Holding

The cess imposed on tea estates is a tax on land under Entry 49 of List II, and the West Bengal legislature has the constitutional competence to levy it.

Summary

The Supreme Court examined writ petitions challenging the West Bengal Taxation Laws (Second Amendment) Act, 1989, which imposed a cess on tea estates calculated per kilogram of green tea leaves produced. The petitioners argued that the levy was a tax on tea production, falling under Union competence (Entry 84/List I) and that it violated Article 301 and the earlier Buxa Dooars decision. The Court held that the cess is, in substance, a tax on land and buildings under Entry 49 of List II, with the yield of the land merely serving as a measure, and that the State legislature therefore has competence. It distinguished the case from India Cement, noting that the tax is not based on royalty but on the produce of the land. The retrospective validation of the amendment and its exemption provisions were also upheld. Consequently, the petitions were dismissed and the cesses deemed payable.

Issues considered

The levy is a tax on land within the meaning of Entry 49, List II, or a tax on tea production falling under Union competence.
Whether the retrospective effect of the amendment validating earlier assessments is constitutionally valid.
Whether the exemption provisions alter the character of the tax.
Whether the levy violates Article 301 of the Constitution.
Whether the India Cement precedent applies to the present levy.

Legislation cited

Tea Act, 1953s. 2, s. 25
West Bengal Primary Education Act, 1953s. amended provisions
West Bengal Rural Employment and Production Act, 1976s. 4, s. 4(2), s. 4(2A), s. 4(3), s. 4(4)
West Bengal Taxation Laws (Amendment) Act, 1981s. 4(2)
West Bengal Taxation Laws (Second Amendment) Act, 1989s. 2, s. 3, s. 4(2A), s. 4(3), s. 4(4), s. 4-B

Subjects

legislative competencetax on landEntry 49 List IIpith and substancetea estate cessretrospective legislationArticle 301state taxationconstitutional law

Judgment

A GOODRICKE GROUP LTD. ETC.
v.
STATE OF WEST BENGAL AND ORS.

NOVEMBER 25, 1994

B [B.P. JEEVAN REDDY, SUHAS C. SEN AND K.S. PARIPOORNAN, JJ.]

Constitution of India-Entry 249, List II, Seventh Schedule-West
Bengal Taxation Laws (Section Amendment) Act 1989-Sections 2, 3,
amending West Bengal Primary Education Act 1953 and West Bengal
Rural Employment Production Act 1976, Section 4-Cess on tea estates
c levied annually assessed on the basis ofplucked and unprocessed green tea
/eaves-Whether cess is levy on land or tax on production of tea-Held,
calculation of cess on the basis of yield is accepted mode of levy of tax on
/and-Cess is upon 'tea estate' quantified on basis of quantum of produce
of tea estate-It is not cess on production-State legislature, therefore, has
D power to levy impugned cess-India Cement case, which held cess on
royalty to be beyond r:ompetence of State legislature, distinguished-Entry
45, List JI, Seventh Schedule_:_Legislature competence-Precedent.

Constitution of India-Entry 249, List JI, Seventh Schedule-Pith and
substance-Legislative lists-Held, where there are three lists containing
E large number of entries, overlapping inevitable-Rule ofpith and substance
to be applied to determine the entry to which given legislation relates-
Once determined, any incidental trenching on field reserved to other
legislature of no consequence-Power of legislature to make law with
reference to entry 249, List JI is plenary-Interpretation of statutes-
F Legislative competence.

Constitution of India-Entry 249, List JI, Seventh Schedule-Levy on
land-Incidents of-Held, tax need not be uniform or constant over number
of years-Held further, tax may be based on current years income-
Removing produce of the land from plant or tree before assessing tax
G doesn't alone sever connection between land and tax-Making person in
possession ofland or building liable for payment of tax, held, is well-known
feature of enactments relatable to ~ntry 249, List II-Labour and capital
investment on land in producing yield or income does not alter character of
tax on /and-Prescribing uniform method of levy of cess not
discriminatory-Taxing statutes-Statute law.
H
120
GOODRICKE GROUP v. STATE 121

West Bengal Taxation Laws (Second Amendment) Act 1989- A
Retrospectivity-Rectified and remedied enactment given retrospective
effect for period covered by anterior provisions which were struck down,
held, valid

Constitution of India-Entry 52, List I, Seventh Schedule-Tea Act
1953-Sections 2 and 25-West Bengal Taxation Laws (Second B
Amendment) Act 1989-.:.Section 4-Whether declaration under Tea Act
affects competence of legislature to levy cess on land comprised in tea
estate-Held. Tea Act concerned with tea industry, whereas impugned cess
is on land comprised in tea estate-State legislature's competence upheld--
Pith and substance.

Statute Law-Validity-Held, validity of laws to be judged with
c
reference to ordinary, prudent person.

The West Bengal legislature enacted the West Bengal Primary
Education Act, 1953 and the West Bengal Rural Employment and
Production Act, 1976 to provide for primary education throughout the D
State and to provide employment in rural areas, respectively. For
raising funds for the said purposes, the State legislature imposed two
cesses upon certain lands and buildings in the state. By the West Bengal
(Taxation Laws) Amendment Act, 1981, tea estates were carved out as
a separate category of immovable properties on which cess was levied.
The separate rate prescribed therefore was based upon the despatches E
from the tea estates on the tea grown therein, and the state government
was empowered to make certain exemptions in this regard. This
amendment was questioned by a number of tea estates in writ petitions
and decided by a two-member Bench of this Court in Buxa Dooars Tea
Co. Ltd v. State of West Bengal, [1989) 3 SCC 211.
F
This Court found that the levy was essentially upon despatches
though purporting to be a levy upon the tea estates. They pointed out
further that the quality of tea produced in all tea estates in the state
was not uniform, that there was no nexus between the tea estate and the·
varied treatment accorded in respect of despatches of the different
kinds of tea. The amendment was accordingly held to be violative of G
Article 301 of the Constitution. Further, referring to the Tea Act, 1953
by which Parliament assumed control over the tea industry including
the tea trade, and that, if the levy is in substance on despatches of tea it
cannot be held to be tax on lands under Entry 49 List II, this Court
found the impugned amendment void for want of legislative
competence as it pertained to a covered field. ' · H
122 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A Following this decision, the State of West Bengal enacted the West
Bengal Taxation Laws (Second Amendment) Act, 1989 ('Amendment
Act, 1989') with retrospective effect. By this amendment, the cesses
were to be levied annually on a tea estate at the rate of 12 paise for each
kilogram of plucked and unprocessed green tea leaves produced in each
· tea estate. The State Government was empowered to exempt certain
B categories of tea estates from the cess. The cess collected, and
assessments made on proceedings taken under the Amendment Act,
1981 were validated.

The levy of the cess by the Amendment Act, 1989 was challenged in
writ petitions before this Court It was contended that the impugned
c levy was not upon land within the meaning of Entry 49 List II of the
Seventh Schedule and therefore the State legislature lacked legislative
competence. In this context, it was argued that the levy in question was
really a tax on production of tea and not on land; that a tax on land
must be a constant figure whereas the impugned levy would vary from
D year to year based as it is on the quantity of tea produced in a tea estate
in a given year; that in fact there may be no production of tea leaves at
all in a given year if, for instance, an owner were to decide to leave the
leaves unplucked; that the definition of tea estate which included fallow
land and land covered by the factory and other buildings further
establishes the absence of nexus between the cess and the land. Strong
E reliance was placed upon the decisions of a seven judge bench in India
Cement Ltd v. State of Tamil Nadu, [1990] l SCC 12 and a three judge
bench in Orissa Cement Ltd v. State of Orissa, [1991) l SCC 430. It was

F
also pointed out that the provision for exemption, which Buxa Dooars
pointed out was a vitiating factor, continues in the present Act.

For the State it was argued that the impugned cesses were within
..
the purview of "taxes of lands and buildings" in Entry 49 of List II of
the Seventh Schedule. Alternatively, it was sought to be justified as
"land revenue" within the meaning of Entry 45 of List II of the Seventh
Schedule.
G Dismissing the petitions, this Court

HELD : l. The State legislature has the power to levy the
impugned cess. Since the impugned levy is in pith and subs~ance a levy
of tax on land and the produce of the land is merely brought in for the
purpose of quantifying the tax, it is not outside the competence of the
H
GOODRICKE GROUP v. STATE 123

State legislature either as being an imposition of excise duty within the A
meaning of entry 84 List II, or by virtue of section 2 of the Tea Act,
1953 as contemplated by entry 52 List I. [162 A, 161 G) '

Ba!jnath Kadio v. State of Bihar, [1969) 3 SCC 838, referred to.

2. The declaration under section 2 of the Tea Act has no relevance B
to the State legislature's competence inasmuch as the impugned cess is
not a cess on the tea industry but a cess on the land comprised in a tea
estate. The levy contemplated under section 25 of the Tea Act, 1953 and
the levy provided by the impugned enactment are altogether different
and distinct in character, inasmuch as the Tea Act, 1953 is concerned
with the tea industry whereas the impugned cess is not a cess on the tea C
industry but a cess on the land comprised in the tea estate. The fact
that ultimately the tax may have to be borne by the tea industry is no
ground for holding that the said levy is upon the tea industry.
[161 E, D, F]

Ganga Sugar Co. v ..State of U.P., [1980] 1 SCR 769 and Federation D
of Hotel and Restaurant Association (supra), referred to.

3. Merely because a tax on land or buildings is imposed with
reference to its income or yield, it does not cease to be a tax on Ian~ or
building. The income 0111 yield of the land or building is taken merely as
a measure of the tax; it does not alter the nature or character of the E
levy. It still remains a tax on land or building. There is no set pattern of
levy _of tax on lands or buildings- indeed there can be no such
standardisation. The legislature is free to adopt such method of levy as
it chooses and so long as the character of the levy remains the same,
... ~e., within the four corners of the particular entry, no objection can be
taken to the method adopted. [141 D, E] f
Sir Byramjee Jeejeebhoy v. State of Bombay, AIR (1940) Born 48,
Rafla Ram v. Province of East Punjab, AIR (1949) FC 81, v.
Pattabhiraman v. Asst. Commr., Urban Land Tax, AIR (1971) Mad 61,
Ajoy Kumar Mukherjee v. Local Board of Barpeta, AIR (1965) SC 1561,
Kunnathat Thathunni Moopil Nair v. State of Kera/a, [1961] 3 SCR 77, G
Assistant Commissioner v. Buckingham and Carnatic Co. Ltd., [1970) 1
SCR 268, Subramanyam Chettiar v. Muthusami Goundar, (1940) FCR
188, Federation of Hotel and Restaurant Association v. Union of India,
[1989] 3 sec 634, Express Hotels (P) Ltd., v. State of Gujarat, [1989] 3
SCC 677 and Governor General in Council v. Province of Madras, (1945)
FCR 179, relied on. H
124 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A Tlie cess in the cases before this Court is calculated on the basis of
yield- for every kilogram of, tea leaves produced in a tea estate, a
particular cess is levied. That is a well-accepted mode of levy of tax on
land. The tax is upon the land- upon the tea estate which is classified
as a separate category, as a separate unit, for the purpose of levy and
assessment of the said cess quantified on the basis of the quantum of
B produce of the tea estate. It cannot be characterised as on production
for this reason. [141 F, G)

Kunnathat Thathunni Moopil Nair v. State ofKera/a supra, relied on.

4. There is no basis for saying that the impugned cess is not a tax
C upon the land directly. The mere fact that it is measured with reference
to the yield of the land does not make it any the less a tax upon the land
directly. [151 A)

Sudhir· Chandra Nawn v. Wealth Tax Officer, Calcutta, [1969) 1 SCR
108 and Second Gift Tax Officer, Manga/ore v. D.H. Nazareth, (1971) 1
D SCR 195, explained and distinguished. ·

Ajoy Kumar Mukherjee supra relied on.

,Assistant Commissioner of Urban Land Tax v. Buckingham and
Carnatic Co. Ltd., [1970) 1 SCR 268, referred to.
E 5. Tea estate is a well-understood entity and can legitimately and
reasonably be classified as a separate category for the purpose of
taxation and the rate of tax. Such classification has, in any event, not
been questioned in this case. [134 G)

F
6. That a wide discretion has to be conceded to the legislature in
matters of taxation is well-established. So also is the proposition that
...
the several entries in the Seventh Schedule are legislative heads and
must be construed liberally. It is equally well-recognised that where
there are three lists containing a large number of ent~h~s, there is
bound to be some overlapping among them. In such a situatio·n, the rule
of pith and substance has to be applied to determine to '-hich entry
G 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 extent of encroachment may however be an
element in determining whether the Act is a colourable piece of
legislation. Where the legislative competence of Parliament to enact a
law is questioned, all that one has to ask is whether it relates to any of
H
GOODRICKE GROUP v. STATE 125

the entries in 'List II and if it is not, no further question need be asked A
and Parliament's legislative competence must be upheld.
[134 F, 135 B to DJ

H.S. Dhillon v. Union ofIndia, AIR (1972) SC 1061 relied on.

However, before exclusive legislative competence can be claimed B
for Parliament, the legislative competence of the State legislature must
be clearly established. [135 EJ

International Tourist Corporation v. State ofHaryana, AIR (1981) SC
774, relied on.

In our constitutional system, where all important legislative heads C
are assigned to the Centre, the court should be slow to adopt any
interpretation which tends to deprive the States of the few powers
assigned to them under the Constitution. [135 FJ

B.P. Jeevan Reddy J., in S.R. Bommai v. Union of India, [1994J 3
SCC 1 and Sundararamier v. State ofA.P., [1958J SCR 1422, referred to. D

7. The presumption in favour of constitutionality obliges the court
to sustain an enactment, if necessary, by relating it to an entry other
than the one relied upon by the government, if that can be reasonably
done. Moreover it is the function and power of the court to interpret an
enactment. It is equally the function and power of the judiciary to say E
to which entry does an enactment relate. The opinion of the
government in this behalf is but an opinion and no more. [156 A, BJ

Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd. and Anr., [1983J 1
SCR 1000, referred to.
F
8. The decision in India Cement is distinguishable and not relevant
herein as the levy in that case is altogether on a different basis for
which reason it was held to be outside entry 49 List II. The Court in
India Cement found that it was a case where the tax was measured not
with reference to or on the basis of income or yield of the land, but with
reference to the amount of royalty payable by the lessee to his lessor. It G
was for this reason that the tax was held to be not upon the land.
Royalty is a matter of agreement between the lessor and the lessee, it
may also be determined by a statutory provision. But royalty is not the
produce of the land; royalty is not the income of the land nor is it the
yield of the land- and that is the distinction. It is significant that the
concept of royalty was understood by the court in India Cement to be a H
126 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A tax, and as such a cess on royalty being a tax on royalty was found to
be beyond the competence of the State legislature. It would be wrong to
read the India Cement decision as overruling the innumerable decisions
rendered with reference to entry 49 List II (or the corresponding entry
in the Government of India Act, 1935) which have upheld levy upon
land and building measured on the basis of their yield or income. The
B decision in India Cement must be understood consistent with and in
continuation of the earlier decisions on the subject.
[142 H, D, E, F, 143 A, BJ

India Cement Ltd v. State of Tamil Nadu, [1990) 1SCC12, explained
and distinguished.
c Orissa Cement Ltd. v. State of Orissa, (1991] 1 SCC 430, following
India Cement (supra) distinguished.

H.R.S. Moorthy v. Collector of Chittoor, (1964] 6 SCR 666, referred
to.
D 9. Tax on royalty is not tax on land with reference to income since
royalty is not the income of ttie land but an exaction payable by the
lessees of the land to the lessor/owner. A tax imposed on land measured
with reference to or on the basis of its yield, however, is certainly a tax
directly on the land. Apart from income, yield or produce there can
perhaps no other basis for levy. (145 C, DJ
E
India Cement Supra distinguished.

State ofA.P. v. Na/la Raja Reddy, (1967] 3 SCR 28, referred to.

10. In deciding whether there is a reasonable connection between
F the tax and the land, one has to go by the generality of the situation.
The validity of laws are not to be judged with reference to .freaks, but
an ordinary prudent owner/occupier. No ordinary person would leave
. the tea estates to nature or leave the leaves to wither on bushes.
Moreover section 16 B (1) (b) of the Tea Act, 1953 read with sections
16C and 16D provides for investigation into the affairs of the tea estate
G and even assuming management of the estate by the Central
Government to ensure the production of tea at the expected levels.
(153 G, D, F]

India Cement supra distinguished.

H R. K. Gargv. Union ofIndia, [1982] l SCR 947, relied on.
.
c
GOODRICKE GROUP v. STATE 127

11. G.L. Oza, J.'s opinion in India Cement that the three elements A
of land, labour and capital are required for extracting minerals, that
royalty is therefore a tax/imposition/levy not on land alone but on
labour and capital as well, and that cess levied on royalty could not be
said to be tax on land, was not s_hared by the other learned judges.
Moreover, the said theory flies in the grain of all the previous
judgments of this Court and the Federal Court on the subject. It has B
been held uniformly that a tax on land within the meaning of entry 49
List II can be levied with reference to their yield or income. It will be
difficult to imagine a situation where a land yields income worth the
name without any labour and/or capital investment. On that account,
the tax levied on land but quantified with reference to the income/yield
of the land cannot be characterised as a tax other than tax on land. C
[148 A, C, D, E)

G.L. Oza, J. in India Cement dissented from

12. It is not the essence of a tax- nor a condition of its validity -
that the tax must be constant or uniform for all the years or for a
particular number of years. The variation between the amount of tax D
from year to year does not reflect upon the character of the tax.
[151 C, DJ
13. If a tax on land can be assessed on the basis of the previous
year's income, there is no reason why it cannot be levied on the current
year's income. The power of the legislature to make law with reference E
to entry 49 List II is plenary like any other entry in List II. It is open to
the legislature to adopt such formula as it thinks appropriate for
levying the tax and so long as the character of the tax remains the one
contemplated by the entry, it does not matter how the tax is calculated,
measured or assessed. [151 H, G)
F
Venkateshwara Theatre v. State ofA.P., (1993) 3 SCC 677, referred to

14. The income on yield of land and building, reasonably speaking,
cannot include income from the manufacturing activity carried on such
land or the income of an industry if run upon such land. The products
of such manufacturing activity and industry would be the products of G
such manufacturing activity and industry, as the case may be, and not
of land, whereas the tea leaves are the produce/yield of the land. The
distinction is too obvious to be glossed over. [153 BJ

15. It cannot be said that the moment tea leaves are plucked, they
are 90 longer attached to or form part of the land, and that levy of tax H
128 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A with reference to such plucked tea leaves cannot be called a tax on lilnd.
Generally speaking, unless the produce of the land is removed from the
plant or tree, as the case may be, the yield of the land or its income
cannot properly be assessed. If the tax is calculated or assessed on the
basis of such yield or income, it cannot be said that for that reason
alone there is no reasonable connection between the land and the tax.
B [154 A, BJ

16. The main holding in Buxa Dooars is that levy impugned therein
violates Article 301. The argument about entry 49 of List II was
referred to only for the purpose of saying that the levy on the
despatches of the tea cannot be related to the said entry. The provision
C for exemption contained in the impugned enactment, cannot be treated
as a ground or reason for holding the said levy to be a levy not on land
but on something else. There is no principle nor any authority in
support of the said proposition. [155 A, BJ

Buxa Dooars supra explained
D
17. Making the person in actual possession of land or building,
whether it be the owner or the transferee, liable for the payment of the
tax is a well-known feature in enactments relatable to entry 49 List II I"-
\
and cannot be faulted. [155 E)

E 18. There is force in the alternative submission for the State of
West Bengal that the impugned levy can also be sustained with
reference to entry 45 of List II as land revenue. [155 FJ

19. Prescribiitg a uniform method of levy on all tea estates, where
the quality of tea produced in one estate may differ from that produced
F in another estate is not discriminatory. {156 C]

Twyford Tea Co. Ltd v. State of Kera/a, AIR (1970) SC 1133,
followed

20. Retrospective effect has been given to the enactment for the
period covered by the anterior provisions which were struck down in
G Buxa Dooars. Once it is held that the defect pointed out in Buxa Dooars
is rectified and remedied in the impugned enactment, it can be given
retrospective effect to cover the period covered by the earlier
enactment which is not only a well-known but a frequently adopted
measure by all the legislatures. If the Act is good, it is good both
H prospectively and retrospectively. [162 H, 163 A, 162 GJ
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN. REDDY, J.] 129

CIVIL ORIGINAL JURISIDCTION : Writ Petition (C) No. 1215 of A
1989 Etc. Etc.

(Under Article 32 of the Constitution of India)

Dr. D.P. Pal, K.K. Venugopal, Ashok H. Desai, R.F. Nariman, Ms.
Priya Hingorani, D.P. Mukherjee, Rahul Dave, S. Ganesh, Sumoy J. B
Khaitan, P.P. Tripathi, Darshan Singh, Ms. Vijaylakshmi Menon and H.K.
Dutt for the Petitioners.

Shanti Bhushan, Santosh Hegde, T. Ramachandran, S.K. Dholakia,
D.K. Sinha, J.R. Dass, A. Bal, A. Bhattacherjee and Ms. A. Subhashini for
the Respondents. C
The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J. The validity of the levy of education cess
and rural employment cess created by the West Bengal Taxation Laws
(Second Amendment) Act, 1989 is called in question in these writ petitions D
preferred by several tea estates in West Bengal.

LEGISLATIVE BACKGROUND:

For a proper appreciation of the questions arising herein, it is necessary
to have a glimpse of the legislative history behind the impugned
Amendment Act. E
The West Bengal Legislature enacted The West Bengal Primary
Education Act, 1953 and The West Bengal Rural Employment and
Production Act, 1976 to provide for primary education throughout the State
and to provide employment in rural areas respectively. For raising funds for
the said purposes, the State Legislature imposed two cesses upon certain F
lands and buildings in the State. Since the relevant provisions of both the
enactments are similar, it would be sufficient to notice the relevant
provisions of the West Bengal Rural Employment and Production Act,
1976. Section 4 (I) of the 1976 Act levies rural employment cess on all
immovable properties on which road or public work cess is assessed or G
liable to be assessed according to the provisions of the Cess Act, 1880.
Section 4 (2), as originally enacted, prescribed different rates in respect of
lands, coal mines and other mines on an annual basis. By virtue of the West

I Bengal Taxation Laws (Amendment) Act, 1981, tea estates were carved out

• as a separate category and a separate rate prescribed therefore. Sub-section
(2) of Section 4, as amended in 1981, read as follows: H
130 SUPREME CQURT REPORTS [1994] SUPP. 6 S.C.R

A "4 (2) The rural employment cess shall be levied annually -

(a) in respect of lands, other than a tea estate, at the rate of
six paise on each rupee of development value thereof;

(aa) in respect of a tea estate at such rate, not exceeding
B rupees six on each kilogram of tea on the despatches from ·
such tea estate of tea grown therein, as the State Government
may, by notification in the official Gazette, fix in this behalf:

Provided that in calculating the despatches of tea for the
purpose of levy of rural employment cess, such despatches
c for sale made at such tea auction centres as may be
recognised by the State Government by notification in the
Official Gazette shall be excluded:

Provided further that the State Government, may fix different w
rates on despatches of different classes of tea t
'
D Explanation : - For the purpose of this section, "tea" means
the plant Camellia Sinensis (L) 0. Kuntze as well as all
varieties of the product known commercially as tea made
from the leaves of the plant Camellia Sinensis (L) 0. Kuntze,
including green tea and green tea leaves, processed or
unprocessed."
E
Sub-section (4) was introduced in Section 4 which empowered the
State Government to exempt "such categories of despatches of such
percentage of despatches from the liability to pay the whole or any part of
the rural employment cess or reduce the rate ....... " By another amendment
effected in 1982, the first proviso to clause (aa) in Section 4 (2) was
F omitted. Several notifications were issued by the Government from time to
time as contemplated by Section 4 (2).

The levy of the said cess was questioned by a number of tea estates by
way of writ petitions filed in this Court. Certain writ petitions filed in the
High Court were transferred to this Court to be heard alongwith the said
G writ petitions, all of which were disposed of on May 12, 1989 by a Bench
comprising R.S. Pathak, C.J. and M.H. Kania, J. [reported as Buxa Dooars
Tea Company Ltd. and Ors. v. State of West Bengal and Ors., [1989] 3
SCC 211. The challenge to the levy was basecfopon violation of Article 14
and Article 301 of the Constitution as also on the ground of lack of
legislative competence on the part of the State Legislature. This court
H
GOODRICKE GROUP LTD. v. STATE (B.P. JEEVAN REDDY, J.] 131

examined the attack based upon Article 301 in the first instance. It held that A
the levy was really on the despatches of tea from the tea esca~es. It noted
that the first proviso to Section 4 (2) (aa), since deleted, exciuded the
despatches of tea for sale made at such tea auction centres as may be
recognised by the State Government by notification in the official Gazette
from the levy. It further pointed out that the second proviso empowered the
State Government to fix different rates on despatches of different classes of B
tea. Section 4(4), it noted further, empowered the Government to exempt
such categories of despatches or such percentage of despatches from levy as
the Government may think appropriate. Having regard to the said features,
the Bench held, the levy was essentially upon despatches though purporting
to be a levy upon the tea estates. The entire structure of the levy, the Bench
pointed out led to the conclusion that it was a levy on despatches and not on C
tea estates and that there was no nexus between the levy and the tea estates.
The learned Judges rejected the argument that the mode of levy was merely
a measure of the tax. They pointed out further that the quality of tea
produced in all tea estates in the State was not unifonn and that the benefit
of exemption or reductioµ in levy has no relation to the need of a particular
tea estate for exemption from the levy. The learned Judges concluded, D
"when the provisions before us are examined in their totality, we find no
such relationship or nexus between the tea estate and the varied treatment
accorded in respect of despatches of different kinds of tea. It seems ts> us
that having regard to all the relevant provisions of the statute, including
Section 4 (2) (aa) and Section 4(4) in substance the impugned levy is a levy E
in respect of despatches of tea and not in respect of tea estates."
Accordingly, the levy was held to be violative of Article 301 of the
Constitution. The learned Judges then proceeded to consider the question of
legislative competence and held that if the levy is, in substance, on
despatches of tea, it cannot be held to be tax on lands. They referred to the
declaration by the Parliament in Section 2 of the Tea Act, 1953 to the effect F
that it was expedient in public interest that Union should take under its
control the tea industry and observed that Parliament has thereby assumed
control of the tea industry including the tea trade and has also imposed a
cess on tea produced in India under Section 25. The learned Judges
observed: "it appears to us that the impugned legislation is also void for
want of legislative competence as it pertains to a covered field." G
As a result of the Judgment in Buxa Dooars, the State became liable to
refund the cess already collected and the relevant schemes came under
jeopardy. The West Bengal Legislature intervened to remedy the situation
and enacted the West Bengal Taxation Laws (Second Amendment) Act,
1989, impugned herein. H
132 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A Section 2 of the impugned Act contains amendments tc West Bengal
Primary Education Act while Section 3 sets out the amendments to West
Bengal Rural Employment and Production Act, 1976. As mentioned
hereinbefore, it would be enough to notice the amendments to the 1976 Act
since the amendments to both enactments are identical.

B Clause (aa) in sub-section (2) of Section 4 was omitted with effect
from April l, 1981. After sub-section (2), sub-section (2A) was introduced
with retrospective effect from Aprill, 1981. Sub-section (2A) reads:

"(2A) The rural employment cess shall be levied annually on
a tea estate at the rate of twelve paise for each kilogram of
C green tea leaves produced in such estate.

Explanation - For the purposes of this sub-section, sub-
section (3) and section 4B.

(i) . "green tea leaves" shall mean the plucked and unprocessed
green leaves of the plant Camelia Sinensis (L) 0. Kuntze;
D
(ii) "tea estate" shall mean any land used or intended to be used
for. growing plant Camelia Sinensis (L) 0. Kuntze and
producing green tea leaves from such plant, and shall include
land comprised in a factory or workshop for producing any
variety of the product known commercially as "tea" made
E
from the leaves of such plant and for housing the persons
employed in the tea estate· and other lands for purposes
ancillary to the growing of such plant and producing green
tea leaves from such plant."

Clause (a) in sub-section (3) was also substituted which had the effect
F of making the owner of the tea estate liable for the said cess. The other
provisions required the owner of the tea estate to maintain true and correct
account of green tea leaves produced in a tea estate. Sub-section (4) was
also substituted. The substituted sub-section (4) empowered the State
Government to exempt from the cess such categories of tea estate
G producing green tea . leaves not exceeding two lakhs fifty thousand
kilograms and located in such area as may be specified in such notification.
Section 4-B contains the validation clause. It says that any cess collected for
the period prior to the said Amendment Act shall be deemed to have been
validly levied by it and collected under the Amended Act. Any assessment
made or other proceedings taken in that behalf for assessing and collecting
H the said tax were also to be deemed to have been taken under the Amended
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 133

Act. It is the levy of said cess (alongwith the Primary Education Cess) that A
is challenged in this batch of writ petitions filed under Article 32 of the
Constitution. While issuing Rule Nisi, this Court directed that these writ
petitions be heard by a Bench of three Judges and that is how they are now
posted before us.

WHETHER THE IMPUGNED LEVY IS A LEVY UPON THE LANDS B
WITHIN THE MEANING OF ENTRY 49, LIST IL SCHEDULE VII OF THE
CONSTITUTION?

The first and the main submission of the learned counsel for the
petitioners in all its facets runs thus: the levy created by Section 2 and 3 of
the impugned Amendment Act is not a tax on lands and buildings within C
the meaning of Entry 49 of List-II of the Seventh Schedule to the
Constitution and is, therefore, beyond the competence of the State
legislature; for being a tax on land, the levy must be directly upon the land
whereas the levy in question is really a tax on production of tea, a subject
covered by Entry 84 of List-I. A levy on tea leaves is not a levy upon the
land. The defect pointed out in Buxa Dooars still continues under the D
impugned Amendment Act inasmuch as all that the impugned Act does is to
levy the cess on production of green leaves instead of on despatches (as was
done by the provisions struck down). A tax on land must be a constant
figure whereas the impugned levy varies from year to year, based as it is on·
the quantity of tea produced in a tea estatem a given year; indeed, there
may be a case where there is no production of tea leaves at all in a E
particular tea estate in a particular year in which event no cess would be
payable in that year. The definition of 'tea estate' further establishes the
absence of nexus between the cess and the land; 'tea estate' is defined to
include not only the land covered by tea bushes but also the land covered
by the factory and buildings; even fallow land within the tea estate is within F
the definition- all the same, the tea leaves produced in the land covered by
tea bushes is made the basis of levy of cess upon the entire land comprised
in a tea estate; if in a given year, the owner of the estate decides not to
pluck the leaves at all, there would be no cess leviable altogether. All this
shows that the tax is not really upon the land; there is no direct connection
between the land and the levy; the levy is related to some other thing than G
the land. Strong reliance is placed upon the ratio of the seven-Judge Bench
decision of this Court in India Cement Ltd and Ors. v. State o/Tamil Nadu
and Ors., [1990] l SCC 12 and the three Judge Bench decision in Orissa
Cement Ltd v. State of Orissa and Ors., [1991] 1 SCC 430. It is pointed out
that the provision for exemption, pointed out in Buxa Dooars as a vitiating
factor, still .continues under the impugned Act. For all these reasons, it is H
134 SUPREME COURT REPORTS [1994) SUPP. 6 S.C.R

A submitted, the levy is outside the purview of Entry 49, List-II of the
Seventh Schedule to the Constitution.

The relevant provisions of the impugned Amendment Act have been
set out by us hereinbefore. The levy of cess, according to sub-section (2A)
(introduced by the said Amendment Act) is an annual levy. The levy is
·B upon "a tea estate" at the rate of twelve paise for each kilogram of green tea
leaves produced in such estate. Green tea leaves are defined to mean "the
plucked and unprocessed green leaves" of the plant. Tea estate is defined to
mean "any land used of intended to be used for growing (tea) plant. ... ;and
producing green tea leaves from such plant." The definition further includes
the land coqiprised in a factory, workshop and buildings housing the
c persons employed in the tea estate as well as the lands ancillary to growing
of tea plants within the definition of tea estate. Any land not falling within
the aforementioned categories does not fall within the definition of tea
estate. Sub-section (2A) classifies the tea estate as a unit by itselffor the
purpose oflevy ofthe cess and its rate.

D It is evident that the definition reflects the generally obtaining situation.
A tea estate normally has a factory, buildings for housing its officers and
employees and land ancillary to the growing of tea plants. We are told that
the tea plant has a life of fifty to ninety years. After forty to fifty years,
however, it is stated, the yield starts diminishing and it gradually becomes
uneconomic. Such bushes are generally removed and new bushes planted. It
E is thus a continuous process. For this reason, land intended for being
planted with bushes is also included within the definition. The fact that in
some cases there may be no factory or no building hardly makes a
difference to the validity of the definition of the tea estate. The entire land
covered in a tea estate as defined is treated as a separate category of land, as
a unit, for the purposes of levy of the cess. That a wide discretion has to be
F
conceded to the Legislature in matters of taxation is so well established as
not to call for a reference to the decisions saying so. Indeed, classification
· of tea estates as a separate category for the purposes of the said levy is not
even questioned before us. It may also be noticed that generally speaking
no tea estate markets green tea leaves. By applying a particular process, the
G green tea leaves are converted into tea as commercially known and then
marketed. It is thus clear that tea estate is a well-understood entity and
hence can legitimately and reasonably be classified as a separate category
for the purpose of taxation and the rate of tax.

According to the State, the impugned cesses are within the purview of
H "taxes on lands and buildings" in Entry 49 of List-II of .the Seventh
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 135

Schedule. Alternately, they seek to justify it as "land revenue" within the A
meaning of Entry 45 of List-II.

The scheme of the entries in the three Lists in the Seventh Schedule is
set out in the decision of this court in Sunderaramier v. State of Andhra
Pradesh, [1958] SCR. 1422 and needs no reiteration. Similarly, the
proposition that the several entries are legislative heads and must be B
construed liberally is too well-settled to require any elaboration. It is
equally well-recognised that where there are three Lists containing a large
number of entries, there is bound to be some over-lapping among them. In
such a situation, the rule of pith and substance has to be applied to
determine 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 C
legislature is of no consequence. Of course, the extent of encroachment
may be an element in determining whether the Act is a colourable piece of
legislation. Yet another relevant principle is the one enunciated in H S.
·Dhillon v. Union of India A.LR. (1972) S.C. 1061; where the legislative
competence of the Parliament to enact a law is questioned, all that one has D
to ask is whether it relates to any of the entries in List-II and if it is not, no
further question need be asked and the Parliament's legislative competence
must be upheld. This decision also explains why did the founding fathers
find it necessary to have three Lists. In International Tourist Corporation v.
State of Haryana, A.LR. (1981) S.C. 774, however, a caution has been
administer.ed that before exclusive legislative competence can be claimed E
for Parliamen~ the legislative incompetence of the State Legislature must
be clearly established. In S.R. Bommai v. Union of India, [1994] 3 SCC I,
one of us (B.P. Jeevan Reddy, J.) cautioned that in our constitutional
system, where all important legislative heads are assigned to Centre, the
courts should be slow to adopt any interpretation which tends to deprive the F
States of the few powers assigned to them under the Constitution.

We may now deal with the question whether the levy in question is a
levy on lands and buildings within the meaning of Entry 49 of List-II or
whether it is outside the purview of the said entry?

In Sir Byramjee Jeejeebhoy v. Bombay, [1940] Bombay 48, property G
tax was levied 10% on the annual letting value of lands and buildings by
the Bombay Finance (Amendment) Act, 1939. The levy was impugned as
ultra vires the provincial legislature on the ground that it was in truth a tax
on income or ~n the capital value of assets. Negativing the said contention,
Broomfield, J. observed: H
136 SUPREME COURT REPORTS [1994] SUPP. 6.S.C.R

A "The main ground on which it is sought to be shown that the
impugned tax is a tax on income is that it is assessed on the
same basis as income-tax, that is on annual value or the
amount at which the property may reasonably be expected to
be let. But the mode of assessment does not determine the
character of a tax. Annual value may be the basis of
B assessment of income-tax. It may also be the basis of
assessment of a tax on capital, e.g., in the case of succession
to land under the Succession Duties Act in England; In re
Elwes (1858) 28 LJ. Exch. 46, or again it may be the basis of
assessment of rates such as the ordinary municipal rates in
England, which are neither taxes on income nor taxes on
c property, but a personal charge on the occupier. Clearly it is
impossible to say that the employment of annual value as the
measure of the impugned tax is any indication that it is a tax
on income."

(emphasis added)
D
This Judgment was affrrmed by the Federal Court in Ra/la Ram v. East
Punjab, A.LR. (1949) F.C. 81 which has been followed ever since. In Ra/la
Ram, the question was whether the tax imposed by Punjab Urban
Immovable Properties Act, 1940 was within the legislative competence of
E the provincial legislature or whether it was in truth and substance a tax
upon the income of the person owning the property? The tax was levied on
the basis of annual value of the buildings and lands. The 'annual value ' was
to "be ascertained by estimating the gross annual rent at which such land
or building with its appurtenances and any furniture that may be left for use
or enjoyment with such building might reasonably be expected to let from
F year to year..... " The Federal Court exhaustively dealt with several English
and Indian decisions on the subject and evolved the following principles:

"The principles deducible from these pronouncements are,
(1) that where there is an apparentconflict between an Act of
the Federal Legislature and an Act of the Provincial
G Legislature, we must try to ascertain the pith and substance or
the true nature and character of the conflicting provisions,
and (2) that before an Act is declared ultra vires, there should
be an attempt to reconcile the two conflicting jurisdictions,
and, only if such a reconciliation should prove impossible,
the impugned Act should be declared invalid."
H
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 137

The learned Judge quoted with approval the observations in a A
Reference under the Government of Ireland Act, 1920 (1936 A.C. 352) to
the following effect:

"It is the essential character of the particular tax charged that
is to be regarded, and the nature of the machinery, often
complicated, by which the tax is to be assessed· is not of B
assistance except in so far as it may throw light on the
general character of the tax."

The Federal Court emphasised that "the annual value is not necessarily
actual income, but is only a standard by which income may be measured",
and pointed out further that merely because the Income Tax Act has c
adopted the annual value as the standard for determining the income, it does
not follow that if the same standard is employed as a measure for any other
tax, that tax becomes a tax on income. Applying the doctrine of pith and
substance, it held that the Punjab tax is not a tax on income even though the
basis of tax is the same as the one adopted by the Indian Income Tax Act.
The encroachment into the federal field, it held, is not so great as to D
characterise it as a colourable piece of legislation. This decision has been
uniformly followed by this court without exception.

In V. Pattabhiraman v. Assistant Commissioner, Urban Land Tax,
(1971) Madras 61 the validity of Sections 5 and 6 of the Madras Urban
Land Tax Act, 1966 was challenged on the ground that since the tax was E
based on the market value of the land it is really an income tax and,
therefore, outside the purview of Entry 49 of List-II. The contention was
negatived following inter alia the decision of the Federal· Court in Ra/la
Ram.

In Ajoy Kumar Mukherjee v. Local Board of Barpeta, A.l.R. (1965) F
S.C. 1561 a Constitution Bench of this Court dealt with the challenge to the
constitutionality of an annual tax levied by local boards upon land used for

.. holding markets created by Section 62 of the Assam Local Self-
Govemment Act, 1963. While dealing with the challenge, Wanchoo, J.,
speaking for the Court, observed:
G
"It is well-settled that the entries in the three legislative lists
have to be interpreted in their widest amplitude and,
therefore, if a tax can reasonably be held to be a tax on land
it will come within entry 49. Further it is equally well-settled
that tax on land may be based on the annual value ofthe land
and would still be a tax on land and would not be beyond the H
138 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A competence of the State legislature on the ground that it is a
tax on income. [See Rafla Ram v. Province of East Punjab,
(1948) FCR 207: AIR (1949) FC 81)]. It follows, therefore,
that the use to which the land is put can be taken into
account in imposing a tax on it within the meaning of entry
49 of List II, for the annual value of land which can certainly
B be taken into account in imposing a tax for the purpose of
this entry would necessarily depend upon the use to which
the land is put. " ·

(emphasis added)

c In Kunnathat Thathunni Moopil Nair v. The State of Kera/a and Anr.,
(1961] 3 S.C.R. 77, the Constitution Bench speaking through B.P. Sinha
C.J., observed:

"Ordinarily, a tax on land or land revenue is assessed on the
actual or the potential productivity of the land sought to be
D taxed In other words, the tax has reference to the income
actually made, or which could have been made. With due
diligence, and, therefore, is levied with due regard to the
incidence of the taxation."

(emphasis added)
E In Assistant Commissioner v. Buckingham and Carnatic Co. Ltd,
(1970] 1 S.C.R. 268, the Constitution Bench observed:

"For the purpose of levying tax under Entry 49, List II the
State Legislature may adopt for determining the incidence of
tax the annual or the capital value of the lands and buildings.
F But the adoption of the annual or capital value of lands and
buildings for determining tax liability will not make the fields
of l~gislation under the two entries overlapping. The two
taxes are entirely different in their basic concept and fall on
different subject matters."

G Ramaswami, J., speaking for the Constitution Bench, quoted with
approval the classic observations of Sir Maurice Gwyer, C.J. in
Subramanyam Chettiar v. Muttuswami Goundan, (1940) F.C.R. 188 at 201
to the effect:

·"It must inevitably happen from time to time that legislation,
.H though purporting to deal with a subject in one list, touches
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 139

also on a subject in another list, and the different provisions A
of the enactment may be so closely intertwined that blind
adherence to a strictly verbal interpretation would result in a
large number of statutes being declared invalid because the
Legislature enacting them may appear to have legislated in a
forbidden sphere. Hence the rule which has been evolved by
the Judicial Committee whereby the impugned statute is B
examined to ascertain its 'pith and substance' or its 'true
nature and character', for the purpose of determining whether
it is legislation with respect to matters in this list or in that :
Citizens Insurance Company of Canada v. Parsons [1881] 7
A.C. 97; Russell v. The Queen [1882] 7 A.C. 829; Union
Colliery Co. of British Columbia v. Bryden [1899] A.C. 580; C
Att. Gen.for Canada v. Att. Gen.for British Columbia [1930]
A.C. 111; Board of Trustees of Lethbridge Irrigation District
v. Independent Order of Foresters, [1940] A.C. 513. In my
opinion this rule of interpretation is equally applicable to the
Indian Constitution Act."
D
In Federation of Hotel and Restaurant Association v. Union of India,
[1989] 3 S.C.C. 634, the Constitution Bench, speaking through M. N.
Venkatachaliah, J. (as he then was) made the following pertinent
observations:

"The subject of a tax is different from the measure of the E
levy. The measure of the tax is not determinative of its
essential character or of the competence of the legislature. In
Sainik Motors v. State of Rajasthan, [1962] 1 S.C.R. 517, the
provisions of a State law levying a tax on passengers and
goods under Entry 56 of List I were assailed on the ground F
that the State was, in the guise of taxing passengers and
goods, in substance and reality taxing the income of the stage
carriage operators or, at any rate, was taxing the "fares and
freights", both outside of its powers. It was pointed out that
the operators were required to pay the tax calculated at a rate
related to the value of the fare and freight. Repelling the G
contention, Hidayatullah, J. speaking for the court said:

"We do not agree that the Act, in its pith and substance, lays
the tax upon income and not upon passengers and goods.
Section 3, in terms, speaks of the charge of the tax 'in respect
of all passengers carried and goods transported by motor H
140 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A vehicles', and though the measure of the tax is furnished by
the amount of fare and freight charged, it does not cease to be
a tax on passengers and goods."

In the said decision, it has been further pointed out that:

B "the true nature and character of the legislation. must be
determined with reference to a question of the power of the
legislature. The consequences and effects of the legislation
are not the same thing as the legislative subject matter. It is
the true nature and character of the legislation and not its
ultimate economic results that matters. "
c (emphasis added)

The decision also refers to what is known as the "aspects" doctrine and
it is on the basis of the said doctrine that both the Expenditure Tax levied
by Parliament and Luxury Tax levied by the Gujarat Legislature [subject
matter of the decision in Express Hotels Pvt. Ltd. v. State of Gujarat,
D [1989] 3 S.C.C 677 were sustained though they appeared to relate to the
same matter. It was held:

"Indeed, the law with respect to a subject might incidentally
'affect' another subject in some way; but that is not the same
thing as the law being on the latter subject. There might be
E overlapping; but the overlapping must be in law. The same
transaction may involve two or more taxable events in its
different aspects. But the fact that there is an overlapping
does not detract from the distinctiveness of the aspects."

Reference was made inter alia to the decision of the Privy Council in
F Governor General in Council v. Province of Madras, (1945) F.C.R. 119
where the distinction between the duties of excise and tax on sale of goods
was explained in the following words:

"The two taxes, the one levied on a manufacturer in respect
of his goods, the other on a vendor in respect of his sales,
G may, as is there pointed out, in one sense overlap. But in law
there is no overlapping. The taxes are separate and distinct
imports. If in fact they overlap, that may be because the
taxing authority, imposing a duty of excise, finds it
convenient to impose that duty at the moment when the ·
excisable article leaves the factory or workshop for the first
H time on the occasion of its sale."
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.) 141

It was further pointed out, and which is of some relevance to us in this A
case, that:

"Petitioner's reference to legislative practice as determining
the scope of the present legislation does not assist them.
There are two infirmities in the contention .... Secondly, there
is no conclusive material indicating that the appropriate B
legislature had limited the notion of a tax of this kind within
any confines. It is relevant to recall the words of Lord
Uthwatt in Wallace Brothers case quoted in State of Madras
v. Gannon Dunkerley and Co., [1959] SCR 379:

"The point of the reference is emphatically not to seek a C
pattern to which a due exercise of the power must conform.
The object is to ascertain the general conception involved in
the words in the enabling Act."

It is thus clear from the aforesaid decision that merely because a tax on
land or building is imposed with reference to its income or yield, it does not D
cease to be a tax on land or building. The income or yield of the
land/building is taken merely as a measure of the tax; it does not alter the
nature or character of the levy. It still remains a tax on land or building.
There is no set pattern of levy of tax on lands and buildings- indeed there .
can be no such standardisation. No one can say that a tax under a particular
entry must be levied only in a particular manner, which may have been E
adopted hitherto. The Legislature is free to adopt such method of levy as it
chooses and so long as the character of levy remains the same, i.e., within
the four comers of the particular entry, no objection can be taken to the
method adopted. In the cases before us, the cess is no doubt calculated on
the basis of the yield- for every kilogram of tea leaves produced in a tea
estate, a particular cess is levied. But that is well-accepted mode of levy of F
tax on land. The tax is upon the land- upon the 'tea estate' which is
classified as a separate category, as a separate unit, for the purpose of levy
and assessment of the said cess quantified on the basis of the quantum of
produce of the tea estate. It cannot be characterised as a tax on production
for that reason. As pointed out in Moopil Nair, "a tax on land is assessed on G
the actual or rotential productivity of the land sought to be taxed." There
cannot be uniform levy unrelated to the quality character or income/yield of
the land. Any such levy has been held to be arbitrary and discriminatory.

We shall now deal with the two decisions in India Cement and Orissa
Cement, upon which strong reliance is placed by the learned counsel for the H
<
, 142 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A petitioners. India Cement dealt with a levy under Section 115 of the Madras
Panchayat Act which imposed a local cess @ 45 paise on every rupee of
land revenue payable to the gove~ent in respect of land for every fasli.
The explanation to Section 116 defined "land revenue" to mean "public
revenue due on land and includes water cess payable to the government for
water supplied or used for the irrigation of land, royalty, lease amount or
B other sum payable to the government in respect of land held direct from the
government on lease or licence ..... ". What is ofcrucial relevance is that the
levy ofcess was not upon the land or upon its yield (or its income) but upon
the royalty amount payable to the lessor, which was included within the
definition of the expression "land revenue". Question, therefore, arose
whether such cess levied with reference to or calculated on the basis of
c amount of royalty can be called a tax on land. It was held that it could not
be. It was pointed out that the royalty varies according to the mineral
quarried in a given year and if no mineral is quarried, no royalty will be
payable but this reasoning, as we shall explain a little later, is not the ratio
of the judgment apart from being inapplicable in the case of land or tea
estates. The basis of the judgment- and the ratio of the decision- in our
D respectful opinion is that it was a case where the tax was measured not with
reference to or on the basis of the income or yield of the land but with
reference to the amount of royalty payable by the lessee to his lessor. It was
for this reason that the tax was held to be not upon the land. Royalty is a
matter of agreement between the lessor and the lessee; it may also be
determined by a statutory provision. But royalty is not the produce of the
E land; royalty is not the income of the land nor is the royalty the yield of the
land- and that is the distinction. Now, it is significant to notice how the
concept of royalty was understood in India Cement. The following
observations from the judgment are opposite: "It is therefore, not possible
to accept Mr. Krishnamurthy lyer's submission that a cess on royalty
cannot possibly be said to be a tax or an impost on land (p. 26) .............../n
F
the aforesaid view of the matter, we are of the opinion that royalty is a tax
and as such a cess on royalty being a tax on royalty is beyond the
competence of the State legislature (p. 30)". Indeed, the petitioners'
contention was "that the impugned measure being a tax not on share of the
produce of the land but on royalty" the levy is bad. This contention was.
G upheld by Mukherjee, J. The learned Judge held, "in any event, we are of
the opinion that cess on royalty cannot be sustained under Entry 49 of List-
11 as being a tax on land." The learned Judge characterised the cess
impugned therein as "an additional charge on royalty". We are, therefore,
of the opinion that the decision in India Cement can have no relevance
herein inasmuch as the levy in that case was altogether on a different basis
H and for which reason it was held to be outside Entry 49 of List-II. It would
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.) 143

be wrong to read this decision as over-ruling the innumerable decisions A
rendered with reference to Entry 49, List-II (or the entry corresponding to it
in the Government of India Act, 1935) which have upheld levy upon land
and building measured on the basis of their yield or income. Only H.R.S.
Murthy was overruled in India Cemeni and not others. The decision in India
Cement must be understood consistent with and in continuation of the
earlier decisions on the subject. B
Now coming to Orissa Cement, it was again a case where the cess was
imposed on royalty. As amended by Act 15 of 1988, Section 5 (2) of the
Orissa Cess Act, 1962 read as follo~s:

"(2) The rate at which such cess shall be levied shall be - c
(a) in case of lands held for carrying on mining operations in relation
to any mineral, on such percentum of the annual value of the said
lands as specified against that mineral in Schedul~ II; and

(b) in case of other lands fifty percentum of the annual value." D
Clause (a) in sub-section (2) was amended by Act 17 of 1989, after
which amendment, clause (a) read thus:

"(a) in the case of land held for carrying on mining operations in
relation to any material, such percentum of the annual value as the
State Government may, by notification, specify from time to time E
in relation to such mineral."

The expression "annual value" occurring in clause (a) (both prior to
Amending Act 17 of 1989 and thereafter) was defined in Section 7 of the
Act. Sub-section (3) of Section 7 provided that "in the case of lands held for F
carrying on mining operations, the annual value shall be the royalty. or, as
the case may be, the dead rent payable by the persons carrying on mining
operation (s) to the Government." It is for this reason that the Division
Bench, speaking through Ranganathan, J., held that the case was squarely
covered by India Cement. When it was contended by the Sate that the
royalty payable in respect of a land on which mining activity is carried on is G
only a measure of the tax on land relying upon Ra/la Ram and Ajoy Kumar
Mukherjee. Ranganathan, J., made the following perceptive observations,
which are of great significance to the cases before us:

"But here the levy is not measured by the income derived by
the assessee from the land as is the case with lands other than H
144 SUPREME COURT REPORTS [1994) SUPP. 6 S.C.R

A mineral lands. The measure of the levy is the royalty paid, in
respect of the land, by the assessee to his lessor which is
quite a different thing."

The karned Judge pointed out that the decision in H.R.S. Murthy v.
Collector ofChittoor, [1964] 6 S.C.R. 666- which was overruled in India
B Cement- also purported to levy land cess on the "annual rental value",
which expression was defined to mean inter alia royalty or other sum
payable to the government in the case of lands held on lease/licence and
that the reason, for which Murthy was over ruled in India Cement was also
present in the Orissa Act before them. The following observations bring out
the distinction made by the learned Judge:
c
"But the question is, what is it that is really being taxed by
the Legislature? So far as mineral-bearing lands are
concerned, is the impact of the tax on the land or on
royalties? The change in the scheme of taxation under section
7 of 1976; the importance and magnitude of the revenue by
D way of royalties received by the State; the charge of the cess
as a percentage and, indeed, as multiplies of the amount of
royalty; and the mode and collection of the cess amount
along with the royalties and as part thereof are circumstances
which go to show that the legislation in this regard is with
E respect to royalty r~ther than with respect to land."

In our opinion, therefore, the ratio of India Cement and Orissa Cement
is clearly distinguishable and has no relevance to the cases before us. In the
case or the impugned West Bengal enactment, the cess is upon the land
measured on the basis of the quantum of its produce. Being measured with
F reference to the yield of land, it is a levy upon the land, as explained in
Ra/la Ram, Moopil Nair and Ajoy Kumar Mukherjee.

Strong reliance is placed by the learned counsel for the petitioners
upon the following sentence in para (22) of India Cement: "There is a clear
distinction between tax directly on land and taX on income arising from the
G land" to contend that levy of tax on income of land is not tax on land. We
are afraid, the learned counsel are tearing one sentence out of context and
are seeking to construe it as a statute. That the tax on land and building can
be levied with reference to, i.e., measured on the basis of their yield or
income is the uniform view taken in the cases referred to hereinbefore. For
instance; how is the property tax levied on a building in a municipality? It is
H only on the basis of its annual rental value, i.e., on the basis of the rent it is
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 145

fetching when let out or the rent it would fetch if let out. It is open to the A
Legislature to say that rent of previous year or the average rent of previous
two, three or more years shall be the basis. Indeed, there is nothing to
prevent the legislature from taking the rent of that very year as the basis for
levying the tax. In the case of a new building, the tax for the frrst year
would naturally be based upon the rental value for that year. And what is
rent, if not the income of the building- its yield? In India Cement, the B
court pointed out that the lev)' in that case being on royalty, it cannot be
called a tax on land. The court said "(B)ut in the instant case, royalty being
that which is payable on the extraction from the land and cess being an
additional charge on that royalty, cannot, by the parity of the same
reasoning, be considered to be a tax on land." As pointed out hereinabove,
tax on royalty is not tax on land with reference to income since royalty is C
not the income of the land but an exaction payable by the lessee of the land
to the lessor/owner. In India Cement, the court took the view that royalty is
a tax and hence, a tax upon such royalty (tax) is not pennissible in law. It is
for this reason that the court held agreeing with Sri Nariman that "royalty
which is indirectly connected with land cannot be said to be a tax directly
on land as a unit" (para 23). A tax imposed on land measured with D
reference to or on the basis of its yield, however, is certainly a tax directly
on the land. Apart from income, yield or produce, there can perhaps be no
other basis for levy. A unifonn tax levied without reference to yield, quality
and character was held to be bad in State of Andhra Pradesh v. Na/la Raja
Reddy, [1967] 3 S.C.R. 28.
E
Counsel for the petitioners also laid emphasis on the following
observation in para (23) of India Cement: "It appears that in the instant case
also no tax can be levied or is leviable under the impugned Act if no mining
activities are carried on. Hence, it is manifest that it is not related to land as
a unit which is the only method of valuation of land under Entry 49 of List F
II, but is relatable to minerals extracted. Royalty is payable on a proportion
of the minerals extracted. It may be mentioned that the Act does not used
dead rent as a basis on which land is to be valued. Hence, there cannot be
any doubt that the impugned legislation in its pith and substance is a tax on
royalty and not a tax on land" Firstly, the situation contemplated in the
said observation does not obtain in the present case. Here are tea estates, the G
tea bushes wherein yield tea leaves in the natural course. If they are
properly tended and nurtured, they yield more but even otherwise they do
yield- though may be in lesser quantity. Moreover, we must take the
example of an ordinary prudent owner/occupier of tea estate and not of a
freak. No ordinary person would leave the tea estates to the nature or leave H
'146 SUPREME COURT REPORTS (1994] SUPP. 6 S.C.R

A the leaves to wither on bushes. A freak may do it but the validity of laws
are not to be judged with reference to freaks. May be, in certain extra-
ordinary exigencies, it may happen that the tea leaves are not plucked but
that is not the generality of the situation. That the basis of this argument is
unrealistic and improbable would be evident from the provisions of the Tea
Act, an aspect dealt with at a later stage. We are, therefore, of the opinion
B that taking the quantum of yield of a tea estate for measuring the amount of
tax cannot be equated to the situation in India Cement.

In judging the validity of taxing laws, it is always instructive to
remember the following observations of this court in R.K. Garg v. Union of
India, (1982] l S.C.R. 947:
c
"Another rule of equal importance is that laws relating to
economic activities should be viewed with greater latitude
than laws touching civil rights such as freedom of speech,
religion etc. It has been said by no less a person than Holmes,
D J. that the legislature should be allowed some play in the
joints, becau~e it has to deal with complex problems which
do not admit of solution through any doctrinaire or straight
jacket formula and this is particularly true in case of
legislation dealing with economic matters, where, having
regard to the nature of the problems required to be dealt with,
E greater play in the joints has to be allowed to the legislature.
The Court should feel more inclined to give judicial
difference to legislative judgment in the field of economic
regulation other in other areas where fundamental human
rights are involved. Nowhere has this admonition been more
felicitously expressed than in Morey v. Doud, [1957] 354 US
F 457 where Frankfurter, J., said in his inimitable style:

"In the utilities, tax and economic relation cases, there are
good reasons for judicial self-restraint if not judicial
difference to legislative judgment. The legislature after all
has the affinnative responsibility. The Courts have only the
G
power to destroy, not to reconstruct. When these are added to
the complexity of economic regulation, the uncertainty, the
liability to error, the bewildering conflict of the experts, and
the number of times the judges have been overruled by
events self-limitation can be seen to be the path to judicial
H wisdom and institutional prestige and stability."
GOODRICKE GROL'P LTD. v. STATE [B.P. JEEVAN REDDY, J.) 147
"'
The Court must always remember that "legislation is directed A
to practical problems, that the economic mechanism is highly
sensitive and complex, that many problems are singlllar and
contingent, that laws are not abstract propositions and do not
relate to abstract units and are not to be measured by abstract
symmetry" that exact wisdom and nice adoption of remedy
are not always possible and that "judgment is largely a B
prophecy based on meagre and uninterpreted experience."
Every legislation particular in economic matters is essentially
empiric and it is based on experimentation or what one may
call trial and error method and therefore it cannot provide for
all possible situations or anticipate all possible abuses. There
may be crudities and inequities in complicated experimental C
economic legislation but on that account alone it cannot be
struck down as invalid. The Courts cannot, as pointed out by
the United States Supreme Court in Secy. of Agriculture v.
Central Roig. Rejir.ing Co., (1950) 94 L. ed. 381, be
converted into tribunals for relief from such crudities and
inequities. There may even be possibilities of abuse, but that D
too cannot of itself be a ground for invalidating the
legislation, because it is not possible for any legislature to
anticipate as if by some divine prescience, distortions and
abuses of its legislation which may be made by those subject
to its provisions and to provide against such distortions and E
abuses. Indeed, howsoever great may be the care bestowed
on its framing, it is difficult to conceive of a legislation
which is not capable of being abused by perverted human
ingenuity. The Court must therefore adjudge the
constitutionality of such legislation by the generality of its
provisions and not by its crudities or inequities or F
possibilities of abuse come to light the legislature can always
step in and enact suitable amendatory legislation. That is the
essence of pragmatic approach which must guide and inspire
the legislature in dealing with complex economic issues."

Before we take up the next aspect, we may deal with another G
submission based upon the s~parate opinion of G.L. Oza, J., India Cement.
Oza, J., in his separate opinion, concurred with the conclusion arrived at by
Mukherjee, J., but on a slight different basis. The learned Judge was of the
opinion that whether "royalty is a tax or not is not very material for the
purpose of determination of this question in this case." The learned Judge
rested his opinion on this basis: the mineral extracted from the land is the H
148 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A result of three elements, viz., (1) land from which mineral could be
extracted, (2) capital for providing machinery, instrument and other
requirements, and (3) labour; for this reason, the unit of charge of royalty is
not only land but land + labour + capital; the royalty is thus a tax
imposition/levy not on land alone out on two other items aforesaid; if
therefore the cess is levied on royalty, it could not be said to be a tax on
B land within the meaning of Entry 49 of List-II. The aforesaid reasoning is
relied upon by Dr. Pal to say that the tea leaves produced in a tea estate are
equally the produce of land+capital+labour and any tax/cess imposed with
reference to such produce cannot be said to be a tax on land within the
meaning of Entry 49 of List-II. We must say that we are unable to
appreciate the logic of the said reasoning. Firstly, the opinion expressed by
c Oza, J., is not shared by other learned Judges in India Cement. Secondly,
the said theory, in our respectful opinion, flies against the goal of all the
previous judgments of this Court and Federal Court on the subject. Take the
case of land revenue. If land revenue is levied with reference to the income
or yield of land, can it not be said that income or yield of land is equally the
result of land+capital+labour. Can it be said that on that account the land
D revenue is not a levy on land. It has been held uniformly in several
decisions referred to hereinbefore that a tax on land within the meaning of
Entry 49 of List-II can be levied with reference to their yield or income. It
will be difficult to imagine a situation where a land yields income worth the
name without any labour and/or capital investment. Not only labour has to
be employed but also some capital has to be invested for raising the
E produce. On that account, the tax levied on land but quantified with
reference to the income/yield of the land cannot be characterised as a tax
other than tax on land. Whether it is an agricultural land, an orchard or a tea
estate, they do require some capital and labour to make them yield and to
produce income. Such yield or income can always be taken as a measure
for quantifying the tax, which is undoubtedly levied upon the land. We
F
cannot, therefore, agree with the said contention of Dr. Pal.

Relying upon the decisions in Sudhir Chandra Nawn v. Wealth Tax
Officer, Calcutta, [1969] 1 S.C.R. 108, Assistant Commissioner of Urban
Land Tax v. Buckingham and Carnatic Co. Ltd., (1970] 1 S.C.R. 268 and
Second Gift Tax Officer, Mangalore v. D.H. Nazareth, (1971] I S.C.R. 195
G it is contended by S/Sri K.K. Venugopal, Ashok Desai and R.F. Nariman,
learned counsel for the petitioners, that a tax to be within the purview of
Entry 49 of List-II should be a tax directly on the lands and buildings and
that in the absence of such direct nexus it would cease to be a tax on lan:ds
and buildings. In the ,first two cases, the question was whether the levy of
H wealth tax created hy, the Wealth Tax Act, 1957 was outside the
GOODRICKE GROUP LTD. v. STATE {B.P. JEEVAN REDDY, J.] 149

Parliament's competence inasmuch as it operates as a tax on lands and A
buildings, which is within the exclusive competence of the State
Legislature, while the question in Nazareth was whether the levy of gift tax
created by the Gift Tax Act is a tax on lands and buildings? In the former
cases, it was held that wealth tax is not a tax upon lands and buildings but is
a tax upon the wealth of an individual. It was pointed out that the tax was
upon the total assets owned by an individual minus his total liabilities, i.e., B
upon his net wealth. Similarly, in Nazareth it was pointed out that the tax
was on the gift of the lands and buildings and not upon the lands and
buildings as such. Doctrine of pith and substance was applied in each case
to find out to which entry did the particular enactment relate in truth and
substance. It is in this connection, while comparing the contending entries
in List-I and Entry 49 .in List-II that this court observed that a tax to be a tax C
on lands and buildings within the meaning of Entry 49 List-II should be a
tax directly on lands and buildings. It would be sufficient to refer to the
observations to the above effect in S.C. Nawn which run to the following
effect:

"The argument advanced by counsel for the petitioner is D
wholly misconceived. The tax which is imposed by entry 86
List-I of the Seventh Schedule is not directly a tax on lands
and buildings. It is a tax imposed on the capital value of the
assets of individuals and companies, on the valuation date ..
The tax is not imposed on the components of the assets of the
assessee; it is imposed on the total assets which the assessee E
owns, and in determining the net wealth not only the
encumbrances specifically charged against any item of asset,
but the general liability of the assessee to pay his debts and to
discharge his lawful obligations have to be taken into
account. In certain exceptional cases, where a person owns
no debts and is under no enforceable obligation to discharge F
any liability out of his assets, it may be possible to break up
the tax which is leviable on the total assets into components
and attribute a component to lands and buildings owned by
an assessee. In such a case, the component out of the total tax
attributable to lands and buildings may in the matter of G
computation bear similarity to a tax on lands and buildings
levied on the capital or annual value under entry 49 List-II.
But the legislative authority of Parliament is not determined
by visualising the possibility of exceptional cases of taxes
under two different heads operating similarly on tax payers.
Again entry 49 List-// of the Seventh Schedule contemplates H
150 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A the levy of tax on lands and buildings or both as units. It is
normally not concerned with the division of interest or
ownership in the units of lands or buildings which are
brought to tax. Tax on lands and buildings is directly
imposed on lands and buildings and bears a definite relation
to it. Tax on the capital value of assets bears no definable
B relation to lands and buildings which may form a component
of the total assets of the assessee. By legislation in exercise of
power under entry 86 List-I tax is contemplated to be levied
on the value of the assets. For the purpose of levy tax under
entry 49 List-II the State Legislature may adopt for
determining the incidence of tax the annual or the capital
c value of the lands and buildings. But the adoption of the
annual or co:apital value of lands and buildings for determining
tax liability will not, in our judgment, make the fields of
legislation under the two entries overlapping."

From the above observations, in our opinion, it cannot be inferred that
D the position of law regarding Entry 49 of List-II is different from the law
obtaining under other entries in the Seventh Schedule. It cannot be. The
proposition that the several entries in the Seventh Schedule are merely
legislative heads and must be liberally construed applies to all the entries
including Entry 49 of List-II. The above observations in Nawn and other
cases were made merely with a view to emphasise the distinction between
E one tax and the other. The said expression was used to point out that the
particular enactment is in truth not relatable to Entry 49, List-II but to the
entries in List-I. In that connection, it was pointed out that the tax in
question before them was not a tax directly upon the land and building but a
tax upon the wealth of an individual or upon the transaction of gift, as the
case may be. It is relevant to note that in Ajoy Kumar Mukherjee, the
F Constitution Bench has stressed this very aspect when it stated "it is well-
settled that the entries in the three legislative lists have to be interpreted in
their widest amplitude and, therefore, if a tax can reasonably be held to be
·a tax on land it will come within entry 49." The question of direct or
reasonable connection arises only where one has to find out whether a
particular enactment is within the competence of the Legislature which
G enacted it. Applying the doctrine of pith and substance, the court has to
determine and answer the question. There may be competing entries in List-
i and List-II, their content may look somewhat similar but yet the question
has to be answered with the aid of the said doctrine. The said observation,
which is also repeated in India Cement, means that levy should not be an
indirect levy on land like the one in India Cement but it cannot be
H
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 151

understood to say that levy on land quantified on the basis of its yield A
cannot be treated as a direct levy upon the land. There is no basis, therefore,
for saying that the impugned cess is not a tax upon the land directly. As
repeatedly pointed out above, the mere fact that it is measured with
reference to the yield of the land does not make it any the Jess a tax upon
the land directly.
B
Now coming to the argument that since the production of tea leaves
varies from year to year, the cess would also vary correspondingly from
year to year and for that reason it cannot be called a tax on land, is again, in
our opinion, unsustainable. It is not of the essence of a tax- not a
condition of its validity- that th6 tax must be constant or uniform for all
the years or for a particular number of years. The fact that generally C
property taxes on buildings and lands are revised every five years by the
municipal bodies is a matter of convenience and not a matter of law. The
tax can be revised every year, if the municipality so decides. Dr. Pal,
learned counsel for the petitioners conceded - and in our opinion, rightly -
that the tax on land or building can be levied and assessed with reference to
previous year's income or yield. In such a situation too, the tax may vary D
from year to year depending upon the income/yield of the previous year.
The variation between the amount of tax from year to year, in our opinion,
does not reflect upon the character of tax. Dr. Pal evidently draws
inspiration for the said argument from the fact that land revenue upon the
land is fixed and constant. But this is to ignore the fact that land revenue
(Entry 45, List-II) is different from the tax on lands and buildings E
contemplated by Entry 49 of List-II. The characteristics, if any, of the land
revenue - assuming for the sake of argument that constancy is one of the
characteristics of the land revenue - cannot be attached to the tax under
Entry 49 to restrict its field of operation. Dr. Pal next contended that while
a tax on land or building can be assessed with reference to the previous F
year's income, it cannot be assessed with reference to the current year's
income.· We confess, we are unable to see any principle behind this
submission, much less any authority. We also fail to see any logic behind
such a restriction upon the legislative power. The power of the Legislature
to make law with reference to Entry 49 of List-II is plenary like any other
entry in List-II. It is open to the legislature to adopt such formula as it G
thinks appropriate for levying the tax and so long as the character of the tax
remains the one contemplated by the entry, it does not matter how the tax is
calculated, measured or assessed. If a tax on land can be assessed with
reference to or on the basis of the previous year's income, we fail to see
why it cannot be levied on current year's income. For example, take the
case of a new.ly constructed building which is let out soon after its H
152 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A completion. Can the rent realised for the first year not to be taken as the
basis for determining the rental value for levying property tax for that year?
Indeed, that can be and should be the only basis. In this behalf, we may
refer to the decision of this court in Venkateshwara Theatre v. State of
Andhra Pradesh, (1993] 3 S.C.C. 677, where this court sustained the levy
of entertainment tax on cinemas levied not with reference to the number of
B shows or the number of tickets sold for a show but with reference to the
gross collection capacity of the theatre, determined for each show, week,
month or year, as the case may be. The fact that the Legislature departed
from the rule 'no show, no tax' did not affect the competence of the
Legislature or the character of tax.

c Sri K.K. Venugopal, learned counsel for some of the writ petitioners
sought to establish the absence of connection between the tax (cess) and the
a
land on the following basis: the entire land comprised in tea estate may
not be covered with tea bushes; for instance, a tea estate comprising 1000
acres may have tea bushes only on 400 acres while another 400 acres may
be kept fallow and the remaining 200 acres is covered by factory, buildings
D and the like. A tax on land to be a tax within the meaning of Entry 49 of
List-II must be levied upon the entire 1000 acres but in the case of
impugned levy, the tax is determined, or assessed, as the case may be, on
the entire 1000 acres with reference to the yield of 400 acres only; thus it is
clear, says the learned counsel, that the true nature of the tax is not a tax
E upon land but upon produce of land comprised in a tea estate. The learned
counsel gives yet another example. A tea estate-owner may decide, for his
own reasons - justified or unjustified- not to pluck the tea leaves in a
given year. He may leave the leaves to wither on the bushes. In such a case,
no cess would be payable in respect of the tea estate. If so, the learned
counsel asks, can it be said that the tax is connected with land. Would it not
F be more. correct to say that the tax is upon the produce of the land, asks the
counsel. In our opinion, the above reasoning is untenable for more than one
reason. Once the classification of "tea estate" as a separate category of land,
as a separate unit, for the purposes of levy of the said cess is conceded, the
edifice of the entire argument falls to the ground. Once, a tea estate is
treated validly as a unit for levy of tax/cess - it is not questioned before us -
G the yield of the land comprised in such unit can validly constitute the basis
of levy and assessment. Sri Venugopal stressed that accepting the said
contention of the State would set up a dangerous precedent inasmuch as it
would permit the State Legislature hereafter to levy tax on land based on
the gross income from a manufacturing activity or industry run upon the ;
H land by taking the gross income of such manufacturing activity'or industry
1•,
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 153

as the measure of tax. We are afraid, the learned counsel is overdrawing the A
picture. The tax on land or building can be levied, according to the well-
established decisions referred to hereinbefore, with reference to their yield
or income. The income on yield of land and building, reasonably speaking,
cannot include income from a manufacturing activity carried on such land
or the income of an industry run upon such land. The products of such
manufacturing activity and industry would be the products of such B
manufacturing activity and industry, as the case may be - and not of land
whereas the tea leaves are the produce/yield of the land. The distinction is
too obvious to be glossed over. Similarly, the income of a building would
mean the rent that is or that can be received, it cannot include the income of
some activity carried on therein. We are, therefore, of the opinion that the C
said apprehension of the learned counsel is clearly unfounded.

Secondly, the tea bushes, being not seasonal plants but of durable
nature, sprout leaves in the natural course. Of course, they require to be
tended, nurtured and cared for by providing fertilizers, labour and attention
to yield more. The fact remains that there is bound to be some yield each D
year. One need not take the case of a freak owner choosing not to pluck the
leaves at all in a given year. Such a person is an exception and not the rule.
One has to go by the generality of situation. The validity of a law - more so
of a tax law cannot be judged by taking a freak case or an unusual situation.
No such instance of any tea estate, in any year, has been brought to our
notice. This aspect has been dealt with by us hereinabove and need not be E
repeated here. Once a tea estate is validly classified as a unit of taxation, as
held hereinbefore, the levy of tax on the basis of the produce of such tea
estate - unit - cannot be faulted. More important, the situation envisaged by
Sri Venugopal cannot really come to pass Section 16B (l)(b) of the Tea Act
read with Section 16-C and Section 16-D provides that if the Central
Government is satisfied with respect to a tea estate that the average yield in F
three out of five preceding years is lower by 25% or more than the district
average yield, it can order investigation into the affairs of the tea estate,
give appropriate directions and can even assume management of the estate -
all with a view to ensure the production of tea at the expected levels. The
,. situation contemplated by the learned counsel, therefore, is an unrealistic G
one and cannot in any event furnish a ground for holding that there is no
reasonable connection between the tax and the land. To repeat, once the tea
estate is validly classified as a unit for the purpose of levy of tax (cess) and
for applying a particular rate of tax, the levy of tax thereon quantified on
the basis of production of tea leaves of such a unit - tea estate cannot be
found fault with. H
154 SUPREME COURT REPORTS (1994] SUPP. 6 S.C.R

A Sri Ashok Desai urged a further contention that inasmuch as the
moment tea leaves are plucked, they can no longer be said to be attached to
or forming part of the land, levy of tax with reference to such plucked tea
leaves cannot be called a tax on land. We are unable to appreciate the
distinction sought to be made. Generally speaking, unless the produce of
the land, whether it is food-grains or fruits, is removed from the plant or the
B tree, as the case may be, the yield of the land or its income cannot properly
be assessed. If the tax is calculated or assessed on the basis of such yield or
income, it cannot be said that for that reason alone there is no reasonable
connection between the land and the tax.

Dr. Pal contended, relying upon certain observations in Buxa Dooars
c that the provision for exemption contained in Section 4(4) of the impugned
Act, has the effect of changing the character of tax. Learned counsel relied
upon the following observations in paragraphs 10 and 11 of the judgment in
Buxa Dooars: "the nexus with the tea estate is lost altogether in the
provisions for exemption or reduction of levy and that throughout the nexus
· is confined to despatches of tea rather than related to the tea estate.
D Ultimately the benefit of exemption or reduced levy must be related to the
need for exempting the tea estate from that levy or relieving it from part of
the normal levy. When the provisions before us are examined in their
totality, we find no such relationship or nexus between the tea estate and the
varied treatment accorded in respect qf despatches of different kinds of
E tea." It is not possible to agree. We have carefully perused paras 10 and 11
of the said judgment and we are of the considered opinion that the main
basis of the holding in the said two paragraphs is that the tax being levied
upon the despatches of tea - and because no distinction is made with
reference to the quality of tea produced in each estate - the levy cannot be
said to be a levy upon the land. Though a reference is made to the power of
F exemption but that is not the reason for holding that it is not a tax on land.
We are of the further opinion that if the said observations are so read, it
would not be possible for us to agree with the same. Every tax enactment
contains a provision for exemption. There is hardly a tax enactment which
does not contain such a provision. The power of exemption is normally
given to the government to be exercised in appropriate cases. The said
G provision, in our opinion, can make no difference to the character of the
tax. We can understand saying that the tax impugned in Buxa Dooars was
bad on account of levy being related to despatches and, therefore, the tax
impinged upon Article 301 of the Constitution but we find it difficult to
agree that because of the exemption provision contained in the enactment,
H the character of levy changes from levy on land to something else.
GOODRICK£ GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 155

The main holding in Buxa Dooars is that levy impugned therein A
violates Article 301. The argument about Entry 49 of List-II was referred to
only for the purpose of saying that the levy on despatches of the tefl cannot
be related to the said entry. The provision for exemption contained in the
impugned enactment, therefore, can certainly not be treated as a ground or
reason for holding the said levy to be a levy not on land but on something
else. There is no principle nor any authority in support of the said B
proposition.

Yet another contention by Dr. Pal is that inasmuch as the impugned
enactment makes the owner liable to pay cess and the owner is defined (by
Explanation-II) to mean, the transferee in possession in case of lease,
mortgage or other transfer of possession, the levy cannot be said to be upon C
the land. We are unable to appreciate the submission. The fact that the
person in possession and enjoyment of the tea estate is made liable to pay
the cess shows in fact the connection between the land and the levy - it is
not an indication to the contrary. Moreover, the liability of the transferee in
possession is brought in and the definition of 'owner' provided to ensure
payment of cess, which would be evident from the substituted clause (a) in D
sub-section (3) of Section 4, which reads: "(a) the rural employment cess
payable under sub-section (2A) shall be paid by the owner of a tea estate in
such manner, for such period and by such date as may be prescribed."
Similarly, it is the owner, as defined in the Act, that is required to maintain
the accounts etc., which is as it ought to be. A person other than the person
in possession could not have been made so liable. Making the person in E
actual possession of land or building for payment of tax is well-known
feature in enactments relatable to Entry 49 of List-II and cannot be faulted.

In view of our finding that the impugned cesses are clearly relatable to
Entry 49 of List-II, it is really unnecessary to deal at length with the
alternative submission of Sri Shanti Bhushan, learned counsel for the State F
of West Bengal that the impugned levy can also be sustained with reference
to Entry 45 of List-II, i.e., as land revenue. Learned counsel submits that
there can be more than one law levying land revenue and all of them will be
relatable to Entry 45. He submits that the impugned levy can be treated as
additional land revenue. Counsel gives instances of more than one Act
levying excise duty on manufacture and production of goods. He relies G
upon the following observations of Mukherjee, J. in India Cement:

"It is, however, clear that over a period of centuries, land
revenue in India has acquired a connotative meaning of share
in the produce of land to which the king or the government is
entitled to receive." H
156 SUPREME COURT REPORTS [1994) SUPP. 6 S.C.R

A The force of the submission cannot be denied. The presumption in
favour of constitutionality obliges the court to sustain an enactment, if
necessary, by relating it to an entry other than the one relied upon by the
government, if that can be reasonably done. Moreover, as pointed out by
this Court in Sanjiv Coke Mfg. Co. v. Bharat Coking Coal Ltd and Anr.,
[1983] 1 S.C.R. 1000, it is the function and power of the court to interpret
B an enactment. It is equally the function and power of the Judiciary to say to
which entry does an enactment relate. The opinion of the government in
this behalf is but an opinion and no more.

Yet another argument put forward on behalf of the petitioners is that
c the quality of tea produced in one tea estate may differ from the quality of
tea produced in another tea estate. Prescribing an uniform method of levy
on all tea estates, without regard to the quality of tea produced, it is
submitted, is discriminatory. It is not possible to agree. It would be
sufficient to refer to the judgment of Hidayatullah, C.J., in Twyford Tea Co.
Ltd v. State of Kera/a and Anr., A.LR. (1970) S,C. 1133, where a similar
D argument was rejected in the following words:

"The burden is on a person complaining of discrimination.
The burden is proving not possible "inequality" but hostile
'unequal' treatment. This is more so when uniform taxes are
levied. It is not proved to us how the different plantations can
E be said to be hostility or unequally treated. A uniform wheel
tax on cars does not take into account the value of the car, the
mileage it runs, or in the case of the taxis, the profits it makes
and the miles per gallon it delivers. An Ambassador taxi and
a Fiat taxi give different out-turns in terms of money and
F mileage. Cinema pay the same show fee. We do not take a
doctrinaire view of equality. The Legislature has obviously
thought of equalising the tax through a method which is
-
inherent in the tax scheme. Nothing has been said to show

G
that there is inequality much Jess 'hostile treatment'. All that
is said is that State must demonstrate equality. That is not the
approach.· At this rate nothing can ever be proved to be equal
..
to another."

The effect ofthe declaration in Section 2 ofthe Tea Act, 1953
and the Tea Act on the legislative competence of the State
Legislature to levy the impugned tax.
H
GOODRICKE GROUP LTD. v. STATE (B.P. JEEVAN REDDY, J.] 157

The leamea counsel for the petitioners submitted that the Parliament A
has by making a declaration, in Section 2 of the Tea Act, to the effect that
"it is expedient in the public interest that. the Union should take under its
control the tea industry" deprived the State Legislature to impose the
disputed cess. It is submitted that the Tea Act has taken over not only the
control over the tea industry but also the cultivation of tea by the said
enactment. It is pointed out that under Section 25 of the Tea Act, the B
Parliament has levied a cess on all tea produced in India. It is pointed out
that the expression 'tea' is defined in Section 3(n) to mean "thr plant
Camellia Sinensia (L) 0. Kuntze as well as all varieties of the product
known commercially as tea made from the leaves of the plant Camellia
Sinensis (L) 0. Kuntze including green tea", that according to this
definition, tea leaves also fall within the expression 'tea' and since the C
Parliament has already levied a cess on the said produce, viz., tea leaves, an
identical levy cannot be imposed by the State Legislature. Certain
provisions of the Tea Act relating to control over cultivation and production
of tea are brought to our notice for buttressing the said argument. For a
proper appreciation of these submissions, it is necessary to refer briefly to
the provisions of the Tea Act, 1953. D
The preamble to the Act says that the Act is intended "to provide for
the control by the Union of the tea industry including the control, in
pursuance of the International Agreement now in force, of the cultivation of .
tea in, and of the export of tea from. India and for that purpose to establish
a Tea Board and levy of duty of excise on tea produced in India." Section 2 E
contajns the declaration within the meaning of Entry 52 of List-I of the
Seventh Schedule to the Constitution. It is thus evident that the Act is
relatable not only to Entry 52 of List-I but also to Entry 14 of List-I. Entry
14 reads:

"14. Entering into treaties and agreements with foreign F
countries and implementing of treaties, agreements and
conventions with foreign countries."

It is for this reason that not only the tea industry but also the cultivation
of tea has been taken under the control of the Parliament, which probably
could not have been done by a mere declaration under Entry 52 of List-I. G
Section 3 defines certain expressions occurring in the Act. The
definition of 'tea' in clause (n) has already been set out by us hereinabove.

Chapter-II containing Sections 4 to 11 pertains to the Constitution of
Tea Board, its composition, its functions and its dissolution. Sub-section (1). H
158 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A of Section 10 sets out the functions of the Board. It says, "it shall be the
duty of the Board to promote, by such measures as it things fit, the
development 'Under the control of the Central Government of the tea
industry." Sub-section (2) specifies the several matters in respect of which
measures can be taken by the Tea Board. They include "(a) regulating the
production and extent of cultivation of tea [and] (b) improving the quality
B oftea."

Chapter-III containing Sections 12 to 16 provides for control over the
extension of tea cultivation. Section 12 says that no one shall plant tea on
any land not planted with tea on the date of commencement of the Act
unless permission therefor has been granted by the Tea Board in writing.
c The restriction applies to replanting as well. Section 13 sets out the
limitations su~ject to which permission under Section 12 can be granted.
Section 14 prescribes the manner in which applications for grant of
permission under Section 12 have to be filed. Section 15 provides for grant
of permission to plant tea in certain special circumstances. Section 16,
however, permits the owner of a tea estate to establish nurseries on land not
D
previously planted with tea for growing of plants intended for in filling or
supplying vacancies etc. Thus no fresh area can be brought under tea
plantation except with the permission of the Tea Board.

Chapter-IIIA provides for management or control of tea undertakings
E or tea units by the Central Government in certain circumstances. The
chapter contains Section 16A to Section 16N. We have referred at an earlier
stage to the provisions of Sections l 6B, l 6C and l 6D which empower the
Central Government to take steps for ensuring that the production of tea in
a tea estate does not fall below a particular level. The powers includes the
power to order investigation, to issue directions as well as to assume
F management or control of the tea undertakings or tea units, as the case may ...
be. ["Tea undertaking" is defined by clause (e) in Section 16A (1) to means
"an undertaking engaged in the production or manufacture (}r both of tea
through one or more different units" whereas the expression "tea unit" is
defined in clause (t) to mean, "a tea estate or garden, including a sub-
division thereof, which has a distinct entity for which accounts are kept and
G has a factory of its own for the production and manufacture of tea."]
Section l 6E empowers the Central Government to take over a tea
undertaking or a tea unit without ordering a prior investigation, in certain
specified circumstances. Section l 6F specifies the powers of the Central
Government where it takes over the management of a tea undertaking/tea
H unit under Section l 6D or Section l 6E, as the case may be. So does Section
GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 159

16G. The other provisions in this chapter are ancillary and supplemental to A
the power to ensure the production of tea at a parti;::ular level.

Chapter-IV containing Sections 17 to 24 provide for control of the Tea
Board/Central Government over the export of tea and tea seed.

Chapter-V contains Sections 25 to 29 and they provide for finance, B
accounts and audit. Since Section 25 is strongly relied upon by the learned
counsel for the petitioners, it is necessary to set out the section in full:

"25.(1) There shall be levied and collected as a cess for the
purposes of this Act' a duty of excise on all tea produced in
India at such rate not exceeding fifty paise per kilogram as C
the Central Government may, by notification in the Official
Gazette, fix:

Provided that different rates may be fixed for different
varieties or grades of tea having regard to the location of, and
the climatic conditions prevailing in the tea estates or gardens D
producing such varieties or grades of tea and any other
circumstances applicable to such production.

(2) The duty of excise levied under sub-section (I) shall be in
addition to the duty of excise leviable on tea under the
Central Excises and Salt Act, 1944, or any other law for the E
time being in force.

(3) The provisions of the Central Excises and Salt Act, 1944,
and the rules made thereunder, including those relating to
refund and exemption from duty, shall, so far as may be,
apply in relation to the levy and, collection of the duty of F
excise under this section as they apply in relation to the levy
and collection of the duty of excise on tea under the said
Act."

A perusal of sub-section ( 1) makes it dear that it empowers the Central
Government to levy and collect "as a cess for the purpose of this Act a duty G
on excise on all tea produced in India." The proviso to sub-section (1)
empowers the Central Government to prescribe different rates of cess for
different varieties or grades of tea having regard to the circumstances
mentioned therein. Sub-section (2) says that the duty of excise levied under
sub-section (1) shall be in addition to the duty of excise leviable on tea
under the Central Excise and Salt Act, 1944. Sub-section (3) makes certain H
160 SUPREME COURT REPORTS [1994] SUPP. 6 S.C.R

A machinery provisions of the Central Excise Act applicable in the matter of
levy and collection of the duty of excise levied under sub-section (1).
Section 26 says that out of the duty of excise collected under Section 25
appropriate amounts shall be made over to the Tea Board by the Central
Government from time to time. Section 26A empowers the Central
Government to make grants or loans to the Tea Board. Section 27 provides
B for the constitution of Tea Fund to which all the monies including the duty
of excise levied under Section 25 is to be credited.

Chapter-VI containing Sections 30 to 32 empowers the Central
Government to control the price and distribution of tea or tea waste while
Chapter-VII contains certain miscellaneous provisions to which it .is not
c necessary to refer.

The learned counsel for the petitioners have also placed before us a
copy of the notification issued under Section 25 (I) of the Tea Act being
the Ministry of Commerce Notification No. S.O. 488 (E) dated 13.8.1986
[as amended by S.O. 799 (E) dated 30.10.1986]. The notification reads as
D follows:.

"In exercise of the powers conferred by sub-section (1) of
section 25 of the Tea Act, 1953 (29 of 1953), the Central
Government hereby notifies, with effect from the 15th day of
August, 1986, the rate of cess as specified in column (2) of
the Table below on the variety/grade of teas specified in
E column (1) of the said Table.

TABLE

Variety/grade of tea Rate ofcess

F (1} (2)

1. All tea except those produced in the areas Paise fifteen
specified under column ( 1) of serial number 2. per kilogram.

2. All teas produced in the Sadar Sub-division Paise eight
G and Kurseong sub-division excluding the areas per kilogram.
in the jurisdiction list Nos. 31, 29, 33, 20, 21, 22,
23 and 24 comprising Subtriguri sub-division of
New Chumta tea estate, Smilbarie and Marionbarie;
Tea Estates ofKurseong Police Station in Kurseong
sub-division of the district of Darjeeling in the
H State of West Bengal.
GOODRICK£ GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 161

It is true that the 'tea' as defined in Section 3 (n) means the tea plant A
and in that sense, it may also include tea leaves. For that reason it may
probably be open to the Parliament to levy a duty of excise, by way of cess,
on tea leaves. But a perusal of the aforesaid notification makes it appear
that the levy of duty of excise/cess is really on tea, as commercially known.
We need not, however, express any opinion on the scope of Section 25 or
of the Notification. We shall assume for the sake of argument that such a B
duty can be and is imposed on the tea leaves produced in tea estates. The
question is whether such levy has the effect of denuding the State
legislature of its power to levy the impugned cess which, we have held, is a
cess/tax on land measured by the quantum of the tea leaves produced in a
tea estate. We think not. We have also held that the levy is not upon the
produce of land but upon the land and that 'tea estate' can be validly C
classified as a unit for the purpose of levying the cess. It is thus clear that
the levy contemplated by Section 25 and the levy provided by the
impugned enactment are altogether different and distinct in character. The
fact that the Tea Act empowers the Central Government to levy a duty or
cess upon tea or tea leaves for the purpose of that Act can in no manner D
deprive the Legislature of its power to tax the land comprised in a tea
estate. This is the purport of the several decisions discussed hereinbefore.
Similarly, the fact that the Tea Act controls the cultivation of tea is again
not a factor affecting the competence of the State Legislature inasmuch as
the State Legislature is not seeking to control the cultivation of tea but only
to levy the tax on land comprised in a tea estate. The declaration in Section E
2 of Tea Act, it is evident, has again no relevance on the State Legislature's
competence inasmuch as the impugned cess is not a cess on the tea industry
but a cess on the land comprised in a tea estate. The fact that ultimately the
tax may have to be borne by the tea industry is not ground for holding that
the said levy is upon the tea industry. For that matter, even the imposition
of a land revenue or non-agricultural cess upon the land comprised in a tea F
estate will ultimately affect the tea industry but that is no ground for
invalidating those taxes. This proposition is too well-established and it
would be enough to refer to the decisions in Ganga Sugar Co. v. State of
Uttar Pradesh, [1980] l S.C.R. 769 arid Federation of Hotel and
Restaurant (at page 655 para 37).
G
It is contended by Sri Ashok Desai that the impugned imposition is
really an imposition of duty of excise on the goods produced in India within
the meaning of Entry 84 of List-I and, therefore, outside the competence of
the State Legislature. The learned counsel also pointed out that the Central
Excise Tariff Act levies a duty upon the tea as well. This contention is
again premised upon the assumption that the impugned levy is a levy upon H
.,.
.:-

~62 SUPREME COURT REPORTS (1994] SUPP. 6 S.C.R

A the produce of the tea estate and not upon the land comprised in a tea estate.
Since we have already held that in pith and substance the impugned levy is
a levy of tax OIJ- land and that produce of the land is merely brought in for
the purpose of quantifying the tax, i.e., as a measure, the said argument
becomes out of place and unsustainable.

Sri Ashok Desai submitted that by virtue of the declaration made by
Parliament in Section 2 of the Tea Act, as ccintemplated by Entry 52 of
List-I, ihe ,State Legislature is denuded of the power to levy any tax on tea.
Reliance is ,placed upon the decision of this Court in Baijnath Kadio v.
State of Bihar, [1969] 3 S.C.C. 838. This argument again proceeds on the
assumption that the impugned cess is a tax upon the tea or tea industry and
c not a tax upon the land, which assumption we have rejected hereinbefore.
As pointed out repeatedly in the several decisions referred to earlier in this
judgment, "measure of tax is not determinative of its essential character"
and further that "the same transaction may involve two or more taxable
events in its different aspects" and "the fact that there is an overlapping
D · does not detract from the distinctiveness of the aspects." The question of .t
superior legislature or inferior legislature does not really arise herein. Once
the impugned legislation is held to be relatable to Entry 49 of List-II, it will
be within the exclusive competence of the State Legislature. In that behalf,
the State Legislature is not inferior to Parliament. The reference to the
decision of this Court in Synthetics and Chemicals v. State of Uttar
E Pradesh, [1990] 1 S.C.C. 109 is equally of no assistance to the petitioners
inasmuch as in that case vend fees was levied by the State Government,
under the State Excise Act, upon industrial alcohol which industry was
taken within the purview of the l.D.R. Act. It is for the said reason that it
was held to be incompetent. The decision cannot be read as disentitling the
State Legislature to levy a tax upon the land or upon a building merely
F because such land or building is held or owned by an industry which is
within the purview of the l.D.R. Act - or which is governed by the Tea Act,
as in the present case.

Lastly, the learned counsel for the petitioners questioned the validity of
the retrospective effect given to the impugned enactment. We fail to see any
G
substance in this submission. If the Act is good, it is good both
prospectively and retrospectively. Retrospective effect is given for the
period covered by the anterior provisions which were struck down in Buxa
Dooars. Once it is held that defect pointed out in Buxa Dooars is rectified
and remedied 1 in the impugned -enactment, it can certainly be given
H retrospective effect to cover the period covered by _the earlier enactment
.GOODRICKE GROUP LTD. v. STATE [B.P. JEEVAN REDDY, J.] 163

which is not only a well-known but a frequently adopted measure by all the A
Legislatures.

For the above reasons, the writ petitions fail and are accordingly
dismissed. The interim orders made in these writ petitions shall also come
to an end. The petitioners shall pay the cesses stayed by the orders of this
court alongwith interest@ 12% p.a. There shall be no order as to costs. B
U.R. Petitions dismissed.