Holding

The cess on royalty is a tax on royalty, not on land, and is ultra vires the State legislature; the levy is declared invalid prospectively with no liability for refund.

Summary

India Cement Ltd., a cement manufacturer, obtained a mining lease for limestone and kankar under the Mineral Concession Rules, 1960. The lease required payment of royalty fixed by the Mines and Minerals (Regulation & Development) Act, 1957. The Tamil Nadu government, invoking sections 115 and 116 of the Madras Panchayats Act, 1958 (as amended in 1964), levied a local cess of 45 paise per rupee of land revenue, treating royalty as part of land revenue. The company challenged the levy, arguing that it was a tax on royalty and therefore beyond the State’s legislative competence. The Supreme Court examined whether the cess was a tax on land (Entry 49, List II) or on mineral rights (Entry 50, List II) and considered the pre‑emptive jurisdiction of the central Mines and Minerals Act. The Court held that the cess was a tax on royalty, not on land, and that the State legislature was barred by the central Act; consequently the levy was ultra vires. The Court declared the cess invalid prospectively, but ordered no refund of amounts already collected.

Issues considered

The levy of cess on royalty under sections 115 and 116 of the Madras Panchayats Act, 1958 – whether it is a tax on land or on mineral rights.
Whether the State of Tamil Nadu has legislative competence to impose such cess under Entry 49 or Entry 50 of List II of the Seventh Schedule.
Whether the central Mines and Minerals (Regulation & Development) Act, 1957, particularly Section 9, precludes the State from taxing royalty.
Whether the declaration of the levy as ultra vires should be prospective only, without mandating a refund.

Legislation cited

Constitution of Indias. Article 246, s. Schedule VII Entries 23,45,49,50,54
Madras Panchayats Act, 1958s. 115, s. 116
Madras Panchayats (Amendment and Miscellaneous Provisions) Act, 1964
Madras Revenue Recovery Act, 1864
Mineral Concession Rules, 1960
Mines and Minerals (Regulation & Development) Act, 1957s. 9

Subjects

cessroyaltymining leasestate legislative competenceultra viresland revenuetaxationList IIEntry 49Entry 50Mines and Minerals Actconstitutional lawSupreme Court of India

Judgment

A INDIA CEMENT LTD.
v.
STATE OF TAMIL NADU ETC.

OCTOBER 25, 1989

B [E.S. VENKATARAMIAH, CJ, SABYASACHI MUKHARJI,
RANGANATH MISRA, G.L. OZA, ·B.C. RAY, K.N. SINGH
AND S. NATARAJAN, JJ.]

Madras Panchayats Act, 1958: Sections 115 and 116---Mining
lease-Levy of cess on royalty-Held ultra vires.
c Constitution of India, 1950: Stventh Schedule List II-Entries
23, 49 & 50--Levy of cess on royalty in respect of mining lease-
Sections 115 & 116 of Madras Panchayats Act 1958-Held illegal and
ultra vires.

I D Mineral Concession Rules, 1960: Levy of cess in respect of min-
ing leases-Sections 115 and 116 Madras Panchayats Act 1958-Held
illegal and ultra vires.

The appellant company nsed to manufacture cement and was
granted mining lease for limestone and kankar by the Government of
E Tamil Nadu in accordance with the Mineral Concession Rules, 1960.
The royalty was fixed under the Mines and Minerals (Regulation &
Development) Act, 1957 which is a Central Act by which the control of
mines and minerals had been taken over by the Central Government for
the regulation and development of minerals.

F Suh-section 1 of section 115 of the Madras Panchayats Act, 1958
enjoins that there shall be levied in every panchayat development block, .. -
a local cess at the rate of 45 paise on every rupee of land revenue
payable to the Government in respect of any land for every fasli. An
explanation. to the said section was added, and was deemed always to
have been incorporated by the Tamil Nadu Panchayats (Amendment
G and Miscellaneons Provisions) Act, 1964. In this explanation a fiction
was created whereby even the royalty payable had been included within
the definition of "land revenue".

The appellant filed a writ petition in the High Court challenging
the competence of the State legislature to levy cess on royalty. A learned
H Single_ Judge dismissed the writ petition holding that the cess levied

692
INDIA CEMENT v. STATE OF TAMIL NADU 693
•
under section 115 of the Madras panchayats Act was a tax on land and, A
as snch, fell nnder Entry 49 of the State List of Schednle VII of the
Constitution. The Division Bench dismissed the appellant's appeal and
held that local cess authorised by section 115 was not land revenne but
was a charge on the land itself, and section 115 merely quantified the
basis of the quantum of land revenue. The learned Single Judge, as well
as the Division Bench, relied on the decision of this Court in H. R. S. B
Murthy v. Collector of Chittoor, [1964] 6 SCR 666.

Before this Court, it was contended on behalf of the appellant that
the levy of cess on royalty in this case was nothing but a tax on royalty
and was therefo~e ultra vires the State legislature. On the other hand, it
was contended that the cess in the present case was a levy in respect of
land and could be justified or sustained either under entry 49, 50 or 45 C
of List II of the 7th Schedule to the Constitution. It was further submit-
ted that the cess having been realised on the basis of the decision of this
Court in "H.R.S. Murthy" case, if at all, the Court shall declare the
said cess on royalty to be ultra vires prospectively.
D
Allowing the appeal, this Court,

HELD: (E.S. Venkataramiah, CJ, Sabyasachi Mukharji, Ranga-
nath Misra,· B.C. Ray, K.N. Singh and S. Natarajan, JJ.-per
Sabyasachi Mukharji, J.)
E
(1) Conrts of law are enjoined to gather the meaning of the Con-
stitution from the language used, and although one shonld interpret the
words of the Constitution on the same principles of interpretation as
one applied to an ordinary law but these very principles of interpreta-
tion compel one to take into account the nature and scope of the Act
which requires interpretation. It has to be remembered that it is· a F
Constitution that requires interpretation. Constitution is the mecha-
nism under which the laws are to be made and not merely an Act which
declares what the law is to be. [704B-C]

.. The Attorney General for the State of New South Wales v. The
Brewery Employees Union of New South Wales, [1908] 6 CLR 469, G
referred to .

-
•
(2) A Constitution must not be construed in any narrow or
pedantic sense, and construction most beneficial to the widest possible
amplitude of its powers, must be adopted. A broad and liberal spirit
should inspi!"e those whose duty it is to interp~et the Constitution, but H
694 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R. •
A they are not free to stretch or pervert the language of the enactment in
the interest of any legal or constitutional theory, or even for the
purposes of supplying omissions or correcting supposed errors. [704D-E-F]

In re: C.P. Berar Sales of Motor Spirit & Lubricants Taxation
Act, I938, [1939] FCR p. I and James v. Common-wealth of Australia,
B
[1936] AC 578, referred to.

(3) It is well-settled now that the various entries in the three lists
are not powers but fields of legislation. The power to legislate is given
by Article 246 and other articles of the Constitution. [704G]

c Calcutta Gas Co. v. Stole of West Bengal, [1962] Suppl. 3 SCR I,
referred to.

(4) It is well settled that widest amplitude should be given to the
language of these entries, but some of these entries in different lists or in
the same list may overlap and sometimes may also appear to be in direct
D
conflict with each other. Then, it is the duty of the court to find out its
true intent and purpose and to examine a parti<;"ular legislation in its
pith and substance to determine whether it fits in one or the other of the
lists. Each general word should be held to extend to all ancillary or
subsidiary matters which can fairly and reasonably be comprehended
in it. [705A-B & DJ
E
H.R. Banthia & Ors. etc. v. Union of India & Ors., [1970] I SCR
479; Union of India v. H.S. Dhillon, [1971] 2 SCC 779 and D.C.
Rataria v. Bhuwalka Brothers Ltd., [1955] I SCR 1071, referred to.

(5) It is clear that over a period of centuries, land revenue in
F India has acquired a cannotative meaning of share in the produce of
land to which the King or the Government is entitled to receive. [707B]

N.R. Reddy & Ors. v. State of A.P .. [1965] 2 Andhra Law Times
297 and State of A.P. v. N.R. Reddy & Ors., [1967] 3 SCR 28, refer-
red to.
G
(6) There is a clear distinction between tax directly on land and
tax on income arising from land. [708C]

Raja Jagannath Baksh Singh v. The State of U.P. & Anr., [1963]
1 SCR 220, referred to.
H
..
'-...
INDIA CEMENT v. STATE OF TAMIL NADU 695

(7) Explanation to section 115(1) itself makes a distinction A
between land revenue as such and royalty which by amendment is
deeme.d to be land revenue. It is, therefore, recognised by the very
force of that explanation and the amendment thereto that the ex-
pression 'royalty' in sections 115 & 116 of the Act cannot mean land
revenue property called or conventionally known, which is separate
B
and distinct from royalty. [7070-E]

(8) In the instant case, cess is not on land, but on royalty, which is
included in the definition of 'land revenue'. None of the three lists of the
7th Schedule of the Constitution permits or authorises a State to impose
tax on royalty.
c
(9) Royalty which is indirectly connected with land, cannot be
said to be a tax directly on land as a unit. Royalty is payable on a
proportion of the mineral extracted. The Act does not use 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. [709E] 0

New Manek Chand Spinning & Weaving Mills Co. Ltd. & Ors. v.
Municipal Corporation of the City of Allahabad & Ors., [1967] 2 SCR
679; S.C. Nawn v. W. T.O. Calcutta & Ors., [1969] 1SCR108; Asstt.
Commissioner of Urban Land Tax & Ors. v. The Buckingham &
Carnatic Co. Ltd. etc., [1970] 1 SCR 268; Sec.and Gift Tax Officer, E
Mangalore etc. v. D.H. Nazareth etc., [1971] 1 SCR 195; Bhagwan
Dass Jain v. Union of India, [1981] 2 SCR 808 and The Western India
Theatres Ltd. v. The Cantonment Board, Pobna Cantonment, [1959] 2
Suppl. SCR 63, referred to.

(10) Royalty is directly relatable only to the minerals extracted F
and on the principle that the general provision is excluded by the special
one, royalty would be relatable to entries 23 & SO of List II, and not
entry 49 of List II. [7130]

(11) Royalty is a tax, and as such a cess on royalty being a tax on
royalty, is beyond the competence of the State Legislature because sec- G
lion 9 of the Central Act covers the field and the State Legislature is
denuded of its competence under entry 23 of List II. In any event, cess
on royalty cannot be sustained under entry 49 of List II as being a tax on
land. Royalty on mineral rights is not a tax ott land but a payment for
the user ofland. [713F-G]
H
696 SUPREME COURT REPORTS [ 1989] Supp. 1 S.C.R.

Waverly Jute Mills Co. Ltd. v. Raymon & Co. (/) Pvt. Ltd.,
[1963] 3 SCR 209; Anant Mills Co. Ltd. v. State of Gujarat & Ors.,
[1975] 3 SCR 220; The Hingir-Rampur Coal Co. Ltd. & Ors. v. The
State of Orissa & Ors., [1961] 2 SCR 537; State of Orissa v. M.A.
Tulloch & Co., [1964] 4 SCR 461; Baijnath Kedia v. State of Bihar &
Ors., [1970] 2 SCR 100: M/s. Laxminarayana Mininf!, Co. Bangalore v.
B Taluk Dev Board, AIR 1972 Mysore 299; M. Lal & Ors: v. The State.of
Bihar & Ors., AIR 1965 Patna 491; Bherulal v. State of Rajasthan, AIR
1956 Rajasthan 161; Dr. S.S. Sharma & Anr. v. State of Punjab &
Ors., AIR 1969 Pb. 79; Saurashtra Cement & Chemicals India Ltd. v.
Union of India & Anr., AIR 1979 Guj. 180; L.N. Agarwal/a & Ors. v.
State of Orissa, AIR 1983 Orissa 210 and M/s Hira la/ Rameshwar
Prasad & Ors. v. The State of Madhya Pradesh & Ors., M.P. High
c Court Misc. Petition No. 410/83, referred to.

H.R.S. Murthy v. Collector of Chittoor & Anr., [1964] 6 SCR
666, overruled.

D (12) The amounts of cess have been collected on the basis of the
decision of this Court in H.R.S. Murthy's case. The Court is therefore
justified in declaring the levy of the said cess under section 115 to be
ultra vires the power of the State legislature prospectively only. The ,
respondents will not be liable for any refund of cess already paid or
collected. [714C-D & E]
E
Per G.L. Oza, J.

(l) Suh-clause (l) of Section 115 provides for levy of 45 naya
paise for every rupee of land revenue payable to the Government. In the
explanation a fiction is created whereby even the royalty payable has
B been included within the definition of 'land revenue'. [718A]

(2) The language of Entries 23 and 50 in List II clearly subjects
the authority or jurisdiction on the State Legislature to any enactment
made by the Parliament. Entry 23 talks of regulation and Entry 50 talks
of taxes on mineral rights. It therefore could not be disputed that if the
0 cess imposed ·under section 115 of the Madras Panchayats Act is a cess
or tax on mineral rights then that jurisdiction could be exercised by the
State Legislature subject to the law enacted by the Parliament. 1715D-E]

(3) Unit of charge of royalty is not only laud but land + labour +
capital. It is therefore clear that if royalty is a tax or an imposition or a
11 levy, it is not on laud alone but it is a levy or a tax on mineral (land),
INDIA CEMENT v. STATE OF TAMIL NADU [MUKHARJ!, J.] 697

labour and capital employed in extraction of the mineral. It therefore is A
clear that royaity iHt is imposed by the Parliament it could only be a tax
not only on land but on the three things stated above. [718H; 719A]

(4) When the Legislature included royalty, it went beyond its
jurisdiction under Entry 49 of List II and therefore clearly is without
the authority oflaw. liI9DI - · B

(5) This may lead to an interesting situation. As this cess on
royalty is without the authority, the result will be that the cess is levied
so far as lands other than the lauds in which mines are situated are
concerned but lands where mines are situated this levy of cess is not in
accordance with the law. This auamoly could have been averted if the C
Legislature had used words 'surface rent' in place of royalty. Even if
the lands where mines are situated and which are subject to licence and
mining.leases, even for !hose lands there is a charge on the basis of the
surface of the land which is sometimes described as surface rent or
sometimes a!So as 'dead rent'. f719E-Fl
D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 62
(N) of 1970 etc. etc.

From the Judgment and Order dated 13.10.1969 of the Madras
High Courtin W.A. No. 464of 1967.
E
K. Parasaran, Attorney General, Dr. Y.S. Chitale, F.S. Nari-
man. T.S. Krishnamurthy Iyer, A.K. Ganguli, B. Sen, L.N. Sinha,
R.N. Sachthey, R.B. Datar, R.F. Nariman, K.J. John, H.N. Salve,
Praveen Kumar, A.V. Rangam, T.Sridharan, K.D. Prasad, Mrs.
Naresh Bakshi, K. Rajendra Choudhary, Ms. Seita Vaidialingam,
V. Krishnamurthy, Ms. A. Subhashini, N. Nettar, G.S. Narayan, F
Badrinath Babu, Anip Sachthey and S.K. Agnihotri for the appearing
parties.

The Judgment of the Court were delivered by

SABYASACHI MUKHARJI, J. The question involved in these G
appeals, special leave petitions and writ petitions is, whether levy of
cess on royalty is within the competence of the State Legislature. In
order to appreciate the question, it is necessary to refer to certain
facts. Civil appeal No. 62/79 is an appeal by special leave from the
• judgment and order of the High Court of Madras, dated 13th October,
1969, in w_rit appeal No. 464/67. The appellant is a public limited H
698 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

A company incorporated under the Indian Companies Act, 1913. The
Company at all relevant times, used to manufacture cement in its
factory at Talaiyuthu in Tirunelveli district, and at Sankaridrug in
Salem district of Tamil Nadu. By G.O: Ms. No. 3668 dated 19th July,
1963, the Govt. of Tamil Nadu sanctioned the grant to the appellant
mining lease for limestone and kankar for a period of 20 years over an
B extent of 133.91 acres of land in the village of Chinnagoundanur in
Sankaridrug Taluk of Salem district. Out of the extent of 133.91 acres
-comprised in the mining lease, an extent of 126.14 acres was patta land
and only the balance extent of 7. 77 acres Govt. land. The lease deed
was in accordance with the Mineral Concession Rules, 1960. The rates
of royalty, dead rent and surface rent, were as follows:
c "Royalty:

LIMESTONE

Government Lands: Re.0.75 per tonne, but subject to a
D rebate of Re.0.38 per tonne to t>e given on 11•.iestone
beneficiated by froth flotation method.

Patta Lands: Re.0.38 per tonne but subject to a rebate of
Re.0.19 per tonne to be ·given on limestone beneficiated by
froth flotation method.
E
KANKAR

Government Lands: Five per cent of the sale price at the
pit's mouth.

F Patta Lands: 2-1/2% of the sale price at the pit's mouth

Dead rent:
...
Government lands: Rs.25 (Rupees twentyfive only) per
hectare per annum.
G
Patta lands: Rs. U/50 (Rupees twelve & naya paise fifty
only) per hectare per annum.

Surface rent and water rate: At such rate as the land
revenue and cess assessable on the land are paid.''
H
The appellant started mining operations soon after the execution
; INDIA CEMENT v. STATE OF TAMIL NADU [MUKHARJI, J.] 699

of the lease deed and has eversince been paying the royalties, dead
rents and other amounts payable under the Deed. A

Under s. 115 of the Madras Panchayats Act (XXXV of 1958)
(hereinafter called 'the Act'), as amended by Madras Act XVIII of
1964 (herein after called 'the amended Act'), as royalty the appellant
was required to pay local cess @ 45 paise per rupee. It may be B
mentioned that the said imposition was with retrospective effect along
with local cess surcharge under s. 116 of the Act. The contention of the
appellant is and was, at all relevant times, that cess on royalty cannot
be levied. This is the common question which falls for consideration
and requires determination in these appeals and petitions.

To complete the narration of events, however, it has to be noted c
that the Collector sent a communication on 10th April, 1965, demand-
ing cess or royalty payable under the Act on minerals carried on during
the period 1.7.1961to31.12.1964, and the petitioner was threatened of
serious consequences in case of default of payment on receipt of that
communication. Thereafter, writ petition No. 1864/65 was filed in the D
High Court of Madras. By the judgment delivered and order passed on
23rd February, 1967. a learned Single Judge of the Madras High
Court-JUstice Kailasam dismissed the writ petition holding that the
cess levied under s. 115 of the act is a tax on land and, as such, falls
under Entry 49 of the State List of the Schedule VII of the Constitu-
tion, and was within the competence of the State legislature. Reliance E
was placed by the learned single Judge on the decision of this Court in
H.R.S. Murthy v. Collector of Chittoor & Anr., [1964] 6 SCR 666. He
held that the cess levied under s. 115 was a tax on land, though fixed
with reference to the land revenue. In regard to s. 116 of the Act, the
learned Single Judge held that the maximum limit had been prescribed
., by the Government by rules framed under the Act, and, therefore, · F
there was no arbitrariness about the levy.

Sub-section 1 of s. 115 of the Act enjoins that there shall be
levied in every panchayat development block, a local cess at the rate of
45 paise on every rupee of land revenue payable to the Govt. in respect
of any land for every fasli. An Explanation to the said section was G
added and deemed always to have been incorporated by the Tamil
Nadu Panchayats (Amendment and Miscellaneous Provisions) Act,
1964 being Tamil Nadu Act 18 of 1964, which provided as follows:

"[Explanation.-In this section and in section 116, 'land
revenue' means public revenue due on land and includes H
700 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

water cess payable to the Government for water supplied
A or used for the irrigation of land, royalty, lease amount or
other sum payable to the Government in respect of land
held direct from the Government on lease or licence, but
does not include any other cess or the surcharge payable
under section 116, provided that land revenue remitted
B shall not be deemed to be land revenue payable for the
purpose of this section.]"

· Sub-section 2 of s. 115 of the Act provides that the local cess shall
be deemded to be public revenue due on all the lands in respect of
which a person is liable to pay local cess and all the said lands, the
buildings upon the said lands and their products shall be regarded as
c the security for the local cess. Sub-section 3, 4 (a), (b ), (c) and (d) of s.
115 of the said Act deal with the application of the cess so collected for
various purposes mentioned therein. In the controversy before us, the
said provisions need not be considered.

D Section 116 of the Act is as follows:

"116. Every panchayat union council may levy on every
person liable to pay land revenue to the Government in
respect of any land in the pahchayat union a local cess
surcharge at such rate as may be considered suitable as an
B addition to the local cess levied in the panchayat develop-
ment block under section 115 provided that the rate of local
<;ess surcharge so levied (shall not exceed two rupees and
fifty paise on every rupee of land revenue) payable in
respect of such land."

F The words "shall not exceed two rupees & fifty paise on every
rupee of land revenue" were substituted for the words "shall be sub-
ject to such maximum as may be prescribed" by section 3 of the Tamil
Nadu Panchayats' (2nd Amendment and Validation) Act, 1970, and
these words were substituted for the words "shall not exceed one
rupee and fifty paise on every rupee of land revenue" by s. 2 of the
G Tamil Nadu Panchayats (Amendment) Act, 1972.

There was an appeal from the said decision of the learned Single
Judge, to the division bench of the High Court. The division bench by
its judgment and order dated 13th October, 1969, dismissed the writ
appeal, and held that local cess authorised bys. 115 as aforesaid "was
H not land revenue but is a charge on the land itself and Section 115
INDIA CEMENT v. STATE OF TAMIL NADU [MUKHARJI, ).] 701

merely quantified on the basis of the quantum of land revenue". The A
division bench held that the meaning of the Explanation added to
s. 115 was that the cess is levied as a tax on land and is measured with
reference to land revenue, royalty, lease amount etc. as mentioned in
the Explanation. The division bench also relied on the decision of this
Court in H.R.S. Murthy (supra), and further held that in the aforesaid
view of the matter, it was not possible to accept the contention that B
s. 115 of the Act read with the Explanation contravened in any manne,
s. 9 of the Mines and Minerals (Regulation and Development) Act,
1957. By leave granted by this Court on 12th January, 1970 the appeal
has been filed.

The appellant is bound to pay royalty to the Govt. according to
the rates provided in the Second Schedule to the said Act of 1957. · C
Clause ( 1) of Part VII of the lease document provides as follows:

"The lessee/lessees shall pay the rent, water rate and
royalties reserved by this lease at such times and in the
manner provided in Part V and VI of these presents and D
shall also pay and discharge all taxes, rates, assessment and
impositions whatsoever being in the nature of public
demand which shall from time to time be charged, assessed
or imposed by the authority of the Central and State
Government upon or in rspect of the premises and works· of
the lessee/lessees in common with other premises and work E
of a like nature except demands for land revenue."

As •,mentioned hereinbefore, there is an obligation of the lessee to
pay rent and other charges mentioned in the said Clause, and all other
Central and State Government dues "except demands for land
revenue". The question, therefore, which arises is, is cess on royalty a F
• demand of land revenue or additional royalty?

For the appellants and/or petitioners we have heard Mr. Nari-
man_,_ Dr. Chitale and Mr. Salve, and for the interveners, S/Shri K.D.
Prasad, Rajendra Choudhary and Ms. Seita Vaidialingam have made
their submissions. For the State of Tamil Nadu, Mr. Krishnamurthy G
Iyer and Mr. V. Krishnamurthy have made their submissions. We have
had the advantage of the submissions made by learned Attorney
General on behalf of Union of India. The issues are common in the
writ petitions as well as in the appeal and in the special leave petitions.
The question fovolved in the appeals and the writ petition is about the
constitutional validit}'_ ()f ~ection 115( !) of the Act, in so far as it H
702 SUPREME COURT REPORTS [ 1989] Supp. 1 S.C.R.

sought to levy as local cess @45 naya pa:ise on every rupee of the land
A revenue payable to the Government, the meaning of land revenue
being artifically expanded by the explanation so as to include royalty
payable under the mining lease.

In this connection, it may be appropriate to refer to the State-
B ment of Objects and Reasons for the amendment which stated, inter
alia, as follows:

"Under the Explanation to section 115 of the Act "land
revenue" means public revenue due on land and includes
water-cess payable to the Government fbr water supplied
or used for the irrigation of land but does not include any
c other cess or surcharge payable under section 116. The
Explanation does not cover "royalties'', lease amount or
other sum payable to the Government in respect of land
held direct from the Government on lease or licence _which
were included in the definition of "land revenue" under the
D Madras District Boards Act, 1920. As under the Madras
District Boards Act, 1920, cc::~rtain panchayat union coun-
cils continued to levy the cess and surcharge under the
Madras Panchayats Act, 1958 also. It is considered that the
levy should be on the same basis as under the Madras· Dis-
trict Boards Act, 1920. It is, tlilerefore, proposed to include
E "royalty, lease amount and other sums payable to the
Government" in the definition of land revenue in the Exp-
lanation to section 115 of the Act and also to validate the
levy and collection of the cess and surcharge made hitherto
on the said basis."

F It is obvious that the said amendment was intended to bring
royalty within the Explanation and the definition of land revenue in •
section 115 as well as s. 116 of the Act, and was effected by the Gazette
Notificatii:Jn of 2nd September, 1964 by Act No. 18 of 1964. In order to
appreciate the controversy, it has no be understood that in this case
royalty was payable by the appellant which was prescribed under the
G lease deed, the terms whereof have been noted hereinbefore. The
royalty had been fixed under the statutory rules and protected under
those rules. The royalty was fixed under the Mines and Minerals
(Regulation & Development) Act, 1957 which is a Central Act by
which the control of mines and minerals had been taken over by the
Central Uovernment. It was an Act for the regulation of mines and
H, development of minerals under the control of Union of India. That
•
INDIA CEMENT v. STATE OF TAMIL NADU [MUKHARJI, J.l 703

Act was to provide for the regulation of mines and the development of
A
minerals under the control of the Union of India. Sec. 2 of the Act
declares that it is expedient in the public interest that the Union of
India should take under its control the regulation of mines and the
development of the .minerals to the extent provided in the Act. Section
9 of the Act provides as follows:
B
"9. (1) The holder of a mining lease granted before the
commencement of this Act shall, notwithstanding anything
contained in the instrument of lease or in any law in force
at such commencement, pay royalty in respect of any
mineral removed or consumed by him or by his agent,
manager, employee, contractor or sub-lessee from the
leased area after such commencement, at the rate for the C
time being specified in the Second Schedule in respect of
that mineral.

(2) The holder of a mining lease granted on or after the
commencement of this Act shall pay royalty in respect of D
any mineral removed or consumed by him or by his agent,
manager, employee, contractor or sub-lessee from the
leased area at the rate for the time being specified in the
Second Schedule in respect of that mineral.

(2A) The holder of a mining lease, whether granted before E
or after the commencement of the Mines and Minerals
(Regulation and Development) Amendment Act, 1972,
shall not be liable to pay any royalty in respect of any coal
consumed by a workman engaged in a colliery provided
that such consumption by the workman does not exceed
one-third of a tonne per month. F

(3) The Central Government may, by notification in the
Official Gazette, amend the Second Schedule so as to
enhance or reduce the rate at which royalty shall be pay-
able in respect of any mineral with effect from such date as
may be specified in the notification: G

Provided that the Central Government shall not
enhance the rate of royalty in respect of any mineral more
than once during any period of three years."

The Act was passed by virtue of the power of the Parliament H
704 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

A under Entry 54 of list I of the 7th Schedule. Since the control of mines
and the development of minerals were taken over by Parliament, the
question that arises here is whether the levy or the impost by the State
Legislature imposed in this case can be justified or sustained either
under entry 49, 50 or 45 of list II of the 7th Schedule.

B Courts of law are enjoined to gather the meaning of the Con-
stitution from the language used and although one should interpret the
words of the Constitution on the same principles of interpretation as
one applies to an ordinary Jaw but these very principles of interpreta-
tion compel one to take into account the nature and scope of the Act
which requires interpretation. It has to be remembered that it is a
Constitution that requires interpretation. Constitution is the mecha-
c nism under which the Jaws are to be made and not merely an Act which
declares what the law is to be. See the observations of Justice Higgins
in the Attorney General for the State of New South Wales v. The Bra-
wery Employees Union of New South Wales, [1908] 6 CLR 469 at
611-2.
ID
In re: C.P. and Berar Sales of Motor Spirit & Lubricants Taxa-
tion Act, 1938, [1939] FCR at p. 1, Chief Justice Gwyer of the Federal
Court of India relied on the observations of Lord Wright in James v.
Common wealth of Australia, [1936] AC 578 and observed that a Con-
stitution must not be construed in any narrow or pedantic sense, and
E that construction most beneficial to the widest possible amplitude of its
powers, must be adopted. The learned Chief Justice emphasised that a
broad and liberal spirit should inspire those whose duty it is to interpret
the Constitution, but they are not free to stretch or pervert the
language of the enactment in the interest of any legal or constitutional
theory, or even for the purposes of supplying omissions or correcting
F supposed errors. A Federal Court will not strengthen, but only dero-
gate from, its position, if it seeks to do anything but declare the law;
but it may rightly reflect that a Constitution of a country is a Jiving and
organic thing, which of all instruments has the greatest claim to be
construed ut res magis valeat guam pereat.-'It is better that it should
live than that it should perish'.
G
Certain rules have been evolved in this period, and it is well-
settled now that the various entries in the three lists are not powers but
fields of legislation. The power to legislate is given by Art. 246 and
other articles of the Constitution. See the observations of this Court in
Calcutta Gas Co. v. State of West Bengal, [1962] Suppl 3 SCR 1. The .f. ·
H entries in the three lists of the Seventh Schedule to the Constitution,
INDIA CEMENT v. STATE Of· TAMIL NADU [MUKHARJI, J.] 705

·are legislative heads or fields of legislation. These demarcate the area
over which appropriate legislature can operate. It is well settled that A
widest amplitude should be given to the language of these entries, but
some of these entries in different lists .or in ·the same list may overlap
and sometimes may also appear to be in direct conflict with each other.
Then, it is the duty of the court to find out its true int~nt and purpose
and to examine a particular legislation in its pith and substance to B
determine whether it fits in one or the other of the lists. See the
observations of this Court in H.R. Banthia & Ors. etc. v. Union of
India & Ors., [1970] 1SCR479 at 489 and Union of India v.J Shri H.S.
Dillon, [1971] 2 SCC 779 at 792. The lists are designed to<jefine and
delimit the respective areas of respective competence of the Onion and
the States. These neither impose any implied restriction on the legisla-
tive power conferred by Article 246 of the Constitution, nor prescribe c
any duty to exercise that legislative powerin any particular manner.
Hence, the language of the entries should be given widest scope, D. C.
Rataria v. Bhuwalka Brothers Ltd., [1955] 1 SCR 1071, to find out
which of the meaning is fairly capable because these set up machinery
of the Govt. Each general word should be held to extend to all ancil- D
lary or subsidiary matters which can 'fairly and reasonably be com-
prehended in it. In interpreting an entry 'it would not be reasonable to
import any limitation by comparing or con(rasting that entry with any
other one in the same List. It is in this background that one has to
examine the present controversy.
E
Here, we are concern~d with cess on royalty. One can have an
idea as to what cess is, from the observations of Justice Hidayatullah,
as the learned Chief Justice then was, in Mis Guruswamy & Co. etc. v.
State of Mysore & Ors., [1967] 1 SCR 548 where at page 571, the
learned Judge observed:
., F
"The word 'cess' is used in Ireland and is still in use in India
although the word rate has replaced it in England. It means
a tax and is generally used when the levy is for some special
administrative expense which the name (health cess,
education cess, road cess etc.) indicates. When levied as an
increment to an existing tax, the name mat(ers not for the G
validity of the cess must be judged of in the same way as the
validity of the tax to which it is an increment."

The said observations were made in the dissenting judgment, but
> there was no dissent on this aspect of the matter. Relying on the
aforesaid observations, Mr Nariman appearing for the appellant and H
706 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R. ..
the petitioners suggested that the impugned levy in this case is nothing
A
but a tax on royalty and is therefore ultra vires the State legislature.
Mr. Krishnamurthy Iyer appearing for the State of Tamil Nadu sub-
mitted that the cess in question in the instant case is a levy in respect of
land for every fasli. He urged that the words "a local cess at the rate of
45 naya paise on every rupee of land revenue payable" qualify the
B words "land revenue". These words were only intended, according to
Mr. Krishnamurthy Iyer, to mean cess payable. It is, however, not
possible to accept this submission, in view of the obligation indicated
by the language of the provisions. Cess is not on land, but on royalty
which is included in the definition of 'land revenue'. None of the three
lists of the 7th Schedule of the Constitution permits or authorises a
State to impose tax on royalty. This levy has been sought to be
c justified under Entry 45 of List II of the 7th Schedule. Entry 45 deals
with land revenue, which is a well-known concept and has existed in
India before the Constitution came into force. In N.R. Reddy & Ors.
v. State of A.P. & Ors., (1965] 2 Andhra Law Times 297, Jaganmohan
Reddy, J. as the learned Judge then was of the Andhra Pradesh High
D Court, while sitting in a division bench observed that no land revenue
Act existed in the composite State of Madras nor had the ryotwari
system ever been established by legislative enactment. The learned
Judge at p. 306 of the report observed that in the earlier days,
sovereigns had in exercise of their prerogative right claimed a share of
the produce of all cultivated land known as 'Rajabhagam' or by any of
E the various other names, and had fixed their share or its commuted
money value from time to time, according to their will and pleasure.
The learned Judge noted that as long as the share of the sovereign was
being paid, the sovereign had no right to the possession of the lands,
and the proprietorship of these lands was vested in the occupier, who
could not be removed because another offered more. The right of the
F sovereign to a share in the produce as observed by the Govt. of Madras
in 1856 "is not rent which consists of all surplus produce after paying
the cost of cultivation and the profits of agricultural stock but land
revenue only which ought, if possible, to be so lightly assessed as to
leave a surplus or rent to the occupier, when he in fact lets the land to
others or retains it in his own hands." It was noted that the amount of
G tax that was levied before the Mohamedan Rule, amounted to 1/8th,
1/6th or 1/ 12th according to Manu depending on the differences in the
soil and the labour necessary to cultivate it, and it even went up to
1/4th part, in times of urgent necessity, as of war or invasion. The later
commentators, Yajnavalkya, Apastamba, Gautama, Baudhayana and
Narada, have all asserted not only the right but the extent of the share.
When the British came to India they followed not only the precedent
... INDIA CEMENT v. STATE OF TAMIL NADU IMUKHARJI, J.I 707

of the previous Mohamedan Rulers who also claimed enormous land
A
revenue, with this difference that what the Mohamedan Rulers
claimed they could never fully realise, but what the British Rulers
claimed they realised with vigour. It is not necessary to refer in detail
how land revenue developed in India after the advent of the British
Rule. There was an appeal from the said decision of the High Court of
Andhra Pradesh and this Court dis_missed the appeal in State of A.P. v. B
N.R. Reddy & Ors., [1967] 3 SCR 28.

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 Govt. is entitled to receive. It was
contended on behalf of the appellants that the impugned measure
being a tax, not on share of the produce of the land but on royalty; c
royalty being the return· received from the produce of the land,
revenue was payable for winning minerals from the land. In the pre-
mises it was contended that it cannot be attributable to Entry 45 of List
II of the 7th Schedule, being not a land revenue. It has, however, to
be borne in mind that Explanation to Section 115(1) was added and D
there was an amendment as we have noted before. That very Explana-
tion makes a distinction between land revenue as such and royalty
which by amendment is deemed to be land revenue. It is, therefore,
recognised by the very force of that Explanation and the amendment
thereto that the expression 'royalty' in sections 115 & 116 of the Act
cannot mean land revenue properly called or conventionally known, E
which is separate and distinct from royalty.

It was also contended on behalf of the respondent State of Tamil
Nadu of Mr. Krishnamurthy Iyer that it could also be justified under
Entry 49 of List II of the 7th Schedule as taxes on lands and buildings.
This, however, cannot be accepted. In this connection, reference may F
be made to the decisio.n of this Court in RajaJagannath Baksh Singh v.
The State of U.P. & Anr., [1963] 1 SCR 220 where at p. 229 it was
indicated that the expression 'lands' in Entry 49 is wide enough to
include agricultural land as well as non-agricultural land. Gajendraga-
dkar, J. as the learned Chief Justice then was, observed that the
cardianl rule of interpreting the words used by the Constitution in G
conferring legislative power was that these must receive the most
liberal construction and if they are words of wide amplitude the con-
struction must accord with it. if general word was used, it must be so
construed so as to extend to all ancillary or subsidiary matters that can
reasonably be included in it. So construed, there could not be any
doubt that the word 'land' in Entry 48, List II of the 7th Schedule H
708 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

includes all land whether agricultural or non-agricultural. Hence, since
A the impugned Act imposed tax on land and building which was within
the competence of the State Legislature and its validity was beyond
challenge but the Court observed t.hat as there was Entry 46 in List II
which refers to taxes on agricultural income, it is clear that agricultural
income is not included in Entry 49. If the State Legislature purports to
B impose a tax on agricultural income it would not be referable to Entry
49. Mr. Krishnamurthy Iyer relied on the said principle. But 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.
But since it was not a tax on land and there is no Entry like Entry 46 in
the instant situation like the position before this Court in the aforesaid
C decision, enabling the State to impose tax on royalty in the instant
situation, the State was incompetent to impose such a tax. There is a
clear distinction between tax directly on land and tax on income arising
from land. The aforesaid decision confirmed the above position. In
New Manek Chand Spinning & Weaving Mills Co. Ltd. & Ors., v.
D Municipal Corpn. of the City of Allahabad & Ors., [ 1967] 2 SCR 679 at
696, this Court after referring to the several decisions observed that
Entry 49 of list II of the 7th Schedule only permitted levy of tax on land
and building. It did not permit the levy of tax on machinery contents in
or situated on the building even though the machinery was there for
the use of the building for a particular purpose. Rule 7(2) of the
E Bombay Municipal Corporation Rules was held to be accordingly ultra
vires in that case. In S.C. Nawn v. W. T.O., Calcutta & Ors., [1969] 1
SCR 108 this Court had occasion to consider this and upheld the vali-
dity of the Wealth Tax Act, 1957 on the ground that it fell within Entry
86 of List I and not Entry 49 of List II. Construing the said Entry, this
Court observed that Entry 49 list II contemplated a levy on land as a
p unit and the levy must be directly imposed on land and must bear a
definite relationship to it. Entry 49 of list II was held to be more
general in nature than Entry 86, list I, which was held to be more
specific in nature and it is well-settled that in the event of conflict
between Entry 86, list I and Entry 49 of list II, Entry 86 prevails as per
Article 246 of the Constitution.
G
In Asstt. Commissioner of Urban Land Tax & Ors. v. The
Buckingham & Carnatic Co. Ltd. etc., [1970] 1 SCR 268 at 278, this
Court reiterated the principles laid down in S. C. Nawn's case (supra)
and held that entry 49 of list II was confined to a tax that was directly
on land as a unit. In Second Gift Tax Officer, Mangalore etc. v. D.H.
H Nazareth etc., [1971] 1SCR195 at 200 it was held that a tax on the gift
. -~-
INDIA CEMENT v. STATE OF TAMIL NADU [MUKHARJI, J.] 709

of land is not a tax imposed directly on land but only on a particular
A
user, namely, the transfer of land by way of gift. In Union of India v.
H.S. Dhillon, (supra), this Court approved the principle laid down in
S.C. Nawn's case as well as Nazareth's case (supra). In Bhagwan Dass
Jain v. Union of India, [1981] 2 SCR 808 at 816 this Court made a
distinction between the levy on income from house property which
would be an income tax, and the levy on house property itself which B
would be referable to entry 49 list II. It is, therefore, not possible to
accept Mr. Krishnamurthy Iyer's submission and that a cess on royalty
cannot possibly be said to be a tax or an impost on land. Mr. Narimau
is right that royalty which is indirectly connected with land, cannot be
said to be a tax directly on land as a unit. In this connection, reference
may be made to the differentiation made to the different types of taxes
for instance, one bein_~ professional tax and entertainment tax. In the c
Western India Theatre> Ltd. v. The Cantonment Board, Poona Canton-
ment, l 1959] 2 Suppl. SCR 63 at 69 it was held that an entertainment
tax is dependent up.on whether there would or would not be a show in
a cinema_ house. If there is no show, there Is no tax. It cannot be a tax
on profession or calling. Professional tax does not depend on the exer- D
cise of one's profession but only concerns itself with the right to
practice. 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 nor related to land as a unit which is the
only method of valuation of land under entry 49 of list II, but is
relatable to minerals extracted. Royalty is payable on a proportion of E
the minerals extracted. It may be mentioned that the Act does not use
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.

On behalf of the State of Tamil Nadu, learned counsel Mr. p
Krishnamurthy Iyer sought to urge that it can also be sustained under
entry 50, list II. Entry 50 of list II of the 7th Schedule deals with taxes
on mineral rights subject to limitation imposed by Parliament relating
to mineral development. Entry 23 of List II deals with regulation of
mines and mineral development subject to the provisions of list I with
respect to regulation and development under the control of the Union G
and entry 54 in list I deals with regulation of mines and minerals under
the control of Union declared by the Parliament by law to be expedient
in public interest. Even though minerals are part of the State List they
are treated separately, and therefore the principle that the specific
exlcuded the general, must be applied. See the observations of
Waverly Jute Mills Co. ·Ltd. v. Raymon & Co. (I) Pvt. Ltd., [1963] 3 H
710 SUPREME COURT REPORTS [1989) Supp. 1 S.C.R. .., .

SCR 209 at 220, where it was held that land in entry 49 of list II cannot
A possibly include minerals.

In this connection, learned Attorney General appearing for the
Union of India submitted before us that in order to sustain the levy,
the power of the State Legislature has to be found within one or more
B of the entries of list II of the 7th Schedule. The levy in question has to
be either a tax or a fee or an impost. If it is neither a tax nor a fee then
it should be under one of the general entries under List II. The expres·
sion 'land' according to its legal significance has an indefinite extent
both upw.11rd and downwards, the surface of the soil and would include
not only the face of the earth but everything under it or over it. See the
-
observa~l'ons in Anant Mills Co. Ltd. v. State of Gujarat & Ors., [1975)
c 3 SCR 220 at 249. The minerals which are under the earth, can in
certain circumstances fall under the expression 'land' but as tax on
mineral rights is expressly covered by entry 50 of list II, if it is brought
under the head taxes under entry 49 of list II, it would render entry 50
of list II redundant. Learned Attorney General is right in contending
n that entries should not be so construed as to make any one entry
redundant. It was further argued that even in pith and substance the
tax fell to entry 50 of list II, it would be controlled by a legislation
under entry 54 oflist I.

On the other hand, learned Attorney General submitted that if it
E be held to be a fee, then the source of power of the state legislature is
under entry 66 read with entry 23 of list II. Here also the extent to
which regulation of mines and mineral development under the control
of the Union is declared by Parliament by law to be expedient in the
public interest, to the extent such legislation makes provisions will
denude the State Legislature of its power to override the provision
F under entry 50 of list II. In view of the Parliamentary legislation under
entry 54, list I and the declaration made under s. 2 and provisions of
s. 9 of the Act, the State Legislature would be overridden to that
extent. S. 2 declares that it is expedient in the public interest that
Union should take under its control the regulation of mines and the
development of minerals to the extent provided therein. In this con-
G nection, reference may be made to the decision of this Court in The
Hingir-Rampur Coal Co. Ltd. & Ors. v. The State of Orissa & Ors.,
[ 1961] 2 SCR 537. See also the observations in State of Orissa v. M.A.
Tulloch & Co., [1964] 4 SCR 461 and Baijnath Kedia v. State of Bihar
& Ors., [1970] 2 SCR 100 at 111-115.
.
H Our attention was drawn to the decision of the division bench
INDIA CEMENT v. STATE OF TAMIL NADU [MUKHARJI, J.] 711

judgment of the High Court of Mysore in Mis. Laxminarayana, Min- A
ing Co., Bangalore v. Taluk Dev. Board., AIR 1972 Mysore 299.
There speaking for the court, one of us, Venkataramiah J. of the
Mysore High Court, as the learned Chief Justice then was, observed
that a combined reading of entries 23 and 50 in list II and entry 54 of
list I, establishes that as long as the Parliament does not make any law
in exercise of its power under entry 54, the powers 9f the State Legisla- B
ture in entries 23 & 50 would be exercisable by the State Legislature.
But when once the Parliament makes a declaration by law that it is
expedient in the public interest to make regulation of mines and
minerals development under the control of the Union, to the extent to
which such regulation and development is undertaken by the law made
by the Parliament, the power of the State Legislature under entries 23
& 50 of List II are denuded. There the court was concerned with the c
Mysore Village Panchayats & Local Boards Act, 1959. Thus, it was
held that it could not, therefore, be said that even after passing of the
Central Act, the state legislature by enacting s. 143 of the Act intended
to confer power on the Taluk Board to levy tax on the mining activities
carried on by the persons holding mineral concessions. It followed that D
the levy of tax on mining by the Board as per the impugned notifica-
tion was unauthorised and liable to be set aside. At p. 306 of the said
report, it was held that royalty under s. 9 of the Mines and Minerals
Act was really a tax.

To the similar effects are the observations of the High Court of E
Patna in M. Lal & Ors. v. The State of Bihar & Ors., AIR 1965 Patna
491at494. Mr. Krishnamurthy Iyer, however, referred to the decision
of this Court in H.R.S. Murthy's case (supra). There under the terms
of a mining lease the Jes.see worked the mines and won iron-ores in a
tract of land in a village in Chittor district and bound himself to pay a
dead rent if he used the leased land for the extraction of iron ore, to F
pay a royalty on iron ore if it were used for extraction of iron and in
addition to pay a surface rent in respect of the surface area occupied or
used. In the said decision the legislative competence of ss. 78 & 79 of
the Madras District Boards'Act was upheld by which land cess was
made payable on the basis ,of'royalty. This Court proceeded on the
basis that other cess related to land and would therefore be covered by G
entry 49 of list II. It was held that land cess paid on royalty has a direct
relation to the land and only a remote relation with mining. This, with
respect, seems to be not a correct approach. It was further observed
that it was not necessary to consider the meaning of the expression 'tax
·~ on mineral right' following under Entry 50 of List II in as much as
according to this Court, Parliament has not made any tax on mineral H
rights. This is not a correct basis.
712 SUPREME COURT REPORTS (1989] Supp. 1 S.C.R.
-
In H.R.S. Murthy's case (supra), at p. 676 of the report, it was
A
observed by this Court as follows:

"When a question arises as to the precise head of legislative
power under which a taxing statute has been passed, the
subject for enquiry is what in truth and substance is the
B nature of the tax. No doubt, in a sense, but in a very remote
sense, it has relationship to mining as also to the mineral
won from the mine under a contract by which royalty is
payable on the quantity of mineral extracted. But that,
does not stamp it as a tax on either the extraction of the
mineral or on the mineral right. It is unnecessary for the
purpose of this case to examine the question as to what
c exactly is a tax on mineral rights seeing that such a tax is
not leviable by Parliament but only by the State and the.
sole limitation on the State's power to levy the tax is that it
must not Interfere with a law made by Parliament as re~ards
mineral development. Our attention was not invited to the
D provision of any such law created by Parliament. In the
context of ss. 78 and 79 and the scheme of those provisions
it is clear that the land cess is in truth a "tax on lands"
within Entry 49 of the State List."

It seems, therefore, that attention of the Court was not invited to
E the provisions of Mines and Minerals (Development & Regulation)
Act, 1957 and s. 9 thereof. S. 9tJ) of the Act in terms states that
royalties payable under the 2nd Schedule· of the Act shall not be
enhanced more than once during a period of 4 years. It is, therefore, a
clear bar on the state legislature taxing royalty so as to in effect amend
2nd Schedule of the Central Act. In the: premises, it cannot be right to
:p say that tax on royalty can be a tax on land, and even if it is a tax, if it
falls within entry 50 will be ultra vires the State legislature power in
view of s. 9(3) of the Central Act. In Hingir-Rampur Coal Co. Ltd. v.
The State of Orissa (supra), Wanchoo J. in his dissenting judgment has
stated that a tax on miiletarrights being different from a duty of excise,
pertains only to a tax that is leviable for the grant of the right to extract
G minerals, and is not a tax on minerals as well. On that basis, a tax on
royalty would not be a tax on mineral rights and would therefore in any
event be outside the competence of the state legislature.

The Rajasthan, Punjab, Gujarat and Orissa High Courts have
held that royalty is not a tax. See. Bheru/al v. State of Rajasthan &
H Anr., AIR 1956 Rajasthan 161-162: Dr. S.S. Sharma &Anr. v. State of
INDIA CEMENT v. STATE OF TAMIL NADU IMUKHARJI, J.] 713

Pb. & Ors., AIR 1969 Pb. 79 at 84; Saurashtra Cement & Chemicals
A
India Ltd. v. Union of India & Anr., AIR 1979 Guj. 180 at 184 and
L.N. Agarwal/a & Ors. v. State of Orissa & Ors., AIR 1983 Orissa 210.

It was contended by Mr. Krishnamurthy Iyer that the State has a
right to tax minerals. It was further contended that if tax is levied, it
will not be irrational to correlate it to the value of the property and to B
make some kind of annual value basis of tax without intending to tax
the income. In view of the provisions of the Act, as noted hereibefore,
• this submission cannot be accepted. Mr. Krishnamurthy Iyer also
further sought to urge that in entry 50 of list II, there is no limitation to
the taxing power of the State. In view of the principles mentioned
hereinbefore and the expressed provisions of s. 9(2) of the Mines &
Minerals (Regulation & Development) Act, 1957, this submission can- C
not be accepted. This field is fully covered by the Central legislation.

In any event, royalty is directly relatable only to the minerals
extracted and on the principle that the general provision is excluded by
the special one, royalty would be relatable to entries 23 & 50 of list II, D
and not entry 49 of list II. But as the fee is covered by the Central
power under entry 23 or entry 50 of list II, the impugned legislation
cannot be upheld. Our attention was drawn to a judgment of the High
Court of Madhya Pradesh.in Miscellaneous Petition No. 410/83-M/s
Hiralal Ranieshwar Prasad & Ors. v. The State of Madhya Pradesh &
Ors., which was delivered on 28th March, 1986 by a Division Bench of E
the High Court. J.S. Verma, Acting Chief Justice, as His Lordship
then was, held that development cess by s. 9 of the Madhya Pradesh
Karadhan Adhiniyam, 1982 is ultra vires. It is not necessary in the view
taken by us, and further in view that the said decision is under appeal
in this Court, to examine it in detail.
F
In the aforesaid view of the matter, we are of the opinion that
royalty is a tax, and as such a cess on royalty being a tax on royalty, is
beyond the competence of the State Legislature because s. 9 of the
Central Act covers the field and the State Legislature is denuded of its
competence under entry 23 of list II. In any event, we are of the
r opinion that cess on royalty cannot be sustained under entry 49 of list G
II as being a tax o"n land. Royalty on mineral rights is not a tax on land
but a payment for_ the user of land.

Mr. Krishnamurthy Iyer, however, submitted that in any event,
the decision in H.R.S. Murthy's case (supra) was the decision of the
Constitution Bench of this Court. Cess has been realised on that basis H
714 SUPREME COURT REPORTS [1989) Supp. I S.C.R.

I\ for the organisation of village and town panchayats and comprehen-
sive programme of measures had been framed under the National
Extension Service Scheme to which our attention was drawn. Mr.
Krishnamurthy Iyer further submitted that the Directive Principle of
State Policy embodied in the Constitution enjoined that the State
should take steps to organise village panchayats and endow them with
B power and authority as may be necessary to enable them to function as
units of self-Government and as the amounts have been realised on
that basis, if at all, we should declare the said cess on royalty to be
ultra vires prospectively. In other words, the amounts that have been
collected by virtue of the said provisions, should not be declared to be
illegal retrospectively and the State made liable to refund the same.
We see good deal of substance in this submission. After all, there was a
c decision of this Court in H.R.S. Murthy's case (supra) and amounts
have been collected on the basis that the said decision )Vas the correct
position. We are, therefore, of the opini1on that we will be justified in
declaring the levy of the said cess to be ultra vires the power of the
State Legislature prospectively only.
D
In that view of the matter, the appeals must, therefore, be
allowed and the writ petitions also succeed to the extent indicated
above. We declare that t)te said cess by the Act under s. 115 is ultra
vires and the respondent State of Tamil Nadu is restrained from
enforcing the same any further. But the respondents will not be liable
E for any refund of cess already paid or collected. The appeals are dis-
posed of accordingly. The special leave petitions and writ petitions are
also disposed of in those terms. In the facts and the circumstances of
the case, the parties will pay and bear their own costs.

OZA, J. While I agree with the conclusions reached by my
F learned brother Hon' Mukharji, J. I have my own reasons for the
same. The main argument in favour of this levy imposed by the State
Legislature is on the basis of Entry 49 in List II of the Seventh
Schedule conferring jurisdiction on the State Legislature. The ques-
tion therefore to be determined is whether the jurisdiction of the State
Legislature under Item 49 of List II could be so exercised to impose a
G cess on the royality prescribed under Section 9 of the Mines and
Minerals (Regulation and Development) Act, 1957.
. I

The entries which are relevant for the purpose of determining
this questions are:

H Entry 54 List lreads:
INDIA CEMENT v. STATE OF TAMIL NADU [OZA, J.) 715

"Regulation of mines and mineral development to the
A
extent to which such regulation and development under the
control of the Union is declared by Parliament by law to be
expedient in the public interest."

Entry 23 List II reads:
B
"Regulation of mines and mineral development subject to
the provisions of List I with respect to regulation and
development under the control of the Union."

Entry 49 List II reads:

"Taxes on lands and buildings." c
Entry 50 List II reads:

"Taxes on mineral rights subject to any limitations imposed
by Parliament by law relating to mineral development." D

The language of Entries 23 and 50 in List II clearly subjects the autho-
rity or jurisdiction on the State Legislature to any enactment made by
the Parliament. Entry 23 talks of regulation and Entry 50 talks of taxes
on mineral rights. It therefore could not be disputed that if the cess
imposed under section 115 of the Madras Village Panchayat Act is a E
cess or tax on mineral rights then that jurisdiction could be exercised
by the State Legislature subject to the law enacted by the Parliament.
The Parliament in Section 9(1) of the Mines and Minerals (Regulation
and Development) Act, 1957 has fixed the limits of royality on the
mining rights. It was therefore contended on behalf of the State that in
fact what is imposed under Section 115 is not a cess on the mining F
rights or on royality but is a tax on land which clearly falls within the
authority of the State legislature in Entry 49 of List II.

Section 9 of the Mines and Minerals (Regulation and Develop-
ment) Act reads:
G
"9( I) The holder of a mining lease granted ·before the
commencement of this Act shall, notwithstanding anything
contained in the instrument of lease or in any law in force
at such commencement, pay royalty in respect of any min-
eral removed or consumed by him or by his gent, manager,
employee, contractor or sub-lessee from the leased area H
716 SUPREME COURT REPORTS [1989] Supp.- 1 S.C.R.

after such commencement, at the rate for the time being
A
specified in the Second Schedule in respect of that mineral.

(2) The holder of a mining lease granted on or after the
commencement of this Act shall pay royalty in respect of
any mineral removed or consumed by him or by his agent,
B manager, employee, contractor or sub-lessee from the
leased area at the rate for the time being specified in the
Second Schedule in respect of that mineral.

(2A) The holder of a mining lease, whether granted before
or after the commence of the Mines and Minerals (Regula-
tion and Development) Amendment Act, 1972 shall not be
c liable to pay any royalty in respect of any coal consumed by
a workman engaged in a colliery provided that such con-
sumption by the workmen does not exceed one-third of a
tonne per month.

D (3) The Central Government may, by notification in the
Official Gazette, amend the Second Schedule so as to
enhance or reduce the rate at which royalty shall be pay-
able in respect of any mineral with effect from such date as
may be specified in the notification.

E Provided that the Central Government shall not
enhance the rate of royalty in respect of any mineral more
than once during any period of three years."

It is clear that by this Act alongwith Schedule limits on royality has
been fixed and the authority has been given to Parlia.ment alone to
F vary it and that too not more than once in a period of three years.
Admittedly royality as not based on the area of land under mining but
per unit of minerals extracted. Section 115 of the Madras Village
Panchayat Act reads as under:

"(!) There shall not be levied in every panchayat develop-
G ment block, a local cess at the rate of 45 naye paise on
every rupee of land revenue payable to the Government in
respect of any land for every fasli.

Explanation: In this Section and in section 116, 'land
revenue' means public revenue due on land and includes <-
H water-cess payable to the Government for water supplied
INDIA CEMENT v. STATE OF TAMIL NADU [OZA, J.J 717

or used for the irrigation of land, royalty, lease amount for A
other sum payable to the Government in respect of land
held direct from the Government on lease or licence, but
does not include any other cess or the surcharge payable
under Section 116, provided that land revenue remitted
shall not be deemed to be land revenue for the purpose of
this Section. B

(2) The local cess payable under this Sub-section (1) shall
.,
be deemed to be public revenue due on the lands in respect
of which a person is liable to pay local cess and all the said
lands, the buildings upon the said lands and their products
shall be regarded as the security for the local cess.
c
(3) The provisions of the Madras Revenue Recovery Act,
1864 (Madras Act II of 1864) shall apply to the payment
and recovery of the local cess payable under this Act just as
they apply to the payment and recovery of the revenue
upon the lands in respect of which the local cess under this D
act is payable .
. (4)(a) Out of the process of the local cess so collected in
every panchayat development block, a sum representing
four-ninths of the proceeds shall be credited to the
Panchayat Union (Education) Fund. E

(b) Out of the proceeds of the local cess collected in
every panchayat town in a panchayat development block, a
sum representing two-ninths of the said proceeds shall be
credited to the town panchayat fund.
F
(c) Out of the balance of the local cess credited in the
panchayat development block, such percentage as the
panchayat union council may fix shall be credited to the
village panchayat fund, and the percentage shall be fixed so
as to secure as nearly as may be that the total income
derived by all the village panchayats in the panchayat union G
does not fall short of an amount calculated at 20 naye paise
for each individual of the village population in the
panchayat union.

(d) The balance of the proceeds of the )ocal cess
collected in the panchayat development block shall be ere- H
718 SUPREME COURT REPORTS [1989] Supp. 1 S.C.R.

dited to the funds of the panchayat union council."
A
The explanation to sub-clause I is the subject matter of controversy in

B
this case. Sub-clause I provides for levy of 45 naye paise for every
rupee of land revenue payable to the Government in the explanation a
fiction is created thereby even the royalty payable have been included
within the definition of "land revenue". As it provides "royalty, lease
-
amount or any other sum payable to the Government in respect of
land." This phraseology has been incorporated by an amendment in
1964 by the Madras Village Panchayat Amendment Act, 1964 Section
13. wherein the explanation to Section 115 was substituted and sub-
stituted retrospectively wherein this royalty has also been included in
the definition of 'land revenue' and it is on this ground that it was
c mainly contended that land revenue being a tax on land is within the
authority of the State Legislature under Item 49 of List II and there-
fore the cess which is a tax on land revenue itself or an imposition on
the land revenue and hence could not be anything else but a tax falling
within the ambit of tax on land as provided by entry 49 List II and it
D was therefore contended that it would not fall within the ambit of
entry 50 List II as if it falls within the ambit of entry 50 of List II, it
would be beyond the authority of the State legislature as by passing
Mines and Minerals (Regulation and Development) Act, 1957 the
Parliament has denuded the State Legislature of its authority to levy
any tax on mining rights.

Whether royality is a tax is not very material for the purpose of
determination of this question in this case. It is admitted that royality
is charged on the basis of per unit of minerals extracted. It is no doubt
true that mineral is extracted from the land and is available, but it
could only be extracted if there are three things:
F
( 1) Land from which mineral could be extracted.

(2) Capital for providing machinery, 'instruments and other
requirements.

G (3) Labour

It is therefore clear that unit of charge of royalty is not only land but
land + Labour + Capital. It is therefore clear that if royalty is a tax or
an imposition or a levy, it is not on land alone but it is a levy or a tax on
mineral (land), labour and capital employed in extraction of the
H mineral. It therefore is clear that royalty if is imposed by the Parlia-
INDIA CEMENT v. STATE OF TAMIL NADU [OZA, J.J 719

ment it could only be a tax not only on land but no these three things A
stated above.

It is not in dispute that the cess which the Madras Village
Panchayat Act proposes to levy is nothing but an additional tax and
originally it was levied only on land revenue, apparently land revenue
would fall within the scope of entry 49 but it could not be doubted that 8
royalty which is a levy or tax on the extracted mineral is not a tax or a
levy on land alone and if cess is charged on the royalty it could not be
said to be a levy or tax on land and therefore it coul!l not be upheld as
imposed in exercise of jurisdiction under Entry 49 List II by the State
Legislature.
c
Thus it is clear that by introducing this explanation to Section 115
clause (1) widening the meaning of word 'land revenue' for the
purposes of Section 115 and 116. When the Legislature included
Royalty, it went beyond its jurisdiction under entry 49 List II ang
therefore clearly is without the authority of law. But this also may lead
to an interesting situation. This cess levied under Section 115 of the D
Madras Village Panchayat Act is levied for purposes indicated in the
scheme of the Act and it was intended to ·be levied on all the lands
falling within the area but as this cess on royalty is without the autho-
rity the result will be that the cess is levied so far as lands other than
the lands in which mines are situated are concerned but lands where
mines are situated this levy of cess is not in accordance with that law. E
This anomaly could have been averted 1f the Legislature in this expla-
nation had used words 'surface rent' in place of royalty. Even if the
lands where mines are situated and which are subject to licence and
mining leases even for those lands there is a charge on the basis of the
surface of foe land which is sometimes described as surface rent or
sometimes also as 'dead rent'. It could not be doubted that if such a F
surface .rent or dead rent is a charge or an imposition on the land only
and therefore will cle'arly fall within the purview of entry 49 List II and
if a cess is levied on that it will also be justified as tax on land falling
within the purview of entry 49 and it will also be uniform as this cess
would be levied in respect of the lands irrespective of the fact as to
whether the land is one where ? mine is situated or land which is only G
used for other purposes for which land revenue is chargeable.

R.S.S. Appeal allowed.