplates all manner of levies, charges, impost or demands that could be provided for having a nexus with mineral rights. Therefore, the Act itself has to be construed as a limitation on the power of the States to demand or impose levies to the extent to which is stated in the

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Act. Although, Entry 50 – List II is a taxing Entry, it will be subject to the limitations enacted by the Parliament by law under Entry 54 – List I. The answer to the question raised by learned Solicitor General, whether the States can impose levies under Entry 50 – List II over and above the amount of royalty received by them under the MMDR Act, 1957, is in the negative. The submission that Entry 50 – List II is sui generis because it is the only legislative Entry which limits the taxing powers of the State legislatures by reference to a general law, is a correct submission made by Sri Harish Salve, learned senior counsel. Therefore, the expression “mineral development” found in Entry 50 – List II has to be traced to the entire architecture of the MMDR Act, 1957 which serves as limitation of the taxing power of the State legislature under Entry 50 – List II. To read it otherwise would lead to destruction of the federal balance, as rightly contended by Sri Salve. Further, tax on mineral right would also include royalty as envisaged under Section 9 and the other Sections of the MMDR Act, 1957 which is in the nature of sovereign exaction and every holder of mining lease is bound to pay royalty in terms of Section 9 read with Second Schedule to the said Act. In that sense, royalty is in the nature of a tax on mineral rights which has to be compulsorily paid by the holder of a mining lease irrespective of who the owner of the mineral bearing land is. 39.1 Also the MMDR Act, 1957 and the Rules made thereunder is a complete Code on the regulation of mineral development and royalty paid by a holder of a mining lease is in the nature of a tax paid on mineral rights, the State legislature cannot, on the basis of royalty paid, levy any other tax, cess or surcharge on cess. The States can only levy tax on sale of mineral as per Entry 54 – List II which is not a tax on mineral rights, as rightly contended by Sri Datar, learned senior counsel. Moreover, Entry 50 – List II is a recognition of parliamentary superiority via imposition of a limitation, as rightly argued by Dr. Singhvi, learned senior counsel. 39.2 Consequently, the contention of learned senior counsel Sri Rakesh Dwivedi for the appellants-States to the effect that value of the minerals could be used as a measure to tax mineral bearing land under Entry 49 – List II cannot be accepted. It is also not right to contend that the Parliament

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has only fixed the amount of royalty payable under Section 9 which cannot be a limitation on the taxing power of the State legislature under Entry 50 – List II. Moreover, the expression “any limitation” used in Entry 50 – List II can be construed to mean even a prohibition apart from a restriction. Conclusions:

40. What follows are my answers to the conclusions reached on the issues raised in the judgment of Hon’ble the Chief Justice of India, which read as under:

Question Issues My Conclusions a. What is the true nature The true nature of royalty determined of royalty determined under Section 9 read with Section under Section 9 read 15(1) of the MMDR Act, 1957 is with Section 15(1) of the that it is in the nature of a tax MMDR Act? Whether coming within the scope and ambit royalty is in the nature of Article 366(28) of the Constitution of tax? which defines taxation to include the imposition of any tax or impost, whether general or local or special and the word “tax” is to be construed accordingly.

b. What is the scope of Entry Entry 50 - List II of the Seventh 50 - List II of the Seventh Schedule is, no doubt, a taxation Schedule? What is the Entry which deals with taxes on ambit of the limitations mineral rights. But this Entry is imposable by Parliament subject to any limitations imposed in exercise of its legislative by Parliament by law relating to powers under Entry 54 - mineral development. The use of List I? Does Section 9, the word “any” means the limitation or any other provision of could be in any form which can be the MMDR Act, contain imposed only by the Parliament by any limitation with respect law relating to mineral development. to the field in Entry 50 - In view of the use of the expression List II? “any limitations”, it must be given the widest possible meaning to include a limitation in the form of Sections 9 and 9A, 25 or any other provision of the MMDR Act, 1957 and Rules made thereunder which act as a limitation to Entry 50 - List II.

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Question Issues My Conclusions c. Whether the expression The expression “subject to any “subject to any limitations limitations imposed by Parliament by imposed by Parliament law relating to mineral development” by law relating to mineral in Entry 50 - List II pro tanto subjects development” in Entry the Entry to Entry 54 - List I. The use 50 - List II pro tanto of the expression “any limitations” subjects the Entry to would mean that the taxing Entry Entry 54 - List I, which would be subject to a nontaxing or is a non-taxing general general Entry such as in Entry 54 - Entry? Consequently, is List I which could also be termed as there any departure from a regulatory Entry. Consequently, the general scheme of there is a departure from the general distribution of legislative scheme of distribution of legislative powers as enunciated powers as enumerated in MPV in MPV Sundararamier Sundararamier insofar as Entry 50 (supra)? - List II read with Entry 54 - List I is concerned which is unique to Entry 50 – List II. This is having regard to the significance of Entry 54 – List I which also overrides Entry 23 – List II. d. What is the scope of Entry 49 - List II deals with taxation Entry 49 - List II and of lands and buildings. It does not whether it covers a tax cover taxes on mineral bearing which involves a measure lands. The constitutional position is based on the value of the different qua mineral bearing lands produce of land? Would on account of Entry 50 - List II read the constitutional position with Entry 54 - List I and Section 2 of be any different qua the MMDR Act, 1957. Consequently, mining land on account any imposition on the basis of royalty of Entry 50 - List II read by a State Legislature or involving with Entry 54 - List I? royalty as a measure of the value of the minerals extracted from the land is impermissible. e. Whether Entry 50 - List Yes, Entry 50 - List II is a specific II is a specific Entry in Entry in relation to Entry 49 - List relation to Entry 49 - List II, II and would consequently subtract and would consequently mining lands from the scope of Entry subtract mining land from 49 - List II. This is particularly so the scope of Entry 49 - having regard to Entry 50 - List II List II?” to be read with Entry 54 - List I and Section 2 of the MMDR Act, 1957.

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41. Consequently, the following conclusions are arrived at by me: a. I hold that royalty is in the nature of a tax or an exaction. It is not merely a contractual payment but a statutory levy under Section 9 of the Act (Section 9A relating to dead rent). The liability to pay royalty does not arise purely out of the contractual conditions of a binding lease. The payment of royalty to the Government is a tax in view of Entry 50 - List II being subject to any limitations imposed by Parliament by law in the context of Entry 54 - List I read with Section 2 of the MMDR Act, 1957. b. Entry 50 - List II is an exception to the position of law laid down in MPV Sundararamier vs. State of Andhra Pradesh, AIR 1958 SC 468 (“MPV Sundararamier”). Moreover, in the said case, the scope and ambit as well the implication of Entry 54 – List I on Entry 50 - List II was not considered at all. Therefore, the principle stated in MPV Sundararamier is foreign to the instant case and the ratio of the said decision does not apply to the present case. No doubt, the legislative power to tax mineral rights vests with the State legislature but Parliament, though may not have an express power to tax mineral rights under Entry 54 - List I, it being a general Entry, Parliament can, nevertheless on the strength of Entry 54 - List I read with Section 2 of the MMDR Act, 1957, impose any limitation on the power of the States to tax mineral rights under Entry 50 - List II. Sections 9 and 9A of the MMDR Act, 1957 are two such instances of limitations imposed by the Parliament on the taxing power of the State under Entry 50 - List II. This is a unique Entry and must be given its true and complete meaning and while interpreting the same one cannot be swayed by the principles laid down in MPV Sundararamier as the same do not apply in the instant case. At the cost of repetition, it is stated that Entry 50 - List II never came for consideration in the aforesaid case. c. Parliament is not using its residuary power with respect to imposing any limitation on the taxing power of the State under Entry 50 – List II. In fact, even the Validation Act, 1992 enacted by Parliament was upheld having regard to Entry 54 - List I read with Section 2 of the MMDR Act, 1957 and not Entry 97 - List I.

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d. Entry 50 - List II envisages that Parliament can impose “any limitations” on the legislative field created by that Entry under a law relating to mineral development. The MMDR Act, 1957 has imposed the limitations as envisaged in Entry 50 - List II in Sections 9, 9A and 25, etc. on the strength of Entry 54 – List I. e. I, however, concur with the learned Chief Justice that the scope of the expression “any limitations” under Entry 50 - List II is wide enough to include the imposition of restriction, conditions, principles as well as a prohibition by Parliament by law. f. The State legislatures have legislative competence under Article 246 read with Entry 49 - List II to tax lands and buildings but not lands which comprise of mines and quarries or have mineral deposits as mineral bearing lands do not fall within the description of lands (under Entry 49 - List II). Similarly, States can tax such mineral bearing lands which are not covered within the scope of MMDR Act, 1957 i.e., minor minerals, under Entry 50 – List II and not under Entry 49 – List II as tax on exercise of mineral rights. Thus, mineral bearing lands cannot be taxed under Entry 49 – List II. g. Further, the yield of mineral bearing lands, in terms of quantity of mineral produced or royalty paid cannot also be used as a measure to tax such lands under Entry 49 - List II. In my view, the decision in Goodricke does not apply to the present case and hence does not require any clarification. h. Entries 49 and 50 - List II, no doubt, operate in different fields. Entry 49 - List II deals with taxes on lands and buildings but Entry 50 - List II deals with taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development. There is no constitutional limitation on the competence of the State legislature to tax lands and buildings. However, the State’s competence to tax mineral rights is subject to any limitations imposed by the Parliament by law relating to mineral development. Entry 49 - List II and Entry 50 - List II are distinct and operate in distinct ways. Entry 49 - List II does not apply to mineral bearing lands as such lands are taxed in the form of royalty or dead rent in the context of exercise of mineral rights. Exercise of mineral rights is the basis for payment of royalty or dead rent. Consequently, value of mineral produced

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cannot be used as a measure to once again impose a tax on mineral bearing land under Entry 49 - List II. If so, Entry 50 – List II would be rendered redundant. i. As Entry 49 - List II does not apply to mineral bearing land, the limitations imposed by Parliament by law relating to mineral development with respect to Entry 50 - List II would restrict the power of the State legislature to impose tax on mineral rights under the latter Entry. Thus, the power of the State legislature to impose tax under Entry 50 - List II is subject to the Parliament imposing any limitation by law relating to mineral development.

42. In view of the above discussion, the eleven questions referred to this Bench are accordingly answered. In particular, I hold that: (i) Sections 9, 9A and 25 of the MMDR Act, 1957 denude or limit the scope of Entry 50 - List II; (ii) the majority decision in Kesoram is a serious departure from the law laid down by the seven-judge Bench in India Cement which was wholly unwarranted and therefore, in my view, the said majority judgment is liable to be overruled and is overruled to the extent of holding that royalty is not a tax; (iii) taxes on lands and buildings under Entry 49 - List II contemplates a tax levied directly on the land as a unit having a defined relationship with the land and does not include mineral bearing lands within its scope; (iv) in view of the declaration under Section 2 of the MMDR Act, 1957 made in terms of Entry 54 - List I and to the extent of the provisions of the said Act, the State legislature is denuded of its powers under Enry 50 - List II; and (v) Entry 50 - List II is a unique Entry because it is the only taxation Entry in Lists I and II where the taxing power of a State legislature has been subjected to “any limitations imposed by Parliament by law relating to mineral development”. The dictum in MPV Sundararamier has not discussed on Entry 50 – List II and hence the said decision has no bearing as such on the present controversy. The conclusion that ‘royalty’ is a ‘tax’ is the only exception to the position of law laid down in MPV Sundararamier. Of course, the scope of expression

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“any limitations” in Entry 50 - List II is wide enough to include the imposition of restrictions, conditions, principles as well as a prohibition.

43. In the result, in my view, the judgments in India Cement, Orissa Cement, Mahalaxmi Fabric Mills, Saurasthra Cement, Mahanadi Coalfields, Kannadasan excluding to the extent overruled in Tata Iron and Steel, and Tata Iron and Steel are correct and therefore are binding precedent and cannot be overruled. On the other hand, the majority judgment in Kesoram, is overruled to the extent it holds that royalty is not a tax.

44. The Registry is directed to place these matters before Hon’ble the Chief Justice of India for directions on listing the matters before the appropriate Bench. I must place on record my sincere appreciation to the learned Attorney General, learned Solicitor General and their teams, learned senior counsel appearing for the respective parties, learned instructing counsel and learned counsel for the respective parties for their valuable assistance to this Bench.

Result of the case: Reference Answered.

† Headnotes prepared by: Nidhi Jain