Holding

The tax imposed by the Bihar Forest Restoration and Improvement of Degraded Forest Land Taxation Act, 1992 is a tax on the void created by excavation, not a tax on land, and therefore the State lacks legislative competence to enact it.

Summary

The State of Bihar enacted the Bihar Forest Restoration and Improvement of Degraded Forest Land Taxation Act, 1992 to levy a tax on the excavation and use of forest land for non‑forest purposes. Respondents, including Indian Aluminium Company, held mining leases under the Mines and Minerals Regulation Act, 1957 and challenged the Act as beyond the State's legislative competence. The High Court struck down the Act, holding it was not a tax on land within Entry 49 of List II but a tax on the void created by mining activity, which falls under the Union List (Entry 54) and the Forest Conservation Act, 1980. On appeal, the Supreme Court affirmed the High Court’s view, stating that the tax is levied on the absence of land rather than on land itself, and therefore the State lacks competence to enact it. The appeals were dismissed with costs.

Issues considered

Whether the Bihar Forest Restoration and Improvement of Degraded Forest Land Taxation Act, 1992 is a tax on land within the meaning of Entry 49 of List II of the Seventh Schedule.
Whether the Act encroaches upon the Union’s exclusive field of legislation on mines and minerals (Entry 54 of List I) and the Forest Conservation Act, 1980.
Whether the tax imposed by the Act is ultra vires the Constitution of India.

Legislation cited

Constitution of Indias. Art. 245, s. Art. 246, s. Art. 254, s. Schedule VII – Entry 49 List II, s. Schedule VII – Entry 54 List I
Forest (Conservation) Act, 1980

Subjects

legislative competencetax on landUnion ListState Listforest conservationmining leasevoid taxultra viresBihar Forest Restoration ActSchedule VIIEntry 49Entry 54environmental taxforest landexcavationnon‑forest use

Judgment

A STATE OF BIHAR AND ORS.
v.
INDIAN ALUMINIUM COMPANY AND ORS. j

SEPTEMBER 24, 1997

B [J.S. VERMA, CJ., B.N. KIRPAL AND S.P. KURDUKAR, JJ.]

Constitution of India-Arts. 254, 245 & 246 and Schedule Vll List //
Entry 49-Bihar Forest Restoration and Improvement of Degraded Forest
C Land Taxation Act, 1992-Section 3-Legislative Competence-Tax is on the
excavation and use offorest land and not on forest land as such and taxing
is for non-forest activity in a forest land-Held, it is not a tax on land but
tax on absence of land or forest by reason of activity of excavation or
mining-It is a Field covered by Forest (Conservation) Act, 1980-Hence,
the-State legislature was lacking the Legislative Competence-Forest
D (Conservation) Act, 1980.

The respondents had been granted leases for different areas under the
provisions of Mines and Minerals Regulation Act, 1957. The said leases relate
to lands in the forest areas.

E Later, in February, 1992 the State promulgated the Bihar Forest
Restoration and Improvement of Degraded Forest Land Taxation Ordinance,
which was subsequently replaced by the Act. The Ordinance and the rules
were challenged in several writ petitions on the ground that it was beyond the
legislative competence of the State. The Entry 54 of List-i provided for
F regulation of mines and mineral development, the field being occupied by
Parliament alone. The State placed its reliance on the provision of the Entry
49 List-II and contended the Tax sought to be levied by the impugned Act was
tax on land and was not on or in relation to any mining activity. The High

G
Court quashed the aforesaid Act on the ground that in pith and substance it
was not a tax on the land and building within the meaning of Entry 49 List II
and as such the same was beyond the legislative competence of the State
-
Legislature. Hence, the State filed this appeal by way of Special Leave.

The appellant-State contended that the purpose of enacting this piece of
legislation was to provide adequate resources for restoration and improvement
H of degraded unproductive forest land, compensate losses caused by the use of
222
.. STATE v. INDIAN ALUMINIUM COMPANY 223
forest for non-forest purpose and to improve life support system. As such the A
Act was clearly relatable to Entry 49 of List II and did not suffer from any
infirmity as held by the High Court.
Dismissing the appeals, this Court
HELD : 1.1. The land ha~ been regarded as meaning the land on surface
and also below the surface. Therefore, in order that a tax could be levied under B
Entry 49 of List II it is essential that 'land' as a unit must exist on which the
tax is imp Jsed. In the instant c~se the tax is, in effect, being levied not on land
but on the absence of land. The levy is on the void, which has been created.
The forest land, which is bei'lg used, is not subjected to tax. The schedule to
the Act itself shows that the assessment of tax is on excavation and use of C
forest land for non-forest purpose. Section 3 read with the Schedule [and
clauses (a), (b) and (c)] of the Act says that the tax is not on the surface of the
land but is on the extent to which the destruction has taken place. The existing
land or trees are not taxed; the tax is leviable only when non-forest activity
takes place and the land is not rehabilitated. Therefore, in pith and substance
it is a tax on activity on land and not on land itself. Hence, it is outside the D .
ambit of Entry 49 of List-II. (234-A-D]
Sudhir Chandra Nawn v. Wealth Tax Officer, Calcutta and Ors., (1961]
1 SCR 108; Second Gift Tax Officer, Mangalore etc v. D.H. Nazareth etc.,
(1971]1 SCR 195; Indian Cement Ltd and Ors. v. State of Tamil Nadu and
Ors., [1990] l SCC 12; Union ofIndia v. H.S. Dhillon, (1972] 2 SCR 33; Orissa E
Cement Ltd. v. State of Orissa, (1991] supp 1 SCC 430 and State of Orissa v. ·
Mahanadi Coalfields Ltd, [1995] Supp 2 SCC 686, relied on.

Hiralal Rameshwar Prasad v. State of Madhya Pradesh, (1986) MPLJ
514, approved.
F
Goodricke Group Ltd. v. State of West Bengal, (1995] Supp. 1SCC707,
distinguished.

1.2. The provisions of clauses (d), (e) and (t) of the Schedule to the Act,
in effect and substance, amount to levy of tax on the use of forest land for
non-forest purposes and for rehabilitating the forest land. The Forest G
Conservation Act, 1980 and the rules and guidelines made thereunder contain
complete provisions for reclamation and rehabilitation of such land. Planting
and replanting trees thereon is a matter clearly covered by the Act and
therefore, the said Clauses (d) to (t) of the Schedule in the impugned Act
directly impinge on the analogous provisions of the Forest Conservation Act,
1980. (235-E-F] H
224 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A· CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2406-25 of
1994.

From the Judgment and Order dated 14.12.93 of the Patna High Court
in C.W.J.C. Nos. 1790, 2366/92 (R), 740, 10/93(R), 3282, 3356, 3347-48, 3823,
3313, 3320, 3201, 3172, 3170, 3195, 3045, 3196, 3054, 3197, and 9442of1992 (R).
B
Kapil Sibal, K.K. Venugopal, Raju Ramachandran, D.P. Gupta, R.F.
Nariman, Ranjit Kumar, B.B. Singh, Ms. Anu Mohla, Kumar Rajesh Singh,
Chander Bhushan, S.S. Rizvi, Darshan Singh, Sumant J. Khaitan, Dileep
Goswami, M.K.D. Namboodiri, A.K. Panda, Jaideep Gupta, R.P. Wadhwani,
C J.B. Dadachanji, S. Sukumaran, Sunil Kr. Jain, Ejaz Maqbool, D.P. Mukherjee,
M.C. Dhingra and Krishnanand Pandeya for the appearing parties.

The Judgment of the Court was delivered by

KIRPAL, J. The common question which arises for consideration in
D these appeals on special leave being granted, is about the validity of the Bihar
Forest Restoration and Imporvement of Degraded Forest Land Taxation Act,
1992 (hereinafter referred to as the 'said Act'). The Patna High Court, on writ
petitions having been filed by the respondents in these appeals, having
upheld the challenge to the validity of the said Act, the State of Bihar has
filed these appeals challenging the correctness of the High Court's decision.
E
The facts which are essential for the decision of these appeals are
similar and' lie in a very narrow compass, therefore, it is not necessary to refer
to the facts of each case. It will be sufficient to 'refer to the facts in the appeal
pertaining to Indian Aluminium Company Ltd. The said company, like all the
respondents, had been granted by the State of Bihar leases for different areas
·F under the provisions of Mines and Minerals Regulation Act, 1957. These
leases pertained to various tracts of land situated in different villages but all
the said leases related to lands in the forest areas. These leases had been
granted long prior to the promulgation of the ordinance which led to the
passing of the aforesaid Act. The respondents, on the basis of the leases
G which had been granted to them, worked on the said lands and extracted the
minerals for which the leases had been granted.

As far as Steel Authority of India is concerned the State of Bihar
became interested in setting up a steel plant in its State. Certain Government
land including forest land was given to the Hindustan Steel Ltd. (later re-
H named Steel Authority of India) and a steel plant including a township was
STATE v. INDIAN ALUMINIUM COMPANY [KIRPAL, J.] 225
set up at Bokaro. The land which was made available to this plant included A
forest land in ten villages which was transferred to the respondent company
on 24th May, 1962. According to the respondents, and this is not disputed,
it had paid compensation for the trees which it had acquired on the transfer
of forest land, the amount paid being Rs. 28.5 lacs. According to the
respondents several lacs of trees in various parts of the township have been B
planted and this process is still continuing.

On 29th February, 1992 the Governor of Bihar promulgated the Bihar
Forest Restoration and Imporvement of Degraded Forest Land Taxation
Ordinance under Article 213 of the Constitution so as to take immediate action
for the purpose of providing resources and restoration of degraded land and C
improvement of forest area. This Ordinance was subsequently replaced by the
Act. Pursuant to the promulgation of the said Ordinance, rules were notified
on 5th June, 1992. Consequent upon the promulgation of the ordinance and
the rules thereunder several writ petitions were filed, including those by the
respondents herein, before the Patna High Court challenging the ordinance
and the rules, inter alia, on the ground that it was beyond the legislative D
competence of the State Legislature of Bihar. It was also contended that the
said Act which replaced the Ordinance was repugnant to the Indian forest
Act 1927 and the rules framed thereunder and that it was ultra vires Articles
14, 19, 240, 265 and 300A of the Constitution. With regard to the legislative
competence it was contended by the respondents that in view of Entry 54 List E
1 providing for regulation of mines and mineral development, the State
Government had or authority or jurisdiction to promulgate the Act, the field
being occupied by the Parliament alone.

On behalf of the State Government reliance was placed on the provisions
of Entry 49 List II in support of its contention that the State Legislature had F
the legislative competence to enact this law. Shortly put the case of the
appellants herein was that what was now sought to be levied by the impugned
act was tax on land which was covered by Entry 49 List II and the tax was
not on or in relation to any mining activity.
G
The High Court by a common judgment allowed the writ petitions and
quashed the aforesaid Act by holding that the same was beyond the legislative
competence of the State Legislature on the ground that in pith and substance
it was not a tax on the land and building within the meaning of Entry 49 List
II; that in view of the provisions of Mines and Minerals (Regulation and
Development) Act, 1957 and the rules farmed thereunder it was an occupied H
226 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A field and, therefore, the State Legislature was denuded of all its power to
enact the said Act; that in view of the Forest Conservation Act, 1980 it was
doubtful whether the Impugned Act could impose the tax. It was also held
by the High Court that the Act and the Ordinance were unconstitutional and
void as they were vague and uncertain and conferred naked and arbitrary
power, that no machinery was provided for the purpose of levy imposition
B and assessment of the tax; Section 3(4) was in any event unconstitutional and
void and the Act and the Ordinance were violative of Article 30 I read with
Article 30 (b) of the Constitution. It was further declared by the High Court
that all actions taken under the said Act, ordinance and rules framed thereunder
were unconstitutional and void and writ of mandamus was issued restraining
C the respondents therein and its officers from giving effect to the Act or the
ordinance or the rules or any order or direction or instruction or notification
which may have been issued in any manner whatsoever.

Mr. Kapil Sibal, learned senior counsel for the appellants, submitted that
the studies which were conducted by the State indicated that mines had been
D abandoned and void created in forest land by the respondents and other
persons who carried out non-forest activities in forest which had created
serious problem of land degradation. As an example it was stated that in
Jharia alone there was a total area of 6284 hectares of degraded land which
required improvement . The degradation having been caused and void created
E on account of abandoned mines, the lands and its soil were required to be
treated and it was thought proper that if the land was not reclaimed the State
would not only lose that land forever but there would also be adverse effect
on the surrounding area. It was in this background that the ordinance was
issued, which was later replaced by an Act. The purpose of enacting this
piece of legislation, it was contended, was provided in the preamble to the
F Bill, which was introduced for replacing the ordinance which was as follows:

"To provide adequate resources for restoration and improvement of
degraded unproductive forest land, compensate losses caused by the
use of forest land for nonjorest purposes and improve life support
system for which an Ordinance, namely, The Bihar Restoration and
G
Improvement of Degraded Forest and Taxation Ordinance, 1992 was
promulgated.''

It was, therefore, submitted that this Act was clearly relatable to Entry
49 of List II. The further contention was that the Act and its various provisions
H did not suffer from any other infirmity as held by the High Court.
STATE v. INDIAN ALUMINIUM COMPANY [KIRPAL, J.] 227
Mr. K.K. Venugopal, learned senior counsel and other learned counsel A
on behalf of the respondents contended that in pith and substance the tax
in question cannot be regarded as a tax on land falling under Entry 49 List
II. It was submi~ed that the impugned Act represents the third attempt to
transgress to the occupied field and to tax minerals and mining activities by
the State. The initial attempt was struck down by this Hon 'ble Court in Orissa B
Cement Ltd. v. State ofOrissa and Ors. [1991] Supp. I SCC 430. According
to the learned counsel the second attempt was made by the Cess and Other
Minerals (Validation) Act 1992 passed by the Union Parliament but this also
failed as the operation of the said Act which was initially stayed by the High
Court, and was then read down by it in its judgment dated 17th January, 1996
as having a limited application in only staying the refund of taxes already C
recovered by the State of Bihar prior to 4th April, 1991, the date of the Orissa
Cement judgment. Therefore, it is contended, the history prior to the
promulgation of the impugned act clearly shows that this a colourable piece
of legislation brought about in an attempt to continue to levy the tax, cess
or royalty which had been declared to be void but had been validated by the
Parliament only for a limited period upto 4th April, 1991. Though the law had D
been cast in such a fashion so as to give an environmental flavour, in effect,
the only purpose of this Act was to tax the mining or the non forest activities
and the Act in question has transgressed the field occupied by the Central
Act and the same could not be regarded as falling under Entry 49 of List II.
E
In order to appreciate the rival contentions of the parties, it will be
appropriate to refer to the salient features of the impugned Act and the Rules
framed thereunder. The relevant provisions of the said Act are as follows:

"I. Short title, extent and commencement-[!] This act may be called
the Bihar Restoration and Improvement of Degraded Forest Land F
Taxation Act, 1992.

(2) It extends to the whole of the forest land in the State of Bihar.

(3) It shall come into force at once.

2. · Definition - In this Act unless the context otherwise requires- G
(a) "appellate authority" means an authority appointed under
sub-section (!) of section 7 by the State Government;
(b) "biological reclamation" means restoration ofvegetal cover
by such means as may be deemed suitable; H
228 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A (c) "Collector" means the Collector of the District and the
Additional Collector and any other officer, specially empowered
as Collector by the State Government under this Act;

(d) ''excavation'' means making hollows either on surface or under
ground by whatsoever means;
B (e) "forest land" means any land notified as such under any Act
and/or recorded as forest in revenue records;

(f) "forest use" means use of forest land for the purpose of
forestry, agriculture, horticulture, or any allied and ancillary
activities;
c
(g) "government" means the Government of the State of Bihar;

•(h) "mechanical reclamation" means restoring the original contour
as far as possible and/or filling up of void;

(i) "non-forest use" means any use other than forest use;
D
0) "open cast excavation" means an excavation confined to
land surface only;

(k) "occupied" means a person in possession of an area of
excavated and voided land;
E
(I) "prescribed" means prescribed by the rules named under this
Act;

(m) "user" means a person who used or shall use an area of
forest land for non-forest purpose or purposes, to use such area
of forest land;
F
(n) "vegetative density" JO, 0.9, 0.8, 0.7, 0.6, 0.5, 0.4, 0.3, 0.2 and
0.1 density means I 00.90, 80, 70, 60, 50, 40, 30, 20, and I 0 per cent
respectively of a unit area of the forest land not receiving sunlight
due to effective tree growth or green canopy;
G (o) "void" means any area of left over forest land from where
soil, any mineral or rock or ore or anything being fastened with
the earth has been removed for non-forest purpose, transported
or dumped at a place other than the place from where the same
was taken;

H (p) "Zero density" means a forest land having only bushes and
STATE v. INDIAN ALUMINIUM-COMPANY [KIRPAL, J.] 229
grass but no tree. A
3. Levy and collection oftax-(1) There shall be levied, assessed and
collected a tax called the Bihar Restoration and improvement of
Degraded Forest Land Tax for mechanical and biological reclamation
of forest land and for rehabilitation so that the land is reclaimed as
far as possible and the tax shall be levied, assessed and collected at B
the rate specified under the schedule appended to this Act in the
manner as may be prescribed :

Provided that the Government shall have the power to amend the
schedule by rules as and when considered necessary.
c
2. The tax under sub-section (I) shall be payable by

(a) every user allowed by the State Government to use forest
land for non-forest purpose;
(b) every occupier responsible for creating void/voids by D
indulging in any developmental activities including mining.
3. (a) The rate of taxation given against serial numbers (a), (b) and
(c) of the Schedule shall apply to forest land already voided
immediately before the date of commencement of this Act, and
the areas of the forest land being voided, or the area that may E
be voided after the date of commencement of this Act;
(b) The rate of taxation given against serial numbers (d) to (f) of
the Schedule shall be applicable in case of use of forest land with
different vegetative density which is used for non-forest purpose;
(c) An user/occupier engaged in excavational activities against F
serial numbers (a), (b) and (c) and also using forest land for non-
forest purpose against serial numbers {d), (e) and (f) shall be liable
for taxation at the rate as specified in the Schedule.

SCHEDULE
(SEE SECTIONS 3)
G

2
J (a) In respect of mechanized Rs. 40/M of land voided, subject
open cast excavation. to a Maximum of Rs. 55.00 lacs per
hectare of land excavated. J;;L..
,,

230 SUPREME COURT REPORTS [1997) SUPP. 4 S.C.R.

A (b) In respect of non-mechanical Rs. 21/M of land voided.
open cast excavation. t·
(c) In respect of underground Rs. 30/M of land voided/subsided
. excavation/subsidence area. subject to a maximum of Rs. 45.00
lacs per hectare of land excavated/
B subsided.

(d) In respect of use of forest Rs. 125 lacs per hectare land for
land of density 1.0 (1.0 use for 50 years thus Rs. 2.50 lacs
density means I 00% of a unit per hectare for one year.
area of the land not receiving
c sunlight due to effective
growth of tree or green
canopy).

(e) For forest land with density Tax in proportion to the rates
varying from 0.9 to 0.1. in category (d) in accordance with
density.

(t) In respect of use of forest Rs. 6 lacs per hectare of land for
land having zero density use for 50 years thus Rs. 12,000
(No tree, only bushes. per hectare of land for one year.
E and grass)

By notification dated 5th June, 1992 Rules were framed which required
furnishing of return within thirty days of the notification and thereafter by
31st January of every year showing the area of forest land voided and/or
being voided and the area of forest land used and/or being used for non-
F forest purposes. Rule 5 provides for assessment of tax and the issuance of
demand notice indicating the amount of tax payable by the user and/or
occupier as the case may be.

Mr. Kapil Sibal fairly conceded that in view of the provisions of the
G Mines and Minerals Development Act and the Forest Conservation Act, 1980
unless it could be established that this Act is relatable to Entry 49 of List II
and can be regarded as a tax on land, the State Legislature would not have
the legislative competence to enact the same. It was, therefore, submitted by
Mr. Sibal that the tax fails within Entry 49 of List II since the same is levied
'! on land as a unit and the legislation does not relate to regulation of miner
STATE v. INDIAN ALUMINIUM COMPANY [KIRPAL, J.] 231

and minerals development. He referred to the aforesaid provisions of the Act A
and submitted that Section 3 was the charging section and the same had to
be read along with the schedule. Reading the two together, it was clear that
the levy of tax is relatable to the rehabilitation of the land which had been
voided, wholly or in part. In computing the amount of tax to be paid the
schedule to the Act indicated that the rate is relatable to the extent to which B
the land has been voided. The levy, it was contended, is not with reference
either to the quantum of mineral produced or the value of mineral recovered
and nor is the levy related to the royalty recovered by the State at the pit-
head. The tax is related to the cost of reclamation and the same is recoverable
from the occupier responsible for creating voids by indulging in developmental
activities including mining. The operation of the two acts, namely, the MMRD C
Act and the impugned Act were in entirely different fields and nor did the
operation of the impugned legislation directly or indirectly deal with matters
covered by the Forest Conservation Act, 1980. It was contended that even
though a part of the said legislation may effect another entry in the Union
List, the same will not render the State Legislature unconstitutional once in D
pith and substance the impugned legislation fell within the entry in the State
List. It was submitted that looking at the Act as a whole the tax in question,
in pith and substance, was a tax on land to the extent to which it had been
voided. That the tax not relatable to the carrying on of the non-forest ac_tivity
was sought to be demonstrated from the fact that if the land had been E
rehabilitated or restored by the occupiers, and there was no voiding of land,
then no tax was leviable.

What is the 'tax on land' has been a subject matter of judicial decisions
of this Court. Therefore, before examining the submissions of the parties it F
will be appropriate to refer these decisions and then to examine whether the
tax in question can be regarded as tax on land as envisaged by Entry 49 of
List II.

In Sudhir Chandra Nawn v. Wealth Tax Officer, Calcutta and Ors., G
[1961] I SCR 108, in relation to the challenge to the Wealth Tax Act a
contention had been raised to the effect that the expression 'net wealth' in
that Act included non-agricultural lands and buildings and the power to levy
tax on that was reserved to the State Legislatures by Entry 49 of List II of
the 7th Schedule and, therefore, the Parliament was incompetent to legislate
for the levy of wealth tax on the cap"ital value of assets which included non- H
•
232 SUPREME COURT REPORTS [1997] SUPP. 4 S.C.R.

A agricultural lands and building. While upholding the validity of the Act this
Court held that Entry 49 of List II of the 7th Schedule contemplates the levy
of tax on lands and buildings or both as units. Tax on lands and buildings
is directly imposed on lands and buildings and bears a definite relation to it.
This decision was followed in the case of Second Gift Tax Officer, Mangalore,
Etc. v. D.H. Nazareth Etc., [1971] l SCR 195, where this Court had to deal with
B the validity of the Gift Tax Act 1958. The contention raised. was that gift tax
could not be levied by the Parliament on the gift made by the assessee of
a coffee plantation and other properties in favour of his sons. The High Court
had upheld. the contention and .had held that Entry 49 of List II read with
Entry 18 of the same list reserved the power to tax lands and buildings to the
C Legislature of the States and the Parliament could not, therefore, use the
residuary power conferred by Entry 97 of the Union List. While allowing the
appeal this Court held at page 200 that'"Since entry 49 of the State List
contemplates a tax directly levied by reason of the general ownership of lands
and buildings, it cannot include the gift tax as levied by Parliament," Entry
49 of List II came up tor consideration, once again, in India Cement Ltd and
D Ors., v. State of Tamil Nadu and Ors., [1990] I SCC 12. The Court was
considering the validity of the levy of cess on royalty payable by a lessee
on the extraction of minerals. In defending the validity of the levy the State
Government had, inter alia, sought to rely on Entry 49 of List II and had
contended that in pith and substance the cess was a tax on land. While
E approving the decision of a Division Bench of the Madhya Pradesh High
Court in the case of Hirata! Rameshwar Prasad v. State of Madhya Pradesh,
(1986) MPLJ 514 in which it had been held that the development cess levied
by Section 9 of the M.P. Karadhan Adhiniyam 1982 was ultra vires, this Court
held that cess on royalty could not be sustained under Entry 49 of List II as
being a tax on land. In coming to this conclusion it was observed at page 26
F that "It appears that in the instant case also no tax can be levied or leviable
under the impugned Act if no mining activities are carried on. Hence it is
manifest that it is not related to land as a unit which is the only method of
valuation of land under Entry 49 of List II, but is relatable to minerals
extracted," Again at page 27 of the report it was held that "The expression
G 'land' according to its legal significance has an indefinite extent both upward
and downwards, the surface of the soil and would include not only the face
of the earth .but everything under it or over it." in Union of India v. H.S.
Dhillon, [1972] 2 SCR 33 a seven judge Bench of this Court was again called
upon to consider the validity of the Wealth Tax Act and in dealing with the
contention relating to Entry 49 of List II at page 70, after reviving the earlier
H decision, the entry was explained as follows :
•
STATE v. INDIAN ALUMINIUM COMPA~Y [KIRPAL, J.) 233
"The requisites ofa tax under entry 49, List II may be summarised A
thus:

(I) It must be a tax on units, that is lands and building separately as
units.

(2) The tax cannot be a tax on totality, i.e .. , it is not a composite tax B
on the value of all lands and buildings.

(3) The tax is not concerned with the division of interest in the
building or land. In other words, it is not concerned whether one
person owns or occupies it or two or more persons own or occupy
it. c
In short, the tax under entry 49, List II is not a personal tax but
a tax on property."

The validity of the levy of cess on royalty charged for mining levied by the D
Cess Acts of the States of Orissa, Bihar, Bengal and Madhya Pradesh came
up for consideration before this Court in the case of Orissa Cement Ltd. v.
State o[Orissa and Ors., [1991] Supp. I SCC 430 where again relying upon
the earlier decisions, this Court held that tax on land envisaged by Entry 49
of List II "must be one directly imposed on land levied on land as a unit and
bearing a direct relationship to it." The last authority which needs to be E
referred to in this connection is of State of Orissa and Ors., v. Mahanadi
Coalfields Ltd and Ors., [ 1995] Supp. 2 SCC 686 where this Court was called
upon to determine the competence of the State Legislature to levy tax on coal
bearing lands levied under Orissa Rural Employment, Education and Production
Act, 1992. This Act had been promulgated with a view to provide additional F
resources for promotion of education and employment in rural areas and for
implementing rural employment, education and production programmes. The
Act sought to levy rural employment, education and production tax only on
mineral bearing land and coal bearing land. The validity of the Act having
been challenged, the High Court held that the State Legislature did not have G
the competence to levy tax on coal bearing land. In appeal the legislative
competence was sought to be derived from Entry 49 of List II. Rejecting this
contention and following the ratio of the earlier decision of this Court, it was
held that the levy in that case was in substance on minerals and mineral rights
arid not on land and was beyond the competence of the State Legislature and
did not fall within Entry 49 of List II. H
234 SU,PREME COURT REPORTS (1997] SUPP. 4 S.C.R.

A Applying the ratio of the aforesaid decisions to the facts of the present
case we. find that the position is no different. Entry 49 of List II has been
interpreted to mean the levy of tax directly on land as a unit. The land has
been regarded as meaning the land on surface and also below the surface.
Therefore, in order that a tax· can be levied under Entry 49 of List II it is
B essential that 'land' as a unit must exist on which the tax is imposed. In the
instant case the tax is, in effect, being levied not on land but on the absence
of land. The levy is on the void ·which has been created. The forest land
which is being used is not subjected to tax. The schedule to the Act itself
shows that the assessment of tax is on excavation and use of forest land for
non-forest purpose. The schedule further says that the rate of tax to be levied,
c in the case of mining or excavation varies with the extent of the land voided.
In case the land has been rehabilitated no tax is to be levied. The tax is levied
in effect on the activity of the removal or excavation of land. In other words
the tax is squarely on the activity of mining because it is under the mining
lease that mechanized and non-mechanized excavation as well as underground
D excavation takes place and this is what is referred to in column 1 of the
schedule to the Act while determining the amount of tax leviable. Levy in
other words is on tb,e activity of removal of earth and not on the land itself
and is, therefore, outside the ambit of Entry 49 of List II.

E There is yet another reason why this tax cannot be regarded as being
a tax on land. Section 3 read with the Schedule (and clauses (a), (b) and (c)
of the Act says that the tax is not on the surface of the land but is on the
extent to which destruction has taken place. It is with reference to the extent
of the empty space or the void which has been created as a result of the
F mining activity that the tax is levied. Tax, in effect, is levied on the absence
of land and not on land itself. At the most this may be regarded as a tax in
respect. of land but it is certainly not a tax on land. The existing land or trees
are not taxed the tax is leviable only when a non-forest activity takes place
and the land is not rehabilitated. Therefore, in pith and substance it is a tax
on activity on land and not on land itself.
G
Mr. Sibal placed strong reliance on the decision in the case of Goodriche
Group Ltd. and Ors. v. State of West Bengal and Ors., [1995] Suppl. I SCC
707 in support of his contention that the levy was on land itself and that the
Act would be covered by Entry 49. Goodriche's case is clearly distinguishable.
H There education cess and rural employment cess were levied on certain lands
STATE v. INDIAN ALUMINIUM COMPANY [KIRPAL,J.] 235
and buildings in the State of West Bengai. The estates were carved out as A
a separate category and a different rate was prescribed therefor. The cess on
tea estates was calculated on the basis of yield of tea whereas cess on other
lands was determined having regard to the development value of the same.
It was held that the tax was upon land though the cess was quantified on
the basis of produce of the tea estate. In the present case, however, we do B
not find that the tax is on land. In fact what is sought to be taxed is in the
absence on land. There being this fundamental difference the decision in
Goodriche's case can have no application merely because in that case the
quantum of cess on the estate to be charged depended on the quantity of
tea dispatched from the tea estate. The tax, in other words, was on the existing
tea estate but, for the purpose of calculating the tax it was relatable to the C
quantum of the tea dispatched as a measure of the tax.

One of the facets of tax being levied on land is that the primary
responsibility of the payment of tax is on the owner of the land. In the instant
case the levy is not on the general ownership of the land but is on the person D
who uses it and who may or may not be the owner. The primary liability is
on the use by the occupier and if the occupier and the owner are two different
persons the liability would be that of the occupier alone and not of the owner.

The provisions of clauses (d), (e) and (f) of the schedule of the Act,
in effect and substance, amount to levy of tax on the use of forest land for E
non-forest purposes and for rehabilitating the forest land. The Forest
Conservation Act, 1980 and the rules and guidelines made thereunder contain
complete provisions for reclamation and rehabilitation of such land. Planting
and re-planting trees thereon is a matter clearly covered by the said Act, 1980
and therefore, the said clauses (d) to (f) of the Schedule in the impugned Act F
directly impinge on the analogous provisions of the Forest Conservation Act,
1980. .

From the aforesaid discussion it is obvious that the present tax is one
on the excavation and use of forest land and not on the forest land as such.
Taxing of the undertaking of non-forest activity in a forest land cannot be G

- regarded as being covered by Entry 49 of the State List because what is
sought to be taxed is not land but the tax is on absence of land or forest by
reason of the activity of excavation and/or inining or use of forest land for
a non-forest purpose. The High Court was, therefore, right in allowing the writ
petitions filed by the respondents. H
236 SUPREME COURT REPORTS [1997) SUPP. 4 S.C.R.

A As, in our opinion, legislative competence was lacking in the enactment
of this Act, it is not necessary for us to consider the other questions or issues
which were raised and decided by the. High Court.
For the aforesaid reason we find no merit in these appeals which are
consequently dismissed with costs.
B B.K.S. Appeals dismissed.

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