Holding

The levy of cess under the Orissa Cess Act, 1962 (and analogous statutes in Bihar and Madhya Pradesh) is beyond the legislative competence of the State Legislatures and therefore unconstitutional.

Summary

The Supreme Court examined the constitutional validity of cess levied by the States of Orissa, Bihar and Madhya Pradesh on the basis of royalty from mining lands. It held that the cess could not be classified as land revenue, a tax on land, or a tax on mineral rights and therefore fell outside Entries 45, 49 and 50 of the State List. Because the Mines and Minerals (Regulation and Development) Act, 1957 declares regulation of mines to be under Union control, the State legislatures were also barred from treating the levy as a fee under Entry 23 or Entry 66. Consequently, the levies were declared ultra vires and unconstitutional. The Court further ruled that the States must refund the cess collected after the dates on which the respective High Courts declared the levies invalid, with interest, while allowing the States to retain amounts collected before those dates. The decision reaffirmed the ratio in India Cement Ltd. v. State of Tamil Nadu and clarified the discretion of courts in granting refunds.

Issues considered

The nature of the cess: whether it is a tax on land, land revenue, or a tax on mineral rights.
Whether the State legislatures have competence to levy the cess under Entries 45, 49, 50, 23 or 66 of the Seventh Schedule.
The effect of the Mines and Minerals (Regulation and Development) Act, 1957 on State legislative power.
The entitlement to a refund of cess collected before the levy was declared invalid.

Legislation cited

Bengal Cess Act, 1880 (as applicable to Bihar)s. 4, s. 5, s. 6, s. 9
Constitution of Indias. Article 141, s. Article 142, s. Article 246, s. Article 265, s. Article 277
Madhya Pradesh Karadhan Adhiniyam, 1982s. 9
Madhya Pradesh Upkar Adhiniyam, 1981s. 11
Mines and Minerals (Regulation and Development) Act, 1957s. 13, s. 18, s. 2, s. 25, s. 9
Orissa Cess Act, 1962s. 10, s. 5, s. 6, s. 7

Subjects

constitutional validitycessroyaltystate legislative competencemines and minerals acttax vs feerefundprospective overrulingunjust enrichment

Judgment

ORISSA CEMENT LTD AND ORS. ETC. ETC.
A
v.
STATE OF ORISSA AND ORS. ETC. ETC.

APRIL 4, 1991

[S. RANGANATHAN, N.M. KASLIWAL AND B
S.C. AGRAWAL, JJ.]

Orissa Cess Act, 1962: Sections 5-7-Constitutional validity of.
Orissa Cess Rules, 1963: Rule 6A.
Bengal Cess Act (Act IX of 1880) (As applicable to State of
Bihar): Sections 4, 5, 6 and 9-Constitutional validity of.
c
Madhya Pradesh Upkar Adhiniyam, 1981: Part IV-Section 11-
Constitutional validity of.
Madhya Pradesh Karadhan Adhiniyam 1982: Part IV-Section
9-Constitutional validity of. D
Madhya Pradesh Mineral Areas Development Cess Rules, 1982:
Rule 3 and JO.
Land Cess-Levy of cess based on royalty derived from mining
lands-Nature, c~aracter and validity of-State Legislatures-Legisla-
tive competence of-Whether denuded by enactment of Mines and E
Minerals (Regulation and Development) Act, 1957.
'Royalty'-Whether tax.
-\. 'Land Revenue'-Connotation of.
Constitution of India, 1950: Seventh Schedule-List I Entries 52
and 54-List II Entries 5, 18, 23, 45, 49, 50 and 66-State Law- F
Central Law-Doctrine of occupied field-State Act encroaching field
occupied by Central Act-Effect of.
Articles 142, 246 and 265-Cess-Constitutional invalidity-
Consequences of-Refund of cess whether automatic and inevitable
consequence-Declaration of invalidity and determination of relief in G
consequence whether two different things-Relief whether discretion of
Court-Power of Court to mould or restrict the relief-Doctrine of pro-
spective overruling and doctrine of unjust enrichment-Applicability of.
Article 277;_Essential requirements of the Article-Discussed.
Practice and Procedure: Undertaking given by "the parties- H

105
106 SUPREME COURT REPORTS I 1991] 2 S.C.R.

A directions given by Supreme Court-Effect of.

The States of Orissa, Bihar and Madhya Pradesh levied a cess
which was based on the royalty derived from mining lands. The cess
was levied by these States under their respective statutes viz. Orissa
Cess Act, 1962, Bengal Cess Act, 1880 (as applicable to the State of
B Bihar), Madhya Pradesh Upkar Adhiniyam 1981 and Madhya Pradesh
Karadhan Adhiniyam, 1982.

The assessees challenged the constitutional validity of the cess by
filing various petitions in the High Conrts of Orissa, Bihar and Madhya
Pradesh. The High Court of Orissa declared the cess unconstitutional
C on the ground that it was beyond the legislative competence of the State
Legislatures, but rejected the prayer of the assessees for a direction to
the State to grant refund of the cess collected from the assessees.
Against the decision of the Orissa High Court the assessees have ftlecl
appeal in this Court whereas the State of Orissa bas filed a cross.
appeal. The High Court of Madhya Pradesh also declared the levy of
D cess unconstitutional on the ground that it was beyond the legislative
competence of the State legislature. Against the decision of the Madhya
Pradesh High Court the State of Madhya Pradesh has filed an appeal in
this Court. On the other hand the High Court of Patna dismissed the
writ petition of the assessee. Against the decision of the Patna High
Court the assessee has filed an appeal in this Court.
E
In appeal to this court, it was contended on behalf of the State of
Orissa; that (i) the levy of cess being referable to Entries 45, 49 and 50
of the State List of the Seventh Schedule of the Constitution the
impugned legislation was within the legislative competence of the State
legislature; (ii) the limitations imposed in the statute on the modes of
F utilisation of cess supports a view that the cess i~ fee on which the State
legislature is competent to legislate under Entry 23 read with Entry 66
of the State List; (iii) since the impugned Act was concerned with the
raising of funds to enable panchayats and Samitbis to discharge their
responsibilities of local administration and take steps for proper
development of the area under their jurisdiction, the impugned legisla-
G tion was referable to Entry 5 of State List; and (iv) the enactment of the
Central Legislation viz. Mines and Minerals (Regulation and Develop-
ment) Act, 1957 bas not denuded the State legislature of its competence
to enact the impugned legislation since the scope and subject matter of
the two legislations are entirely different and the impugned State Legis-
lation does not encroach upon the field covered by the Central Legisla-
H tion i.e. 1957 Act.
ORISSA CEMENT v. STATE OF ORISSA 107

On behalf of the assessees it was.contended inter alia that (i) all the A
State levies were ultra vires for the reasons given by this Court in the
.I India Cement case; (ii) the State cannot seek to sustain the levy under
the Bengal Cess Act 1880 by relying on Article 277 of the Constitution;
and (iii) the levy being unconstitutional the Court should direct the
States to refund the cess collected from the assessees because (a) a
B
refund is the automatic and inevitable consequence of the declaration of
invalidity of tax and (b) the States have given undertakings before this
Court that they would refund the amount collected in case the levy is
declared invalid by this Court.

Disposing of the appeals, this Court,
c
HELD: 1. The levy of cess under sections 5 to 7 of the Orissa Cess
Act, 1962 is beyond the competence of the State Legislature. [169B]

1.1 A royalty or the tax thereon cannot be equated to land revenue.
Therefore the cess cannot be brought under Entry 45 of List II. [142D]
D
India Cement & Ors. v. State of Tamil Nadu & Ors., [1990] 1
S.C.C. 12, followed.

1.2 A tax on royalties cannot be a tax on minerals and is outside
the purview of Entry 50 of List II. Even otherwise, the competence of the
E
State Legislature under the said Entry is circumscribed by "any limita-
tions imposed by Parliament by law relating to mineral development".
The Mines and Minerals (Regulation and Development) Act, 1957 is a
law of Parliament relating to mineral development and Section .9 of the
said Act empowers the Central Government to fix, alter, enhance or
reduce the rates of royalty payable in respect of minerals removed from F
the land or consumed by the lessee. Sub-Section (3) of Section 9 in terms ·
States that the royalties payable under the Second Schedule to that Act
shall not be enhanced more than once during a period of three years.
This is a clear har on the State legislature taxing royalty so as, in effect,
to amend the Second Schedule to the Central Act. This is exactly what
the impugned Act does. Therefore the validity of the impugned Act
cannot be upheld by reference to Entry 50 of List II. And if the cess is G
taken as a tax falling under Entry 50 it will be ultra vires in view of the
provisions of the Central Act. [144B, 153B-D, 1680]

India Cement & Ors. v. State of Tamil Nadu & Ors., [1990] 1
S.C.C. 12, followed. H
108 SUPREME COURT REPORTS I 1991] 2 S.C.R.
Hingir Rampur Coal Co. Ltd. & Ors. v. State of Orissa & Ors.,
A
[1961] 2 S.C.R. 537, Justice Wanchoo's dissent explained.

1.3 There is a difference in principle between a tax on royalties
derived from land and a tax on land measured by reference to the
income derived therefrom. A tax on buildings does not cease to be such
B merely because it is quantified on the basis of the income it fetches. But
in the impugned legislation the levy is not measured by the income
derived by the assessee from the land, as is the case with lands other
than mineral lands. The measure of the levy is the royalty paid, in
respect oftbe land, by the assessee to his lessor which is quite a different
thing. The Impugned statute only purports to levy a cess on the annual
C value of all land. There is a clear distinction between tax on land and
tax on income arising from land. The former must be one directly
imposed on land, levied on land as a unit and bearing a direct relation-
ship to it. A tax on royalty cannot be said to be a tax directly on land as a unit.
Hence the cess is outside the purview of Entry 49 List II. [148H, 149A-D]

D Ajay Kumar Mukherjea v. Local Board of Barpeta, [1965] 3
S.C.R. 47; Ra/la Ram v. The province of East Punjab, [1948] F.C.R.
207; Buxa Dooars Tea Co. v. State. [1989] 3 S.C.R. 2ll; Bhagwan
Dass Jain v. Union of India, [1981] 2 S.C.R. 808 and R.R. Engineering
Co. v. Zita Parishad, [1980] 3 S.C.R. 1, referred to.

E Union of India v. Bombay Tyre International, [1984] 1 S.C.R.
347; Re: A reference under the Government of Ireland Act, 1920 and
Section 3 of the Finance Act (Northern Ireland). 1934, (1963) 2 All.
E.R. Ill, cited.

2. If the levy in question cannot be described as a tax on land, it
F cannot be described as fee with regard to land either. [169A]

2.1 Section 10 of the Orissa Cess Act, 1962 earmarks tl_te
purposes of utilisation of only fifty per cent of the proceeds of the cess
and that, too, is limited to the cess collected in respect of "lands other
than lands held for carrying on mining operations". Therefore the levy '
G cannot be correlated to any services rendered or to be rendered by the
State to the class of persons from whom the levy is collected. Accord-
ingly the levy cannot be treated as a fee which the State legislature is
competent to legislate for under entry 66 of the State List. I153E-F]

2.2 Even assuming that the levy is a fee, the State legislature can
H impose a fee only in respect of any of the matters in the State List. The
ORISSA CEMENT v. STATE OF ORISSA 109

entry relied upon for this purpose i.e. Entry 23 is Itself "subject to the
A
provisions of List I with respect to regulatfon and development" of
-!.
mines and minerals under the control of the Union. Under Entry 54 of
List I, regulation of mines and mineral development is in the field of
parliamentary legislation "to the extent to which such regulation and
developruent under the control of the Union is declared by Parliament
by law to be expedient in the public interest". Such a declaration ls a
contained in Section 2 of the Mines and Minerals (Regtilatlon and
Deveiopruent) Act, 1957. The validity of the impugtied Act cannot be
upheld by reference to Entry 23 List II. [153G-H, .154A, 168D]

3. There ls a difference between the 'object' of the Act and its
'subject'. The object of the levy may be to strengthen the fmances of
local bodies hut the Act has nothing to do with municipal or local c
administration. Accordingly State's reliance on Entry 5 of List II is
plainlytootenuous. [164D]

4. The answer to the question whether the State Leglslature was
'> denuded of its competence to enact the impugned legislation because of D
the Parliament having enacted the Mines and Minerals (Regulation and
Development) Act, 1957 depends on a proper understanding of the
Scope of the Act and an assessment of the encroachment made by the
impugned State leglslation into the field covered by it. [16ID]

4.1 The mere declaration of a law of Parliament that it is expe- E
dient for an industry or the regulation and development of mines and
.' minerals to be under the control of the Union under Entry 52 or Entry
54 of List I does not denude the State legislatures of their leglslatlve
powers with respect to the fields covered by the several entries in List II
or List III. Particularly, in the case of a declaration under Entry 54, this
legislative power is eroded only to the extent control is assumed by F'
the Union pursuance to such declaration as spelt out by the leglsla-
iive enactment which makes the declaration. The measure of erosion
turns upon the field of the enactment framed in pursuance of the
declaration. [161E-F]
Cl
'
4.2 In assessing the field covered by the Act of Parliament in G
question, one should be guided not merely by the actual provisions of .
the Central Act or the rules made thereunder but should also take into
account matters and aspects which can legitimately be brought within
the scope of the said statute. Viewed in this light and in the light of the
provisions of the Bihar Cess Act the conclusion seems Irresistible that
the State Act has trespassed iDto the field covered by the Central Act H
110 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A viz. Mines and Minerals (Regulation and Development) Act, 1957. [ l6JF]

4.3 The impugned legislation which stands impaired by the
Parliamentary declaration under Entry 54, can hardly be equated to
the law for land acquisition or municipal administration which are
traceable to different specific entries in List II or List III. [l63G-H)
B
Hingir Rampur Coal Co. Ltd. & Ors. v. State of Orissa & Ors.,
[1961] 2 S.C.R. 537; State of Orissa v. M.A. Tulloch & Co., [1964] 4
S.C.R. 461 and Indian Cement & Ors. v. State of Tamil Nadu & Ors.,
[1990] l S.C.C.12, followed.

State of Haryana v. Chanan Mal, [1976) 3 S.C.R. 688; Ishwari
C Khatan Sugar Mills (P) Ltd. v. State of U.P., [1980] 3 S.C.R. 331 and
Western Coalfields Ltd. v. Special Areas Development Authority.,
[1982] 2 S.C. R. 1, distinguished.

llldian Tobacco Co. Ltd. v. Union, [1985) Supp. 1 S.C.R. 145;
D State of West Bengal v. Union, [1964] l S.C.R. 371; Central Coalfields
v. State of M.P., A.I.R. (1986) M.P. 33; M. Karunanidhi v. Union of
India, (1979] 3 S.C.R. 254; State of Tamil Nadu v. Hind Stone etc.,
[1981] 2 S.C.R. 742; I. T.C. v. State of Kamataka, [1985] Suppl. S.C.R.
145; Bharat Coking Coal v. State of Bihar, [1990] 2 Scale 256; Kannan
Dewan Hills Co. v. State of Kera/a, [1973) 1 S.C.R. 356; Baijnath
E Kedia v. State of Bihar, (1970] 2 S.C.R. 100; H.R.S. Murthy v. Co/.
lector of Chiuoor & Ors. [1964] 6 S.C.R. 666; Ch. Tika Ramji & Ors.
v. State of U.P., [1956] S.C.R. 393; Laxmi Narayan Agarwala v. State,
A.I.R. (1983) Ori. 210; Bherulal v. State, A.l.R. (1965) Raj. 161;
Sharma v. State, A.I.R. (1969) P&H 79 and Saurashtra Cement &
Chemicals Industries Ltd. v. Union, A.I.R. (1979) Guj. 180, referred
F to.

Trivedi & Sons v. State of Gujarat, [1986] Suppl. S.C.C. 20,
cited.

5. Section 6 of the Bengal Cess Act, 1880 specifically enacts that
G the cess will
be on royalty from mines and quarries and on the annual
net profit of railways and tramways. The further amendments to
Section 6 have not changed this basic position. Though the section
refers also to the value of the mineral-bearing land, that furnishes only
the maximum upto which the cess, based on royalty, could go. There-
fore, the cess is levied directly on royalties from mines and quarries.
H The different notifications issued by the State of Bihar under sedion 6
ORISSA CEMENT v. STA'fE OF ORISSA 111

of the Act determining the rate of cess on the amount of royalty of all
minerals of the State place the matter beyond all doubt. The levy is a
A
percentage or multiple of the royalty depending upon the kind of
mineral and in the case of iron ore-the method of extraction and nature
of the process employed. There are no clear indications in the statute
that the amounts are collected by way of fee and not tax. Section 9
indicates that only a small percentage goes to the district fund and the B
remaining forms part of the consolidated fund of the State "for the
construction and maintenance of other ·works of pnblic utility". How-
-~ ever, the proviso does require at least ten per cent to be spent for
purposes relating to mineral development. Even the assumption that
the levy can be treated, in part, as a fee and, in part, as a tax will not
advance the case of the respondents. Therefore, the levy of cess under
the Bengal Cess Act, 1880 is declared invalid. [I69C-F, H, 170A] C

India Cement & Ors. v. State of Tamil Nadu & Ors., [1990] 1
S.C.C. 12, followed.

·• Central Coalfields Ltd. v. State, (CWJC 2085/89 decided on o
6.11.90 by Patna High Court, referred to.

5.1 The attempt to sustain the tax under the Bengal Cess Act,
1880 on the basis of Article 277 cannot also succeed. [17 IC]

Ramkrishna Ramanath v. Janpad Sabha, [1962] Suppl. 3 S.C.R. E
70; Town Municipal Committee v. Ramachandra, [1964] 6 S.C.R. 947,
referred to.

6. The levy of cess under section 11 of the Madhya Pradesh
Upkar Adhiniyam, 1981 is not covered by Entry 49 or Entry 50 of List II
and is therefore, ultra vires .. [172B] F

M.P. Lime Manufaciurers' Association v. State, A.I.R. (1989)
M.P. 264, referred to.

•, 6.1 Under Section 9 of the Madhya Pradesh Karadhan Adhini-
yam, 1982 the proceeds of the cess are to be utilised only towards the G
general development of mineral-bearing areas. Although there is no
provision for the constitntion of a separate fund for this purpose as is
fonnd in relation to the cesses levied under Part II or Part III of the Act
yet this consideration alone does not preclude the levy from being
considered as a fee. The clear ear-marking of the levy for purposes
connected with development of mineral areas was rightly considered by H
112 SUPREME COURT REPORTS I 1991] 2 S.C.R.
the High Court, as sufficient to treat it as a fee. The High Court was
A
also right in holding that such a fee would be refer.uble to item 23 but
out of bounds for the State Legislature, after the enactment of the Mines
and Minerals (Regulation and Development) Act, 1957. [17 IF-H]

Srinivasa Traders v. State, [1983] 3 S.C.R. 843, referred to.
B
7. The grant of refund is not an automatic consequence of a
declaration of illegality i.e. where the levy of taxes is found to be uncon-
stitutional, the Court is not obliged to grant an order of refund. There- .._
fore a fmding regarding the invalidity of a levy need not automatically
result in a direction for a refund of all collections thereof made earlier.
The declaration regarding the invalidity of a provision and the determi-
c nation of the relief that should be granted in consequence thereof are
two different things and, in the latter sphere, the Court has, and must
be held to have, a certain amount of discretion. Once the principle that
the Court has a discretion to grant or decline refnnd is recognised, the
ground on which such discretion should be exercised is a matter of
D consideration for the Court having regard to all the circumstances of
the case. The Court can grant, mould or restrict the relief in a manner
most appropriate to the situation before it in such a way as to advance
the interests of justice. The Court is entitled to refuse the prayer for
good and valid reasons. Laches or undue delay or intervention of third
party rights would clearly be oue of those reasons. Unjust enrichment of
E the refundee may or may not be another. Also there is no reason why
the vital interests of the State should not be a relevant criterion for
deciding that a refund should not be granted. [l85H, J86A-C,D& E 18ID-E,]

7.1 In the Instant case though the levy of the cess is unconsti-
tutional. yet there shall be no direction to refund to the assessees of any
F amounts of cess collected until the date on which the levy in question
has been declared unconstitutional. This, in rej!ard to the Ribar cases,
will be the date of this judgment i.e. 4.4.1991. In respect of Ori•sa and
Madhya Pradesh eases the relevant date will be tfle date on which the
concerned High Court has decl•red the levy unconstitutional i.e.
22.12.1989 in case ofOrissa and 21!.3.19~6 in fpse of Madhya Pradesh.
G The dates of the judgments of the appropriate High Court, may not
constitute a declaration of law within the scope of Article 141 of the
Constitution, hnt it cannot he gainsaid that the State cannot, on any
ground of equity, be permitted to retain the cess collected on and after
the date of the High Court's judgment. Accordingly the States should
refund the amounts of cess collectert •fter the relevant dates to assessees
H directly or to the Coalfields from whom they were collected, with

-
OR!SSA CEMENT v. STATE OF ORISSA 113

interest at the rate directed by this Court or mentioned in the undertak- A
ing from the date of the relevant jndgment to the actual date of repay-
ment. The Coalfields, when they get the refunds, should pass on the
same to their cnstomers, the assessees. [186F-G, 1878-C]

India Cement & Ors. v. State of Tamil Nadu & Ors., [1990] 1
S.C.C. 12, followed. B

Linkletter, 14 L.Ed. (2d) 601; Sunburst, 77 L.Ed. 310; Mahabir
J Kishore & Ors. v. State of Madhya Pradesh, [1989] 4 S.C.C. l;
Chhotabhai Jethabhai Patel & Co. v. Union of India, [1962] 2 Suppl.
S.C.R. l; State of Madhya Pradesh v. Bhailal Bhai & Ors., [1964] 6
S.C.R. 261; Tilok Chand Motichand v. Munshi, [1969] 2 S.C.R. 824;
Ramchandra Shankar Deodhar v. State of Maharashtra, [1974] 2
c
S.C.R. 216; Shri Vallabh Glass Works Ltd. v. Union of India, [1984] 3
S.C.R. 180; State of M.P. v. Nandlal Jaiswal, [1986] 4 S.C.C. 566; D.
Cawasji & Co. v. State of Mysore, [1975] 2 S.C.R. 511; Salonah Tea
Co. Ltd. v. Superintendent of Taxes, [1988] l S.C.C. 401 and Lakshmi
Narain Agarwala v. State, A.I. R. (1983) Orissa 210, referred to. D

Behram Khursheed Pesikaka v. State of Bombay, [1955] 1 S.C.R.
613; R.M.D. Chamarbaugwala v. Union of India, [1957] S.C.R. 930;
M.P. V. Sundararamier & Co. v. State of Andhra Pradesh & Anr.,·
[1958] S.C.R. 1422; West Ramnad Electric Distribution Co. v. State of
Madras, [1963] 2 S.C.R. 747; M.L.Jain v. State of U.P., [1963] Suppl. E
1 S.C.R. 912; K.T. Moopil Nayar v. State of Kera/a & Anr., [1961] 3
S.C.R. 77; Balaji v. I. T. 0. Special Investigation Circle, [1962] 2 S.C.R.
983; Raja Jagannath Bakshi Singh v. State of U.P., [1963] l S.C.R. 220;
Prem Chand Garg v. Excise Commissioner, U.P. Allahabad, [1963]
Suppl. 1 S.C.R. 885 and /.C. Golaknath & Ors. v. State of Punjab &
Ors., [1967] 2 S.C.R. 762, cited. F

8. The nndertaking given by the parties or interim 'directions
given by the Court cannot be understood in such a manner as to conflict
with the Court's fmal decision. [1878]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. G
4353-54 of 1983 etc. etc.

'From the Judgment and Order dated 7.3.1983 of theOrissa High
Court in O.J.C. No. 1517 of 1978.

A.K. Ganguli, G. Ramaswamy, T.S. Krishnamurthy Iyer, Dr. H
.P·

114 SUPREME COURT REPORTS I 1991) 2 S.C.R.

L.M. Singhvi, Shanti Bhushan, P. Chidambram, R.B. Datar, T.V.
A
S.K. Iyer, V.A. Bobde B. Sen, M.S. Gujral, R.F. Nariman, P.H.
Parekh Ms. Shalini, Soni, K.K. Lahiri, J.B. Dadachanji, S. Sukuma-
ran, P.N. Gupta, R.K. Mehta, A.K. Panda, Sakes Kumar, Ashok
Singh, Satish Agnihotri, D. Goburdhan, D.N. Mishra, Shri Narain,
Abhey Sapra, Sandeep Narain, Mrs. Kirti Misra, Harish N. Salve,
B S.R. Grover, K.J. John, M.P. Sharma, Ms. Deepa Dixit, Sanjay
Parekh, Praveen Kumar, Darshan Singh, K.V. Sreekumar, T.G.N.
Nair, B.R. Agrawal, S.K. Bagga, Mrs. S.K. Bagga, Rameshwar Nath
and A.M. Dittia for the appearing parties.

The Judgment of the Court was delivered by
c RANGANATHAN, J. These are connected batc,hes of Civil
Appeals and Special Leave Petitions. We grant special leave to appeal
in all the petitions (condoning the delay in the filing of the unnum-
bered one referred to below) and proceed to dispose of all the appeals
by this common judgment. The details of the appeals and petitions are,
D for sake of convenient reference, tabulated below:

High Court Date of Civil Appeal/ Name of
judgment SLP Nos. Appellant

E I. Orissa 17.4.19.80 C.A. 2053-2080/80Tata Iron & Steel
Co. Ltd.
7.3.1983 · C.A. 4353-4354/830rissa Cement Ltd. i~

22.12.1989 S.L.P. 1479/90 State of Orissa
22.12.1989 S.L.P. --/90 Orient Paper &
F Industries Ltd.
&Anr.
13.7.1990 S.L.P. 11939/90 -do-

2. Bihar 10.2.1986 C.A. 592/86 Tata Iron & Steel

G
Co. Ltd. '
3. Madhya 28.3.1986 C.A. 1641-1662/86StateofM.P.
Pradesh

'H We shall discuss later the manner in which these appeals and
petitions have arisen.
ORJSSA CEMENT v. STATE OF ORISSA {RANGANATHAN. J.J 115
A
THE ISSUE
.... The validity of the levy of a "cess", based on the royalty derived
from mining lands, by the States of Bihar, Orissa and Madhya Pradesh
is challenged in these petitions and appeals. A seven-Judge Bench of
this Court in India Cement, [1990] 1 S.C.C. 12 struck down a similar B
levy under a Tamil Nadu Act as beyond the legislative competence of
the State Legislature. The assessees, in the matters now before us,
claim that the issue here is directly and squarely governed by the above
I ·-' decision. The States, on the other hand, claim that the nature and
character of the levies imposed by them is totally different from that of
the Tamil Nadu levy and that they are entirely within the scope of the
States' Legislative powers under the Constitution. This is the issue to
c
be decided in these matters. As the impugned enactments of Bihar,
Orissa and Madhya Pradesh mutually differ from one another in some
respects, they will need separate consideration. However, the basic
issue being the same, all these matters have been heard together and it
is found convenient to dispose of them all by this common judgment. D
We may mention in passing that, initially, these matters were listed
before a Bench of two Judges of this Court. It referred the matters on
17 .8. 1990 to the learned Chief Justice for the constitution of a larger
Bench. The matters have come up before us in pursuance of the direc-
tions of the Hon'ble Chief Justice.
E
THE LEGISLATIVE ENTRIES

-- > It will be convenient, at the outset, to refer to the various entries
of the Union and the State Lists in the Seventh Schedule to the Con-
-'~

··~
stitution which have a bearing on the issues to be discussed. These are:
F
List /-(Union List)

'·
, ~I'
Entry 52:
Industries, the control of which by the Union declared by Parlia-
ment by law to be expedient in the public interest.
' G
Entry 54:

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

••...,
116 SUPREME COURT REPORTS [1991) 2 S.C.R.

List IJ-(State List)
A
Entry 18:
Land, that is to say, rights in or over land, land tenures including
the relation of landlord and tenant, and the collection of rents; transfer
and alientation of agricultural land; land improvement and agricultur.il
land; colonization.
B
Entry 23:
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.
c Entry 45:
Land revenue, including the assessment and collection of
revenue, the maintenance of land records, survey for revenue pur-
poses and records of rights, and alienation of revenues.

O Entry 49:
Taxes on lands and buildings.

Entry 50:
Taxes on mineral rights subject to any limitations imposed by
£ Parliament by law relating to mineral development.

!Entry 66:
Fees in respect of any of the matters in this List, but not includ-
ing fees taken in any court.
F EARLIER HISTORY

Before proceeding to consider the provisions of the enactments
impugned, and the issues debated, before us, it is necessary to set out
oeertain earlier controversies that led to India Cement.

ffingir RampurCase [1961-2 S.C.R. 537]

As early as in 1960, this Court had to consider the constitutional
validity of the Orissa Mining Areas Development Fund Act, 1952
'(Orissa Act XXVH of 1952). S. 3 of the Act empowered the State
Government to constitute mining areas whenever it appeared to the
Government that it was necessary and expedient to provide amenities
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 117

like communications, water supply and electricity for the better
development of such areas or to provide for the welfare of the resi- A
dents or workers in areas within which persons employed in a mine or
a group of mines reside or work. S. 4 empowered the State Govern-
ment to impose and collect a cess or fee on the minerals extracted the
rate of which was not to exceed 5% of the valuation of the minerals at
the pit'smouth. S.5 provided for the constitution of the Orissa Mining B
Areas Development Fund. The proceeds of the cess recovered in
pursuance of S. 4 along with other subsidies from Government, local
...l authorities and other public subscriptions were credited to the fund
and the expenses for such collection debited thereto. The fund has to
be utilised to meet expenditure incurred in connection with such
development measures as the State Government might draw up for the
purposes above mentioned as well as for the purposes specified in c
clauses (a) to (e) of S.5(5). The validity of this levy of cess was chal-
lenged by the petitioner coal company in the Hingir Rampur case
as ultra vires the powers of the State Legislature because (a) the cess
was not a fee but a duty of excise on coal which was a field covered by
Entry 84 of List I in the Seventh Schedule and repugnant to the Local D
Mines Labour Welfare Fund Act, 1947 (Central Act XXXII of 1947);
and (b) even if it was treated as a fee relatable to Entries 23 and 66 of
List II in the Seventh Schedule, it was hit by Entry 54 of List I read
with the Mines and Minerals (Development & Regulation) Act, (Cent-
ral Act LIII of 1948) ('the MMRD Act' for short) or by Entry 52 of
List I read with the Industries (Development and Regulation) Act E
('the IDR Act' for short), 1951 (Central Act LXV of 1951). The first of
the above arguments was based on the fact that the cess was fixed at a
percentage of the valuation of the mineral concerned at pit's mouth.
This argument was based on two considerations. The first related to
the form and the second to the extent of the levy. Repelling the argu-
ment, it was held that the extent of levy of a fee would always depend F
upon the nature of the services intended to be rendered and the finan-
cial obligations incurred thereby and cannot by itself alter the charac-
ter of the levy from a fee into that of a duty of excise except where the
correlation between the levy and services is not genuine 01 real or
where the levy is disproportionately higher than the requirements of
the services intended to be rendered. So far as the first consideration G
was concerned, it was observed that the method in which the fee is
recovered is a matter of convenience and by itself it cannot fix upon
the levy the character of a duty: of excise. Though the method in which
an impost is levied may be relevant in determining its character its
significance and effect cannot be exaggerated, The court, therefore,
came to the conclusion that the cess levied by the impugned act was H
118 SUPREME COURT REPORTS [1991) 2 S.C.R.

neither a tax nor a duty of excise but a fee.
A
The second argument turned on the impact of the MMRD Act on •
the State's power to levy a fee under Entry 66 read with Entry 23 of
List II as a consequence of the declaration contained in S.2 of the
Central Act. The Court agreed that a declaration by Parliament in
B terms of Entry 54 of List I operated as a limitation on the legislative
competence of the State Legislature itself and observed:

"If Parliament by its law has declared that regulation and ...
development of mines should in public interest be under
the control of the Union, to the extent of such declaration
the jurisdiction of the State Legislature is excluded. In
c other words, if a Central Act has been passed which con-
tains a declaration by Parliament as required by Entry 54,
and if the said declaration covers the field occupied by the
impugned Act, the impugned Act would be ultra vires not
because of any repugnance between the two statutes but
D because the State Legislature had no juristiction to pass the
law."
(underlining ours)

However, the answer to the argument was easily found by the Court
inasmuch as the declaration on the terms of Entry 54 of List I relied on
E for the coal company was founded on Act Lill of 1948 which was an
Act of the Dominion Legislature and not an Act of Parliament. How-
ever, the Court did not stop here. It proceeded to review the provi-
~-
sions of Central Act LIII of 1948 and concluded that, if this Act were
(.'
held to contain the declaration referred to in Entry 23, there would be
no difficulty in holding that the declaration covered the field of conser-
F vation and development of minerals, and that the said field was indis- ~
tinguishable from the field covered by the impugned Act. In coming to
this conclusion the Court pointed out that the rule-making powers
conferred on the Central Government under Section 6(2) of the Act
included the levy and collection of royalties, fees and taxes in respect
of tninerals, mines, quarried, excavated or collected. The circums- 4

G tance that no rules had in fact been framed by the Central Government
in regard to the levy and collection of any fees, it was held, would not
make any difference, The Court observed:

"What Entry 23 provides is that the legislative compet•:nce
of the State Legislature is subject to the provisions of List I
H with respect to regulation and development under the con-
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 119

trol ofthe Union, and Entry 54 in List I requires a declara- A
tion by Parliament by law that regulation and development
of niines should be under the control of the Union in public
interest. Therefore, if a Central Act has been passed for
the purpose of providing for the conservation and develop-
ment of minerals, and if it contains the requisite declara-
tion, then it would not be competent to the State Legisla- B
ture to pass an Act in respect of the subject-matter covered
by the said declaration. In order that the declaration should
be effective it is not necessary that rules should be made or
enforced; all that this required is a declaration by Parlia-
ment that it is expedient in the public interest to take the
regulation and development of mines under the control of c
the Union. In such a case the test must be whether the
legislative declaration covers the field or not. Judged by
this test there can be no doubt that the field covered by the
impugned Act is covered by the Central Act LIII of 1948."

The Court then considered the argument based on Entry 52 of List I D
and the provisions of the ID R Act but came to the conclusion that the
vires of the impugned Act could not be successfully challenged on this
ground.

Wanchoo J., delivered a separate dissenting judgment. He held
that the levy was not a fee or a land cess but a duty of excise. He E
pointed out (at p.579-80) how taxes could be turned into fees on the
so-called basis of quantification with the help of the device of creating
a fund and attaching certain services to be rendered out of monies in
the fund. In this view, he did not consider the question how far the
Central Acts of 1948 and 1951 impaired the State's competence to levy
the fees in question. He negatived the State's attempt to bring the levy F
in question (treating it as a tax) within the scope of Entry 50 of List II.
He was of opinion that the expression "taxes on mineral rights" refer-
red to taxes on the right to extract minerals and not taxes on the
minerals actually extracted. He held that the cess in the present case
was not a tax on mineral rights but a tax on the minerals actually
produced. It was no different in pith and substance from a tax on goods G
produced which comes under Item 84 of List I ~duty of excise.

Tulloch case [1964] 4 SCR 461.

The same issue regarding the competence of the Orissa State
Legislature to levy the very same cess came up for consideration again H
120 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A in the Tulloch case. The scenario had changed because the levy now
challenged was in respect of the period July 1957 to March, 1958 by
which time the MMRD Act, 1957 (Central Act 67 of 1957) had been
enacted in place of the earlier MMRD Act (Central Act Llll of 1948).
The 1948 Act, which had earlier provided for the regulation of mines
and oil fields and for the development of minerals, was now limited
B
only to oil fields and the 1957 Act provided for the regulation of mines
and mineral development. S. 2 of the 1957 Act, like the predecessor
1948 Act, contained the following declaration in terms of Entry 54 of
List I. It read:

"It is hereby declared that it is expedient in the public
c interest that the Union should take under its control the
regulation of mines and the development of minerals to the
extent hereinafter provided".

but unlike the earlier one this was a declaration contained in an Act of
Parliament which had the effect of impairing the legislative compe-
D
tence of the State under Entry 23 read with Entry 66 of the State List.
The hurdle which prevented the Supreme Court from considering the •
provisions of the 1948 Act as a bar to the levy of the cess was therefore
out of the way. The Court analysed in detail the provisions of the
impugned State Act as well as the two Central Acts. It referred to its
conclusion in the Hingir-Rampur case that the field covered by the
E impugned State Act was covered by the 1948 Act and observed that
this fully applied to the State Act vis-a-vis the 1957 Act also, particu-
larly as Ss. 18(1) and (2) of the 1957 Act were wider in scope and
amplitude and conferred larger powers on the Central Government
than the corresponding provisions of the 1948 Act. Counsel for the
State attempted to distinguish the ambit of the 1957 Act from that of
F the 1948 Act. But the Court pointed out that the argument could not
prevail. S. 13 of the 1957 Act contained an express Pfovision for the
levy of a fee. S. 25-though not as categorically as ~- 6 of the 1948
0

Act-clearly implied a power to levy "rent, royalty, iax, fee and other
sums" and, besides, S. 18 of the Central Act of.1957 were wider in
scope and amplitude and conferred larger powers on the Central
G Government than the corresponding provisions of the Act of 1948. It
was reiterated, referring to Hingir-Rampur and distinguishing Ch.
Tika Ramji & Ors. etc. v. The State of Uttar Pradesh & Ors., [1956]
S.C.R. 393 that it was incorrect to think that, until rules were made
under S. 13 or steps taken under S.25 to collect fees etc., the Central
Act would not cover the field. The Court observed, further:
H
• ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 121

"But even if the matter was res integra the argument cannot A
be accepted. Repugnancy arises when two enactments both
within the competence of the two Legislatures collide and
when the Constitution expressly or by necessary implica-
tion provides that the enactment of one Legislature has
superiority over the other then to the extent of the repu-
gnancy the one supersedes the other. But two enactments B
may be repugnant to each other even though obedience to
each of them is possible without disobeying the other. The
test of two legislations containing contradictory provisions
is not, however, the only criterion of repugnancy, for if a
competent legislature with a superior efficacy expressly or
impliedly evinces by its legislation an intention to cover the C
whole field, the enactments of the other legislature
whether passed before or after would be overborne on the
ground of repugnance. Where such is the position, the
inconsistency is demonstrated not by a detailed comparison
of provisions of the two statutes but by the mere existence
of the two pieces of legislation. In the present case, having D
regard to the terms of s. 18( !) it appears clear to us that the
intention of Parliament was to cover the entire field and
thus to leave no scope for the argument that until rules
were framed, there was no inconsistency and no superses-
sion of the State Act."
E
Meeting the argument that the power to levy a fee was an independent
-- , head of legislative power under each of the three legislative lists and
that the levy of tax under the State Act could be traced to this entry,
the Court pointed out the fallacy underlying the argument in ti)e fol-
lowing words:
F
"The material words of the Entries are: "Fees in respect of
any of the matters in this List". It is, therefore, a prerequis-
ite for the valid imposition of a fee that it is in respect of a
"matter in the list". If by reason of the declaration by Parli-
ament the entire subject-matter of "conservation and
development of minerals" has been taken over, for being G
dealt with by Parliament, thus depriving the State of the
power which it theretofore possessed, ii would follow that
the "matter" in the State List is, to the extent of the decla-
ration, subtracted from the scope and ambit of Entry 23 of
---1
the State List. There would, therefore, after the Central

• '
Act of 1957, be "no matter in the List" to which the fee H
122. SUPREME COURT REPORTS [ 1991) 2 S.C.R.

could be related in order to render it valid."
A
The result was that Tulloch declared the levy of the cess to be,
invalid and it was held that, as and from 1.6.1958, the date on which
the.1957 Act came into force, the Orissa Act should be deemed to be
non-existent for every purpose.
B
Murthy case (1964-6 S.C.R. 666)

We now come to the third important case on the topic, Murthy v.
Collector of Chittoor, which seems to strike a somewhat different note
although in both Tulloch and Murthy the judgments were delivered
within a few months of each other by Rajagopala Ayyangar J. on
C behalf of 5-Judge Benches which were constituted differently.

The erstwhile Province of Madras (later State of Tamil Nadu)
had been levying, since long, a cess on land revenue under the Madras
·District Boards Act (Madras Act XIV) of 1920. Under S. 78 of the
D Act, a cess was levied on the annual rent value of all occupied lands on .._
whatever tenure held. It was a tax at two annas in the rupee of the
· annual rent value of all lands in the district. The annual rent value of
the land was to be calculated in the manner prescribed in S. 79 of the
Act. The appellant hel.d certain lands under a mining lease (for extrac-
tion of iron ore) from the Government which stipulated for the pay-
E ment of a stipulated amount of dead rent, a royalty on the basis of
every ton of ore mined as well as a surface rent per acre of the surface
area occupied or used. In the case of such lands, S. 79(i) provided that {-
"the lease amount, royalty or other sum payble to the Government for
the lands" shall be taken to be the annual rent value. The appellant
. was, therefore, called upon to pay a cess based on the royalty paid by
F him to the State Government (of Andhra Pradesh, which had
succeeded to the State of Madras in respect of the territories in ques-
tion) and it was the validity of this levy which was upheld by the High
· Court that came up for the consideration of this Court.

It was contended, on behalf of the appellant, relying on Hingir-
G Rampur and Tulloch, that the provision imposing land cess quoad
royalty must be held to be repealed by MMRD Act of 1948 or, in any
event, by the MMRD Act, 1957 (Central Act LXVII of 1957) and that,
after the date when these enactments came into force, the land cess
that could be levied must be exclusive of royalty under a mining lease.
Distinguishing the decisions cited, this Court rejected the contention.
H It observed: ·
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 123

"It will be seen that there is no resemblance, whatever,
A
between the provision of the Orissa Act considered in the
two decisions and the provision for the levy of the land cess
under ss. 78 and 79 of the Act with which we are con-
cerned. Sections 78 and 79 have nothing to do and are not
concerned with the development of mines and minerals or
their regulation. The proceeds of the land cess are, under s. B
92 of the Act, to be credited to the District fund, into
which, under the terms of the Finance Rules in Sch. V to
the Act, the land-cess as well as several other taxes, fees
and receipts are directed to be credited. This fund is to be
used under Ch. VII of the Act with which s. 112 starts "for
everything necessary for or conducive to the safety, health,
convenience or education of the inhabitants or the ameni-
c
ties of the local area concerned and everything incidental "to
the administration" and include in particular the several
matters which are mentioned in those sections. It will thus
be seen that there is no connection between the regulation
and development of mines and minerals dealt with in the D
Central Acts and the 1evy and collection of land-cess for
which provision is made by ss. 78 and 79 of the Act. There
is therefore no scope at all for the argument that there is
anything in common between the Act and the Central Acts
of 1948 and 1957 so as to require any detailed examination
of these enactments for discovering whether there is any E
over-lapping."

A second contention raised before the Court was that, as the
impugned land-cess was payable only in the event of the lessee winning
the mineral and not when no minerals were extracted, it was in effect a
tax on the minerals won and, therefore, on mineral rights. Rejecting F
this contention, the Court observed:

"We are unable to accept this argument. When a question
arises as to the precise head of legislative power under
\ which a taxing statute has been passed, the subject for
enquiry is what in truth and substance is the nature of the G
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 H
A
124 SUPREME COURT REPORTS (1991} 2 S.C.R.

to examine the question as to what exactly is a tax on min-
..
eral rights seeing that such a tax is not leviable by Parlia-
ment but only by the State and the sole limitation on the
State's power to levy the tax is that it must not interfere
with a law made by Parliament as regards mineral develop-
ment. Our attention was not invited to the provision of any
B such law enacted 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."
(emphasis added)

The Court proceeded to explain why the land cess before it was no-
c thing else except a land tax falling within Entry 49:

"Under s. 78 of the Act the cess is levied on occupied land
on whatever tenure held. The basis of the levy is the
"annual rent value" i.e., the value of the beneficial enjoy
D ment of the property. This being the basis of the Tax and
disclosing its true nature, s. 79 provides for the manner in
which the "annual rent value" is determined i.e, what is the
amount for which the land could reasonably be let, the
benefit to the lessor representing the rateable value "or the
annual rent value". In the case of ryotwari lands it is the
E assessment which is payable to the Government that is
taken as the rental value being the benefit that accrues to
the Government. Where the land is held under lease it is
the lease amount that forms the basis. Where land is held
under a mining lease, that which the occupier is willing to
pay is accordingly treated as the "annual rent value" of the
F property. Such a rent value would. therefore, necessarily
include not merely the surface rent, but the dead rent, as
well as the royalty payable by the licensee, lessee or
occupier for the user of the property. The position then is
that the rent which a tenant might be expected to pay for
the property is, in the case of lease-hold interests, treated
G as the statutory "annual rent value". It is therefore not
possible to accept the contention, that the fact that the
lessee or licensee pays a royalty on the mineral won, which
is in excess of what he would pay if his right over the land
extended only to the mere use oft.he surface land, places it
in. a category different from other types where the lessee
H uses the surface of the land alone. In each case the rent
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 125

which a lessee or licensee actually pays for the land being
A
the test, it is manifest that the land-cess is nothing else
except a land tax."

The judgment of the Supreme Court in the Murthy case (supra)
held the field from 1964 to 1990.
B
Murthy followed:

The above type of levy was not peculiar to the State of Tamil
Nadu. In fact, a cess on royalty was bound to be very remunerative to
States having a wealth of mineral resources. We are informed that
similar cess is being levied in several States. We have already referred
to the cess levied in Orissa which came to be consictered by this Court c
as early as 1961 and 1964 in the Hingir-Rampur and Tulloch cases.
Further cases came 11p for consideration, on the same lines: in Bihar,
Associated Cement Co. Ltd. v. State of Bihar, [1979] 27 B.L.J.R. 64
and Tata Iron & Steel Co. v. State, (C.W.J.C. 30/1978 decided on
15.5.84, the subject matter of C.A. 592/86 before us); in Orissa, D
Laxmi Narayan Agarwala v. State, A.LR. 1983 Ori. 210; in Rajasthan,
Bherulal v. State, A.LR. 1965 Raj. 161; in Punjab, Sharma v. State,
A.LR. 1969 P & H 79; in Gujarat, Saurashtra Cement & Chemical
Industries Ltd. v. Union, A.LR. 1979 Guj. 180; and Madhya Pradesh,
Hirata! Rameshwar Prasad v. State, (M.P. 410/83 decided on
28.3.1986) and M.P. Lime Manufacturers' Association v. State of E
M.P., A.LR. 1989 M.P. 264 F.B. and, except for the last two cases
from Madhya Pradesh, the others upheld the levy of a cess which
depended on royalties, following Murthy.

India Cement case [1990] J S.C.C. 12
F
The correctness of the above line of decisions came to be tested
in India Cement Ltd. v. State. The Government of Tamil Nadu had
granted a mining lease on 19.7.1963 to the appellant for extraction of
limestone and kankar for a period of twenty years. The lease deed,
• which was in accordance with the Mineral Concession Rules, stipula-
ted for the payment of royalty, dead rent and surface rent and also G
prov;,~ed that the lessee was bound to pay all Central and State
Government dues except land revenue. At the time the lease was
obtained, S. 115(1) of the Madras Panchayats Act, 1958 provided for
the levy, in each panchayat development block, of a local cess at the
rate of 45 paise on every rupee of land revenue payable to the Govern-
ment in respect of any land for every fasli. S. 115(2) provided that the H
126 SUPREME COURT REPORTS [1991] 2 S.C.R.

A
local cess will be deemed to be public revenue and all the lands and
buildings thereon shall be regarded as security therefor. S. 115(3) and
(4) set out the various purposes for which the cess levied and collected
under S. 115 could be utilised. S. 116 provided for the levy of a local
cess surcharge. The maximum amount of such surcharge was originally
left to be prescribed by the Government and was in 1970 limited to
B Rs.1.50 on every rupee of land revenue and in 1972 to Rs.2.50 on
every rupee of land revenue. Apparently inspired by the decision in
Murthy, the Tamil Nadu Panchayats (Amendment and Miscellaneous
Provisions) Act (Tamil Nadu Act 18 of 1964) added, with full retros-
pective effect, the following Explanation to S. 115(1):

"Explanation: In this section and in Sectiop 116, 'land
c revenue' means public revenue due on land and includes
water cess payable to the government for water supplied or
used for the irrigation of land, royalty, lease amount or
other sum payable to the government in respect of land
held direct from the government on lease or licence, but
D does not include any other cess or the surcharge payable
under Section 116, provided that land revenue remitted
shall not be deemed to be land revenue payable for the
purpose of this section."

The appellants' challenge in the High Court to this levy-which was
E consequent on the 1964 amendment-was unsuccessful. The High
Court upheld it as a "tax on land" measured with reference to land
revenue, royalty or lease or other amount as mentioned in the Expla- j .
nation. The challenge based on Entry 54 of List I read with Entry 23 of
List II and the provisions of the MMRD Act, 1957 was also repelled,
applying the decision in Murthy. The appeal to this Court was referred
F to a Bench of seven Judges who came to the conclusion that Murthy
was wrongly decided and upheld the appellants' objection to the vali-
dity of the levy of the cess. It may be necessary to refer, in greater
detail, to some passages in the judgment later but it will be convenient,
for the present, to summarise the salient conclusions of the Court.
These were:
G
1. The levy could not be supported under:

(a) Entry 45 of List II: as it is not land revenue, an expres-
sion which has a well defined connotation. 'Land revenue' is
separate and distinct from 'royalty'. The Explanation to S.115(1)
H itself proceeds on the basis that royalty cannot be land revenue
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 127

properly so called or conventionally so known. A

(b) Entry 49 of List II: as it is not a tax on land. A tax on
land can only be levied on tax as a unit, must be imposed directly
on land and must bear a definite relationship to it. There is a
clear distinction between a tax directly on land· and a tax on
income arising from land. The cess is not a tax directly on land as B
a unit but only a tax on royalty which is indirectly connected with
land. In the words of Oza. J. it is a tax not only on land but on
labour and capital as well. It could have been treated as a tax on
land if it had been confined to 'surface rent' instead of 'royalty'.

(c) Entry 50 of List II: as a tax on royalty as it is not a tax C
on mineral rights and so is outside the purview of Entry 50. Even
otherwise, Entry 50 is subject to the provisions of List I and is,
therefore, subject to the declaration contained in, and the
purview of, the MMRD Act 1957.

2. Even if the cess is regarded as a fee, the State's competence to levy D
the same can, if at all, only be justified with reference to Entry 23 and
Entry 50 of List II but this recourse is not available as the field is
already covered by Central Legislation referable to Entry 54 of List I.

3. Murthy was not rightly decided. The view of the Rajasthan,
Punjab, Gujarat and Orissa decisions was overruled. In the view taken E
by the Court, i.e. Madhya Pradesh ruling was not examined in detail,
particularly as it was said to be pending in appeal before the Supreme
Court.

In issue before us now are the levies of cesses based on royalty
from lands containing minerals by the States of Orissa, Bihar and F
Madhya Pradesh. Since the relevant statutes vary in detail and the
parties concerned have also taken different stands, emphasising diffe-
rent aspects, the arguments have to be considered and dealt with sepa-
rately, We may, however, mention that the appeals before us include
those in the cases of Laxmi Narayan Agarwal/a (Orissa), and Harilal
Ramesh war Prasad (Madhya Pradesh) noticed earlier. G

THE VARIOUS ENACTMENTS
ORISSA

The invalidation in 1961 of Orissa Act XXVII of 1952 in Hingir-
H
Rampur apparently rendered it necessary for the State to bring in fresh
128 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

legislation. The Orissa enactment with which we are now concerned is
A
the Orissa Cess Act (Orissa Act II of 1962) as amended by Act 42 of
1976. According to the Statement of Objects and Reasons accompany-
ing the bill, the primary objective of the legislation is to condense and
simplify the existing law on the subject by consolidating the different
enactments, customs and usages relating to the levy of cess in the
B State, to cure defects and deficiencies therein and to introduce
uniformity in the levy of cess throughout the State. The Act proposed
to adopt a uniform rate of 25 paise in the rupee of the annual rental
value and distribute the entire gross collection among the zilla ~-

parishads, panchayat samithis (referred to as 'samithis' in the Act) and
grama panchayats in the ratio 5:8: 12 respectively thus providing them
with enhanced revenues to enable them to discharge their statutory
c responsibilities more efficiently by taking up development works and
providing better amenities to the people of the State.Its principal pro-
visions are as follows:

(i) Under Section 4, from and after the commencement of the
D Act, all lands (other than lands which were not liable to payment of
rent or revenue before 1.4.77 and lands which were subject to a tax on
land holdings under a 1950 Municipal Act) are made liable to the
payment of cess (in addition to any land revenue, tax, cess, rate or fee
otherwise payable in respect thereof) determined and payable "as
herein provided". A 1976 amendment makes it clear that "lands held
E for carrying on mining operations" are not exempt from the cess.

(ii) The "rate of cess, assessment land] fixation of cess year" are
dealt with by S. 5 which originally read thus:

"5.(1) The cess shall be assessed on the annual value of all
F lands on whatever tenure held caiculated in the manner
hereinafter appearing.

(2) The rate per year at which such cess shall be levied
shall be twenty five percentum of the annual value of the
land.
G
(3) x x x"

Sub-section (2) was amended by Act 13 of 1970 by substituting of 50%
in place of 25% but a 1982 amendme~t inserted S. SA to provide that,
for the period 1.4.1977 to 31.3.1980, the cess would be levied at 25%
H of the annual value in respect of lands held for carrying on mining
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.l 129
I
operations. S. 5 was again amended by Act 15 of 1988 w .e.f. A
26.10.1988 to read thus:

"(2) The rate at which such cess shall be levied shall be-

a) in case of lands held for carrying on mining operations
in relation to any mineral, on such percentum of the annual B
value of the said lands as specified against that mineral in
Schedule II; and

b) in case of other lands fifty percentum of the annual
value."

Clause (a) was again amended by Act 17 of 1989 to read thus:
c

"(a) in the case of land held for carrying on mining opera-
tions in relation to any mineral, such percentum of the
annual value as the State Government may, by notifica-
tion, specify from time to time in relation to such mineral". D

It will thus be seen that, in place of a fixed rate, an elasticity was
provided for, initially, by requiring the rates to be specified in the
Schedule differently for different minerals. Schedule II prescribed the
percentages which the cess was to bear to the annual value: the
percentages varied from 650% in the case of sand, to 300% in the case E
of coal, 200% in re. ect of certain minerals such as iron ore,
-' limestone, manganese ore (except those meant for export or cement
manufacture), 150% in the case of certain other minerals and 100% in
respect of the rest. Further elasticity was provided for in 1989 by leav-
ing it to the Government to vary the rates by a simple notification. In
consequence of this amendment, Schedule II has been omitted and a F
notification has been issued prescribing the percentage of the royalty
or the dead rent (as the case may be) that is to be levied as the cess in
respect of various items of specified minerals. The rates specified are
650%, 400%, 300%, 200% and 150%. In respect of all minerals not
specified in the notification, the rate of cess is to be 100% of the
royalty or dead rent. G

(iii) S. 6 specifies the person by whom the cess is payable. In so
far as is material for our present purposes, it directs that the cess is
payable "(c) by a person for the lands he holds for carrying on mining
operations and shall be paid by him to the Government". This clause
was inserted in S. 6 simultaneously with the amendment of S. 5 by Act H
42 of 1976.
130 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

(iv) "Annual value" is defined in S. 7 thus:
A
''7.Annua/ Value-(l) The annual value of lands held by a
raiyat shall be the rent payable by such raiyat to the land-
lord immediately under whom he holds the land:

B x x x x x x

(2) In the case of lands held as an estate the annual value
shall be the aggregate of-

(a) the amount which the intermediary is entitled to
receive on account of revenue or rent Jess the amount pay-
c able by such intermediary as revenue to the intermediary
immediately superior to him or to the Government, as the
case may be; and

(b) the rent, if any, payable in respect of lands in the khas
D possession of (the) intermediary.

(3) In the case of lands held for carrying on mining opera-
tions, the annual value shall be the royalty or, as the case
may be, the dead rent payable by the person carrying on
mining operation(s) to the Government."
E
The Explanation to the section defines "dead rent" and "royalty" in
terms of their definitions in the MMRD Act, 1957. It also states that
"royalty" would include "any payments made or likely to be made to
the Government for the right of raising minerals from the land which
shall be calculated on every tonne of such minerals despatched from
F the land at the same rate as prescribed under the said Act or such other
rate as may be fixed by the Government but not exceeding the amount
which would have been otherwise payable as royalty under the said
Act". Act 17 of 1989 also amended S. 7(3) to read thus:

"(3) In the case of lands held for carrying on mining opera-
G tions, the annual value shall be the royalty or, as the case
may be, the dead rent payable by the person carrying on
mining operation(s) to the Government or the pit's
mouth value wherever it has determined".

This was apparently intended to regulate the cess on coal in respect of
H which the pit's mouth value had been determined. So a notification
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.I 131

dated 14.8.89 was issued to provide that the cess in respect of coal A
bearing lands would be 30% of the pit's mouth value of the said
~ mineral.

(v) Sections 8 to 9B provide for the assessment of the cess in
respect of various cases. S.9B, inserted by the 1976 amendment, B
provided:

"9B-Assessment of cess on lands held for mining operations:

(I) The cess payable in respect of lands held for carrying
on mining operations shall be assessed in the prescribed
manner. c
(2) Nothing contained in Sections 8, 9 and 9A shall apply
in relation to the assessment of cess in respect of the
aforesaid lands:
D
The prescribed manner of such assessment had been already set out in
the Orissa Cess Rules, 1963. Rule 6A, inserted in 1977, deals with this
but it is unnecessary for us to consider the details except to mention
that it is assessed and collected, along with the amount of royalty or
dead rent, by the Mining Officer concerned.
E
(vi) S. 10 also needs to be referred to. It originally read thus:

-. ' "10. Application of proceeds of the cess: ( 1) Notwithstand-
ing anything contained in any other law the amount col-
lected as cess shall be credited to the Consolidated Fund of
the State and shall be utilised in the following manner, F
namely:-

(a) amounts collected in respect of lands within the local
limits of any Municipality or Notified Area constituted
under the Orissa Municipal Act, 1950 shall be paid to the
concerned Municipal Council or Notified Area Council, as G
the case may be; and

(b) amounts other than those referred to in clause (a) shall
be distributed in the prescribed manner among the Grama
Panchayats, Samitis and Parishads in the ratio of twelve is
to eight is to five. H
132 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

Explanation-In this section "Grama Panchayat" mean a
A
Grama panchayat constituted under the Orissa Grama
Panchayats Act, 1948 and "Samiti" and "Parishad" respec··
lively mean the Samiti and Parishad constituted under the
Orissa Panchayat Samiti and Zila Parish ad Act, 1959."

B Orissa Act 13 of 1970 substituted the following section for the above:

"JO Application of proceeds of the cess. (1) Notwithstand-
ing anything contained in any other law, the amount col-
lected as cess shall be credited to the Consolidated Fund of
the State and shall be utilised for the following purposes,
namely:-
c
(a) primary education;
(b) contribution to Grama-Panchayats; and
(c) contribution to Samitis.
D
Explanation-In this section "Grama Panchayat" means &
Grama Panchayat constituted under the Orissa Grama
Panchayat Act, 1964 and "Samiti" means a "Panchayat
Samiti" constituted under the Orissa Panchayat Samitis
Act, 1959.
E
(2) The proportion in which the amount collected as cess is
to be allotted for the said purposes shall be as may be i -
prescribed.

As substituted by Act 42 of 1976, it reads:
F
"10. Application of proceeds of the cess: ( 1) Notwithstand-
ing anything contained in any other law, all amounts col-
lected as cess shall be credited fifty percentum of those
which represent cess collected in respect of lands, other
than lands held by carrying on mining operations, shall be
G utilised for the following purposes, namely:-

(a) primary education;
(b) contribution to Grame Panchayats; and
(c) contribution to Samitis.

H (2) The allotment of amounts to be utilised for the pur-
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN. J.] 133

poses mentioned in clause (a), (b) and (c) of sub-section ( 1)
A
shall be made in such proportion as may be prescribed."

BIHAR:

We shall now turn to the relevant provisions of the Bihar Act.
Bihar is governed in this respect by the provisions of the Bengal Cess B
Act (Act IX of 1880). It is sufficient to refer to the provisions of
Sections 4 to 6, 9 and to certain notifications.

(i) A definition of 'royalty' was introduced in S. 4 of the Act by
an ordinance of 1975. It was amended by the Bihar Finance Act, 1981
and then by the Bihar Finance Act, 1982. The definition as amended,
w .e.f. 1.4.1982, by the latter reads as follows: c
"Royalty for the purpose of this Act in respect of mines
and quarries means payment (which includes dead rent)
made or likely to be made to the owner of mines and mine-
rals for the right of working the same on the quantity or D
value of such produce by a lessee if the land had been under
a lease granted under MMRD Act, 1957, and rules made
thereunder and includes any amount which Government
may demand from the appropriation of mines and minerals
belonging to the Government and any amount that may be
paid as or in lieu of royalty for the right of working mines E
and quarries in areas held or acquired under any Act or
agreement".

At the end of the section it added the following 'interpretation clause·:

"Valuation of mineral bearing land" means with F
reference to assessment of local cess in any year on land
held for working mines and quarries the value at pit's
mouth of all the mineral extracted from the land in that
year

and the Explanation, which defines the value at pit's mouth of a G
mineral;

(ii) S. 5 provided that, from and after the commencement of this
Act, in any district or part of a district, all immovable property situate
therein except otherwise in Section 2 provided shall be liable to the
payment of a local cess. H
134 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

(iii) Section 6, again, is a much amended section, As substituted
A
by Ordinance No. 209 of 1975 dated 2.12. 75, it read:

"6. Cess has to be assessed: The local cess shall be assessed
on the annual value of lands and until provision to the
contrary is made by the Parliament on the royalty of mines
B and quarries, sale value of the other immovable properties
including forest produce and annual net profits from tram-
ways and railways as contained respectively as prescribed
in this Act and the rate at which the local cess shall be
levied for each other shall be-

(a) in the case of royalty, the rate will be determined by
c the Government from time to time but it will not exceed
the amount of royalty;

(b) in the case such annual net profits, fifteen paise on
each rupee of such profits;

(c) in the case of annual value of lands, twenty paise per
rupee of the annual value; and

(d) in the case of sale value of immovable properties
including first produce, the rate will not exceed 10% and
E the State Government may, by notification, prescribe from
time to time the commodities on the sale of which cess
would be levied along with the rate at which it would be _J . - -

levied".

It was amended by a series of Bihar Cess (Amendment) Ordinances
F between 1975 and 1982. It was further amended by the Finance Act.,
1982 (w.e.f. 1.4.82), the Finance Act, 1984, the Finance Act, 1985
(w.e.f. 1.8.1985) and the Bihar Cess (Amendment) Ordinance, 1985,
After the last of these amendments, the section stood thus:

"S. 6. Cess how to be assessed: The local cess shall be "
G assessed on the annual value of the lands and, until pro-
vision to the contrary is made by the Parliament, on the
royalty of mines and quarries or on value of mineral bear-
ing land as the case may be, sale value of other immovable
properties including forest produce and annual net profits
from tramways and railways ascertained respectively as
H prescribed in the Act and the rate at which the local cess
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.[ 135

shall be levied for each year shall be-
A
(a) in the case of royalty, the rate will be determined by
the Government from time to time but it will not exceed
five times the amount of royalty, provided that the local
cess payable in any one year shall not be less than the
amount arrived at by multiplying the dead rent with the B
rate of cess determined under clause (a);

( aa) in the case of value of mineral bearing land, where the
local cess payable in any year in respect of any mineral
bearing land as assessed in clause (a) is less than 30 per cent
of the value of mineral bearing land in that year, then,
notwithstanding anything hereinbefore contained, the c
State Government may assess the local cess at such per-
centage of the value of the mineral bearing land, not
exceeding [of) 30 per cent, as may be notified in the Official
Gazette from time to time although the cess so assessed
may exceed five times the amounts of royalty; D

(b) in the case of annual net profit, fifteen paise on each
rupee of such profits;

(c) in the case of annual value of land, twenty five paise
per rupee of the annual value; and E

--..
~
(d) in the case of sale value of immovable properties
including first produce, the rate will not exceed 30 per cent
and the State ·Government may, by notification prescribe
from time to time the commodities on the sale of which cess
would be levied along with the rates at which it would be F
levied".

The Bihar Cess (Amendment) Ordinance, 1987 (replaced by Act 3 of
1988) substituted 40% for 30% in clause (aa).

- (iv) S. 9 of the Act deals with the application of the proceeds of
cess. It has been amended from time to time, inter alia in 1976, 1977,
1978, 1979," 1980, 1981 and 1982. After all these amendments, the
G

section stood thus:

"9. Application of the proceeds of cess: The proceeds of
local cess and all sums levied or recovered as interest or H
136 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

otherwise shall in each district be paid in the district fund-
. A
(i) at such rate as may, from time to time, be determined
by the State Government in the case of local cess on annual
value of land; and

B (ii) at such rate as may, from time to time, be determined
by the State Government, subject to a maximum of twenty
per cent in case of local cess on royalty of mines and quar-
ries, or value of mineral bearing land, sale value of other
immovable properties, forest produce and annual net profit
from tramways and railways, and the remaining amount
shall be deposited in the consolidated fund of the State for
c the construction and maintenance of other works of public
utility;

xxx xxx xxx xxx xxx

D Provided further that out of the remaining amount not less
than ten per cent of the amount of the local cess collected
under clause (a) or clause (aa) of Section 6 shall be spent
for purposes relating to mineral development".

(v) In exercise of the powers conferred by S. 6 above, the State
E Government issued a notification on 20.11.80 determining the rate of
cess on the amount of royalty of all minerals of the State at 100%
w.e.f. 1.2.1980. Our attention has also been drawn to, and some point "-·-
made of, a notification dated 20.4.85 by which the State Government,
modifying the earlier notification of 1.10.1981, determined the rate of
cess "on the amount of royalty of iron ore which is extracted from
F manually operated iron ore mines" at 100% w.e.f. 1.10.84 which was
followed up by a notification dated 20.11.85 enhancing the rate at
300% on the amount of royalty of iron ore w.e.f. 21.6.85 in respect of
mines other than those in which the ore is extracted manually. Other
notifications were also issued determining the rate of cess in respect of

G
other minerals as indicated bel_ow:

Date of
Notification
Effective
Date
Mineral Rate -
20.11.85 21.6.85 Bauxite Ore, sand 500%
for stowing
20. 11.85 21.6.85 Copper Ore and 300%
H
uranium
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 137

20. l l.85 21.6.85 Lime stone and
A
kynite 200%
20.11.85 21.6.85 Coal 30% of pi.l's mouth
value or 500% on the
amount of royality
whichever is greater.
B
Madhya Pradesh:

In Madhya Pradesh, two statutes have to be considered:

The first is the Madhya Pradesh Upkar Adhiniyam, 1981 (Act 1
of 1982). It provides for the levy of an energy development cess (Part C
I), an urban development cess (Part II), ii cess on transfer of vacant
land (Part III), and a cess on storage of coal (Part IV). The Act pro-
vided that the cesses levied under Parts I and IV should first be credited
to the Consolidated Fund of the State but subsequently withdrawn and
credited to a separte Electrical Development Fund [Ss. 3(2)1 and Coal
Bearing Area Development Fund [s. 12(1)] and that the amounts to D
the credit of the Funds as well as the cesses collected under Parts II
and III should be utilised for special purposes connected respectively
with energy development [S. 3(3)]. development of coal-bearing areas
[S. 12(2)], -urban development [S. 7(2)] and rural development
[S. 9(5)]. Act 2-1 of 1987 changed Part IV into a part dealing with "cess
on land held in connection with mineral rights" with full retrospective E
effect. Part IV, as now substituted, deals only with "land situate in the
State and held under a mining lease for unJertaking mining operations
in relation to major mineral including operations for raising, winning
or extracting coal". Sections 11 and 12 read thus:

"Section 11: There shall be levied and collected a cess F
on land held in connection with mineral rights at such
rate as may be notified by the State Government per ton
of major mineral raised and the rate of cess prevailing
in respect of coal during the period commencing from the
date of commencement of the Principal Act and ending on G
the date of commencement of the Madhya Pradesh Upkar
(Sanshodhan) Adhiniyam, 1987, shall be deemed to be the
rate of cess notified under this sub-section in respect of
coal:

Provided that subject to the limitation mentioned above H
the State Government may, by notification, increase or
138 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

reduce the rate of cess at an interval of not less than one
A
year, where the rate is increased it shall not be in excess of ,_
fifty per cent of the rate for the time being in force;

Provided further that every notification under the above
proviso shall be laid on the table of the Legislative Assem-
B bly and the provisions of Section 24-A of the Madhya
Pradesh General Clauses Act, 1957 (No. 3 of 1958) shall
apply thereto as they apply to rule.

(2) The rate of cess to be notified for the first time in
exercise of the powers conferred by Sub-section ( 1) shall be
effective from the [first of) April, 1987.
c
(3) The cess levied under sub-section (1) shall, subject to
and in accordance with the rules made in this behalf, be
assessed and collected by such agencies and in such manner
as may be prescribed.
'-·
D
(4) The agencies prescribed under sub-section (3) shall for
the purpose of assessment, collection and recovery of cess
and all matters connected therewith, exercise such of the
powers conferred upon the authorities specified in Section
3 of the Madhya Pradesh General Sales TaJ[ Act, 1958 (No.
E 2 of 1959) for the purposes aforesaid in respect of sales tax
under the said Act and the rules made thereunder, as may
be prescribed as if such agencies were the authorities
specified in the section 3 and the cess on land held in con-
nection with mineral rights were the tax levied under the
said Act.
F
Section 12: The proceeds of the cess on land held in con-
nection with the mineral rights may be utilised by the State
Government for the general development of the mineral
bearing areas.''

G Section 12 has, however, been omitted by an Amending Act of
1989, again, with full retrospective effect i.e. from 1.10.1982.

It appears, however, that there was in force in Madhya Pradesh
w.e.f. 1.11.1982 another statute levying mineral development cess. It
was the M.P. Karadhan Adhiniyam, 1982 (Act 15 of 1982) as amended
H by M.P. Acts 1983 and 13 of 1985 which was challenged before the
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.J 139

M.P. High Court in Hiralal Rameshwar Prasad v. State and other A
connected cases. The Madhya Pradesh Karadhan Adhiniyam, 1982,
was enacted by State Legislature "to provide for levy of school build-
ing cess, forest development cess and mineral areas development cess
and matters incidental thereto". Part II of the Act deals with the
school building cess. Section 5 therein requires the holder of every B
holding of six hectares and above to pay the school building cess as
provided therein. The proceeds of the school building cess are
required by S. 4 to be credited to a separate Fund supplemented by a
State ·contribution equal to 50% thereof and utilised for construction
and furnishing of primary school buildings in non-urban areas. Part III
of the Act deals with the forest development cess. Section 7 imposes
forest development cess on every sale or supply of forest produce by C
the Forest Department. The proceeds thereof are to be credited to a
separate Fund and utilised for social forestry, afforestation, reforesta-
tion, forest rehabilitation and other purposes connected with forest
development. Then comes Part IV dealing with the mineral areas
development cess, the provisions of which are relevant for the purpose
0
of these appeals and it is the charging provision therefor contained in
Section 9 which has been attacked as constitutionally invalid. The
Section read thus:

"9. Levy of mineral areas development cess on land under
mining lease":
E
(1) There shall be levied and collected on the land held
under a mining lease for undertaking mining operation a
mineral areas development cess at the rate of twenty five
percentum of the rental value thereof.
F
(2) For the purpose of sub-section (1), rental value shall be
equal to the royalty or dead rent, as the case may be,
whichever is higher.

(3) The mineral areas development cess shall be payable by
the person to whom the mining lease is granted.
G
(4) The mineral areas development cess shall, subject to
and in accordance with the rules made in this behalf, be
collected by such agencies and in such manner as may be
prescribed and shall be applied towards development of
mineral bearing areas''.
H
140 SUPREME COURT REPORTS [1991] 2 S.C.R.

A The 1983 amendment substituted the following sub-section ( 1) in
Section 9:

"(l) There shall be levied and collected on the land held
under a mining lease for undertaking minor operations for
a major mineral, a mineral areas development cess at the
B
rate of one hundred percentum of the rental value thereof".

The 1985 amendment substituted the following sub-section in place of
the above w.e.f. 1.8.1985:

"(1) There shall be levied and collected-
c
(a) on the land held under mining lease for undertaking
mining operations for a major mineral other than coal a
mineral areas development cess at the rate of one hundred
percentum of the rental value thereof;
D
(b) on the land held under mining lease for undertaking
mining operations for coal, a mineral area development
cess at the rate of the hundred twenty five percentum of the
rental value thereof".

and also made a provision for payment of interest on arrears of cess.
E Rules have been framed under this Act called "The Madhya Pradesh
Mineral Areas Development Cess Rules, 1982", Rule 3 provided for
the collection of the cess every month along with the royalty or
dividend. Rule 10 thereof is alone relevant for the purpose of these
petitions and read as under:
F "10. Application of cess: The State Government shall
decide from time to time the manner in which the amount
collected from cess shall be utilized for the development of
mining lease areas".
,
In 1985, an amendment substituted the words "mineral bearing" for •
G the words "mining lease" in this rule. It will be seen that, unlike the
cesses referred to in Part I and III, the Act did not provide for the
creation of a separate Fund for the mineral areas development cess.
The manner of utilisation thereof was also left to the discretion of the
State Government though it had to be spent for development of
H mineral bearing areas.
ORJSSA CEMENT v. STATE OF ORISSA [RANGANATIJAN, J.] 141

THE CONTENTIONS A
OR/SSA

In the historical and statutory context set out above, the attempt
of Sri T.S. Krishnamurthy Iyer, learned counsel for the State of Orissa
to save the impugned legislation of that State is two fold. First, he B
points out that in India Cement the statute, by Ss. 115 and 116,
imposed a cess and surcharge on 'land revenue' and the Explanation to
s. 115 defined 'land revenue' to mean 'royalties'. In other words, that
was a clear case of a direct cess or tax on royalties. Here, on the other
hand, s. 5 makes it clear that what the legislature has provided for is a
tax assessed on the annual value of all lands, on whatever tenure held,
calculated at a percentage of the annual value of the land. S. 7, which
c
defines 'annual value', provides for different measures for determining
the annual value in respect of lands held under different kinds of
tenures; and, in the case of lands held for mining operations, the
measure of such annual value is the royalty or dead rent paid to the
Government. On a proper construction of the statute, he submits, the D
cess levied is a cess or tax on land and the 'royalty' is only taken as a
measure for determining the quantum of tax. He contends that India
Cement only forbids a cess or tax on royalty as such and not a cess or
tax on land, which may be measured by reference to the royalty
derived from it. He presses in aid of his argument the well-marked
distinL1ion between the subject matter of a tax and its measure out- E
lined, amongst others, in Ralla Ram's case (1948] F.C.R. 207 at pp.
218, 224 and Bombay Tyre International v. Union, (1984] 1 S.C.C. 487
at pp. 481-4. This argument, Sri Iyer contended, is based on the statut-
ory language used in the Orissa Cess Act, 1962 and should prevail
independently of the correctness or otherwise of Murthy. Secondly, he
submitted that 'royalty' is not a tax and the cess on royalty is also not a F
tax but only a fee. This view is supported, he said, by the limitations
imposed in the statute on the modes of its utilisation. Being a fee, the
State Legislature's competence to impose it has to be determined with
reference to EI1try 23 read with Entry 66 of the State List. So doing,
the validity of the levy has to be upheld as, in counsel's submission, the
declaration contained in, and the provisions of, the MMRD Act, 1957 G
' do not, in anyway, whittle down or impair this competence.

Basically, itwilJ seen, two questions arise-

(1) Can the cess be considered as "land revenue" under
Entry 45 or as a "tax on land" under Entry 49 or as a "tax H
142 SUPREME COURT REPORTS I 1991] 2 S.C.R.

on mineral rights" under Entry 50 of the State List?
A
(2) If the answer to question (1) is in the negative, can the
cess be considered to be a fee pertaining to the field
covered by Entry 23 of the State List or has the State been
denuded of the legislative competence under this Entry
B because of Parliament having enacted the MMRD Act,
1957?

Taking up the first question, the attempt to bring the levy under
Entry 45 of the State List proceeds in two steps. First, land revenue is
the sovereign's share of the proceeds of the land belonging to the
sovereign and is represented, in the case of land containing minerals,
c by the payment of royalty to the Government. Second, the cess, being
an accretion to royalty, partakes of the same character. This argu-
ment, however, must fail in view of the categorical observations of the
Supreme Court in India Cement, (vide paras 20 and 21) as to the
connotation of the expression 'land revenue'. At least, in India
D Cement, the statute sought to include royalty within the meaning of
'land revenue' but there is no such provision in the Orissa Act and, this
being so, royalty or the tax thereon cannot be equated to land revenue.
The cess here cannot be, therefore, brought under Entry 45.

Turning next to Entry 50, though Murthy left open the question
E how far a levy of this nature can be considered to be a tax on mineral
rights (vide page 676), India Cement has chosen to approve the con-
trary view of Wanchoo J. in his dissenting judgment in Hingir Rampur
(para 30). Actually, it appears that the observations of Wanchoo J.
have not been fully examined. The learned Judge held that the tax in
the case before him was not a tax on mineral rights because it was
F levied on the value of the minerals extracted. If his observations in this
context are read as a whole, it would seem that he also was of opinion
that a tax on royalty would be a tax on mineral rights, for he observed
(at pp. 582-3):

"The next contention on behalf of the State of Orissa is
G that if the cess is not justified as a fee, it is a tax under item
50 of List II of the Seventh Schedule. Item 50 provides for
taxes on mineral rights subject to any limitations imposed
by Parliament by law relating to mineral development. This
raises a question as to what are taxes on mineral rights.
Obviously, taxes on mineral rights must be different from
H taxes on goods produced in the nature of duties of excise. If
ORJSSA CEMENT v. STATE OF ORISSA {RANGANATHAN, J.] 143

taxes on mineral rights also include taxes on minerals
A
produced, there would be no difference between taxes on
·~
mineral rights and duties of excise under item 84 of List I.
A comparison of Lists I and II of the Seventh Schedule
shows that the sa~e tax is not put in both the Lists. There-
fore, taxes on minerals rights must be different from duties
of excise which are taxes on minerals produced. The dif- B
ference can be understood if one sees that before minerals
are extracted and become liable to duties of excise some-
body has got to work the mines. The usual method of work-
ing them is for the owner of the mine to grant mining leases
to those who have got the capital to work the mines. There
should therefore be no difficulty in holding that taxes on
mineral rights are taxes on the right to extract minerals and c
not taxes on the minerals actually extracted. Thus tax on
mineral rights would be confined, for example, to taxes on
leases of mineral rights and on premium or royalty for that.
Taxes on such premium and royalty would be taxes on
mineral rights while taxes on the minerals actually extrac- D
ted would be duties of excise. It is said that there may be
cases where the owner himself extracts minerals and does
not give any right of extraction to somebody else and that
in such cases in the absence of mining leases or sub-leases
there would be no way of levying tax on mineral rights. It is
enough to say that these cases also, rare though they are, E
present no difficulty. Take the case of taxes on annual
value of buildings. Where there is a lease of the building,
the annual value is determined by the lease-money; but
there are many cases where owners themselves live in
buildings. In such cases also taxes on buildings are levied
on the annual value worked out according to certain rules. F
There would be no difficulty where an owner himself works
the mine to value the mineral rights on the same principles
on which leases of mineral rights are made and then to tax
the royalty which, for example, the owner might h~ve got if
instead of working the mine himself he had leased it out to
somebody else. There can be no doubt therefore that taxes G
on mineral rights are taxes of this nature and not taxes on
minerals actually produced. Therefore the present cess is
not a tax on mineral rights; it is a tax _on the minerals
actually produced. Therefore the present cess is not a tax
on mineral rights; it is a tax on the minerals actually pro-
duced and can be no different in pith and substance from a H
•
144 SUPREME COURT REPORTS 11991] 2 S.C.R.

tax on goods produced which comes under Item 84 of List
A
I, as duty of excise. The present levy therefore under s. 4 of
the Act cannot be justified as a tax on mineral rights.

However, the conclusion of India Cement is clear that a tax on
royalties cannot be a tax on minerals and we are bound thereby. This
B apart, we shall also advert, while discussing the second question, to
another hurdle in the way of the State's attempt to have recourse to
Entry 50, which has also been touched upon by India Cement.

Can, then, the cess be described as a 'tax on land'? The Statute
considered in India Cement, as Sri Iyer correctly points out, was diffe-
rently worded. It purported to levy a cess on land revenue and
c 'royalty' was brought within the definition of that expression. It was,
therefore, a case where the levy had no reference to land at all but only
to the income from the land, in the case of Government lands, got by
way of land revenue or otherwise. Here the statute is different. The
objective of the Cess Act as set out earlier, is to levy a cess on all land.
D Indeed, originally the idea was to levy a uniform cess at 25% of the
annual value of all land which was subsequently raised to 50%. It is
argued that the tax here is, therefore, a tax on land and it is immaterial
that this tax is quantified with reference to the income yielded by the
land. A tax on land may be levied, inter alia with reference to its
capital value or with reference to its annual value. One realistic
E measure of such capital or annual value will be the income that the
land will yield just as, for property tax purposes, the annual value is
based on the amount for which the property can reasonably let from
year to year. The income from the land may be more or less due to a
variety of reasons. In the case of agricultural lands, it may depend on
the fertility of the soil, the sources of irrigation available, the nature of
F crops grown and other such factors. Likewise, where the land is one
containing minerals, naturally the value (whether annual or capital
value) will be more if it contains richer minerals and can be legiti-
mately measured by reference to the royalties paid in respect thereof.
The mere fact, it is argued, that the annual value is measured with
reference to the royalty, dead rent or pit's mouth value of the mineral
G does not mean that it ceases to have the character of a tax on land. In
this context, Sri Iyer places strong reliance on the decision of a Con-
stitution Bench of this Court in Ajay Kumar Mukherjea v. Local Board
of Barpeta, (1965] 3 S.C.R. 47. There a local Board was authorised to
"grant ... a licence for the use of any land as a market and impose an
annual tax thereon''. The Court held, examining the Scheme and the
H language of the provision in question, that the tax imposed was a tax
ORISSA CEMENT v. STATE OF ORISSA [RANGANA1HAN, J.] 145

on land under Entry 49. The Court indicated the following approach to
A
the issue before it:
....
"The first question which falls for consideration therefore
is whether the impost in the present case is a tax on land
within the meaning of Entry 49 of List II of the Seventh
Schedule to the Constitution. It is well-settled that the B
entries in the three legislative lists have to be int.erpreted 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 of the land and would still be a
tax on land and would not be beyond the competence of the
c
State legislature on the ground that it is a tax on income:
see Ra/la Ram v. The Province of East Punjab, [1948)
F.C.R. 207. 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 be taken into account in D
imposing a tax for the purpose of this entry would necessa-
rily depend upon the use to which the land is put. It is in the
light of this settled proposition that we have to examine the
-'''k
scheme of s. 62 of the Act which imposes a tax under
challenge."
E
On the other hand, it is contended for the respondents that,
-- ~
whatever may have been the original intention, the true and real
impact of the cess is only on the royalties. It is said that, at any rate,
after the amendments of 1976, when lands held for mining operations
-
~
were segregated for levy of separate and steep rates of cess based on
royalty, the ostensible appearance of levying a tax on all land with F
reference to annual value has disappeared and a direct, undisguised
' tax on royalties from mining lands has taken its place. It is urged that,
for deciding whether the tax is really a tax on land as in Murthy or
whether it is really a tax on royalties which has been struck down in
A
India Cement, it is not the form or the statutory machinery that
matters; one has to look at the real substance and true impact of the G
levy. If this is done, it is said, there can be no doubt that the cess
impugned here suffers from the same vice that vitiated the levy in
India Cement.

The decision of this Court in Buxa Dooars Tea Co. v. State,
-· [1989] 3 S.C.R. 211 was referred to by Sri G. Ramaswamy, learned H
_,
·::,,,.
146 SUPREME COURT REPORTS [1991] 2 S.C.R.

counsel for Orient Paper Mills, in support of this contention. In that
A
case, this Court was concerned with a cess levied annually. Initially
S. 4(2) of the relevant statute levied the cess:

"(a) in respect of lands, at the rate of six paise on each
rupee of development value thereof;
B
(b) in respect of coal mines, at the rate of fifty paise on
each tonne of coal on the annual despatches therefrom;

(c) in respect of mines other than coal mines and quarries,
at the rate of six paise on each rupee of annual net profits
thereof".
c
With effect from 1.4.1981, clause (a) above was amended and clause
(aa) inserted to provide for the levy of cess- •

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

(aa) in respect of a tea estate at such rate, not exceeding
rupees six on each kilogram of tea on the despatches from
such tea estate of tea grown therein, as the State Govern-
ment may, by notification in the Official Gazette, fix in this
E behalf:

Provided that in calculating the despatches of tea for the
purpose of levy of rural employment cess, such despatches
for sale made at such tea auction centres as may be recog-
nised by the State Government by notification in the Offi-
cial Gazette shall be excluded: •
F

Provided further that the State Government may fix diffe-
rent rates on despatches of different kinds of tea".

Sub-section (4) was added in Section 4 to enabl~e State Govern-
G ment, if it considers necessary so to do, by notification in the Official
Gazette, to exempt such categories of despatches or such percentage
of despatches from liability to pay the whole or any part of the rural
employment cess or reduce the rate of rural employment cess payable
thereon, under clause (aa) of sub-section (2), on such terms and condi-
tions as may be specified in the notification. With effect from
H 1.10.1982, the first proviso to clause (aa) was omitted. It was con-
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.) 147

*tended for the tea estate, inter alia that the above levy violated the
A
provisions of Article 301 of the Constitution and was also beyond the
legislative competence of the State Government. Upholding these
contentions, the Court.observed:
o(
,. "The question then is whether the impugned levy impedes
1 the free flow of trade and commerce throughout the ter- B
ritory of India and, if it does, whether it falls within the
exception carved out in article 304(b ). If the levy imposes a
_, cess in respect of tea estates, it may will be said that even
"" though the free flow of trade is impeded in its Government
throughout the territory of India, it is in consequence of an
"-'.j indirect or remote effect of the levy and that it cannot be
said that article 301 is contravened. The contention of the
c
petitioners is, however, that it is ostensibly only in respect

•
~ of tea estates but in fact it is a levy on despatches of tea. If
that contention is sound, there can be no doubt that it
constitutes a violation of article 301 unless the legislation is
brought within the scope of article 304(b ). To determine D
-·~' -'
whether the levy is in respect of tea estates or is a levy on
'!
despatches of tea, the substance of the legislation must be
;..;~
ascertained from the relevant provisions of the statute. It
~. cannot be disputed that the subject of the levy, the nature
-~ of which defines the quality of the levy, must not be con-
~
fused with the measure of liability, that is to say, the E
quantum of the tax. There is a plenitude of case law sup-
porting that principle, among the cases, being Union of
"-
I
;;..;-;
'
l.ndia v. Bombay Tyre International, [1984] 1S.C.R.347.

10. But what is the position here? ......... Now, for
determining the true nature of the legislation, whether it is F
a legislation in respect of tea estate and therefore of land,
or in respect of despatches of tea, we must, as we have said
""" take all relevant provisions into account and ascertain the
~} essential substance of it. It seems to us that although the
).
~ impugned provosions speak of a levy of cess in respect of
tea estates, what is contemplated is a levy on despatches of G
:r:I tea instead. The entire structure of the levy points to that
conclusion. If the levy is regarded as one in respect of tea
" estates and the measure of the liability is defined in terms
of the weight of tea despatched, there must be a nexus
between the two indicating a relationship between the levy.
~ on the tea estate and the criteria for determining the H
148 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

measure of liability. If there is no nexus at all it can con-
A
. ceivably be inferred that the levy is not what it purports to
be. The statutory provisions for measuring the liability on
account of the levy throws light on the general character of
the tax as observed by the Privy Council in Re: A Reference
· under the Government of Ireland Act, 1920 and Section 3 of
B the Finance Act (Northern Ireland), 1934, [1963] 2 A.E.R.
III. In R.R. Engineering Co. v. Zilla Parishad, Barielly,
I 1980] 3 SCR 1 this Court observed that the method of
determining the rate of levy would be relevant in consider-
ing the character of the levy. All these cases were referred
to in Bombay Tyer International Ltd., [1984] 1 S.C.R. 347
where in the discussion on this point at page 367 this Court
c said:.

Any standard which maintains a nexus with the essential
character of the levy can be regarded as a valid basis for
assessing the measure of the levy".
D
Applying the above tests to the case before it, the Court reached the
conclusion that, in substance the impugned levy was a levy in respect
of despatches of tea and not in respect of tea estates. It was then
pointed out that the question of legislative competence also turned on
this issue:
E
"If the impugned legislation were to be regarded as a levy
in respect of the estates, it would be referable to entry 49 in
List II of the Seventh Schedule of the Constitution which
speaks "taxes on lands and buildings". But if the legislation 'j··
is in substance legislation in respect of despatches of tea,
F legislative authority must be found for it with reference to
some other entry"

Pointing out that no such entry in List II or III had been brought to its
notice and further that, under S. 2 of the Tea Act, 1953, control over
the tea industry had been assumed by Parliament within the meaning
G of Entry 54 of List I, the Court upheld the challenge to the competence
of the State legislature to levy the impugned cess. It is submitted that,
likewise, here the levy is one in substance on royalties and not one on
land.

There is force in the contention urged by Sri T.S.K. Iyer that
H there is a difference in principle between a tax on royalties derived
l

OR!SSA CEMENT"· STATE OF ORISSA [RANGANATHAN, J.l 149

from land and a tax on land measured by reference to the income A
derived therefrom. That a tax on buildings does not cease to be such
merely because it is quantified on the basis of the income it fetches is
nowhere better illustrated than by the form of the levy upheld in Rafla
Ram, [1948] F.C.R. 207 followed by Bhagwan Dass Jain, [1981] 2 SCR
808 which illustrates the converse situation. Mukherjea (supra) also
supports this line of reasoning. But here the levy is not measured by B
~ the income derived by the assessee from the land, as is the case with
lands other than mineral lands. The measure of the levy is the royalty

.• _, paid, in respect of the land, by the assessec to his lessor which is quite
a different thing. Moreover, interesting as the argument is, we are
constrained to observe that it is only a reiteration of the ratio i<1
Murthy which has been upset in India Cement. We may point out that
this is of significance because, unlike in India Cement, the statute
c
considered in Murthy, as the one here, only purported to levy a cess on
.;
the annual value of all land. India Cement draws a "clear distinction
between tax on land and tax on income arising from land". The former
must be one directly imposed on land, levied on land as a unit and
bearing a direct relationship to it. In para 23 of the judgment, the D
Court has categorically stated that a tax on royalty cannot be said to be
a tax directly on land as a unit.

Sri Iyer contended that all the observations and propositions in
India Cement stem from the basic conclusion of the Court that the cess
levied there was a cess on royalty in view of the Explanation to S. 115. E
He also submitted that the statute under consideration in India Cement
--· did not provide for any cess in the case of land which did not yield any
royalty; in other words, the Act did not use dead rent as a basis on
which land was to be valued. He drew attention to the observations of
Oza, J. In para 42 of India Cement that if the Explanation to S. 115 had
used the words 'surface rent' in place of 'royalty' the position would F
have been different and that, if a cess on such 'surface rent' or 'dead
rent' is charged, it could be justified as a tax on land falling within the
purview of Entry 49. Here, however, the position is different and so,
he urged, the nature of the levy is also different. We may have
considered these points as furnishing some ground to distinguish the
'* present levy from that in India Cement but for the Court's specific G
disapproval of Murthy. We are unable to accept the plea of Sri Iyer
that, in spite of Murthy, he can support the validity of the levy, as the
statuti: considered in Murthy contained exactiy the sa1ne features as
\~
··i__ are here emphasised by Shri Iyer and the validity of such levy cannot
--~ be upheld after India Cement. As to the second contention based on
the observations in the judgment of Oza J., we may point out here the H
J
~
150 SUPREME COURT REPORTS [1991] 2 S.C.R.

levy is not one confined to dead rent or surface rent as suggested by
A
Oza J. but one on royalty which even according to Oza J. cannot be
described as a tax on land.

Sri Iyer contended that unless the case of the assessees is that the
statute is a piece of colourable legislation, it is not possible to construe
B the levy on mineral lands differently. He pointed out that S. 4 of the
Orissa Cess Act, 1962 levies a cess on all land and that, if Ss. 7(1) and
(2) measuring the cess by reference to the income of other categories
of land are valid, there is no reason why S. 7(3) alone should be treated
differently and objected to as imposing a tax on royalties particularly
when the levy also extends to dead rent.
c The answer to this contention appears to be that the plea of the
assessee need not go to the extent of saying that the levy is a colour-
able piece of legislation. It is sufficient to restrict oneself to the issue of
a proper determination of the pith and substance of the legislation.
There is no doubt an apparent anomaly in considering S. 7(1) and (2)
D as levying a tax on land but construing S. 7(3) as imposing a tax on
royalties and this anomaly has been noticed in India Cement (vide para
42). 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 S. 7 in 1976; the importance and magnitude of the
E revenue by way of royalties received by the State; the charge of the
cess as a percentage and, indeed, as multiples 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 respect to royalty rather than with
respect to land.
F
Sri Iyer had invited our attention to the decision of this Court in
R.R. Engineering Co. v. Zila Parishad, [1980] 3 S.C.R. I which upheld
the validity of a 'circumstances and property tax' levied by a Zila
Parishad. The High Court had held this levy could not be traced to any
entry other than the residuary Entry 97 of List I. This Court, on •
G appeal, pointed out the distinction between a tax of this type and a tax
on income. It held that the tax was a composite one referable to Entry
49 (tax on lands and buildings), Entry 58 (taxes on animals and boats)
and Entry 60 (tax as on professions, trades, callings and employments)
of List II. While holding, therefore, that the ceiling of Rs.250 per
annum referred to in Entry 60 would not be applicable to the tax, the
H Court uttered a "word of caution":

I'
ORISSA CEMENT v. STATE OF ORISSA (RANGANATHAN, J.] 151

"The fact that one of the components of the impugned tax, .A
namely, the component of 'circumstances' is referable to
other entries in addition to Entry 60, shall not be
construed as conferring an unlimited charter on the local
authorities to impose disproportionately excessive levies on
the assessees who are subject to their jurisdiction. An
excessive levy on circumstances will tend to blur the dis- B
tinction between a tax on income and a tax on circums-
tances. Income will then cease to be a mere measure or
yardstick of the tax and will become the very subject matter
of the tax. Restraint in this behalf will be a prudent pre-
scription for the local authorities to follow".

While Sri Iyer sought to use this decision in support of his contention
c
that a tax on property can be legitimately measured on the basis of the
income therefrom, we think the observations extracted above are very
apposite here, The manner in which the levy, initially introduced a
uniform cess on all land, was slowly converted, qua mining lands, into
a levy computed at multiples of the royalty amounts paid by the lessees D
thereof seem to bear out the contention that it is being availed of as a
tax on the royalties rather than one on the annual value of the land
containing the minerals. In the words of Chandrachud J. (as he then
was) one can legitimately conclude that royalty has ceased to be a mere
measure or yardstick of the tax and has become the very subject matter
thereof. E

For the reasons discussed above, we repel the contention of the
State seeking to justify the levy under Entry 45, 49 and 50 of List II of
the Seventh Schedule.
/"
There has been considerable discussion before us as to whether F
'royalty' itself is a tax or not. The controversy before us centres round
the discussion contained in paras 31 to 34 of the India Cement judg-
ment. Counsel for the assessees-respondents invite attention to the
opening sentence of para 34 which runs: "In the aforesaid view of the
4 matter, we are of the opinion that royalty is a tax" and argue that this
clinches the issue. On the. other hand, Sri Iyer submits that this G
purported conclusion does not follow from the earlier discussion and is
also inconsistent with what follows. He points out that though there is
a reference in para 27 to the conclusion of Venkataramiah J. in a
judgment of the Mysore High Court that royalty under S.9 of the
MMRD Act is really a tax, and a reference in para 31 to the Rajasthan,
Punjab, Gujarat and Orissa decisions to the effect that royalty is not a H
152 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A tax, there is no discussion, criticism or approval of any of the decisions
on this point and that, therefore, the first sentence of para 34, relied
upon for the respondents, is non-sequitir. He submits that, perhaps,
there is a typographical error in the first sentence of para 34 and that
the sentence should really read thus:

B ''In the aforesaid view of the nlatter, we are of opinion that
cess is a tax, and as such a ccss on royalty being a tax on
royalty, is beyond the competence of the State Legislature
" .,._

He also points out that the last sentence of para 34 reads thus:
c "Royalty on mineral rights is not a tax 011 land but a pay-
ment for the use of land".

He submits, therefore, that this issue has not been decided in India
Cement. He submits that, before we express any opinion on this issue,
D we should consider the matter afresh and places before us extracts '-
from various lexicons and dictionaries to show that a royalty is nothing
more than the.rent or lease amount paid to a lessor in consideration for
the grant of a lease to exploit minerals. Reference may also be made to
the discussion in this respect in paras 3:i-40 of Trivedi & Sons v. State
of Gujarat, [ 1986] Supp. S.C.C. 20. It is therefore, neither a fee nor a
E tax but merely a price paid for the use of mineral-bearing land.

We do not think that it is necessary for us to express an opinion ,_
either way on this controversy for, it seems to us, it is immaterial for
the purposes of the present case. If royalty itself were to be regarded
as a tax, it can perhaps be described properly as a tax on mineral rights
F and has to conform to the requirements of S. 50 which are discussed
later. We are, however, here concerned with the validity of the levy of
not royalty but of cess. If the cess is taken as a lax, then, unless it can
be described as land revenue or a tax oil land or a tax on mining rights,
it. cannot be upheld under Entry 45, 49 or 50. On the contrary, if it is
treated as a fee, the State's competence to levy the same has to be "'
G traced to Entry 23, a proposition the effect of which will be considered
later. The question whether royalty is a tax or not does not assist us
much in furnishing an answer to the two questions posed in the present
case and set out earlier. We shall, therefore, leave this question to rest
here.

H This takes us to the second question posed by us initially and this
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN,. J.] 153

turns on the effect of M.M.R.D. Act, 1957 and the declaration con-
tained in S. 2 thereof which has been extracted earlier. This will arise if ' A
we treat the levy as a tax falling under Entry 50 of List II or, al tern a·
lively, as a fee though it may not affect the State's competence if it tan
be attributed to Entry 49 of List II. ·

To take up Entry 50 first, a perusal of Entry 50would show that B
the competence of the State Legislature with respect thereto is
circumscribed by "any limitations imposed by Parliament by law relat-
ing to mineral development". The M,M.R.D. Act,° 1957; is-there can
be no doubt about this-a law of Parliament relating to mineral
development. S. 9 of the said Act empowers the Central Governmerit
to fix, alter, enhance or reduce the rates of royalty payable in respect
of minerals removed from the land or consumed by the lessee. Sub- c
section (3) of Section 9 in terms states that the royalties payable under
the Second Schedule to that Act shall not be enhanced more than once
during a period of three years. India Cement has held that this is a clear
bar on the State legislature taxing royalty so as, in effect, to amend
-· the Second Schedule to the Central Act and that if the cess is taken as a D
tax falling under Entry SO it will be ultra vires in view of the provisions
of the Central Act. · · ·

IS it possible, then, to treat the levy as a fee which the State
legislature is competent to legislate for under Entry 66 of the State List?' ·
Sri Iyer contends for this position particularly on the strength of S. 10 E
of the Orissa Cess Act, 1962. There is one great difficulty in accepting
this solution to the State's problem. S. 10 as it stands now earmarks the
purposes of utilisation of only fifty percent of the proceeds of the ·cess
and that, too, is limited to the cess collected in respect of "lands other
than lands held for carrying on mining operations". In other words,
the levy cannot be correlated to any services rendered or to be F
rendered by the State to the class of persons from whom the levy is
collected. Whether royalty is a tax or not, the cess is only a tax a·nd
cannot be pr9perly described as a fee.

This consideration apart, even assuming it is a tee; the State
legislature can impose a fee only in respect of any of the matters in the G
State List. The entry in the State List that is· relied upon for this
purpose is Entry 23. But Entry 23, it will be seen; is "subject to the
provisions of List I with respect to regulation and development" of ·
mines and minerals _under the control of the Union. Under Entry 54 of
List I, regulation of mines and mineral developtnent is in the field of
Parliamentary legislation "to the extent to which such regulation and H ·
I
154 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

A development under the control of the Union is declared by Parliament
by law to be expedient in the public interest". Such a declaration is
contained in S. 2 of the M.M.R.D. Act, 1957, which has been set out ,_.
earlier. It, therefore, follows that any State legislation to the extent it
encroaches on the field covered by the M.M.R.D. Act, 1957, will be
ultra Vires. The assessees contend, in this case, that the legislation in
B question is beyond the purview of the State legislature by reason of the
enactment of the M.M.R.D. Act. It would appear,primafacie that the
contention has to be upheld on the basis of the trilogy of decisions
referred to at the outset viz. Hingir-Rampur, Tulloch and India
Cement. They seem to provide a complete answer to this question. The
argument is, however, dis.cussed at some length, because it has been
C put forward, mutatis mutandis, in support of the levy of cess by the
other States as well.

Before dealing with the contentions of the counsel for the State
in this behalf, a reference may be made to a difference in wording
between Entry 52 and Entry 54 of List I. The language of Entry 52
D read with Entry 24 would suggest that, once it is declared by Parlia-
ment by law that the control of a particular industry by the Union is
expedient in the public interest, the State legislatures completely lose
all competence to legislate with respect to such an industry in any
respect whatever, Indian Tobacco Co. Ltd. v. Union, [1985) Supp. 1
S.C.R. 145. But, even here, there are judicial decisions holding that
E such declaration does not divest the State legislature of the compe-
tence to make laws the pith and substance of which fall within the
entries in List II, (see for e.g. Kannan Dewan Hills Co. v. State of
Kera/a, [1973) 1 S.C.R. 856 and Ishwari Khetan Sugar Mills Ltd. v.
State of U.P., [1980) 3 S.C.R. 331 to which reference will also be made
later, merely on the ground that it has some effect on such industry.
F Compared to that of Entry 52, the language of Entry 54 is very
guarded. It deprives the States of legislative competence only to the
extent to which the law of Parliament considers the control of Union to
be expedient in the matter of regulation of mines and mineral develop-
ment. Emphasising this difference, learned counsel for the State of
Orissa submits that the intent, purpose and scope of the M.M.R.D.
G Act is totally different and does not cross the field covered by the
impugned Act. It is a law to provide for the proper exploitation and
development of minerals and regulates the persons to whom, the
manner in which and procedure according to which licences for
prospecting or leases for minerals should be granted. That enactment
is concerned with the need for a proper exploitation of minerals from
H lands. The impugned Act, on the other hand, concentrates on the need
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.l 155

for development of mineral areas as such and provides for the collec- A
tion of cess to cater to these needs. The scope of the subject matter of
legislation under the two Acts are entirely different and the
M.M.R.D. Act cannot be considered to exclude State legislation of the
nature presently under consideration.

Before considering the above contention, it will be useful to refer B
to certain earlier decisions of this Court which have a bearing on this
issue. State of West Bengal v. Union, [1964] 1 S.C.R. 371 concerned
the validity of an Act of Parliament proposing to acquire certain coal
bearing areas in the State qua certain areas vested in the State itself.
While upholding the general right of Parliament to legislate for the
acquisition of even property vested in a State, the Court pointed out
that this could be done only if there is some provision in the Central
c
Act, expressly or necessarily implying that the property of the State is
to be acquired by the Union. However, the Court held, when the
requisite declaration under Entry 54 is made, the power to legislate for
regulation and development of mines and minerals under the control
of the Union, would, by necessary implication, include the power to D
acquire n1ines and minerals.

Baijnath Kedia v. State of Bihar, [1970] 2 S.C.R. 100 was a case
arising out of a 1964 amendment to the Bihar Land Reforms Act,
1950. By section 10 of the 1950 Act, all the rights of former landlords
or lessors under mining leases granted by them in their "estates" came E
to be vested in the State; but the terms and conditions of those leases
were made binding upon the State Government. Under a second pro-
viso to this provision and a sub-rule added by virtue of the. 1964
amendment, additional demands were made on the lessees, the vali-
dity of which was challenged successfully before this Court. The
Court, applying Hingir-Rampur and Tulloch held that the whole of F
the legislative field in respect of minor minerals was covered by
Parliamentary legislation and Entry 23 of List II was to that extent cut
down by Entry 54 of List I. The old leases could not be modified except
.. by a legislative enactment by Parliament on the lines of S. 16 of the
M.M.R.D. Act, 1957.
G
In State of Haryana v. Chanan Mal, [ 1976] 3 S.C.R. 688 the State
Government had declared saltpetre as a minor mineral and auctioned
saltpetre mines in the State under the M.M.R.D. Act, 1957 read with
the Punjab Minor Minerals Concession Rules, 1964. In a writ petition
filed by one of the owners, the High Court held, unless the mineral
deposits were specifically mentioned in the wajib-ul-arz of the village H
156 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A as having vested in the State, their ownership would continue to
remain vested in the former proprietors according to the record of
rights. To meet this difficulty and the difficulties that had been created
by haphazard leases created by the erstwhile proprietors, the State
legislature passed the Haryana Minerals (Vesting of Rights) Act, 1973
and issued notifications thereunder again acquiring the rights to the
B saltpetre in the lands putting up certain saltpetre-bearing lands to
auction. The High Court upheld the challenge to the validity of the
notifications holding that, in view of the declaration contained in S. 2
of the M.M.R.D. Act, the field covered by the impugned Act was
already fully occupied by Central legislation and that, therefore, the
State Act was void and imperative on grounds of repugnancy. This ,
Court, however, reversed the High Court's decision. It held that
c though the stated objects and reasons of the State Act showed that the
acquisition was to be made to protect the mineral potentialities of the
land and to ensure their proper development and exploitation on
scientific lines-and this did not materially differ from that which could
be said to lie behind the Central Act-the character of the State Act
D had to be judged by the substance and effect of its provisions and not
merely by the purpose given in the Statement of Objects and Reasons.
Analysing the provisions of the Central Act, the Court pointed out
that, subject to the overall supervision of the Central Government, the
State Government had a sphere of its own powers and could take
legally specified actions under the Central Act and rules. In particular,

. E S. 16(l)(b) of the Central Act showed that Parliament itself contemp-
lated State legislation for vesting of lands containing mineral deposits
in the State Government, a feature that could be explained only on the
assumption that Parliament did not intend to touch upon the power of
State legislatures under Entry 18 of List II read with Entry 42 of List
III. S. 17 also showed that there was no intention to interfere with
F vesting of lands in the States by the provisions of the Central Act. The
decision in Hingir-Rampur, Tulloch and Baijnath Kedia were disting-
uished. In Chanan Mal (supra), the respondents relied upon certain
observations in Hingir-Rampur and State of West Bengal v. Union,
(supra). The Court, however, distinguished them saying:

G "In the two cases discussed above no provision of the Cent-
ral Act 67 of 1957 was under consideration by this Court.
Moreover, power to acquire for purposes of development
and regulation has not been exercised by Act 67 of 1957.
The existence of power of Parliament to legislate on this
topic as an incident of exercise of legislative power on
H another subject is one thing. Its actual exercise is another.
ORISSA CEMENT v. STATE OF ORISSA iRANGANATHAN, J.l 157

It is difficult to see how the field of acquisition could
A
become occupied by a Central Act in the same way as it had
been in the West Bengal's case (supra) even before Parlia-
ment legislates to acquire land in a State. Atleast until
Parliament has so legislated as it was shown to have done
by the statute considered by this Court in the case from
West Bengal, the field is free for State legislation falling B
under the express provisions of entry 42 of List III".

Tulloch and Baijnath Kedia were also considered no longer applicable '
as Ss.16 and 17 of the M.M.R.D. Act, 1957 had been amended to get
over the need for a parliamentary legislation pointed out in Baijnath
Kedia.
c
A similar question whether the State legislature was competent
to acquire certain sugar undertakings, when the sugar industry had
become a "declared" industry under the provisions of Entry 52 of List
I read with S.2 of the I.D.R. Act, arose for consideration in Ishwari
-· Khetan Sugar Mills (P) Ltd. v. State of U.P., [1980) 3 S.C.R. 331. D
Answering this question in the affirmative, the Court observed:

"The argument that the State legislature lacked com-
petence to enact the impugned legislation is without force.
Legislative power of the State under Entry 24, List II is
eroded only to the extent control is assumed by the Union E
pursuant to a declaration made by the Parliament in.
respect of a declared industry as spelt out by the legislative
enactment and the field occupied by such enactment is the
measure of erosion. Subject to such erosion, on the
remainder the State legislature will have power to legislate
in respect of a declared industry without in any way trench- F
ing upon the occupied field. State legislature, which is
otherwise competent to deal with industry under Entry 24,
List II, can deal with that industry in exercise of other
powers enabling it to legislate under different heads set out
in Lists II and III and this power cannot be denied to the
State. G

The contention that the impugned Act is in violation of
section 20 of the Central Act has no merit. The impugned
legislation was not enacted for taking over the management
or control of any industrial undertaking by the State under-
takings. If an attempt was made to take over the manage- H
158 SUPREME COURT REPORTS [1991] 2 S.C.R.

ment or control of any industrial undertaking in a declared
A
industry the bar of section 20 would inhibit exercise of such
executive power. The inhibition of section 20 is on the
executive power but if as a sequel to an acquisition of an
industrial undertaking the management or control of the
industrial undertaking stands transferred to the acquiring
B authority section 20 is not attracted. It does not preclude or
forbid a State legislature exercising legislative power under
an entry other than Entry 24 of List II and if in exercise of
that legislative power the consequential transfer of
management or control over the industry or undertaking
follows as an incident of acquisition such taking over of
management or control pursuant to an exercise of legisla-
c tive power is not within the inhibition of section 20".

The decisions in the above two cases were, again, applied in Western
Coalfields Ltd. v. Special Area Development Authority, [1982] 2
S.C.R. 1. Here the question was whether the enactment of the Coal
D Mines Nationalisation Act, 1973 and the M.M.R.D. Act. 1957 pre-
cluded the State legislature from providing for the levy of a property
tax by the Special Area Development Authority, constituted under a
1973 Act of the State legislature, in respect of lands and buildings used
for the purposes of and covered by coal mines. The plea on behalf of
the appellant-coalfields was that the State Act was invalid (a) as it
E encroached on the field vested in the Centre by reason of the declara-
tion in S. 2 of the M.M.R.D. Act and (b) as it impeded the powers and
functions of the Union under the Coal Mines Nationalisation Act, 1973 "-·
which had been enacted by Parliament "for acquisition of coal mines
with a view to reorganising and restructuring such coal mines so to
ensure the rational, coordinated and scientific development and utili-
F sation of coal resources as best to subserve the common good".
Rejecting this contention the Court held:

"Apart from the fact that there is no data before us show-
ing that the property tax constitutes an impediment in the
achievement of the goals of the Coal Mines Nationalisation
G Act, the provisions of the M.P. Act of 1973, under which
Special Areas and Special Area Development Authorities
are constituted afford an effective answer to the Attorney
General's contention. Entry 23 of List II relates to "Regu-
lation of mines and mineral development subject to the
provisions of List I with respect to regulation and develop-
H ment under the control of the Union". Entry 54 of List I
ORlSSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 159

relates to "Regulation of mines and mineral development
to the extent to which such regulation and development
A
under the control of the Union is declared by Parliament by
law to be expedient in the public interest". It is true that on
account of declaration contained in S. 2 of the Mines and
Minerals (Development & Regulation) Act. 1957, the
legislative field covered by Entry 23 of List II will pass on B
to Parliament by virtue of Entry 54, List I. But in order to
judge whether, on that account, the State legislature loses
its competence to pass the Act of 1973, it is necessary to
have regard to the object and purpose of that Act and to
the relevant provisions thereof, under which Special Area
development Authorities are given the power to tax lands
and buildings within their jurisdiction. We have set out the c
objects of the Act at the commencement of this judgment,
one of which is to provide for the development and
administration of Special Areas through Special Area
Development Authorities. Section 64 of the Act of 1973,
which provides for the constitution of the special areas, lays D
down by sub-section (4). that: Notwithstanding anything
contained in the Madhya Pradesh Municipal Corporation
Act, 1956, the Madhya Pradesh Municipalities Act, 1961 or
the Madhya Pradesh Panchayats Act, 1962, the Municipal
Corporation, Municipal Council. Notified Area Committee
or a Panchayat, as the case may be, shall, in relation to the E
special area and as from the date the Special Area
Development Authority undertakes the functions under
clause (v) or clause (vi) of Section 68 ceases to exercise the
powers and perform the function and duties which the
Special Area Development Authority is competent to exer-
cise and perform under the Act of 1973. Section 68 defines F
the functions of the Special Area Development Authority,
on~ of which as prescribed by clause (v), is to provide the
municipal services as specified in sections 123 and 124 of
the Madhya Pradesh Municipalities Act, 1961. Section 69,
which defines the powers of the Authority, shows that
those powers are conferred, inter a/ia for the purpose of G
municipal administration. Surely, the functions, powers
and duties of Municipalities do not become an occupied
field by reason of the declaration contained in section 2 of.
the Mines and Minerals (Development & Regulation) Act,
1957. Though, therefore, on account of that declaration,
the legislative field covered by entry 23, List II may pass H
.,

160 SUPREME COURT REPORTS l 1991] 2 S.C.R.

on to the Parliament by virtue of Entry 54, List I, the
A
competence of the State Government to enact laws for
municipal administration will remain unaffected by our •
declaration.

Entry 5 of List lI relates to ''Local Government, that is to
B say, the constitution and powers of municipal corporations
and other local authorities for tile purpose of local self-
Government". It is in pursuance of this power that the
State legislature enacted the Act of 1973. The power to
impose tax on lands and buildings is derived by the State
Legislature from Entry 49 of List II: "Taxes on lands and
buildings". The p()wer of the municipalities to levy tax on
c lands and buildings has been conferred by the State Legis-
lature on the Special Area Development Authorities.
Those authorities have the power to levy that tax in order
effectively to discharge the muqicipal functions which are
passed on them. Entry 54 of List I does not contemplate the
D taking over of municipal functions".

The Court pointed out that Murthy provided a complete answer to the
above contention. Chanan Mal and lshwari Khetan, were referred to
and Baijnath Kedia distinguished. The decision of the Madhya Pradesh
High Court in Central Coalfieids v. State of M.P., A.LR. 1986 M.P. 33
E also arose out of similar facts: The question for consideration was
whether the functions, powers and duties of Municipalities and Special
Area Development Authority (SADA) become an occupied field by ~. -~-

virtue of S.2 of the MMRD Act, 1957 and the powers vested in them to
regulate construction activities relating to mining areas was ultra vires.
It was found that SADA had become the local authority to discharge
F the functions of a municipal administration under a State Act and that
the regulation of construction activities was one of the aspects of
municipal administration and management. In this situation, the ques-
tion posed was answered in the negative following lshwari Khetan,
Western Coalfields and Chanan Mal.

G Placing considerable reliance on the decisions in Chanan Mal,
lshwari Khetan and Western Coalfields, Sri Iyer contended that the
State legislation in the present case is not vitiated by reason of the
M.M.R.D. Act, 1957. He also pointed out that lndia Cement also does
not consider in detail the reasonings in llingir-Rampur and Tulloch but
only refers to certain observations in the dissenting judgrncnt of
H Wanchoo J. (as His Lm'tlship then was) in the former case and urged
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.J 161

that the entire matter requires careful consideration. He submitted
that Tulloch and Western Coalfields represent two lines of cases which . A
·-. need reconciliation and that this task has not been attemped at all in
India Cement,

On the other hand, learned counsel for the respondents submit-
ted that the authority of the Constituiion Bench in Western Coal- B
fields-which endorsed Mutthy-should be considered weak after
India Cement-which has overruled Murthy. the present case, it is
> submitted, is closer to Baijnaih Kedia. It is submitted that the princi-
ples of Tulloch have beeri referred to with approval in a number of
cases [Karunanidhi, 1979-3 SCR 254 at 277] Hind Stone, [1981] 2 SCR
742 at 746, I. T. C., [1985} Suppl. SCR 145 at 168 and are too well
settled to need any reconsideration. c
It is cleat from a perusal of the decisions referred to above that
the answer to the question before us depends on a proper.understand-
ing of the scope of M.M.R.D. Act, 1957, and an assessment of the
encroachment made by the impugned State legislation into the field D -
covered by it. Each of the cases referred to above turned on such an
appreciation of the respective spheres of the two legislations. As
pointed out in lshwari Khetan, the mere declaration of a law of Parlia-
ment that it is expedient for an industry or the regulation and develop-
ment of mines and minerals to be under the control of the Union under
Entry 52 or entry 54 does not denude the State legislatures of their E
legislative powers with respect to the fields covered by the several
entries in List II or List ill. Particularly, in the case of a declaration
under Entry 54, this legislative power is eroded only to the extent
conirol is assumed by the Union pursuant to such declaration as spelt
out by the legislative enactment which makes the declaration. The
measure of erosion turns upon the field of the enactment framed in F
pursuance of the declaration. While the legislation in Hingir-Rampur
and TU/loch was found to fall within the pale of the prohibition, those
in Chanan Mai, Ishwari Khetan and Western Coalfields were general in
nature and traceable to specific entries in the State List and did not
encroach on the field of the Central enactment except by way of inci-
dental impact. The Central Act, considered in Chanan Mal, seemed to G
envisage and indeed permit State legislation of the nature in question.

To turn to the respective spheres of the two legislations we are
here concerned with, the Central Act (M.M.R.D. Act, 1957) demar-
cates the sphere of Union .control in the matter of mines and mineral
development. While concerning itself generally with the requirements H
162 SUPREME COURT REPORTS [1991] 2 S.C.R.

A regarding grant)! of licences and leases for prospecting and exploitation
of minerals, it Cbntains certain provisions which are of direct relevance
to the issue before us. S.9, which deals with the topic of royalties and •
specifies not only the quantum but also the limitations on the enhance-
ment thereof, has already been noticed. S.9A enacts a like provision in
respect of dead rent. Reference may also be made to S.13 and S.18,
B which to the extent relevant, are extracted here.

13 Power of Central Government to make rules in respect of
minerals-

(I) The Central Government may, by notification in the
Official Gazette, make rules for regulating the grant of
c prospecting licences and mining leases in respect of mine-
rals and for purposes connected therewith.

(2) In particular, and without prejudice to the generality of
the foregoing power, such rules may provide for all or any
D of the following matters, namely:-

(i) the fixing and collection of fees for prospecting licences
or mining leases. surface rent, security deposit, fines, other
fees or charges and the time within which and the manner
in which the dead rent or royalty shall be payable;'
E
xxx xxx xxx xxx xxx
(m) the construction, maintenance and use of roads, ,, __..
power transmission lines, tramways, railways, aerial rope
ways, pipe lines and the making of passages for water for
mining purposes on any land comprised in a mining lease;
F
xxx xxx xxx xxx
(qq) The manner in which rehabilitation of flora and other
vegetation such as trees and the like destroyed by reason of
any pmspecting a mining operations shall be made in the
G ' Substituted by Act .l7 of 1986 for the original clause (i) which read:
(i) the fixing and collection of dead rent, fines, fees or other
charges and their collection of royalties in respect of-
1 i I prospecting licences,
(ii) mining leases,
H (iii) minerals, mines, quarried, excavated or collected".
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.[ 163

same area or in any other area selected by the Central
A
Government (whether by way of reimbursement of the cost
of rehabilitation or otherwise) by the person holding the
prospecting licence or mining lease···•·.

S. 18, which originally laid a duty on the Central Government to take
all such steps as may be necessary "for the conservation and develop- B
ment of minerals in India·· has been amended by Act 37 of 1986 to
cover steps "for the conservation and systematic development of
minerals in India and for the protection of environment by preventing
or controlling any pollution which may be caused by prospecting or
mining operations" and the scope of the rule-making power under
S. 18(2) has likewise been enlarged. S. 25(1) reads thus:
c
"25(1) Any rent, royalty, tax, fee or other sum due to the
Government under this Act or the rules made thereunder
or under the terms and conditions of any prospecting
licence or mining lease may, on a certificate of such effect
as may be specified by the State Government in this behalf
D
by general or special order, be recovered in the same
manner as an arrear of land revenue".

and sub-section (2) provides, further, that all such "rent, royalty, tax,
fee" etc. shall be a first charge on the assets of the holder of the
prospecting licence or mining lease as the case may be.
E
If one looks at the above provisions and bears in mind that, in
assessing the field covered by the Act of Parliament in question, one
should be guided (as laid down in Hingir-Rampur and Tulloch) not
merely by the actual provisions of the Central Act or the rules made
thereunder but should also take into account matters and aspects
F
which can legitimately be brought within the scope of the said statute,
the conclusion seems irresistible, particularly in view of Hingir-
Rampur and Tulloch, that the State Act has trespassed into the field
covered by the Central Act. The nature of the incursion made into the
fields of the Central Act in the other cases were different. The present
legislation, traceable to the legislative power under Entry 23 or Entry
50 of the State List which stands impaired by the Parliamentary decla- G
ration under Entry 54, can hardly be equated to the law for land
acquisition or municipal administration- which were considered in the
cases cited and which are traceable to different specific entries in List
II or List 11 l.
*Newly inserted by Act 37 of 1986. H
164 SUPREME COURT REPORTS I 1991] 2 S.C.R.
Sri Iyer contended that the object and purposes of the Orissa
A
Act and its provisions were quite distinct and different from the
objects and purposes of the Central Act with the result that the two
enactments could validly coexist since they do not cover the same
field. It was argued that the impugned Act was concerned with the
raising of funds to enable panchayats and samithis to discharge their
B responsibilities of local administration and take steps for proper
development of the areas (including mining areas) under their jurisdic-
tion whereas the Central Act was concerned not with any social
purpose but merely with the development of the mineral resources of
the country and as such the State legislation in this regard may also be
treated as referable to Entry No.5 of the State List as the statute in
Western Coalfields (supra).
c
As to the reliance on Entry 5 of List II, it is plainly too tenuous.
As pointed out by Sri Bobde, there is a difference between the 'object'
of the Act and its 'subject'. The object of the levy of the fees may be to
strengthen the finances of local bodies but the Act has nothing to do
D with municipal or local administration. In this context, it may be
pointed out that while S. 10 of the Orissa Act, as origi11ally enacted,
provided for a distribution of the cess collected among local bodies, an
amendment of 1970 restricted the utilisation of the cess partlv for
primary education and partly for the above purpose. Even this was
amended in 1976 whereafter there has been no restriction regarding
E the cess collected in respect of mining areas which form part of the
consolidated fund of the State. The levy has, therefore, ceased to be
capable of being described as a fee. Even if its purpose is only to levy a
fee, the fee can be described only as one with respect to 'land' (Entry
18) if considered generally or with respect to mines and mineral
development (Entry 23) if restricted to the nature of the issue before
F us. We shall discuss the relevance of Entry 18 later but, so far as Entry
23 is concerned, the State's legislative competence is subject to the
field covered by the Central Act. Turning therefore to the distinction
sought to be made between the respective areas of operation of the
two Acts the answer to this contention is provided by Hingir Rampur.
The Constitution Bench first set out the scheme of the impugned Act
G thus:

"The scheme of this Act thus clearly shows that it has been
passed for the purpose of the development of mining areas
in the State. The basis for the operation of the Act is the
constitution of a mining area, and it is in regard to mining
H areas thus constituted that the provisions of the Act come
ORiSSA CEMENT v. STATE OF ORISSA [RANGANATliAN. J.] 165

into play. It is not difficult to appreciate the intention of the
A
State Legislature evidenced by this Act. Orissa is ari under-
developed State in the Union of India though it has a lot of
mineral wealth of great potential value. Unfortunately its
mineral wealth is located generally in areas sparsely
populated with bad communcatiohs. Inevitably the exploi-
tation of the minerals is handicapped by lack of communi- g
cations, and the difficulty experienced in keeping tlJX
labour force sufficiently healthy and in congenial surround·
ings. The mineral development of the State, therefore,
requites that provision should be made for improving the
communications by constructing good roads and by provid-
ing means of transport such as tramways, supply of water
and electricity would also help, It would also be necessary
c
to provide for amenities of sanitation and education to the
labour force in order to attract workmen to the area.
Before the Act was passed it aj>peats that the mihe owners
ttied to put up small length roads and tramways for their
own individual purpose, but that obviously could not be as b
effective as roads constructed by the State and tramway
service provided by it. It is on a consideration of these
factors that the State Legislature decided to take an active
part in a systematic development of its mineral areas which
would help the mine owners in moving their minerals
quickly through the shortest route and would attract labour E
to assist the excavation of the minerals. Thus there can be
no doul:it that the primary and the principal object of the
Act is to develop the mineral areas in the State and to assist
more efficient and extended exploitation of its mineral
wealth".
F
A little iater, at page 559; the provisions of Central Act Lill of 1948
which were less far reaching than .those of the 1957 Act-as can be seen
from the observations at page 476 of Tulloch-were analysed and the
Court concluded:

"Amongst the matters covered by S. 6(2) is the levy and G ' ·
collection of royalties, fees or taxes in respect of minerals
mined, quarried, excavated or collected. It is ttue that no
rules have in fact been framed by the Central Goverhment
in regard to the levy and collection of any fees; but, in out
opinion, that would not make any difference. If it is heid
that this Act contains the declaration referred to in Entry H'
166 SUPREME COURT REPORTS I1991] 2 S.C.R.

23 there would be no difficulty in holding that the declara-
A
tion covers the field of conservation and development of
minerals, and the said field is indistinguishable from the
field covered by the impugned Act. What Entry 23
provides is that the legislative competence of the State
Legislature is subject to the provisions of List I with respect
B of regulation and development under the control of the
Union, the Entry 54 in List I requires a declaration by
Parliament by law that regulation and development of
mines should be under the control of the Union in public
interest. Therefore, if a Central Act has been passed for
the purpose of providing for the conservation and develop·
ment of minerals, and if it contains the requisite declara-
c tion, then it would not be competent to the State Legisla-
. lure to pass an Act in respect of the subject matter covered
by the said declaration. In order that the declaration should
be effective it is not necessary that rules should be made or
enforced; all that this required is a declaration by Parlia-
D ment that it is expedient in the public interest to take the
regulation and development of mines under the control of
the Union. In such a case the test must be whether the
legislative declaration covers the field or not. Judged by
this test there can be no doubt that the field covered by the
impugned Act is covered by the Central Act LIII of 1948".
E
The following observsations in Tulloch are also apposite in this
context:

"On the other hand, Mr Setalvad-learned counsel for the
respondent-urged that the Central Act covered the entire
F field of mineral development, that being the "extent" to
which Parliament had declared bylaw that it was expedient
that the Union. should assume control. In this connection
he relied most strongly on the terms of s. 18( !) which laid a
duty upon the Central Government "to take all such steps
as may be necessary for the conservation and development
G of minerals in India and "for that purpose the Central
•
Government may, by notification, make such rules as it
deems fit". If the entire field of mineral development was
taken over, that would include the provision of amenities
to workmen employed in the mines which was necessary in
order to stimulate or maintain the working of mines. The
H test which he suggested was whether, if under the power
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.} 167

conferred by s. 18(1) of the Central Act, the Central
A
Government has made rules providing for the amenities for
which provision was made by the Orissa Act and if the
Central Government had imposed a fee to defray the
expenses of the provision of these amenities, would such
rules be held to be ultra vires of the Central Government,
and this particularly when taken in conjunction with the B
matters for which rules could be made under s. 13 to which
reference has already been made. We consider there is
considerable force in this submission of learned counsel for
the respondent, and thus would require very detailed and
careful scrutiny. We are, however, relieved from this task
of detailed examination and discussion of this matter
because we consider that it is concluded by a decision of the
c
Court in the Hingir-Rampur Coal Co. Ltd & Ors. v. The
State of Orissa & Ors., I1961] 2 S.C.R. 537

The above argument was accepted by the Court, vide page 476. Refe-
rence may also be made here to the recent decision of this Court in D
Bharat Coking Coal v. State of Bihar, I 1990] 2 Scale 256. The question
whether the State of Bihar had the authority to grant a lease for lifting
coal slurry coming out of the appellants' washeries and getting
deposited on the river bed or other lands was answered in the nega-
tive. The Court came to the conclusion that the 'slurry' was a 'mineral'
and that its regulation was within the exclusive jurisdiction of Parlia- E
ment. The Court, in coming to the conclusion, held that no rules had
been framed under S. 18( 1) or 18(2)(k)-disposal or discharge of
waste, slime or tailing arising from any mining or metallurgical opera-
tions carried out but held that this was immaterial in view of the
principles laid down in Hingir Rampur, Tulloch and Baijnath Kedia.
These observations establish on the one hand that the distinction F
sought to be made between mineral development and mineral area
development is not a real one as the two types of development are
inextricably and integrally interconnected and, on the other, that, fees
of the nature we are concerned with squarely fall within the scope of
.i the provisions of the Central Act. The object of S. 9 of the Central Act
cannot be ignored. The terms of S. 13 of the Central Act extracted G
earlier empower the Union to frame rules in regard to matters con-
cerning roads and environment. S. 18(1) empowers the Central
Government' to take all such steps as may be necessary for the conser-
vation and development of 1ninerals in India ahd for protection of
environment. These, in the very nature of things, cannot mean such
amenities only in the mines but take in also the areas leading to and all H
168 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

A around the mines. The development of mineral areas is implicit in
them. S. 25 implicitly authorises the levy of rent, royalty, taxes and
fees under the Act and the rules. The scope of the powers thus confer-
red is very wide. Read as a whole, the purpose of the Union control
..
envisaged by Entry 54 and the M.M.R.D. Act, 1957, is to provide for
B proper development of mines and mineral areas and also to bring
about a uniformity all over the country in regard to the minerals
specified in Schedule I in the matter of royalties and, consequently
prices . Sri Bobde, who appears for certain Central Government
undertakings, points out that the prices of their exports are fixed and ~-
cannot be escalated with the enhancement of the royalties and that, if
different royalties were to be charged in different States, their working
C would become impossible. There appears to be force in this submis-
sion. As pointed out in India Cement, the Central Act bars an
enhancement of the royalty directly or indirectly, except by the Union
and in the manner specified by the 1957 Act, and this is exactly what
the impugned Act does. We have, therefore, come to the conclusion
D that the validity of the impugned Act cannot be upheld by reference to
Entry 23 or Entry 50 of List II.

An attempt was made to rest the legislation on Entry 18 of List II
viz. 'land'. This attempt cannot succeed for the reasons which we have
set out to negative the plea that it falls under Entry 49. A similar plea
in Baijnath was rejected by Hidayatullah C.J. in the following words:
E
"Mr. L.N. Sinha argued that the topic of legislation con-
cerns land and therefore falls under entry 18 of the State
List and he drew our attention to other provisions on the
subject of mines in the Land Reforms Act as originally
passed. The abolition of the rights of intermediaries in the
F mines and vesting these rights as lessors in the State
Government was a topic connected with land and land
tenures. But after the mining leases stood between the
State Government and the lessees, any attempt to regulate
those mining leases will fall not in entry 18 but in entry 23
G
even though the regulation incidentally touches land. The ..
pith and substance of the amendment to s. 10 of the
Reforms Act falls within entry 23 although it incidentally
touches land and not vice versa. Therefore this amendment
was subject to the overriding power of Parliament as
declared in Act 67 of 1957 in S. 15. Entry 18 of the State
List, therefore, is no help".
H
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.l 169

It will be seen that, if the levy in question cannot be described as a tax A
on land, it cannot be described as fee with regard to land either.

For the reasons above mentioned, we hold that the levy of cess
under S. 5 to 7 of the Orissa Cess Act, 1962 is beyond the competence
of the State Legislature.
B
Bihar:

+ The relevant provisions of the Bihar statutes have been set out
earlier. While S. 5 only lays down that all immovable property shall be
liable to a local cess and S. 6 provides fat the levy to be based on the
annual value of lands and sale value of other immovable properties, C
· the latter section specifically enacts that the cess will be on royalty
from mines and quarries and on the annual net profit of railways and
tramways. The further amendments to S. 6 have not changed this basic
position. Though the section refers also to the value of the mineral-
bearing land, that furnishes only the maximum upto which the cess,
based on royalty, could go. In other words, the cess is levied directly D
on royalties fro1n mines and quarries. 'fhe case is, therefore, indisting-
uishable from India Cement. The notifications place the matter
beyond all doubt. The levy is a percentage or multiple of the royalty
depending upon the kind of mineral and-in the case of iron ore-the
method of extraction and nature of the process employed. There are
no clear indications in the statute that the amounts are collected by E
way of fee and not tax. The provisions of S.9 extracted earlier would
indicate that only a small percentage goes to the district fund and the
remaining forms part of the consolidated fund of the State "for the
construction and maintenance of other works of public utility". How-
, ever, the proviso does require at least ten per cent to be spent for
purposes relating to mineral development. We shall, therefore, f
assume that the levy can be treated, in part, as a fee and, in part, as a
tax. But even this does not advance the case of the respondents for the
reasons already discussed.

Sri Chidambaram submits that, in the original counter affidavit
filed on behalf of the State, no case was sought to be made out that it G
was a tax on land; the case was that it was a "tax on mineral rights''.
He urged that, this being out of question because of India Cement
(paras 23 and 30) a belated attempt is made to bring it under Entry 49.
We do not need to discuss the contentions here in detail because tl],is is
a clearer case of levy on royalty than in Orissa; and, for the reasons we
have outlined in our discussion in regard to the Orissa Acts, this levy H
170 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

A has also to be declared invalid.

Sri Chidambaram also contended that the State cannot seek
sustain the levy by relying on Art. 277 of the Constitution, in view of
the fact that the cess is being levied since 1880. Article 277 is in these
8 terms:
"Any taxes, duties, cesses or fees which, immediately
before the commencement of this Constitution, were being
lawfully levied by the Government of any State or by any
municipality or other local authority or body for the
purposes of the State, municipality, district or other local
c area may, notwithstanding that those taxes, duties, cesses
or fees are mentioned in the Union List, continue to be
levied and to be applied to the same purposes until provi-
sion to the contrary is made by Parliament by Jaw".

0 We think, as rightly contended by Sri Chidambaram that a reliance on
Art. 277 will be misplaced for three reasons:

(a) The levy that is challenged is under S. 6, as amended in 1975,
i.e. a post-constitution levy;

{b) S. 6, on its own language, is operative only "until provision •
E
to the contrary is made by the Parliament" and, as we have held
that the field is covered by the M.M.R.D. Act, it supersedes the
effect of S. 6 re: mineral lands; and

(c) Article 277 only saves taxes, duties, and cesses mentioned
therein if they continue to be applied for the same purposes and
F
until Parliament by law provides to the contrary and with the
enactment of the M.M.R.D. Act, 1957, they cease to be valid. In
this context, the following observations of this Court in
Ramakrishna Ramanath v. Janpad Sabha, [ 1962) Supp 3 SCR 70
quoted in Town Municipal Committee v. Ramachandra, [1964) 6
SCR 947 at 959 are quite apposite:
G
"Dealing next with the import of the words 'may continue
to be levied' the same was summarised in these terms:

{1) The tax must be one which was lawfully levied by a
H local authority for the purpose of a local area,
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 171

(2) the identity of the body that collects the tax, the area A
for whose benefit the tax is to be utilised and the purposes
for which the utilization is to take place continue to be the
same, and

(3) the rate of the tax is not enhanced nor its incidence in 8
any manner altered, so that it continues to be the same
tax".

4 It is obvious that if these tests were applied the attempt to sustain the
tax on the basis of Art. 277 cannot succeed. Indeed, no such attempt
was made before us.
c
We; therefore, hold that the levy of cess has to be struck down. It
has also been brought to our notice that a Bench of two Judges of this
Court has already allowed an appeal by an assessee from a judgment of
the Patna High Court to the contrary viz. CA No. 1521of1990. It has
been brought to our notice also that the Patna High Court has recently 0
invalidated the levy of the cess in Central Coalfields Ltd. v. State,
(CWJC 2085/89 and connected cases) in a judgment dated 6.11.90,
following India Cement.

Madhya Pradesh:
E
We now turn to the provisions of Madhya Pradesh Act 15 of
1982. We are concerned only with Part IV which levies a cess not on
land in general which could be referred to Entry 18 or Entry 49 but
only on land held in connection with mineral rights which, in the State,
are principally in regard to coal and limestone. Under S. 9 the pro-
ceeds are to be utilised only towards the general development of F
mineral-bearing areas. Although there is no provision for the constitu-
tion of a separate fund for this purpose as is found in relation to the
cesses levied under Part II or Part III of the Act this considerations
alone does not preclude the levy from being considered as a fee: vide,
. Srinivasa Traders v. State, [1983] 3 S.C.R. 843 at 873. The clear
ear-marking of the levy for purposes connected with development of G
mineral areas was considered by the High Court, in our view rightly,
sufficient to treat it as a fee. However, the High Court pointed out,
such fee would be referable to item 23 and, hence, out of bounds for
the State Legislature, after the enactment of the M.M.R.D. Act, 1957.
For the reasons which have already been discussed in relation to the
Orissa Statute, we uphold this conclusion. H
172 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A , The other statute viz. the Madhya Pradesh Upkar Adhiniyam
(Act 1 of 1982) came up for the consideration of a Full Bench of the
Madhya Pradesh High Court in M.P. Lime Manufacturers' Association ~,
v. State, (and connected cases) in AIR 1989 M.P. 264. The Full Bench
held that, in view of s. 12 of the Act having been deleted by the 1989
amendment, the levy under s. 11 of the Act ceased to be a fee and
B become a tax. It held further that the levy was not covered by Entry 49
or Entry 50 of List II and was, therefore, ultra vires. It observed:

"It is significant to note that cess is not imposed on all land
and that it is not dependent either on the extent of the land
held in connection with mineral rights or on the value
thereof. The subject-matter of tax, therefore, is major
c mineral raised from the land held in connection with
mineral right. If no minerals are raised, tax is not leviable.
The tax is not dependant on the extent of the land held in
connection with mineral rights. It is not a case where al]
land is liable to paymel)t of cess, that t]le liability is asses-
D sed on the basis of the value of the land and that the
measure of the tax in so far as land held under a mining
lease is concerned, is the value of the minerals produced.
Under the impugned Act, value of the land or of the mine-
rals produced does not play any part in the levy of cess. The
quantity of major minerals produced from the land
E determines the liability to pay tax. In these circumstances,
the impugned levy cannot be held to be a tax on land which
is covered by Entry 49 of the State List.

After distinguishing Ajay Kumar Mukherjea v. Local Board, AIR
1965 SC 1561 and referring to Union v. Bombay International Ltd.,
F AIR 1984 SC 420 the Court concluded:

"The character of impost in the instant case is that though
in form it appears to be a tax on \and, in substance, it is a
tax on minerals produced therefrom. The subject-matter of
tax is, therefore, not covered by Entry 49 of the State ..
G List."

As for Entry 50, after referring Hingir Rampur, the Court observed:

"Now from a perusal of S. 11 of the Act, it would be clear
that in the instant case by the charging section, tax is not
H imposed on the mineral rights of every holder of mining
ORJSSA CEMENT v. STATE OF ORJSSA !RANGANATHAN, J.l 173

lease. The tax is levied on minerals produced in land held A
under mining lease. In these circumstances, the tax levied
by the Act cannot be held to be a tax covered by Entry 50
of List II of the Seventh Schedule to the Constitution. In
our opinion, therefore, it has not been shown that the State
Legislature is competent to levy the impugned cess."
B
This conclusion is obviously correct in the light of our earlier discus-
sion. The court, however, expressed an opinion, in paras 10 to 12 of
the judgment, that in case the levy could be treated as a tax imposable
under Entry 49 or 50 of List II in the Second Schedule to the Constitu-
tion, such power "has not been taken away by the provisions of the
MMRD Act". We think, as already pointed out by us that though the c
MMRD Act, 1957, unlike s. 6(2) of the 1948 Act, does not contain a
specific provision for the levy of taxes, s. 25 of the former does indicate
the existence of such power. The above observations of the High Court,
therefore, in our view, do not attach sufficient importance to s. 25 of
the MMRD Act and the field covered thereby. This aspect, however,
is not of significance in view of the conclusion that the tax is not D
referable to Entry 49 or Entry 50.

We may add that a Bench of this Court has already dismissed the
State's petition for leave to appeal from the judgment of the Full
Bench (S.L.P. 10052/89, 12696/84 etc. disposed of on 5.2.90) in limine
as squarely covered by India Cement. It is brought to our notice that E
the Madhya Pradesh High Court, after India Cement, has reaffirment
its conclusions in Hirata/ and M.P. Lime Manufacturers' Association in
Ankur Textiles and Another v. South Eastern Coalfields, (M.P.
No. 1547 of 1990) in the light of India Cement.

THE REFUND ISSUE F

Having thus concluded that the levy of cess under the Orissa,
Bihar and Madhya Pradesh enactments is invalid, it becomes necessary
to consider the logical consequences of such a conclusion. Prima facia
it would seem that the levy should be considered bad since its incep-
tion and that all cess levied under the impugned provisions should be G
directed to be refunded to the assessees, particularly in view of Article
265 of the Constitution. For the States, however, reliance is placed on
the following observations in para 35 of the judgment in India Cement
to contend to the contrary. Towards the conclusion of his judgment,
Sabyasachi Mukherjee, C. J. dealt with this issue thus:
H
174 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

"Mr. Krishnamurthy Iyer, however, submitted that, in any
A
event, the decision in H.R.S. Murthy case was the decision
of the Constitution Bench of this Court. Cess has been
realised on that basis for the organisation of village and
town panchayats and comprehensive programme of
measures had been framed under the National Extension.of
B Service Scheme to which our attention was drawn. Mr.
Krishnamurthy tyer further submitted that the Directive
Principles of State Policy embodied in the Constitution
enjoined that the State should take steps to organise village
panchayats and endow them with 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
c that basis, it 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 pro-
visions, should not be declared to be illegal retrospectively
and the State made liable to refund the same. We see good
D deal of substance in this submission. After all, there was a
decision of this Court in H.R.S. Murthy case and amounts
have been collected on the basis that the said decision was
the correct position. We are, therefore, of the opinion that
we will be justified in declaring the levy of the said cess to
be ultra vires the power of the State Legislature prospec-
E tively only".

Relying on the above observations, it is submitted for the States
that they should not be directed to refund a cess which they have been
levying for several years in the past on the basis of the law declared by
the Supreme Court in Murthy. Certain other circumstances have also
F been brought to our notice in this connection:

(i) Several States have proceeded on the basis that they are
entitled to levy a cess of the nature in question. In addition to the
States referred to earlier in the judgment, Ra jasthan and Andhra
Pradesh have also similar statutes. "
G
(ii) The levy accounts for a substantial part of the St~tes'
finances particularly in States which are rich in minerals. Fore .g.
State of Madhya Pradesh accounts for a good percentage of this
country's mineral resource. It produces 26.53% of the country's
production in limestone, 36% in dolomite, 28. 14% in coal,
H 21.5% in iron ore, 13% in bauxite, 21.38% in Manganese ore,
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 175

14.43% in rock phosphate, 33% in copper ore and so on. The
A
amounts of cess run to several crores. A direction to refund the
>- cess collected thus far will result in crying halt to all developmen-
tal activities initiated and put through and cause irreparable loss
to the State.

(iii) As pointed out (for e.g. in paras 5 to 8 in CMP Nos. B
31187 to 31196of1984 filed in CA Nos. 1640 to 1643, 1645, 1649,
1654, 1655, 1659, and 1662 of 1986) the impact of the cess has
! already been passed on by the assessees-which are leading
industries that can easily bear the brunt of the same-to their
customers. A refund granted to them will only result in their
unjust enrichment and this should be safeguarded against by
applying the principles in U.P. State Electricity Board, Lucknow c
& Ors. v. City Board, Mussoorie & Ors., [1985] 2 SCR 815 at
page 824 and State of Madhya Pradesh v. Vyankatlal & Anr.,
[ 1985] 3 SCR 561 at page 568.

The above request was vehemently opposed by the assessees' D
counsel. Presenting their case on this issue, Sri Nariman (appearing for
the appellants in C.A. 4353-4 of 1983 and C.A. 2053-80 of 1980) con-
tended that we should ignore the dicta in para 35 of India Cement as
per incuriam. He submitted, first, that the Court there has acted on the
assumption that a doctrine of prospective overruling had been enun-
ciated in Golaknath, [1967] 2 SCR 762. Analysing the various judg- E
ments delivered in that case, he submitted that, while Subba Rao C.J.
. --"' and four other judges (pp. 805-813) approved of the applicability of
this doctrine in India, five other judges spoke against it (pp. 890, 897,
899-922, 921 and 952) and the eleventh judge was neutral (p. 948). He,
therefore, submitted that the judges who decided Golaknath were
equally divided on the issue and so there is no ratio decidendi of the F
Court binding on us: Second, he submitted that the doctrine of
prospective overruling was evolved by the Supreme Court of the
United States in the absence of any constitutional provision militating
against it, vide: Sunburst 77 L.Ed. 310 (at page 366) and Linkletter, 14
L.Ed. (2d) 601 (at page 604-8). In India, however, the application of
the doctrine, particularly in the context of an issue regarding the vali- G
dity of a tax levy, would run counter to specific provisions contained in
Articles 246 and 265 of the Constitution. Where the Court finds that a
legislation is beyond the competence of the concerned legislature, it stands
uprooted altogether because Articles 246 and 265 say so. There is no
scope for, and no room for the exercise of any discretion by, the Court
to say that, these articles of the Constitution notwithstanding, they H
176 'SUPREME COURT REPORTS [1991] 2 S.CR.

iA would treat the legislation to be valid for a certain period or for certain
purposes. Third, he submitted that the above objection cannot be
"circumvented" by a resort to Article 142. Sri Nariman referred us in .~.

this context to the observations in the following decisions of this
Court:

B Re: Article 246

Pesikaka 1955-1SCR613 at pp. 652, 654, 656
Chamarbaugwala 1957 SCR 930 at p. 940
Sundararamier & Co. 1958 SCR 1422 at pp. 1468-1474
c WestRamnad 1963-2 SCR 747 at p. 764
M.L. Jain 1963 Supp. I SCR 912 at pp. 530-41

Re: Article 265

D Moopil Nayar 1961-3 SCR 77 at p. 89
Balaji 1962-2 SCR 983 at p. 996
Ghottachan · 1962 Supp. 2 SCR I at pp. 29-30
Bakshi Singh 1963-1 SCR 220 at p. 233
E Re: Article 142

Garg 1963 Suppl. I SCR at pp. 896-8 I -

It is submitted, relying on Mahabir KL,hore & Ors. v. State of Madhya
Pradesh, (1989] 4 SCC 1 that a refund is the automatic and inevitable
F
consequence of the declaration of invalidity rmd should be granted ,--~

provided a suit within the period of limitation or a writ for declaration
and consequential relief is filed.

Supplementing the above arguments, Sri G. Ramaswamy,
~
appearing for some of the assessees, contended that there can be no
G question of the Court exercising any discretion under Article 142 so as
to destroy a fundamental right of the assessees. Learned counsel also
submitied that considerations of hardship of the States, in case they
are called upon to refund hu_ge amounts, can be no relevant considera-
tion at all. He urged, that in some at least of the cases here, there is no
averment, much less evidence, of any irreparable hardship that is
H
likely to result if a refund is orJer•od. He also pointed out that, in the
ORISSA CEMENT v. STATE OF ORISSA IRANGANATHAN, J.] 177

converse situation where a retrospective levy is held to be valid, asses-
A
sees have been held entitled to no relief from payment of back duty on
grounds of hardship: vide, Chhotabhai Jethabhai Patel & Co. v. Union
of India, [ 1962] 2 Supp. SCR 1 at Pp 12, 13 and urged that there cannot
be a different rule for the State. Sri B. Sen submitted that the ruling in
Murthy could not be invoked to seek prospective invalidation as, at
least so far as Orissa was concerned, as the decision in Tulloch had B
clearly defined the limitations on the State's power to make such
levies.
-J
In addition to the above general arguments, reliance had also
been placed by the assessees on ·certain specific interim orders passed
[<"~
in these cases and it has been contended that these orders should be
given effect to, or at least taken into account, in deciding the issue of c
the final relief to be granted. It is, therefore, necessary to refer to
these orders:

(i) In C.A. Nos. 4353-4 of 1983, there is no interim order staying
recovery of the cess at all except of the arrears for the period from D
J .1. 1983 to 31.3. 1983 and even this was made subject to the furnishing
of a bank guarantee by the assessee.

(ii) In C.A. 2053-80 of 1980 there was initially (on 2.2.1981) an
order of stay oi recovery of cess on the furnishing of bank guarantees.
But this was later substituted by an order of 25.3.1983 by which the E
amounts of cess were to be deposited in the High Court every quarter
-·· and then withdrawn by the State but this was on the undertakin•g by the
State's Advocate General to refund the amo.unt "if deposited, in the
event the appeal succeeds". This continued till 30.1.90 when the
Counsel for the State of Orissa undertook, in view of the decision in
India Cement, Jhat the levy of the cess for the quarter ending F
December 1989 onwards will not be enforced until further orders.
Presumably, therefore, there has been no collection of cess in Orissa
since that period .
., . (iii) The position in the Orissa case of Orient Paper & Industries Ltd.
.• , is somewhat different. It is pointed out that when the levy of cess first G
.c
came into force w.e.f. 1.4.1977, the Western Coalfields Ltd. who sup-
plied coal to the assessees had challenged the levy of cess by a writ
petition and obtained an interim injunction order but eventually with-
drew the writ petition. But, simultaneously, the said company wrote to
the assessee that the amounts of cess (which were coliected from the
~ assessee) would be kept in a suspense account and that, after a deci- H
178 SUPREME COURT REPORTS [1991] 2 S.C.R.

A sion is rendered by a court of law, it will be decided whether they
should be deposited with the State against cess or should be refunded
to the assessees. It was made clear that, in case the levy of cess is held
invalid, "there will be no hitch in refunding the amount". This
arrangement went on between 1977 and 1982.

B On 21.9.1982, the assessee filed a writ petition challenging the
levy as it was enahanced from 25% to 100% from 1.4.1980. An interim stay
was granted by the High Court restricted to the enhanced demand but
even this was vacated by the High Court on 13.5.1983 in view of the
decision in Lakshmi Narain Agarwala v. State, AIR 1983 Orissa 210
that the levy was valid. Finally, the High Court by its judgment dated
C 22.12.1989 followed India Cement and allowed the writ but directed
that the collections so far made shall be allowed to be retained by the
State as was directed by the Supreme Court in the case of India Cement
(supra). This judgment is the subject matter of SLP 1479 of 1990 by the
State.

D The assessee thereupon filed a review petition in regard to the
above direction contending; (a) that a High Court had no jurisdiction
to declare provision to be unconstitutional only "prospectively"; (b)
that the cess in the case had been collected only by Western Coalfields
Ltd. and had not been deposited in the State coffers; and (c) that the
principle of 'unjust enrichment' should equally apply to the State
E which should not be permitted to enrich itself by the levy of an illegal
exaction. The application for review was dismissed by the High Court
on 13.7.90. Thereupon the assessee has preferred the unnumbered
SLP o( 1990 and SLP 11939 of 1990 respectively against the original
judgment dated 22.12.1989 and the order on the review petition dated ·
13.7.1990.
F
It is contended that the High Court, having regard to the :ir-
cumstances set out earlier, sbould have directed a refund of the 1.ess
collected. It is stated that, subsequently, Western Coalfields have ~·aid
over the amounts of cess to the Government [vide, orders of this Cc urt
referred to in sub para (v) below]. It is also submitted that the m er-
,.
G ments by the State now made that the amounts collected have b·,en
utilised by the S.tate on objects enumerated in Part IV of the Const tu-
tion are the result of an afterthought and are being put forward to
defeat the rightful entitlement of the assessee to the refund.

(iv) In the Bihar case, there was an interim order on 10.2.1986 to ·he
H following effect:
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, l.l 179

"On the stay application there will be no stay of recovery of
A
cess but in case appellants succeed in appeal in this Court,
• the excess amount so recovered will be paid to the appel-
!ants with interest at the rate of 12% from the date of
recovery''

This was modified on 30.1.90 in view of the judgment in lndia Cement B
which had been delivered by this time, and it was directed that the
State of Bihar should not also enforce any demand for cess for the
7 quarters ending December, 1989 and thereafter until further orders.
Presumably, therefore, there has been no levy of cess in Bihar from
the last qua.rter of 1989 onwards. Counsel for the assessees from
Bihar-Sri Chidambaram and Sri Shanti Bhushan stated that they seek
compliance with the order dated 10.2.86 and would not insist on
c
refund of cess collected earlier to that date.

(v) Turning to the Madhya Pradesh matters, the position is this.
The High Court, by its judgment dated 28.3. 1986 held the levy to be
~ invalid. In C.A. 1640 to 1662 of 1986, the initial order passed on D
.., 2.5.1986 was this:
r
•· "There will be stay of refund of the cess already collected
pending disposal of the appeals. Learned counsel for the
State states that, in the event of the appeals being dismis-
sed the State is prepared to pay interest at 12% per annum. E
There will, however, be no stay of operation of the
~-'
judgment."

As a result of the order, there should have been no collection of cess
by the State subsequent to the date of the judgment and the only issue
could have been regarding the refund of the cess already collected F
from 1982 to 28.3.1986.

However, the Western Coalfield Ltd. approached the Court with
an application in one of the appeals (viz. C.A. 1649/86) prayin_g that,
"l pending disposal of the appeals, it should be permitted to collect the
amount of cess and deposit the same in a separate account in the Bank G
vis-a-vis each of its customers. This application was ordered on 1.8.86.
When this order was passed, the State Government moved an applica-
tion praying that, instead of the monies being kept in deposit in bank
account by Western Coalfields Ltd., it will be conducive to public
interest if the State is permitted to utilise the moneys "in mineral areas
development programmes" and that the State would abide by such H
180 SUPREME COURT REPORTS [ 1991] 2 S.C .R.

A terms as the Court may impose at the time of final decision. It 1as,
therefore, prayed that the Western Coalfields should be directe l to
deposit the amounts collected by it to the State Government. fhe '
Court found this request reasonable and passed the following ord< r on
15.10.86:

B "The order dated 1.8.86 passed in the above appe 11 is
modified as follows:

The amount deposited by the Western Coal! ields
Ltd. in a separate account in the Bank in accordance with
the directions issued by this Court on 1.8.1986 shall be paid
to the State Government of Madhya Pradesh. In the ·:vent
c of the State Government failing in this appeal, the an ount
received by the Madhya Pradesh Government unde · this
order shall be refunded by that Government within :hree
months from the date of the judgment to the W1 stern
Coalfields Ltd. with inters! at 12 % per annum to disb1 rse it
in favour of those who had paid it, subject to such tirec-
tions which this Court may give in its judgment. 'Ihe
amount received by the Madhya Pradesh State Govern-
ment shall be spent in accordance with the provsions con-
tained in the impugned Act."

E, Fresh applications were filed by the State in a number of the other
appeals seeking similar directions as in C.A. 1649/86 but the record
does not show that any such orders were passed in appeals other than r-,
C.A. 1649/86. However, it seems that, in the case of coal, the cess is
being collected by Western Coalfields Ltd. and other like public sector
organisations (which are subsidiaries of Coal India Ltd.) from all their
f customers and passed on to the State not only in Madhya Pradesh but
also in Orissa (as indicated in sub-para [iii) above), apparently on the
understanding that it should be refunded by the concerned State
Government with interest in case the levy is ultimately held invalid. Sri
Bobde, appearing for the Western Coalfields, made it clear that this
company would abide by the directions of this Court, in so far as the
G amounts of cess collected by it remain with it or are directed to be '
refunded by the State Government to it.

We have given our earnest consideration to these contentions
and we are of opinion that the ruling in India Cement concludes the
issue. There the Court was specifically called upon to consider an
H argument that, even if the statutory levy should be found invalid, the
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.[ 181

Court may not give directions to refund amounts already collected and
A
the argument found favour with the bench of seven Judges. We are
bound by their decision in this regard. It is difficult to accept the plea
that, in giving these directions, the Court overlooked the provisions of
Articles 246 and 265 of the Constitution. The Court was fully aware of
the position that the effect of the legislation in question being found
beyond the competence of the State legislature was to render it void ah il
initio and the collections made thereunder without the authority of
law. Yet the Court considered that a direction to refund all the cesses
collected since 1964 would work hardship and injustice. The direc-
tions, now impugned, were given in the interests of equity and justice
after due consideration and we cannot take a contrary view.

In our view, we need not enter into a discussion on the principles
c
of prospective validation enunciated by at least some of the Judges in
Golaknath (supra) as the direction in' India Cement can be supported
on another well settled principle applicable in the area of the writ
jurisdiction of Courts. We are inclined to accept the view urged on
behalf of the State that a finding regarding the invalidity of a levy need D
not automatically result in a direction for a refund of all collections
thereof made earlier. The declaration regarding the invalidity of a
provision and the determination of the relief that should be granted in
conseqence thereof are two different things and, in the latter sphere,
the Court has, and must be held to have, a certain amount of discre-
tion. It is a well-settled proposition that it is open to the Court to E
grant, mould or restrict the relief in a manner most appropriate to the
situation before it in such a way as to advance the interests of justice. It
will be appreciated that it is not always possible in all situations to give
a logical and complete effect to a finding. Many situations of this type
arise in actual practice. For instance, there are cases where a Court
comes to the conclusion that the termination of the services or an F
employee is invalid, yet it refrains from giving him benefit of "rein-
statement" (i.e. continuity in service) on "back wages''. Jn such cases,
the direction of the Court does result in a person being denied the
benefits that should flow to him as a logical consequence of a declara-
tion in his favour. It may be said that, in such a case, the Court's
direction does not violate any fundamental right as happens in a case G
like this where an "illegal" exaction is sought to be retained by the
State. But even in the latter type of cases relief has not been con-
sidered automatic. One of the commonest issues that arose in the
context of the situation we are concerned with is where a person
affected by an illegal exaction files an application for refund under the
provisions of the relevant statute or files a suit to recover the taxes as H
182 SUPREME COURT REPORTS I 1991] 2 S.C.R.

A paid under a mistake of law. In such a case, the Court can grant relief
only to the extent permissible under the relevant rules of limitation.
Even if he files an application for refund or a suit for recovery of the
taxes paid for several years, the relief will be limited only to the period
in regard to which the application or suit is not barred by limitation. If
even this instance is sought to be distinguished as a case where the
B Court's hands are tied by !imitations inherent in the form or forum in
which the relief is sought, let us consider the very case where a
petitioner seeks relief against an illegal exaction in a writ petition filed
under Article 226. In this situation, the question has often arisen
whether a petitioner's prayer for refund of taxes collected over an
indefinite period of years should be granted once the levy is found to
be illegal. To answer the question in the affirmative would result in '
c discrimination between persons based on their choice of the forum for
relief, a classification which, prima facie is too fragile to be considered
a relevant criterion for the resulting discrimination. This is one of the
reasons why there has been an understandable hesitation on the part of
Courts in answering the above question in the affirmative,
D
The above aspect of the matter has been considered in several
decisions of this Court. In State of Madhya Pradesh v. Bhai/al Bhai &
Ors., [ 1964] 6 SCR 261 the respondents who were dealers in tobacco in
the State of Madhya Bharat filed a writ petition under Article 226 of
the Constitution for the issue of writ of mandamus directing the refund
E of sales tax collected from them on the ground that the impugned tax
was violative of Article 30l(a) of the Constitution and that they had
paid the same under a mistake of law. It was contended on behalf of
).
the State that even if the provision violated the fundamental rights, the
High Court should not exercise its discretionary power of issuing a writ
of mandamus directing refund since there was unreasonable delay in
F filing the petition. This contention of the State was rejected by the
High Court but on further appeal this Court took a different view.
While agreeing that the Courts have the power, for the purposes of
enforcement of fundamental rights and statutory rights, to give a con-
scq uential relief by ordering repayment of any money realised by the
Government without authority of law, the Court said:
G
"At the same time we cannot lose sight of the fact that the
special remedy provided under Article 226 is not intended
to supersede completely the modes of obtaining relief by an
action in a civil court or to deny defences ligitimately open
in such actions. It has been made clear more than once that
H the power to give relief under Article 226 is a discretionary
ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.J 183

power. This is specially true in the case of power to issue
A
writs in the nature of mandamus. Among the several.
matters which the High Courts rightly take into considera-
tio!l in the exercise of that discretion is the delay made by
the aggrieved party in seeking the special remedy and what
excuse there is for it. Another matter which can be rightly
taken into copsideration is ths nature of the facts and law B
that may have to be decided as regards the availability of
consequential relief. Thus, where, as in these cases, a
person comes to the Court for relief under Article 226 on
the allegations that he has been assessed to tax under a void
•' legislation ani:f having paid it under a mistake is entitled to
get it bac!<, if it the Court, finds that the assessment was C
void, being made under a void provision of law, and the
payment was made by mistake, it is still not bound to exer-
cise its discretaio11 directing repayment. Whether repay-
ment snou\d be ordered in the exercise of this discretion
will depend in each case on its 9wn facts and circumstances.
It is not easy nor is it desirable to lay down any rule of D
universal application. It may however be stated as a
general rule tna! if there )Jas been unreasonable delay, the
Court ought not oqlinarily to lend its aid to a party by this
extraordinary remedy of mandamus".

The Court further pointed out that the delay may be considered E
unreasonable even if it is less than the period of limitation prescribed
for a civil action for the remedy but where the delay is more than this
period, it will almost always be proper for the Court to hold that it is·
u11reaso11able. The relief given by the High Court was modified on this
basis. In Tilokchand Motichand v. Munshi, [1969] 2 S.C.R. 824 the
pe(itioners pad collected sales tax from their customers and paid it F
qver to the State. The Sales Tax Authorities directed a refund but on
~he condition that the amounts should be passed on to the customers.
1'ii11ce t)Je pe\itio!lers diq not comply with the condition, the sales tax
officer forfeited the sum under S. 21 (4) of the Bombay Sales Tax Act,
1953. A writ petition \"as filed by the petitioners contending that
S, 21(4) infringed Artic\es 19[10(f)l and 265 of the Constitution and, G
hence, they were not liable to repay the amount. This was dismissed on
the ground that they had defrauded their customers and, therefore,
-------·-- not entitled to any relief even if there was a violation of fundamental
rlg)Jts. A!l appeal to a Division Bench was also dismissed. Sub-
sequently, when coercive proceedings were taken for recovering the
amounts as arrears of land revenue, the petitioners paid the amoupts H
184 SUPREME COURT REPORTS I 1991] 2 S.C.R.

in 1959-60. Much later, there was a decision of this Court striking
A
down the correspondng provision of the Bombay Sales Tax Act 1946 as
ultra vires. The petitioners thereupon filed a writ petition under Arti-
cle 32 of the Constitution claiming a refund of the amounts paid by
them in consequence of the recovery proceedings. It was held by four
of the five learned J u<lges of this Court that the writ petition should be
B dismissed on the ground of !aches. Chief Justice Hidayatullah held that
though Article 32 gives the right to move the Court by appropriate
proceedings for enforcement of fundamental rights and the State can-
not place any hindrance in the way of an aggrieved person, once the
matter reached this Court, the extent or manner of interference was
for the Court to decide. The learned Chief Justice pointed out that this
C Court had put itself in restraint in the matter of petitions under Article
32. For example, if a party had already moved High Court under
Article 226, this Court would refuse to interfere. Similarly, in inquring
into belated and stale claims, this Court should take note of evidence
of neglect of the petitioner's own rights for a long time or of the rights
of innocent parties which might have emerged by reason of the delay.
D It was not possible for this Court to lay down any specific period as the
ultimate limit of action and that each case will have to be considered -· J.-.
on its own facts. On the facts of the case before it, the majority found
that the petitioner had by his own conduct abandoned his litigation
years ago and could not be permitted to resume it several years later
merely because some other person had got the statute declared uncon-
E stitutional. While Hidayatullah C.J. was of the view that the Court
should not, on the facts of the case, apply the analogy of the article in
the Limitation Act in cases of mistake of law give relief, Bachawat and
Mitter JJ. felt that even for a writ petition the limitation period fixed
for a suit would be a reasonable standard for measuring delay. Sikri J.
and Hegde J. dissented. Sikri J. was of the view that on the facts of the
F case there was no delay but that the period under the Limitation Act )!
should not be applied to such cases and that a period of one year
should be taken as the period beyond which the claim would be con-
sidered a stale claim unless the delay is explained. "Such a practice",
the learned Judge observed, "would not destroy the guarantee under
Article 32 because the article nowhere lays down that a petition
G however late, should be entertained. Only Hegde J. was emphatic that
!aches or limitation should be no ground to deny relief. The learned
Judge observed (for brevity, we quote from head note):

"Since the right given to the petitioners under Article 32 is
itself a fundamental right and does not depend on the dis-
H cretionary powers of this Court, as in the case of Article
OR!SSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.I 185

226, it is inappropriate to equate the duty imposed on this
A
Court to the powers of Chancery Court in England or the
equitable jurisdiction of Courts in the United States. The
·fact that the petitioners have no equity in their favour is an
irrelevant circumstance in deciding the nature of the right
available to an aggrieved party under Article 32. This
Court is charged by the Constitution with the special B
responsibility of protecting and enforcing the fundamental
rights, and hence ]aches on the part of an aggrieved party
cannot deprive him of his right to get relief under Article
32. In fact, law reports do not show a single instance of this
Court refusing to grant relief on the ground of delay. If this
Court could refuse relief on the ground of delay, the power
of the Court under Article 32 would be a discretionary
c
power and the right would cease to be a fundamental right.
The provisions contained in the Limitation Act do not
apply to proceedings under Articles 226 and 32 and il' these
provisions of the Limitation Act are brought in indirectly
to control the remedies conferred by the Constitution. it D
would be a case of Parliament indirectly abridging the
• fundamental rights which this Court, in Golaknath's case.
[1967] 2 S.C.R. 752 held that Parliament cannot do. The
fear that forgotten claims and discarded right against
Government may \Je sought to be enforced after the lapse
of a number of years if fundamental rights are held to be E
enforceable without any time limit, is an exaggerated one,
for, after all, a petitioner can only enforce an existing
right."

The above principles have been applied in several subsequent cases:
Ramchandra Shankar Deodhar v. Staie of Maharashtra, [1974] 2 SCR F
216; Shri Vallabh Glass works Ltd. v. Union of India, [1984] 3 SCR
180; State of M.P. v. Nandlal Jaiswal, [ 198\i] 4 SCC 566; D. Cawasji &
Co. v. State of Mysore, [1975] 2 SCR 511 and Salonah Tea Co. Ltd. v.
Superintendent of Taxes;[ 1988] I SCC 40 I.

The above cases no doubt only list situations where directions for G
refund have been refused, or considered to be liable to be refused, on
grounds of unreasonable delay or !aches on the part of the petitioners
in approaching the Court in the interests of justice and equity. The
importance of these cases, however, lies not in the grounds on which
refund has been held declinable but because they lay down unequivoc-
ally that the grant of refund is not an automatic consequence of a H
186 SUPREME COURT REPORTS [1991] 2 S.C.R.

A declaration of illegality. Once the principle that the" Court has a discre-
tion to grant or decline refund is recognised, the ground on which such
discretion should be exercised is a matter of consideration for the (.
Court having regard to all the circumstances of the case. It is possible
that a direction for refund may be opposed by the State on grounds
other than !aches or limitation. To give an instance; in recent years,
B the question has often arisen whether a refurtd could be refused on the
ground that the person who seeks the refund has already passed on the
burden of the "illegal" tax to others and that to grant a refund to him
would result in his "unjust enrichment". Some decisions have sug-
gested a solution of neither granting a refund nor permitting the State
to retain the illegal exaction. This issue has been referred to a larger
Bench of this Court and it is not necessary for us to enter into that
c question here. So far as the present cases are concerned, it is sufficient
to point out that all the decided cases unmistakably show that, even
where the levy of taxes is found to be unconstitutional, the Court is not
obliged to grant an order of refund. 1t is entitled to refuse the prayer
for good and valid reasons. Laches or undue delay or intervention of
D third party rights would clearly be one of those reasons. Unjust enrich-
ment of the refundee may or may not be another. But we see no reasoh
why the vital interests of the State, taken note of by the learned judges
in India Cement should not be a relevant criterion for deciding that a
refund should not be granted. We are, therefore, unable to agree with
the learned counsel for the petitioners that any different criterion
E should be adopted and that the direction in paragraph 35 of India
Cement should not be followed in these cases

For the reasons discussed above, we are of opinion that, though
the levy of the cess was unconstitutional, there shall be 110 direCtion to
refund to the assessees of any amounts of cess collected until the date
F on which the levy in question has been declared unconstitutional. This,
in regard to the Bihar cases, will be the date of this judgment. In
respect of Orissa, the relevant date will be 22.12.1989 on which date;
the High Court, following India Cei:nent declared the levy by the State
Legislature unconstitutional. In respect of Madhya Pradesh, the
relevant date will be the date of the judgment in Hirata/ Ramswarup
G and connected cases (viz. M.P. 410/83 decided on 28.3.1986) in respect
of the levy under State Act 15 of 1982. Though there are the dates of
the Judgment of the appropriate High Court, which may not consti-
tute a declaration of law within the scope of Article 141 of the consti,
tution, it cannot be gainsaid that the State cannot, on any grounds of
equity, be permitted to retain the cess collected on and after the date
H of the High Court's judgment.
ORJSSA CEMENT v. STATE OF OR!SSA IRANGANATHAN, J.) 187
,,
Another point that was raised, was that in many of these cases A
the Si!iie or the Ccialfiled Companies had given an undertaking that in
case the levy is held to be invalid by this Court, they would refund the
amcitint colleC!ed with interest. It is submitted thai the condition
imposed; or imderiakings given, to this effect and recorded at the time
of passing interim orders in the various cases should be given
implemented. The interim underiakings or directions cannot be under-
B
stood in such a manner as to conflict with our final decision on the writ
petitions set out above. But we agree that, to ihe extent refunds of
amounts of cess collected aftet the relevant dates are permissible on
the basis indicated by us, the State should refund those amounts to the
assessees directly or to the Coalfields from whom they were collected,
with interest at the rate directed by this Court or mentioned in the c
undertaking from the date of the relevant judgment to the actual date
of repayment. The Coalfields, when they get the refunds, should pass
on the same to their customers; the assessees.

"(he appeals ate disposed of accordingly. there will be no otder
as to costs. D

T.N.A. Appeals disposed of.