1999 Supreme(SC) 1203

2004(1) Supreme 590
Supreme Court of India
(From Calcutta High Court)
V.N. Khare, CJI, R.C. Lahoti, B.N. Agrawal, S.B. Sinha & Dr. AR. Lakshmanan, JJ.
The State of West Bengal & Anr. -Appellants
versus
Kesoram Industries Ltd. & Ors. -Respondents
Civil Appeal Nos. 1532-1533 of 1993
(With C.A.Nos. 3518-3519 of 1992, 5149-54 of 1992, C.A. No. 2350 of 1993, C.A.No. 7614 of 1994, C.A.Nos. 298, 299 and 297 of 2004
(Arising out of SLP (C) Nos. 3986 of 1993, 11596 and 17549 of 1994)
W.P. (C) No. 262 of 1997
(With W.P. (C) Nos. 515, 641, 642 of 1997, W.P. (C) Nos. 347, 360 of 1999, W.P. (C) Nos. 50, 553 of 2000, W.P. (C) Nos. 207, 288, 389 of 2001 and W.P. (C) No. 81 of 2003)
W.P. (C) No. 247/1995
(With W.P. (C) No. 412/1995)
Civil Appeal No. 5027/2000
(With C.A.Nos. 6643 to 6650 of 2000, 6894 of 2000 and C.A.No. 1077 of 2001)
Decided on 15-1-2004
Counsel for the Parties :
For the Appearing Parties : Mukul Rohtagi, Additional Solicitor Gener­al, Rakesh Dwivedi, B. Sen, Bhaskar P. Gupta, Dipankar P. Gupta, A.K. Ganguli, M.N. Krishnamani, R. Venkataramani, Dr. Debi Pal, V.R. Reddy, Sr. Advocates, K.K. Saha, Ms. Niranjana Singh, Dayan Krishnan, Dilip Sinha, J.R. Das, S. Misra, G. Biswal, Abhishek Chaudhary, Ms. Shruti Chaudhury, Ms. Sumita Goel, Suman J. Khaitan, D. Mandal, Gaurab K. Banejee, Ms. Sangeeta Mandal, Kapil Chaudhary, Ms. Swati Sinha, Indra­nil Ghosh, Arvind Verma, Ms. Jayasree Singh, Ms. Vineeta Bharadwaj, Ms. Mamta Tiwari, Pramod Kumar, Arvind Kumar Gupta, G.S. Chatterjee, P. Venugopal, P.S. Sudheer, K.J. John, Rana Mukherjee, Siddharth Gautam, Goodwill Indeevar, Bijan Kumar Ghosh, Sushil Kumar Jain, Prakash Shrivastava, Prateek Jalan, Ms. Ruby Singh Ahuja, Ms. Bina Gupta, S. Ravi Shankar, S. Jayasinha, Arun, Ms. Rekha Pandey, A Mari­arputham, Ms. Neera Gupta, D.S. Mehra, Bijan Kumar Ghosh, Anip Sacht­hey, Ajit Kumar Sinha, Raj Kumar Gupta, Sheo Kumar Gupta, A.N. Bardi­yar, Ms. Anil Katiyar, T.C. Sharma, Ms. Neelam Sharma, Ajay Sharma, H.K. Puri, S.K. Puri, Ujjwal Banerjee, Ms. Anindita Gupta, U.A. Rana, Ms. Anuradha Priyadarshini, Shreekant N. Terdol, B.V. Balaram Das, Ajay K. Agrawal, Ms. Alka Agrawal, Gaurav Jain, Ms. Abha Jain, Advo­cates.

Important point
Cesses on coal bearing land, on tea plantation land and also on the removal of brick earth, as levied by the State of West Bengal in exercise of powers under the West Bengal Primary Education Act and the West Bengal Rural Employment and Production Act as amended by the West Bengal Taxation Laws (Amendment) Act, 1992, have been held as consti­tutionally valid being within the legislative powers of the State.

Headnote:(i) Constitution of India-Articles 245 and 246, Three Lists of Sev­enth Schedule-Legislative Powers-Taxation-Relevant entries-Princi­ples of interpretation as stated by Courts-Tax legislation-Courts ought to adopt a pragmatic approach rather than measuring the proposi­tions by abstract symmetry-Legislations in field of taxation and economic activities need special consideration and are to be viewed with larger flexibility in approach-Measure of levy not suggestive of nature of tax.

       Held : The power of making any law imposing a tax not mentioned in the Concurrent List or State List vests in Parliament. This is what is called the residuary power vesting in Parliament. The principles have been succinctly summarized and restated by a Bench of three learned Judges of this Court on a review of the available decisions in M/s. Hoechst Pharmaceuticals Ltd. & Ors. Vs. State of Bihar & Ors., - (1983) 4 SCC 45. They are-

        (1) the various entries in the three Lists are not powers of legislation but fields of legislation. The Constitution effects a complete separation of the taxing power of the Union and of the States ­under Article 246. There is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States.

        (2) In spite of the fields of legislation having been demarcated, the question of repugnancy between law made by Parliament and a law made by the State Legislature may arise only in cases when both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List and a direct conflict is seen. If there is a repugnancy due to overlapping found between List II on the one hand and List I and List III on the other, the State law will be ultra vires and shall have to give way to the ­Union law.

        (3) Taxation is considered to be a distinct matter for purposes of legislative competence. There is a distinction made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. The power to tax cannot be deduced from a general legislative entry as an ancillary power.

        (4) The entries in the List being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest possible interpretation. This is because, to quote V. Ramaswami, J., the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeratio of broad categories. A power to legislate as to the principal matter ­specifically mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters.

        (5) Where the legislative competence of a Legislature of any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation relates to any of the entries in Lists I or III. If it does, no further question need be asked and Parliament s legislative competence must be upheld. Where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other Legislature is of no consequence. The Court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the Legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded.

        (6) The doctrine of occupied field applies only when there is a clash between the Union and the State Lists within an area common to both. There the doctrine of pith and substance is to be applied and if the impugned legislation substantially falls within the power expressly conferred upon the Legislature which enacted it, an incidental encroaching in the field assigned to another Legislature is to be ignored. While reading the three Lists, List I has priority over Lists III and II, and List III has priority over List II. However, still, the predominance of the Union List would not prevent the State Legislature from dealing with any matter within List II though it may incidentally affect any item in List I. (emphasis supplied)

       Tax Legislation

       The abovestated are general principles. Legislations in the field of taxation and economic activities need special consideration and are to be viewed with larger flexibility in approach. (Paras 31 and 32)

       (ii) Constitution of India-Articles 245 and 246, Three Lists of Seventh Schedule-Conflicting tax entries-Interpretation of-Conflict between powers of Union and State to legislate-Federalism-Concept of.

       Majority Opinion :

       Held : Our Constitution has a federal structure. Several provisions of the Constitution unmistakably show that the Founding Fathers intended to create a strong centre. The historical background relevant at the time of the framing of the Constitution warranted a strong centre naturally and necessarily. This bias of the framers towards the centre is found reflected in the distribution of legislative heads between the Centre and the States. More important heads of legislation are placed in List I. In the Concurrent List the parliamentary enactment is given primacy, irrespective of the fact whether such enactment is earlier or later in point of time to a State enactment on the same subject matter. The residuary power to legislate is with the Centre. By the Forty-second Amendment a few of the entries in List II were omitted or transferred to other lists. Articles 249 to 252 further demonstrate the primacy of Parliament, allowing it liberty to encroach on the field meant exclusively for the State legislation though subject to certain conditions being satisfied. In the matter of finances, the States appear to have been placed in a less favourable position. True, the Centre has been given more powers but the same is accompanied by certain additional responsibilities as well. The Constitution is an organic living document. Its outlook and expression as perceived and expressed by the interpreters of the Constitution must be dynamic and keep pace with the changing times. Though the basics and fundamentals of the Constitution remain unalterable, the interpretation of the flexible provisions of the Constitution can be accompanied by dynamism and lean, in case of conflict, in favour of the weaker or the one who is more needy. Several taxes are collected by the Centre and allocation of revenue is made to States from time to time. The Centre consuming the lion s share of revenue has attracted good amount of criticism at the hands of the States and financial experts. The interpretation of Entries can afford to strike a balance, or at least try to remove imbalance, so far as it can. Any conscious whittling down of the powers of the State can be guarded against by the Courts. "Let it be said that the federalism in the Indian Constitution is not a matter of administrative convenience, but one of principle - the outcome of our own historical process and a recognition of the ground realities." (Para 50)

       Minority Opinion [S.B. Sinha, J.]

       Federalism is one of the basic pillars of the Indian Constitution. The federal distribution of powers are one of its unique features. Having regard to Articles 245, 248, 250, 256, 257, 356 and Entry 97 in list I of the VII Schedule of the Constitution, it is not possible to say that India is not a subscriber to federalism but although having unique federal character it can be said to be quasi-federal or hybrid federal State. Constitutional courts have interpreted that India has a federal polity. Each State has independent constitutional existence assigned with important political role. Having regard to the aforementioned principles in mind, the Center-State relations as regards the distribution of legislative power must be viewed. (Paras 204 and 205)

       (iii) Constitution of India-Article 246-Entry 54, List I and Entry 23, List II of Seventh Schedule-Inter-relationship-Power to levy and collect fees or taxes in respect of minerals mined, quarried, excavat­ed or collected-Challenge to constitutional validity of Orissa Mining Areas Development Fund Act, 1952.

       Held : The Constitution Bench laid down the following principles which are relevant for our purpose :-

        (1) Entry 23 of the State List vests in the State Legislature power to enact laws on the subject of 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 would be seen that "subject to" the provisions of List I the power of the State to enact Legislation on the topic of "mines and mineral development" is plenary. The relevant provision in List I is, as already noticed, Entry 54 of the Union List.

        (2) To the extent to which the Union Government had taken under its control the regulation and development of minerals that much (i.e. to that extent) was withdrawn from the ambit of the power of the State Legislature under Entry 23 and 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 rendered ineffective, for here we have a case not of mere repugnancy between the provisions of the two enactments but of a denudation or deprivation of State legislative power by the declaration which Parliament is empowered to make, and has made.

        (3) The States would lose legislative competence only to the "extent to which regulation and development under the control of the Union has been declared by Parliament to be expedient in the public interest".

        (4) It would be logical first to examine and analyse the State Act and determine its purpose, width and scope and the area of its operation and then consider to what "extent" the Central Act cuts into it or trenches on it. (Para 90)

       (iv) Constitution of India-Article 265-Power to tax not a residuary power-Power to tax must be express, else no power to tax-Power to ‘regulate and develop’ and ‘power to tax’-Distinction.

       Held : The relevant principles culled out from the preceding discussion are summarized as under:-

       (1) In the scheme of the Lists in the Seventh Schedule, there exists a clear distinction between the general ­subjects of legislation and heads of taxation. They are separately enumerated.

       (2) Power of regulation and control is separate and distinct from the power of taxation and so are the two fields for purposes of legislation. Taxation may be capable of being comprised in the main subject of general legislative head by placing an extended construction, but that is not the rule for deciding the appropriate legislative field for taxation between List I and List II. As the fields of taxation are to be found clearly enumerated in Lists I and II, there can be no overlapping. There may be overlapping in fact but there would be no overlapping in law. The subject matter of two taxes by reference to two Lists being different simply because the methodology or mechanism adopted for assessment and quantification is similar, the two taxes cannot be said to be overlapping. This is the distinction between the ­subject of a tax and the measure of a tax.

       (3) The nature of tax levied is different from the measure of tax. While the subject of tax is clear and well defined, the amount of tax is capable of being measured in many ways for the purpose of quantification. Defining the subject of tax is a simple task; devising the measure of taxation is a far more complex exercise and therefore the legislature has to be given much more flexibility in the latter field. The mechanism and method chosen by Legislature for quantification of tax is not decisive of the measure of tax though it may constitute one relevant factor out of many for throwing light on determining the general character of the tax.

       (4) Entries 52, 53 and 54 in List I are not heads of taxation. They are general entries. Fields of taxation covered by Entries 49 and 50 in List II continue to remain with State Legislatures in spite of Union having enacted laws by reference to Entries 52, 53, 54 in List I. It is for the Union to legislate and impose limitations on States otherwise plenary power to levy taxes on mineral rights or taxes on lands (including mineral bearing lands) by reference to Entry 50 and 49 in List II and lay down the limitations on State s power, if it chooses to do so, and also to define the extent and sweep of such limitations.

       (5) The Entries in List I and List II must be so construed as to avoid any conflict. If there is no conflict, an occasion for deriving assistance from non-obstante clause "subject to" does not arise. If there is conflict, the correct approach is to find an answer to three questions step by step as under:

       One - Is it still possible to effect reconciliation between two Entries so as to avoid conflict and overlapping?

       Two - In which Entry the impugned legislation fails by finding out the pith and substance, of the legislation? and

       Three - Having determined the field of legislation wherein the impugned legislation fails by applying doctrine of pith and substance, can an incidental trenching upon another field of legislation be ignored?

       (6) Land , the term as occurring in Entry 49 of List II, has a wide connotation. Land remains land though it may be subjected to different user. The nature of user of the land would not enable a piece of land being taken out of the meaning of land itself. Different uses to which the land is subjected or is capable of being subjected provide basis for classifying land into different identifiable groups for the purpose of taxation. The nature of user of one piece of land would enable that piece of land being classified separately from another piece of land which is being subjected to another kind of user, though the two pieces of land are identically situated except for the difference in nature of user. The tax would remain a tax on land and would not become a tax on the nature of its user.

       (7) To be a tax on land, the levy must have some direct and definite relationship with the land. So long as the tax is a tax on land by bearing such relationship with the land, it is open for the legislature for the purpose of levying tax to adopt any one of the well known modes of determining the value of the land such as annual or capital value of the land or its productivity. The methodology adopted, having an indirect relationship with the land, would not alter the nature of the tax as being one on land.

       (8) The primary object and the essential purpose of legislation must be distinguished from its ultimate or incidental results or consequences, for determining the character of the levy. A levy essentially in the nature of a tax and within the power of State Legislature cannot be annulled as unconstitutional merely because it may have an affect on the price of the commodity. A State legislation, which makes provisions for levying a cess, whether by way of tax to augment the revenue resources of the State or by way of fee to render services as quid pro quo but without any intention of regulating and controlling the subject of the levy, cannot be said to have encroached upon the field of regulation and control belonging to the Central Government by reason of the incidence of levy being permissible to be passed on to the buyer or consumer, and thereby affecting the price of the commodity or goods. Entry 23 in List II speaks of 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. Entries 52 and 54 of List I are both qualified by the expression "declared by Parliament by law to be expedient in the public interest". A reading in juxtaposition shows that the declaration by Parliament must be for the control of industries in Entry 52 and for regulation of mines or for mineral development in Entry 54. Such control, regulation or development must be expedient in the public interest . Legislation by the Union in the field covered by Entries 52 and 54 would not like a magic touch or a taboo denude the entire field forming subject matter of declaration to the State Legislatures. Denial to the State would extend only to the extent of the declaration so made by Parliament. In spite of declaration made by reference to Entry 52 or 54, the State would be free to act in the field left out from the declaration. The legislative power to tax by reference to Entries in List II is plenary unless the entry itself makes the field subject to any other entry or abstracts the field by any limitations imposable and permissible. A tax or fee levied by State with the object of augmenting its finances and in reasonable limits does not ipso facto trench upon regulation, development or control of the subject. It is different if the tax or fee sought to be levied by State can itself be called regulatory, the primary purpose whereof is to regulate or control and augmentation of revenue or rendering service is only secondary or ­incidental.

       (9) The heads of taxation are clearly enumerated in Entries 83 to 928 in List I and Entries 45 to 63 in List II. List III, the Concurrent List, does not provide for any head of taxation. Entry 96 in List I, Entry 66 in List II and Entry 47 in List III deal with fees. The residuary power of legislation in the field of taxation spelled out by Article 248 (2) and Entry 97 in List I can be applied only to such subjects as are not included in Entries 45 to 63 of List II. It follows that taxes on lands and buildings in Entry 49 of List II cannot be levied by the Union. Taxes on mineral rights, a subject in Entry 50 of List II can also not be levied by the Union though as stated in Entry 50 itself the Union may impose limitations on the power of the State and such limitations, if any, imposed by the Parliament by law relating to mineral development and to that extent shall circumscribe the States power to legislate. Power to tax mineral rights is with the States; the power to lay down limitations on exercise of such power, in the interest of regulation, development or control, as the case may be, is with the Union. This is the result achieved by homogeneous reading of Entry 50 in List II and Entries 52 and 54 in List I. So long as a tax or fee on mineral rights remains in pith and substance a tax for augmenting the revenue resources of the State or a fee for rendering services by the State and it does not impinge upon regulation of mines and mineral development or upon control of industry by the Central Government, it is not unconstitutional. (Para 127)

       (v) West Bengal Primary Education Act, 1973-West Bengal Rural Employ­ment and Production Act, 1976-Both Acts as amended by West Bengal Taxation-Laws (Amendment) Act, 1992 w.e.f. 1.4.1992-Cess Act, 1980-Constitutional validity challenged-Cesses on coal bearing land, levied in exercise of power conferred by State Legislation, have been struck down by a Division Bench of Calcutta High Court -Cesses also levied on tea plantation land-Same cesses levied on removal of brick earth-Bengal Brickfield Owners’ Association filed writ petition, laying challenge to levy of cesses-Constitutional validity of amend­ment in two legislations challenged-Challenge founded on non-avail­ability of legislative field to State-Impugned cess is covered by Entries 49 and 50 of List II -West Bengal Taxation Laws (Amendment) Act, 1992 held to be intra vires the Constitution-Mahanadi Coal­fields, 1995 Supp. (2) SCC 686 : Overruled-Constitution of India-Article 246, Entries 49, 50 List II, Seventh Schedule.

       Majority Judgment [R.C. Lahoti, J. on behalf of himself, V.N. Khare, CJI, B.N. Agrawal and AR. Lakshmanan, JJ.]

       (A) Coal Matters :

       Held : The amendments incorporated by the West Bengal Taxation Laws (Amendment) Act 1992 w.e.f. 1.4.1992 into the provisions of the West Bengal Primary Education Act 1973 and the West Bengal Rural Employment and Production Act 1976 classify the land into three categories: (i) coal-bearing land, (ii) mineral bearing land (other than coal-bearing land) or quarry and (iii) land other than the preceding two categories. These three are well-defined classifications by reference to the user or quality and the nature of product which it is capable of yielding. The cess is levied on the land. The method of quantifying the tax is by reference to the annual value thereof. It is well-known that one of the major factors contributing to the value of the land is what it produces or is capable of producing. Merely because the quantum of coal produced and dispatched or the quantum of mineral produced and dispatched from the land is the factor taken into consideration for determining the value of the land, it does not become a tax on coal or minerals. Being a tax on land it is fully covered by Entry 49 in List II. Assuming it to be a tax on mineral rights it would be covered by Entry 50 in List II. Taxes on mineral rights lie within the legislative competence of the State Legislature "subject to" any limitation imposed by Parliament by law relating to mineral development. The Central legislation has not placed any limitation on the power of the States to legislate in the field of taxation on mineral rights. The challenge to constitutional validity of State legislation is founded on non-availability of legislative field to State; it has not been the case of any of the writ petitioners that there are limitations enacted by Central legislation and the State of West Bengal has breached or crossed those limits. Simply because incidence of tax is capable of being passed on to buyers or consumers by the mine owners with an escalating affect on the price of the coal, it cannot be inferred that the tax has an adverse effect on mineral development. Entry 23 in List II speaks of regulation of mines and mineral developments, subject to the provisions of List I with respect to regulation and development under the control of the Union. The Central Legislation has taken over regulation and development of mines and mineral development in public interest. By reference to Entry 50 of List II and Entry 54 in List I, the Central legislation has not cast any limitations on the State Legislature s power to tax mineral rights, or land for the matter of that. The impugned cess is a tax on coal-bearing and mineral-bearing land. It can at the most be construed to be a tax on mineral rights. In either case, the impugned cess is covered by Entries 49 and 50 of List II. The West Bengal Taxation Laws (Amendment) Act 1992 must be and is held to be intra vires the Constitution. (Para 128)

       (B) Tea Matters :

       The impugned levy is of cesses on tea estates i.e. the land forming part of tea estates as defined in the impugned Act. The land forming part of the tea estates is a well-defined classification. Simply because the method for quantifying the tax is by reference to the yield of the land determinable by taking into account the quantum of tea produced and dispatched, it does not become a cess on tea or a tax on production of tea or a tax on income of land. The Tea Act of 1953 contains a declaration vide Section 2 thereof that it is expedient in the public interest that the Union should take under its control the tea industry. The declaration is in terms of Entry 52 in List I. Union s assumption of control of tea as industry and as being expedient in the public interest, does not amount to vesting the power to tax or levy fee in the Central Government by reference to tea or on tea estates. Section 25 of Tea Act empowers the Central Government to levy and collect excise duty on tea produces, which on collection shall be credited to the Consolidated Fund of India. There is no other provision in Tea Act empowering levy of any tax or fee on tea or tea bearing land. The impugned cess is a tax on tea-bearing land, a well-defined classification and is covered by Entry 49 in List II. We uphold the logic and reasoning assigned and conclusions drawn by the Court in Goodricke on all the counts. (Para 130)

       (C) Brick Earth Matters :

       Brick earth is a minor mineral. What we have stated about the impugned cess by reference to coal applies to brick earth as well. The field as to taxation cannot be said to have been covered by Central Legislation by reference to Entry 54 in Schedule I. Quantification of levy by reference to quantity of brick earth dispatched is a methodology adopted for the purpose of finding out the quantity of brick earth removed from the land. It has a definite and direct co-relation with the land. There is no particular charm about the challenge developed by the writ petitioners laying emphasis on the meaning of the word "dispatched". The gist and substance of what the legislature is taking into account is the brick earth actually removed. "Dispatched" has the effect of taking into account the brick earth "removed" and not simply "moved" and left behind. The average quantity of brick earth utilized in making bricks whether on the brick field itself or on a place nearby, does involve removal - and consequently dispatch - of the brick earth from the place where it was to the place where it is captively consumed in making bricks. The fact that methodology for working out the royalty payable and the cess payable is the same, does not have any detrimental effect on the constitutional validity of the cess whether it be treated as one on the land - classified by reference to its production, i.e., the brick earth or as one on mineral rights in brick earth. In either case it would be covered by Entries 49 or 50 in List II. None of the pleas raised has any merit. (Para 131)

       Minority Judgment [S.B. Sinha, J.]

       Levy of tax on coal bearing lands and mineral bearing lands where mining operations are being carried out through the process of incline or digging pits is illegal, inasmuch as the underground mining right would be larger in area than the surface right and, thus, it is not possible to uphold the validity of such statute with reference to the extent of the surface right as mineral is being extracted from a larger underground area. Different rights may belong to different persons over the same surface land and similarly different rights may belong to different persons in respect of or over underground rights and the impugned statutes having not made any provision of different method of levy, the impugned statutes are ultra vires. The impugned provisions do not specify who would be liable to pay in relation to different rights and who would be considered to be the owner of the land and to what extent. If the extent of surface land is treated to be the unit, the same having regard to different mining rights granted to different persons over different minerals would all be liable to pay cess although they may not have any right over the surface at all or exercise such right thereover only over a part thereof. As minerals bearing lands cannot be treated as an independent unit in respect of which tax can be invoked, the impugned Acts must be held to be unconstitutional. Tax on lands and buildings in terms of Entry 49 of List II of the Seventh Schedule of the Constitution of India can be levied on land as a unit and not otherwise. As green tea leaves is marketable, the decision in Goodricke group (supra) having mainly been rendered on the premise that green tea leaves is not marketable must be held to have passed sub-silentio and, thus, does not lay down correct legal position. In view of the definitions of ‘land’ and ‘immovable property’ contained in the Bengal Cess Act, 1880, as no road cess or public works cess can be imposed on standing crops or any kind of structures, houses, shops or other buildings which would include factories and workshops for processing tea, no levy by way of cess can be imposed by reason of the impugned Acts either on the mining leasehold or the tea estate containing standing crops as also houses and buildings. Measure of a tax although may not be determinative of the nature thereof, the same will play an important role in determining the character thereof particularly keeping in view the purpose and object the Parliamentary Acts seek to achieve. In determining the legislative competence the taxing event also plays an important role. The Tea Act having been enacted in terms of Entries 10 and 14 of List I as also Article 253 of the Constitution, the State is completely denuded of its legislative power in relation thereto. The expression ‘Tea’ should be given a broad meaning and Entry 52 of List I of the Seventh Schedule of the Constitution should be interpreted in relation to tea having regard to the purport and object it seeks to achieve. For the aforementioned reasons, I respectfully dissent with the opinion of Brother Lahoti, J. (Paras 576 and 577)

       (vi) U.P. Special Area Development Authorities Act, 1986-Section 35-Mines and Minerals Development Regulation Act, 1957-U.P. Mine and Minerals Concession Rules, 1963-Cess levied in State of U.P. on minor ­minerals -Constitutional validity upheld by High Court of Allahabad-Appeal against-Legislative competence of State to enact impugned law and levy impugned cess challenged-High Court held SADA Act, SADA Cess Rules and levy of cess thereunder within the competence of State Legislature by reference to Entry 5 in List II-Appellants case that levy of cess by State Government is repugnant to Central Legislation.

       Majority Judgment [R.C. Lahoti, J.]

       Held : It is true that once a central legislation declares regulation of mines and mineral development by law to be expedient in the public interest, the legislation relating to regulation of mines and development of minerals shall fall within the sweep of Entry 54 of List I. The entry has to be liberally and widely interpreted. Yet it cannot be lost sight of that the entry itself employs an expression "to the extent to which such regulation and development under the control of the Union is declared by Parliament by law" as qualifying the preceding expression stating the subject "regulation of mines and minerals development". Section 2 of MMDR Act too qualifies the relevant declaration by suffixing to it the expression "to the extent hereinafter provided". Section 15 of the Act has excepted and preserved the power of State Governments to make rules in respect of minor minerals. The qualifying words used in Entry 54 of List I and in Section 2 of the MMDR Act contain an in-built indication that in spite of an inclination on the part of the Courts to be liberal in assigning a wide meaning to the scope of the said provisions, the boundaries of limitation are there and the expanse of these provisions cannot be so stretched as to strike at the State Legislations which are adequately accommodated within the field of an Entry in List II which too shall have to be meaningfully and liberally construed. The MMDR Act enables control over the regulation of mines and the development of minerals being exercised by the Central Government through legislation. The High Court has upheld the validity of the SADA Act by relating it to Entry 5 in List II which is local government . Any local government exercising the power of governance over a local area shall have to administer, manage and develop the area lying within its territory which cannot be done without raising funds. It is usual for every piece of legislation giving birth to an institution of local government to feed it by incorporating provisions conferring power of generating funds for meeting the expenses of governance. The SADA Act intends to achieve a level of local governance which the usual models of local government such as boards and municipalities are not considered capable of achieving and that is why a special development area and a Special Area Development Authority. The fund established under the Act meets expenses of administration needed to be incurred by the authority. The funds cannot be utilized for any purpose other than the administration of the Act. There are pieces of land which though containing a mine yet fall within the territory of special development area. It was pointed out by the respondents before the High Court that in spite of the Act having been enacted in the year 1986 the successive State Governments, which had preceded, did not take care of the legislation and it was only the then government which became conscious of its obligations under the SADA Act and commenced identifying special areas requiring development such as Sonbhadra. The imposition of cess envisaged through the SADA Act and the Rules was a step towards developing the special area. It is a matter of common knowledge, and does not need any evidence to demonstrate, that mining activity carried on the land within the special area involves extraction, removal, loading-unloading, and transportation of the minerals accompanied by its natural consequences entailed on the environment and the infrastructure such as roads, water and power supply etc. within the special area. The impugned cess can, therefore, be justified as a fee for rendering such services as would improve the infrastructure and general development of the area the benefits whereof would be availed even by the stone crushers. Entry 66 in List II is available to provide protective constitutional coverage to the impugned levy as fee. (Paras 137 and 138)

       As a tax the impugned levy of cess is clearly covered by Entry 5 of List II (as the High Court has held, and we add) read with Entries 49, 50 and 66 of List II. There is no challenge to the declaration of the area as a special development area and the constitution of Special Area Development Authority for the administration thereof. In other words, the constitutional validity of the enactment as a whole and the rules framed thereunder is not put in issue. What is under challenge is only the levy of cess. There is nothing wrong in state legislation levying cess by way of tax so as to generate its funds. Although it is termed as a ‘cess on mineral right’, the impact thereof falls on the land delivering the minerals. Thus, the levy of cess also falls within the scope of Entry 49 of List II. Inasmuch as the levy on mineral rights does not contravene any of the limitations imposed by the Parliament by law relating to mineral development. It is also covered by Entry 50 of List II. The power to levy any tax or fee lying within the legislative competence of the State Legislature can be delegated to any institution of local government constituted by law within the meaning of Entry 5 in List II. The Entries 5, 23, 49, 50 and 66 of List II provide adequate constitutional coverage to the impugned levy of cess. True it is that the method of quantifying the cess is by reference to the quantum of mineral produced. This would not alter the character of the levy. There are myriad methods of calculating the value of the land for the purpose or quantifying the tax reference whereto has already been made by us in the other part of this judgment. Validity of cess upon the land quantified by reference to the quantity of its produce was held to be a levy on the land and hence constitutional in Ralla Ram, AIR 1949 FC 81, Moopil Nair AIR 1961 SC 552 and Ajoy Kumar Mukherjee, AIR 1965 SC 1561. It does not become excise duty on manufacture and production of goods merely on account of having relation with the quantity of product yielded of the land. Rather it is a safe, sound and scientific method of ­determining the value of the land to which the product relates. The levy of cess considered as a tax is constitutionally valid. (Para 141)

       The impugned cess can be justified as fee as well. The term cess is commonly employed to connote a tax with a purpose or a tax allocated to a particular thing. However, it also means an assessment or levy. Depending on the context and purpose of levy, cess may not be a tax; it may be a fee or fee as well. It is not necessary that the services rendered from out of the fee collected should be directly in proportion with the amount of fee collected. It is equally not necessary that the services rendered by the fee collected should remain confined to the persons from whom the fee has been collected. Availability of indirect benefit and a general nexus between the persons bearing the burden of levy of fee and the services rendered out of the fee collected is enough to uphold the validity of the fee charged. The levy of the impugned cess can equally be upheld by reference to Entry 66 read with Entry 5 of Schedule II. Royalty is not a tax. The impugned cess by no stretch of imagination can be called a tax on tax. The impugned levy also does not have the effect of increasing the royalty. Simply because the royalty is levied by reference to the quantity of the minerals produced and the impugned cess too is quantified by taking into consideration the same quantity of the mineral produced, the latter does not become royalty. The former is the rent of the land on which the mine is situated or the price of the privilege of winning the minerals from the land parted by the government in favour of the mining lessee. The cess is a levy on mineral rights with impact on the land and quantified by reference to the quantum of ­minerals produced. The distinction, though fine, yet exists and is perceptible. (Paras 144 & 145)

       Minority Judgment [S.B. Sinha, J.]

       The object underlying the legislative enactment is relevant for the purpose of upholding the validity of a statute; but before doing so what is required to be taken into consideration is the legislative competence. The court must at the outset address itself if and when such a question is raised as to whether the State legislature had the requisite competence having regard to the Parliamentary law. Once it is held that the field sought to be legislated upon by the State stands covered by a Parliamentary legislation, no further question ought to be asked. Once a liberal and wide interpretation is given to Entry 54, List I, the extent of ‘regulation of mines and minerals development under the control of the Union must be considered keeping in view the same vis-a-vis the impact thereupon by reason of the State legislation. The State Act refers to mineral development which indisputably is the subject-matter of the 1957 Act. Section 15 of the 1957 Act confers power on the State for making rules thereunder. The State while doing so acts as a delegatee and not in its independent right of making a legislative enactment. Both power of the State are not akin to each other. They are completely different. The authority under the SADA Act might have been constituted for a laudable object but the same by itself would not be a relevant factor for coming to the conclusion that it may impose a tax on mine and mineral or a mineral right. A local authority has no right over the mineral or the mineral right. The power to impose tax upon the said authority by delegation of power or otherwise on mineral right or mine and mineral cannot be bestowed by the State. The power to tax on mineral right cannot be delegated by the State to any other authority. The said power per se does not fall within the purview of Entry 5. The statutory authorities having regard to the provisions contained in Entry 5 may be delegated with the power to impose tax on land and buildings etc. which would have a direct nexus for which such authority has been constituted but not on ‘mineral right’ which is vested in the State. Nobody questions or has any reason to question the validity of constitution of the authority but what is being questioned is its power to impose tax on mineral right or mines and minerals. (Para 449)

       The validity of a provision imposing tax on a mineral cannot be upheld in terms of Entry 5, List II of the Seventh Schedule of the Constitution of India at the instance of a statutory authority. No material having been brought on record that any services invoking the principles of quid pro quo are rendered to the owners of the mine, the impose cannot also be upheld on the ground that the same is a fee within the meaning of Entry 66, List II of the Seventh Schedule of the Constitution. (Para 456)

       The levy of cess in terms of SADA Act cannot be justified as a fee keeping in view the fact that the tax is sought to be imposed in terms of Entry 50 of List II of the Seventh Schedule of the Constitution of India. Section 35 of the SADA Act clearly states in no uncertain terms that imposition of tax is subject to the regulation of mines and minerals development. It is, therefore, clearly purported to be a tax in terms of Entry 50 and not a fee; nor can it be said to be a tax under Entry 49 List I, in the aforementioned situation. The rules even make no pretence that the tax is imposed on a mineral having regard to the fact that even mineral right has been defined under the Act. The discussions made herein would clearly show that keeping in view the enactments made by the State legislature the rights of the zamindars, tenure-holders and intermediaries in mines and minerals had vested in the State, the impugned levy, cannot be upheld. (Paras 458 to 460)

       (vii) Words and Phrases-Word ‘Royalty’-Meaning-Whether it is a tax-(No)-What it is-Dictionary meaning-Meaning assigned by Court. (Paras 59 to 71)