Holding

The tax on coal‑bearing and mineral‑bearing lands imposed by the Orissa Rural Employment, Education and Production Act, 1992 is ultra vires the State legislature because the subject matter is covered by the central Mines and Minerals (Regulation & Development) Act, 1957.

Summary

The State of Orissa challenged the validity of the Orissa Rural Employment, Education and Production Act, 1992 which imposed a tax of Rs 32,000 per acre on coal‑bearing lands. The High Court held that the State legislature lacked competence to levy such a tax and struck down the provision. On appeal, the Supreme Court examined whether the tax fell under List II entries 49, 23 or 50, or was covered by Parliament’s exclusive power under List I entry 54 via the Mines and Minerals (Regulation & Development) Act, 1957. It held that the levy was in substance a tax on mineral‑bearing and coal‑bearing lands, a field fully occupied by the central legislation, rendering the State law ultra vires. Consequently, the tax provision and the related demand notices were declared illegal, and the High Court’s judgment was affirmed. The Court also granted a one‑year period for the State to refund amounts collected from traders and consumers.

Issues considered

The legislative competence of the Orissa legislature to levy a tax on coal‑bearing and mineral‑bearing lands under the Orissa Rural Employment, Education and Production Act, 1992.
Whether the tax falls within List II entry 49 (taxes on lands and buildings) or entries 23/50 (mineral regulation and taxes on mineral rights) and the effect of Parliament’s exclusive power under List I entry 54.
The applicability of the Mines and Minerals (Regulation & Development) Act, 1957 to the levy in question.

Legislation cited

Coal Bearing Areas (Acquisition and Development) Act, 1957
Constitution of Indias. Article 246, s. Seventh Schedule List I Entry 54, s. Seventh Schedule List II Entry 23, s. Seventh Schedule List II Entry 49, s. Seventh Schedule List II Entry 50
Mines and Minerals (Regulation & Development) Act, 1957s. 2, s. 3(a), s. 3(d), s. 9, s. 9-A, s. Second Schedule, s. Third Schedule
Orissa Cess Act, 1962s. 3(vi), s. 4
Orissa Rural Employment, Education and Production Act, 1992s. 2(a-1), s. 2(d), s. 3(1), s. 3(2)(c), s. 3(vi)

Subjects

legislative competencestate taxationmineral rightsultra viresList II entry 49List II entry 23List II entry 50List I entry 54Mines and Minerals Actcoal bearing landconstitutional law

Judgment

STATE OF ORISSA AND ORS. A
v.
MAHANADI COALFIELDS LTD. AND ORS.

APRIL 21, 1995

[A.M. AHMADI, C.J., S.P. BHARUCHA AND B
K.S. PARIPOORNAN, JJ.]

"'!"' I Orissa Rural Employment, Education and Production Act, 1992.

Section 3(2)(cf-Levy of tax on-Coal bearing lands-Beyond the com-
petence of the State legislature-Struck down-<:onstitution of India-Seventh
c
Schedule-List II-Entries 23, 32, 50.

Mines and Minerals (Regulation & Development) Ac~ 1957.

Levy of tax on-Coal and mineral bearing lands-Provides for all kinds
D
of taxation-State Legislature deprived of the power to impose tax.
··""!
The respondents assailed the validity of the Orissa Rural Employ-
ment, Education and Production Act, 1992 before the High Court. The
main controversy in the cases was regarding the levy of tax under the Act
on 'Coal bearing lands'. The High Court held that the State Legislature E
did not have the competence to levy the tax on coal bearing lands and
struck down section 3(2)(c) of the Act as well as the schedule attached to
the Act levying tax of Rs. 32,000 per acre on coal bearing lands. Aggrieved
by the High Court's judgment the appellants preferred the present appeal.

On behalf of the appellants It was contended that the levy of ·tax F
would fall under Entry 49, List II of the Seventh Schedule; and that even
if it is not so, the levy of taxes would fall under Entry 23 or 50, List II.

On behalf of the respondents It was contended that the levy is on
minerals and mineral rights alone and not a tax on land covered by Entry
49, List II; that since the levy Is on minerals or on mineral rights even If . G.
the levy falls under Entry 23 or 50 List Il It is subject to limitation imposed
, by Parliament; that Parliament bas legislated on the subject under. Entry
/
54, List I and bas enacted the Mines and Minerals (Regulation and
Development) Act, 1957 which covers the field; and that the Act is ultra
vires and beyond legislative competence. H
639
t

640 SUPREME COURT REPORTS [1995) 3 S.C.R.

A Disposing of the appeal, this Conrt

HELD : 1. The combined effect of section 3(1) of the Orissa Rnral
Employment, Edncation and Prodnction Act, 1922 and the Orissa Cess Act
of 1962, as amended, is that only mineral bearing and Coal bel\ring lands
will be subject to the levy of tax under the Act. Thus there is no donbt that
B the substance of the levy under the Act is really on "mineral bearing land"
and "Coal bearing land". [662-D, 663-D]

2. Sections 2, 3(a), 3(d), 9 and 9-Aofthe Mines and Minerals (Regula-
' ...
tion & Development) Act, 1957 clearly point out that taxation on mineral
C and mineral rights, viz; any tax, royalty, fee or rent are provided in the said
Act. Exhaustive provisions regarding all kinds of taxation on minerals and
mineral rights have been made in the M.M.R.D. Act. The State Legislature
is denuded or deprived of the power to enact any law or to impose any tax or
other levy with reference to List II Entry 23 or Ust II Entry 50, Therefore,
the levy of tax on mineral bearing and Coal bearing lands ls beyond the
D competence of the State Legislatuno and is ultra vires. [664-B, D, E, F]

Harakchand Ratanchand Banthia and Ors. v. Union of India and Ors.,
AIR (1970) SC 1453; K. C. Gajapati Narayan Deo & Ors. v. The State of
Orissa, [1954] SCR I; A.S. Krishna & Ors. v. State of Madras, AIR (1957)
E SC 297; K.P. Varghese v. Income Tax Officer Emakulam & Anr., AIR (1981)
SC 1922; Divan Brothers v. Central Bank of India, Bombay and Ors., AIR
(1976) SC 1503 and Shashikant Laxman Kale and Anr. v. Union of India
and Anr., AIR (1990) SC 2114, relied on.
..
3. The Act purports to impose a tax on Coal bearing land and
F mineral bearing land as defined in section 2(a-1) and 2(d) of the Act, which
is fully covered by Parliamentary legislation, the M.M.R.D. Act. [667-A)

India Cement Ltd. v. State of Tamil Nadu, [1989) Supp. 1 SCR 692
and Federation of Mining Associations of Rajasthan v. State of Rajasthan
G and Anr., [1992] Supp. 2 sec 239, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 330-604 \
of 1995 Etc. Etc.

From the Judgment and Order dated 26.4.94 of the Orissa High
H Court in O.J.C. Nos. 2015, 5382, 5814, 6061, 6760, 6550, 6338, 8801, 5641,
STATE v. MAHANADI COALF1EWS 641

5642, 5877, 7148, 7149, 7113, 6226, 6491, 6493, 7003, 7040, 7101, 7106, A
7107, 7109, 7131, 7132, 7161, 7166, 7227, 7228, 7321, 7322, 7401, 7403,
7513, 6062, 8556, 8405, 8404, 8098, 8078, 8062, 8017, 7825, 7525, 7516,
7344, 7343, 7342, 7277, 7276, 7248, 7219, 7146, 7145, 7144, 7143, 7142,
7079, 7078, 7077, 7076, 6450, 6437, 6144, 5992, 5991, 5990, 5989, 5974,
5973, 5941, 5934, 5933, 5932, 5931, 5930, 5929, 5928, 5867, 5866, 5787, B
5786, 5778/93, 125/94, 10/94, 9, 600, 599/94, 9447/93, 9198/93, 9146/94,
I 9178, 9143, 9198, 8531, 8527, 8559, 8558, 8200, 9326, 6538, 9330, 9328,
9327/93, 8187/94, 6065, 8696, 9499, 9461, 9165, 7982, 6442, 9332, 9333/93,
9323, 9669, 9025, 9251, 6791, 6790, 6407, 6406, 6405, 5861, 5860, 9573/93,
114, 19, 18, 17, 554/94, 8880, 8642, 8498, 8422, 8421, "8215, 8214, 7988, c
7961, 7960, 7941, 7437, 6279, 6278, 6277, 6153, 5874, 5873, 1102/93, 298/94,
9807, 9305, 9651, 9752, 9751, 1077, 9230, 9065, 9064, 9066, 9285, 9229,
9228/93, 253/94, 7255, 9648, 9992, 6558, 6557/93, 251, 11/94, 9388, 9215,
9419, 9200, 9199, 8434, 8403, 8402, 7417, 7416/93, 984/94, 7418, 8964, 8965,
9761, 9194, 8412, 8411, 8410, 8409, 7442/93, 195/94, 9445, 9444/93, 191, D
123, 122/94, 9256, 9255/93, 99, 560, 157/94, 9655/93, 131, 130/94, 9177,
9163, 9162, 9471, 9470/93, 54, 53, 52/94, 8233, 8090, 8089, 7980, 8414, 7549,
7352, 7253, 7455, 9921, 6368, 6367, 6365, 6504, 6351, 6350, 9913, 6896,
6891/93, 149/94, 6304, 5815, 6216, 6434, 7042, 7039/93, 133/94, 7463,
6282/93, 153/94, 9775/93, 132/94, 9788, 9325, 9464, 9916/93, 274, 276, 246,
254/94, 9986, 9924, 9216, 8693, 9858, 9854, 8963/93, 9498/92, 9175/93, 8594, E
9860, 110, 109/94, 9381/93, 9380/94, 9379, 8652, 6328, 7100/93, 718/94, 9254
of 1993.

M.K. Banerjee, Attorney General, Altaf Ahmad and V.R. Reddy, F
Additional Solicitor Generals, B. Sen, N.S. Hegde, K. Parasaran, AK.
Ganguli, Shanti Bhushan, K.K. Venugoal, Kapil Sibal, V.A. Bahde, R.F.
Nariman, S.C. Roy Adv. Genl. for Orissa, R.K. Mehta, Ms. Mana C:hak·
raborty, Sanjit Mohanty, D. Manda!, Krishan Mahajan, Gaurav K. Baner-
Soll\
. je_e, Manda! Adv. for M/s. Fox Manda! & Co., Narasimba P.S., V.G.
Pragasam, P.N. Gupta, Ms. Vijay Laxmi Menon, S. Sukurnaran, P.O. Tyagi, G
I Dhruv Agrawal, Irshad Ahmad, U.A. Rana, Anand Prasad, Rajl\.umar
/
Gupta, Rajesh, G.K. Mishra, Mrs. Hemantika Wahl, Vinoo Bhagat,
Ravinder Kumar, K.K. Lahiri, Ashok Poaija, Gaurav Kumar, Rakesh K.
Sharma, C. Mukhopadhya, Ms. Kitty Kumaramangalam, S.K. Bhattacharya,
Arvind Kr. Sharma, Sanjay Das, S.P. Singh and K.P. Sinib for the appear- H
t

642 SUPREME COURT REPORTS [1995] 3 S.C.R.

A ing parties.

The Judgment of the Court was delivered by

PARIPOORNAN, J. The State of Orissa and the authorities in the
B Mines Department of the State are the appellants in this batch of appeals.
Mis. Mahanadi Coalfields Ltd., a Government company, in whom the lands
in question vests in accordance with section 11 of the Coal Bearing Areas
{Acquisition and Development) Act, 1957 (Cen(ral Act 20 of 1957), and '
Union of ·India are the respondents in the main appeal. In the other
appeals, the consumers of coal who purchase coal from Mahanadi Coal-
e fields Ltd for their own consumption as well as some traders in coal are
the respondents. The Mahanadi Coalfields Ltd., the consumers of coal who
purchase coal from Mahanadi Coalfields Ltd., and some traders in coal
assailed the validity of the Orissa Rural Employment, Education and
Production Act, 1992 (Orissa Act 36 of 1992), as amended, hereinafter
D referred to as 'the Act', before the High Court of Orissa in a series of writ
petitions. The main controversy in the cases was regarding the levy of tax
under the Act on "coal bearing lands''. By a common Judgment dated
26.4.1994 the Division Bench of the High Court held that the State Legis-
lature did not have the competence to levy the tax on coal bearing lands
and struck down section 3(2)(c) of the Act as well as the schedule attached
E to the act levying tax of Rs. 32,000 per acre on coal bearing lands and also
the consequential demand notices and certificate proceedings. As a sequel
thereto, the demands raised by Mahanadi Coalfields Ltd. against the
traders and consumers on account of additional burden of tax on lands
were also quashed. The High Court also took the view that the levy would
F be hit by sectioh 9A of Mines and Minerals (Regulation and Development)
Act, 1957, (Act 67 of 1957) hereinafter referred to as 'M.M.R.D. Act' and
the levy is also discriminatory and hit by Article 14 of the Constitution of
India'. The question of passing on the burden by Mahanadi Coalfields Ltd.
was left open, though the High Court opined that if the tax is on lands, the
burden cannot be passed on to the consumer or the trader. A few other
G pleas taken up by the petitioners were also negatived. The High Court
allowed the batch of writ applications. In S.L.P.(C) Nos. 12477-12751 of
1994, by an order dated 10.1.1995, a three Member - Bench of this Court
granted leave to appeal to the State of Orissa against the aforesaid Judg-
ment of the High Court dated 26.4.1994. Apart from the competence of
H the Orissa Legislature to enact the law, M/s. Mahanadi Coalfields Ltd.
STATEv. MAHANADICOALF1ELDS [PARIPOORNAN,J.] 643

raised various other pleas to assail the levy under Orissa Act 36/1992 'as A
invalid. Important among such pleas, involved interpretation of Article 286
of the Constitution read with Sections 9, 10 and 11 of Coal Bearing Areas
(Acquisition and Development) Act, 1957 and the provisions of Colliery
Contract Order framed under Section 3 of the Essential Commodities Act.
The said pleas were negatived by the High Court by the same common
judgment of 26.4.1994 and M/s. Mahanadi Coalfields Ltd. have come up in B
appeals against that portion of the judgmen~ which replied their pleas
I
aforesaid, amongst others. The appeals so filed are C.A. Nos. 42-43/94,
605195 and 2660-2932/95. Accordingly the above Civil Appeals and special
leave petitions have come up before this bench for hearing.
c
2. We heard counsel for the appellants Sri B. Sen, Senior Advocate
and counsel who appeared for the respondents, the learned Attorney
General of India Sri M.K. Banerjee, Senior Counsel Sri Shanti Bhushan,
Sri A.K. Ganguli & Others. Sri B. Sen, learned counsel who appeared for
the appellants contended in the main that the High Court was in error in D
holding that Orissa Rural Employment, Education and Production Act,
1992, is without legislative competence and is also discriminatory and hit
by Article 14 of the Constitution of India. It was argued :

(a) That the levy of tax in the instant case would squarely fall under
Entry 49, List II of the Seventh Schedule (Taxes on land and buildings). It E
was alternatively contended that even if it is not so, the levy of tax in the
instant case will fall under Entry 23 or 50, List II of the Seventh Schedule
(Regulation of mines and mineral development; taxes on mineral and
mineral rights).
F
(b) That the High Court erred in holding that the levy is dis-
criminatory and so hit by Article 14 of the Constitution, since there is no
material much less a finding to the effect that the levy is confiscatory. On
the other hand, learned Attorney General Sri M.K. Banerjee and the other
counsel who supported him, contended that in substance, the levy is on G
minerals and mineral rights alone and not a tax on land covered by Entry
49, List II of the Seventh Schedule. Since substantially the levy is on
minerals or on mineral rights, even if the levy falls under Entry 23 or 50,
List II of the Seventh Schedule (Regulation of mines & mineral develop-.
ment or Tax on mineral rights), it is subject to limitation imposed by
Parliament under the law relating to regulation of mines and mineral H
644 SUPREME COURT REPORTS [1995] 3 S.C.R.

A development. Parliament has legislated on the subject under Entry 54, List
I of the Seventh Schedule and has enacted the M.M.R.D. Act, which covers
the field. In this view, the Orissa Act 36 of 1992 is ultra vires an<! beyond
legislative competence. It was also contended that in effect and substance
the levy is only on coal bearing lands without any basis, and so arbitrary
B and hit by Article 14 of the Constitution. Various other pleas taken up
before the High Court to assail the levy were also taken up before us.

3. In order to evaluate the merits of the rival pleas urged before us,
it is necessary to bear in mind the relevant provisions of the Constitution
of India, the Orissa Rural Employment, Education and Production Act,
C 1992 (Orissa Act 36 of 1992) as amended, and M.M.R.D. Act. The relevant
provisions of the Constitution of India are as follows:

"246. Subject-matter of laws made by Parliament and by the Legis-
latures of States.-(1) Notwithstanding anything in clauses (2) and
(3), Parliament has exclusive power to make laws with respect to
D any of the matters enumerated in List I in the Seventh Schedule
(in this Constitution referred to as the 'Union Lisf).

(2) Notwithstanding anything in clause (3), Parliament, and, sub-
ject to clause (1) the Legislature of any State also, have power to
make laws with respect to any of the matters enumerated in List
E III in the Seventh Schedule (in this Constitution referred to as the
'Concurrent List').

(3) Subject to clauses (1) and (2), the Legislature of any State has
exclusive power to make laws for such State or any part thereof
F with respect to any of the matters enumerated in List II in the
Seventh Schedule (in this Constitution referred to as the 'State
Lisf)."

"SEVENTH SCHEDULE

G (Article 246)

List I - Union List

xxx xxx xxx xxx xxx xxx

H 54. Regulation of mines and mineral development to the extent to
STATE v. MAHANADI COALFIELDS [PARIPOORNAN, °J.] 645

which such regulation and development under the control of Union A·
is declared by Parliament by law to be expedient in the public
interest.

xxx xxx xxx xxx xxx xxx

97. Any other matter not enumerated in List II or List III including B
any tax not mentioned in either of those Lists." .
I
"List II - State List

xxx xxx xxx xxx xxx xxx

23. Regulation of mines and mineral development subject to the
c
provisions of List I with respect to regulation and development
under the control of the Union.

xxx xxx xxx xxx xxx xxx
D
49. Taxes on lands and buildings.

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

The relevant provisions of the Orissa Rural Employment, Education and E
Production Act, 1992 (Orissa Act 36 of 1992) which came into force on
1.2.1993, are as follows :

"ORISSA ACT 36 OF 1992

THE ORISSA RURAL EMPLOYMENT, EDUCATION AND F
PRODUCTION ACT, 1992

AN ACT TO PROVIDE FOR ADDITIONAL RESOURCES
FOR PROMOTION OF EDUCATION AND EMPLOYMENT
IN RURAL AREAS AND FOR IMPLEMENTING RURAL
EMPLOYMENT, EDUCATION AND PRODUCTION G
PROGRAMMES.

Be it enacted by the Legislature of the State of Orissa in the
Forty-third Year of the Republic of India as follows :-

H
646 SUPREME COURT REPORTS [1995] 3 S.C.R.

A 2. In this Act, unless the context otherwise requires,-

(a) "annual value" in relation to a finaocial year meaos-

(i) in relation to land held by a raiyat, the rent payable by such
raiyat to the landlord immediately under whom he holds the laod:
B

(a-1) 'coal-bearing laod' meaos aoy land acquired or declared from
time to time under aoy law for the purpose of obtaining coal;

c
( c) 'laod' means land of whatever description which is cultivated,
uncultivated or covered with water, and includes all benefits to
arise out of land aod things attached to the earth or permanently
fastened to aoything which is attached to the earth, but does not
D include crops of aoy kind, or houses, shops or other buildings;

( d) 'mineral-bearing laod' meaos mllieral-bearing laod or quarry
held for carrying on mining operations;

( e) 'prescribed' meaos prescribed by rules;"
E
"3. (1) On aod from the commencement of this Act, all laods shall
be liable to payment of rural employment, education aod produc-
tion tax assessed in the prescribed manner subject to provisions
hereinafter co~tained. .

F . Provided that aoy laod which is liable to payment cess under
the Orissa Cess Act, 1962 shall not be liable to payment of rural
employment, education aod production tax.

(2) The rate per year at which such tax shall be levied shall be -
G (a) in the case of laod other thao mineral-bearing land, fifty
percentum of the annual value thereof

(b) in the case of aoy mineral-bearing land other thao coal-bearing
laod, the rate as may be prescribed from time to time in respect
H thereof;
STATEv.MAf!ANAD!COALFIELDS [PARIPOORNAN,J.] 647

(c) in the case of coal-bearing land, the rate as specified in the A
Schedule.,_ and

(3) The State Government may, by notification, amend the
Schedule from time to time so as to enhance or reduce the rate of
tax specified therein;
B
Provided that every such notification shall, as soon as it is
published, be laid before the State Legislature for a total period
I of fourteen days )llhich may be comprised in one or more sessions.

(4) The rate of tax that may either be prescribed in pursuance of C
clause (b) of sub-section (2) or enhanced or reduced by amend:
men! of the Schedule under sub-section (3), shall be so prescribed
or, as the case may be, enhanced or reduced that the rate fixed in
the case of -

(i) any mineral bearing land other than coal-bearing land, does ncit D
exceed the average annual income from all such mineral bearing
lands in the State during the two consecutive years immediately
preceding the year in which the rate is so fixed; and

(ii) coal-bearing land, does not exceed, in the aggregate, fifty per
cent of the rate specified in the Schedule on the date of publication E
of this Act in the Gazette."

"SCHEDULE

[Clause (c) of sub-section {2) of section 3]
F
Description of mineral bearing land Rate of tax per year per acre
{1) (2)
I. Coal bearing land Rs. 32,000"
It may be. noted at this juncture that Government of Orissa con-
stituted a Committee to recommend rates of taxes on mineral bearing lands G
(other than coal-bearing lands) levied under section 3{2)(b) of the Act, as
',.i per notification dated 4.3.1993 and in pursuance to the report of that
Committee, the Government promulgated notification dated 26.9.1994, No.
12372-VII(A)SM- 23/94/SM, adding Schedule C prescribing rates of taxes
for various mineral bearing lands (Annexure-B, page 270 of Paper Book). H
648 SUPREME COURT REPORTS [1995] 3 S.C.R.

A (This is subsequent to the decision of the High Court). Schedule C is as
follows :

"SCHEDULE - C

(See rule 2-A)
B Serial Description of mineral Rate of tax per
No. bearing lands. acre.
1. Land bearing Asbestos Rs. 20.00
2. Land bearing Bauxite Rs. 4,965.00
' .
3. Land bearing Chromite Rs. 26,960.00
c 4. Land bearing Graphite Rs. 702.00
5. Land bearing Lead Ore Rs. 9,942.00
6. Land bearing Mica Rs. 710.00
7. Land bearing Quartz and Quartzite Rs. 217.00
D 8. Land bearing Sand (Stowing) Rs. . 5,312.00

The relevant provisions of the Mines and Minerals (Regulation and
Development) Act, 1957 (Act 67 of 1957) are as follows:
E "An Act to provide for the regulation of mines and development
of minerals under the control of the Union ....

2. Declaration as to expediency of Unfon control:- It is hereby
declared that it is expedient in the public interest that the Union
F should take under its control the regulation of mines and the
development of minerals to the extent hereinafter provided.

3. Definitions:- In this Act, unless the context otherwise requires-

(a) 'minerals' includes all minerals except mineral oils; .....
G ( d) 'mining operation' means any operations undertaken for the
purpose of winning any mineral;"

"9. Royalties in respect of mining leases:- (1) The holder of a mining
\
lease granted before the commencement of this Act shal~ not-
H withstanding anything contained in instrument of lease or in any
STATE v. MAHANADI COALFlELDS (P ARIPOORNAN, J.) 649

Jaw in force at such commencement, pay royalty in respect of any A
mineral removed or consumed by him or by his agent, manager,
employee, contractor or sub- Jessee from the leased area after such
commencement, at the rate for the time being specified in the
Second Schedule in respect of that mineral.

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

(2-A) The holder of a mining lease, whether granted before .or
after commencement of the Mines and Minerals (Regulation and
Development) Amendment Act, 1972, (56 of 1972), shall not be
liable to pay any royalty in respect of any coal consumed by a
workman engaged in a colliery provided that snch consumption by D
the workman does not exceed one-third of a tonne per month.

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

Provided that the Central Government shall not enhance the
rate of royalty in respect of any mineral more than once during
any period of three years."
F
"9-A. Dead rent to be paid by the lessee:- (1) The holder of a
· mining lease, whether granted before or after the commencement
of the Mines and Minerals (Regulation and Development) Amend-
ment Act, 1972, (56 of 1972), shall, notwithstanding anything con-
tained in the instrument of lease or in any other law for the time G
being in force, pay to the State Govemmen~ every year, dead rent
at such rate as may be specified for the time being, in the Third
Schedule, for all the areas included in the instrument of lease.
J
Provided that where the holder of such mining lease becomes
liable, under Section 9, to pay royalty for any mineral removed or H
r

650 SUPREME COURT REPORTS [199513 S.C.R.

A consumed by hini or by his agent, manager, employee, contractor
or sub-lessee from the teased area, he shall be liable to pay either
such royalty or the dead rent in re;pect of that area, whichever is
greater.

(2) The Central Government may, by notification in the Official
B Gazette, amend the Third Schedule so as to enhance or reduce
the rate at which the dead rent shall be payable in respect of any
area covered by a mining lease and such enhancement or reduction
shalt take effect from such date as may be specified in the notifica- '
tion:
c Provided that the Central Government shall not enhance the
rate of the dead rent in respect of any such area more than once
during any period of three years."

(emphasis supplied)
D
"THE SECOND SCHEDULE

(See Section 9)
' .
RATES OF ROYALTY
E
1. Agate Fifty five rupees per tonne.

2. All precious and Twenty percent of the sale price
Semiprecious stones at the pit's mouth.
(except agate and diamond}
F
3. Apatite and rock Phosphate:
(a} Ores with more than Fourty five rupees per tonne.
27% P205

G (b) Ores with 20% P205 to Twenty five rupees per tonne.
27% P205

(c} Ores with less than 20% Ten rupees per tonne.
P205

H 4. Asbestos:
STATE v. MAHANADI COALF1ELDS (PARIPOORNAN, J.] 651
(a) Chrysotile Two hundred and eighty-five A
rupees per tonne.

{h) arnphibole Fifteen rupees per tonne.

5. Barytes:
B
(a)_ White {including snow Twenty rupees per tonne.
wliite & super snow white)

{h) off-colour Ten rupees per tonne.

6. Bauxite Ten rupees per tonne. c
7. Cadmium Sixteen rupees per unit
percent of cadmium ·metal
per tonne of ore and on
prorata basis.
D
8. Calcite Fifteen rupees per tonne.

9. China clay; also called
kaolin {including ball clay)
and white shale;
E
(a) Crude Eight rupees per tonne.

{h) Processed Thirty five rupees per tonne.
(including washed)

10. Chromite {both lumpy non-
F
friable ore and concentrates)

(a) containing 48% Sixty rup~es per tonne.
Cr203 and above.
G
{h) Containing less than Thirty rupees per tonne.
48% Cr203 and more
than 40% Cr203

(c) Containing 30% to 40% Twenty rupees per tonne.
Cr203 H
STATE v. MAHANADI COALFIELDS (PARIPOORNAN, J.] 653

A
• ;. (iv) Group IV Coals:

Non-coking coal Grade D Four rupees and thirty
Non-coking coal Grade E paise per tonne

(v) Group V coals:
B
Non-cokiug coal Grade F Two rupees and fifty
~
I Non-cokiug coal Grade G paise per tonne

(vi) Group VI Coals:

Coal produced in Andhra Five rupees per tonne c
Pradesh (Singareni Collieries
Company Limited)"

"THE THIRD SCHEDULE
(See Section 9A)
Dead Rent D

(1) The rates of dead rent applicable to the leases other than those
obtained for supply of raw materiai to the industry owned by the concerned
lessee:

(RATES OF DEAD RENT IN RUPEES E
PER HECTARE PER ANNUM)

!st year 2nd to 5th 6th to 10th 11th year of
Category of the. Mining
of the year of year of the the leases
Lease
lease the lease lease & onwards
4
F
1 2 3 5
1. Lease area npto 50
Nil 30 60 90
hectares
2. Lease area (above 50
hectares but not Nil 40 80 120
G
exceeding 100 hectares.)
3. Lease area above 100
Nil 60 100 150
hectares.

(2) In the case of lease obtained for the supply of raw material for the
industry owned by the concerned lessee, the rates of dead rent would be H
654 SUPREME COURT REPORTS [1995) 3 S.C.R.

A applicable as given in respect of item No. 1 above, irrespective of the lease ~ ;
11
area.

4. During the course of arguments, it was fairly agreed by all parties
that if the Orissa Rural Employment, Education and Production Act, 1992
(Orissa Act 36 of 1992) as amended, is without legislative competence, it
B is unnecessary to adfudicate upon the other points raised before the High
Court and reiterated before us. Therefore, we shall first go into the -
question as to whether Orissa Act 36 of 1992 is within the legislative
'
competence. According to the appellants the Act in question would fall
under "Entry 49", List II of the Seventh Schedule (Taxes on buildings), and
c even it if it not so, it will fall under "Entry 23 or 50", List II of the Seventh
Schedule. The respondents emphatically contend that in reality and sub-
stance the levy is on mineral lands and particularly on coal bearing lands
and mineral rights. The legislation has no nexus with land. It concerns only
minerals. The legislation purports to be one on "lands" and the nomencla-
D ture states so; but it is only a colourable device. The legislation being one
I '
on mineral lands and mineral rights and Parliament having enacted the
Mines and Mineral (Regulation and Development) Act, 1957, the field is
entirely covered and Orissa State Legislature is incompetent to enact
Orissa Act 36 of 1992. To substantiate their respective pleas, emphasis was
E placed on the following three decisions of this Court: (1) India Cement Ltd.
v. State of Tamil Nadu, [1989) Supp. 1 SCR 692 = [1990) 1 SCC 12 = AIR
(1990) SC 85, (2) Orissa Cement Ltd. v. State of Orissa and Ors., [1991) 2
SCR 105 = AIR (1991) SC 1676 = [1991) Supp. 1 sec 430, (3) Buxa
Dooars Tea Company Ltd. and Others v. State of West Benga~ (1989) 3 SCR
793 = (1989) 3 sec 211 = AIR (1989) SC 2015.
F
5. At this juncture, it will be useful to remember the following well
settled principles in Constitutional Law. In Harakchand Ratanchand Ban-
thia and Ors. v. Union of India and Ors., AIR (1970) SC 1453, at page 1458,
a C.:>nstitution Bench of this Court stated thus:
G

""~
"The power to legislate is given to the appropriate legislatures by
Article 246 of the Constitution. The entries in the three lists are
only legislative head of fields of legislation; they demarcate the
area over which the appropriate legislatures can operate. It is well
H established that the widest amplitude should be given to the
STATEv. MAHA"IADI COALFIELDS (PARIPOORNAN,J.] 655

language of the entries. But some of the entries in the different A
lists or in the same list may overlap or may appear to be in direct
conflict with each otqer. It is then the duty of this Court to
reconcile the entries and bring about a harmonious construction.
In in re The Central Provinces and Berar Sales of Motor Spirit
and Lubricants Taxation Act, 1938, 1939 FCR 18 = AIR (1939) B
FC 1, Sir Maurice Gwyer proceeded to state:

'Only in the Indian Constitution Act can the particular problem
I arise which is now under consideration; and an endeavour must
be made to solve it, as the Judicial Committee have said by having
recourse to the content and scheme of the Act, and a reconciliation C
attempted between two apparently conflicting jurisdictions by
reading the two entries together and by interpreting, and, where
necessary, modifying, the language of the one by that of the other.'

In KC. Gajapati Narayan Deo and Ors. v. The State of Orissa, (1954] SCR
1, the Constitution Bench of this Court stated at page 11 thus: D
"If the Constitution of a State distributes the legislative powers
amongst different bodies, which have to act within their respective
spheres marked out by specific legislative entries, or if there are
limitations on the legislative authority in the shape of fundamental E
rights, questions do arise as to whether the legislature in a par-
ticular case has or has not, in respect to the subject-matter of the
statute or in the method of enacting it, transgressed the limits of
its constitutional powers. Such transgression may be patent,
manifest or direct, but it may also be disguised, cove~! ·and indirect
and it is to this latter class of cases that the expression 'colourable F
legislation' has been applied in certain judicial pronouncements.
The idea conveyed by the expression is that although apparently a
legislature in passing a statute purported to act within the limits of
its powers, yet in substance and in reality it transgressed these powers,
the transgression being veiled by what appears, on proper examina- G
tion, to be a mere pretence or disguise."

Again at page 12 the Court stated:

"....it is the substance of the Act that is material and not merely the
form or outward appearance and if the subject matter in substance H
656 SUPREME COURT REPORTS (1995] 3 S.C.R.

A is something which is beyond the powers of the legislature to
legislate upon, the form in which the law is clothed would not save
it from condemnation. The legisl&ture cannot violate the constitu-
tional prohibitions by employing an indirect method. In cases like
these, the enquiry must always be as to the true nature and
character of the challenged legislation and it is the result of such
B investigation and not the form alone that will determine as to
whether or not it relates to a subject which is within the power of
the legislative authority. For the purpose of this investigation the
Court could certainly examine the effect of the legislation and take
into consideration its object, purpose or design. But these are only
c relevant for the purpose of ascertaining the trne character and
substance of the enactment and the class of subjects of legislation
to which it really belongs and not for finding out the motives which
induced the legislature to exercise its powers."

(emph~:s supplied}
D
Speaking for the Constitution Bench in A.S. Krishna and Others v. State of
Madras, AIR (1957) SC 297, at page 303, Venkatarama Ayyar, J., stated
thus:

"When a law is impugned on the ground that it is ultra vires the
E
powers of the legislature which enacted it, what has to be ascer-
tained is the trne character of the legislation. To do that, one must
have regard to the enactment as a whole, to its objects and to the
scope and effect of its provisions. If on such examination it is found
that the legislation is in substance one on a matter assigned to the
F legislation, then it must be held to be valid in its entirety, even
though it might incidentally trench on matters which are beyond
its competence."

(emphasis supplied}
G In Buxa Dooars Tea Company Ltd. and Ors. (supra) a Bench of two
Judges of this Court held that in order to determine the true nature of a
levy, the substance of the legislation should be ascertained from the relevant
provisions of the statute. '
H In KP. Varghese v. Income Tax Officer, Emakulam and Anr., AIR
STATEv. MAHANAD!COALFIELDS [PARIPOORNAN,J.] 657
J

(1981) SC 1922, in eXplaining the-extent to which external aid can be A
resorted to in the interpretation of a statute, this Court held at page 1930,
thus:

"... lhe speech ma4e by the Mover of the Bill explaining the reason
for the introduction of the Bill can certainly be referred to for the
purpose of ascertaining the mischief sought to be remedied by the
B
legislation, and the object and purpose for which the legislation is
enacted. This is in accord with the recent trend in juristic thought
,
I not only in Western countries but also in India that interpretation
of a statute being an exercise in the ascertainment of meaning,
everything which is logically relevant should be admissible." c
(emphasis supplied)

In Divan Brothers v. Central Bank of India, Bombay and Others, AIR
(1976) SC 1503, (pp. 1507 & 1508), the learned Judges took the view that D
a perusal of the speech of the Minister, who introduced the Bill in Parlia-
;.-) ment, will give a clear insight into the various objects of the Act and the
main pu~poses which the legislation sought to achieve. It was further held
that this will have an important bearing on the interpretation of the
provisions of the Act.
E
In Shashikant Laxman Kale and Anr. v. Union of India and Anr., AIR
(1990) SC 2114, Verma, J., speaking for a Three Member - Bench, stated
at page 2119:

"For determining the purpose or object of the legislation, it is F
permissible to look into the circumstances which prevailed at the
time when the law was passed and which necessitated the passing
of that law. For the limited purpose of appreciating the background
and the antecedent factual matrix leading to the legislation, it is
permissible to look into the Statement of Objects and Reasons of
the Bill which actuated the step to provide a remedy for the then G
existing malady."
I
~ I 6. It is in the light of the above principles of law laid down by this
/
Court, we have to scan the provisions of the Orissa Act 36 of 1992 and
, adjudicate as to whether it really falls within "Entry 49" or "Entry 23 or 50" H
658 SUPREME COURT REPORTS [1995] 3 S.C.R.

A of List II of the Seventh Schedule of the Constitution, as contended by the
appellant, and the legal effect flowing therefrom.

7. Earlier similar legislations in the State of Orissa and judicial
decisions which adjudicated the validity or otherwise of those legislations
B are relevant in order to understand the historical background.

8. The legislations are Orissa Mining Areas Development Fund Act,
1952 (Act 27 of 1952), and Orissa Cess Act, 1962 (Act 2 of 1%2) as
amended by Act 40 of 1966. Of the two, the earlier legislation Act 27 of
1952 came up for consideration before this Court on two occasions. On the
C first occasion, Orissa Mining Areas Development Fund Act, 1952 (Act 27
of 1952) was considered in the light of the Mines and Minerals (Regulation
and Development) Act, 1948 (Central Act 53 of 1948). In Hingir Rampur
Coal Company v. State of Orissa and Ors., [1961] 2 SCR 537 the cess or
fee on minerals, levied by the Orissa Act was held to be neither a tax nor
D a duty of excise but a fee. The question turned on the impact of MMRD
Act, on the States' power to levy a fee under Entry 66 read with Entry 23
of List II as a consequence of the declaration contained in section 2 of the
Central Act 53 of 1948. The Court held that the declaration by Parliament
in terms of Entry 54 of List I of the Seventh Schedule operated as a
limitation on the legislative competence of the State Legislature itself. The
E Court was inclined to the view that if Central Act 53 of 1948 contained the
declaration referred to in Entry 23 of the List II, there would be no
difficulty in holding that the declaration covered the field of conservation
and development of minerals and the said field was indistinguishable from
the field covered by the Orissa Act. But it was found by the Court that
F the declaration made by section 2 of the Central Act (Act 53 of 1948) did
not constitutionally amount to the requisite declaration by "Parliament"
and that the declaration did not cover the field covered by the Orissa Act,
and so the limitation imposed by Entry 54 of List I does not come into
operation. On the second occasion, when Orissa Act 27 of 1952 came up
for consideration of this Court in State of Orissa v. MA. Tulloch &
G Company, AIR (1964) SC 1284 = [1964] 4 SCR 461, ''MMRD Act" of 1957
(Central Act 67of1957) had been enacted in place of the earlier 1948 Act.
The validity of the very same cess was considered in the light of the
declaration in section 2 of the MM.R.D. Act of 1957 (Central Act 67 of \ .
1957) and this Court held after a detailed analysis of the State Act as well
H as the Central Act, that the levy of cess under the Orissa Act was invalid
STATE v. MAHANADI COALF1ELDS [PARIPOORNAN, J.] 659

from 1.6.1958, on which date the MMRD Act of 1957 came into force. This A
Court reached the conclusion that the Central Act 67 of 1957 contained
the requisite Parliamentary declaration in section 2 of the Act to occupy
the entire field of legislation covered under Entry 54 of List I, and since
the aforesaid Central Act covered the same field as the State Act of 1952
in regard to mines and mineral development, the earlier decision in Hingir B
Rampur Coal Company v. State of Orissa and Ors., AIR (1961) SC 549,
concluded the matter and the State legislature was denuded of its powers
to enact ·any law on the subject. It is thereafter, Orissa Cess Act, (Act 2 of
I 1962), as amended, was enacted, and it came up for consideration before
this Court in Orissa Cement Ltd. v. State of Orissa, AIR (1991) SC 1976 =
(1991) Supp.1 sec 430. By then, thh law on the subject had been con- C
sidered in detail by a 7-Judge Bench of this Court in India Cement Ltd. &
Ors. v. State of Tamil Nadu & Ors., [1989] Supp. 1 SCR 692 = 1990 Suppl
1 SCC 12. The matter was also discussed in detail in Orissa Cement case
(supra). Section 4 of the Orissa Act, (Act 2 of 1962), as amended in 1976,
imposed a cess on all lands (including mineral lands) determined and D
payable as provided in the Act. With regard to lands held for carrying on
mining operations, in relation to any mineral, the amendment of section
5(2) (a) of the Act read with the Notification issued, prescribed a percent-
age of the royalty or the dead rent, (as the case may be) as the cess in
respect of various items of specified minerals. The Court held that the E
measure of the levy is the royalty paid in respect of the land by the assessee
to his lessor; and considering the change in the scheme of taxation effected
in 1976, the importance and magnitude of the 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 the royalty, and the mode and collection ·of F
the cess amount along with the royalties and as part thereof, would point
out that the legislation in that regard is with respect to royalty rather than
with respect to land. It was held that the levy could not be justified under
Entries 45, 49 and 50 of List II of the Seventh Schedule. Even if the levy
was one which could fall under Entry 50 of List 11, it w.as held that the
MMRD Act of 1957 covered the entire field and so the State legislation to G
the extent it encroached on the field covered by MMRD Act of 1957, will
be ultra vires. Sections 5, 6, & 7 of Orissa Act, (Act 2 of 1962) as amended
in 1976, were held to be beyond the competence of State legislature in view
of the Parliamentary declaration contained in MMRD Act of 1957 (Central
Act 67 of 1957). It is only appropriate to notice in this connection that H
660 SUPREME COURT REPORTS [1995] 3 S.C.R.

A under section 8 of the Orissa Cess Act 1962 read along with sections 18 &
19 of the Orissa Surveys and Settlement Act, lands, except those held for
carrying on mining operations, were subject to levy of cess depending upon
the "surface characteristics" of the land, whereas the levy on lands held for
carrying on 11 mining operations'' was made on the basis of 11minerals ex-
tracted" in view of the amendment of Orissa Cess Act, 1962 by Act 42 of
B 1976.

9. In order to meet the situation, the State of Orissa enacted the
instant legislation-The Orissa Rural Employment, Education and Produc-
tion Act, 1992. The speech made by the Minister in moving the Bill will
C throw light on the objects of the Act and the main purposes which the
legislation sought to achieve. It is contained in the paper book (vol. C)
Annexure I, pages 10-12. The relevant portions of the same are as follows:-

"... this bill has been brought to increase the income of the State
or to compensate the loss that the State Exchequer has lost due
D
to Orissa Cement Case, a Judgment pronounced by the Supreme
Court. By virtue of that judgment, the State lost nearly Rs. 150.00
crores and for a State like ours losing Rs. 150.00 crores is not a
small thing. Even though the Central Government later on revised
the rate of royalty on coal and thereby loss could be compensated
E to the extent of Rs. 30 to Rs. 40 crores, still we are in short of Rs.
100.00 crores. Because of that judgment, Government has come
out with this Bill for imposing tax on all types of land, agriculture,
non-agriculture including mineral bearing lands. You know under
item 49 of the State list of the Constitution of India, the State is
F empowered to impose tax on lands and exercising that power this
Bill has been brought, wherein Government once assume the
power of imposing tax on all lands. However, State have taken all
steps to safeguard the interest of the cultivators and agriculturists.
Provision has been made in the Bill that under the Orissa Cess Act,
1962 one who has paid tax/cess will not be fwther liable to pay tax
G under the present Bill. Therefore there should be no apprehension in
the mind of the Hon'ble Members that either it will be double taxing
or the cultivators who have already over-burdened with tax will be
further liable to pay any tax. Stress has been given on imposing tax
particularly on the mineral bearing lands. You know, Sir, ours is a
H State which is full of mineral resources. Even though we are rich in
STATEv. MAHAN ADI COALFIELDS [PARIPOORNAN,J.] 661

that way we are unable to exploit our minerals and increase the A
income of the State because of several legal hindrances, constitu-
tional and statutory. Therefore, we have to act within the purview
of the law which authorises the State Government to impose tax
and take resort to that and keeping in view the Orissa Cement
Case and India Cement case, the two judgments of the Supreme B
Court, this Bill has been introduced."

(emphasis supplied)
I
10. Let us examine the crucial provisions of Orissa Act 36 of 1992.
The charging section provides that all lands shall be liable to payment cif C
rural employment, education and production tax assessed in the prescribed
manner subject to provisions thereafter contained. The proviso to section
3(1) of the Act states thus:-

"Provided that any land which is liable to payment of cess under the
Orissa Cess Ac4 1962 shall not be liable to payment of rural D
employment, education and production tax."
.>- I
Though the charging section provides for a levy on all lands, land which is
liable to payment of tax under the Orissa Cess Act, 1962 shall not be liable
to payment of the rural employment, education and production tax. Section
4 of the Orissa Cess Act, 1962, as it originally stood, is as follows: E
"4. All lands to be liable to payment of cess. (1) From and after
the commencement of this Act all lands shall be liable to the
payment of cess determined and payable as herein provided:

Provided that no such cess shall be payable in respect of lands F
which were not liable to payment of rent or revenue prior to the
1st day of April, 1977 or lands in respect of which a tax on holding
is assessed under the Orissa Municipal Act, 25 of 1950.
•Provided further that nothing in' the preceding proviso shall G
apply to lands held for carrying on mining operations."

The definition of 'land' in sedion 3(vi) at the relevant time stood as follows:

"3(vi) 'land' means land of whatever description and includes land
which is covered with water, but does not include houses or H
r

662 SUPREME COURT REPORTS [1995] 3 S.C.R.

A buildings."

Later the second proviso to section 4 was deleted and simultaneously
the definition of 'land' in section 3(vi) was substituted by Act 10 of 1994
thus:

B "3(vi) 'land' means land of whatever description and includes land
which is covered with water, but does not include-

(a) mineral bearing land as defined in the Orissa Rural Employ-
ment, Education and Production Act, 1992; and

c (b) houses or buildings."

From the above, it will be seen that the combined effect of section
3(1) of Orissa Act 36 of 1992 and the Orissa Cess Act of 1%2, as amended
by Act 10 of 1994, is that only mineral bearing land and coal bearing land
D will be subject to the levy of tax under Orissa Rural Employment, Educa-
tion and Production Act, 1992 (Orissa Act 36 of 1992). It is not all types of
land that will be subject to the levy but only the two types of land mentioned
above which will be caught by the taxing-net. This is in accord with what
the Hon. Minister stated in introducing the Bill to the effect that "stress
has been given on imposing tax particularly on the mineral bearing lands."
E The earlier levy in that regard was rendered futile by the decisions referred
to by the Hon. Minister himself in his speech and the main purpose of the
legislation was only to levy the tax on mineral bearing and coal bearing
lands. We may incidentally observe that it is common ground that 85% of
the coal bearing lands are in "P' and "G" category in the State of Orissa.
F
11. The above aspect can be looked at from a different angle also. '
The Orissa Rural Employment, Education and Production Act, 1992 (Oris-
sa Act 36 of 1992) provided that all lands shall be liable to the payment of
tax under the Act. Land is defined in section 2(c) of the Act to mean, "land
of whatever description...and includes all benefits to arise out of land" Lands
G held for carrying on mining operations would be taken in by the said
definition. It is patently clear that "minerals", which are benefits to arise
out of land, will be roped in within the purview of the levy under section
3(1) read with section 2(c) of the Act. So the charging section of the
impugned Act imposes a tax on the "minerals" also and not confined to a
H levy on land or surface characteristic of the land. Yet another aspect that
STATE v. MAHANADI COALFIELDS [PARIPOORNAN, J.] 663

is self-evident is that for all lands, other than mineral beariog land, the tax A
is levied at a percentage of the "annual value of the land". So far as tax on
mineral bearing land is concerned, it is for the State Government to
prescribe the same and it has been so fixed io accordance with section
3(4)(i) of the Act based on "average annual income". As stated io para-
graph 3 (supra), by adding Schedule Casper Notification dated 26.9.1994 B
(Annexure·B, page 270 of Paper Book), the rates of tax are fixed for
different kinds of mioerals per acre, obviously based on "average annual
I
income". With regard to coal beariog land, as per section 3(2)(c), the
statute itself has specified the rate of tax io the 'Schedule at Rs. 32,000 per
acre. We have already seen that lands other than mioeral beariog lands and
coal beariog lands will fall outside the purview of the impugned Act sioce C
they are dealt with under the Orissa Cess Act, 1962. It is only the "coal
bearing land" and "mioeral beariog land", as defioed io section 2(a·l) and
section 2(d), which have to bear the brunt of taxation. In the light of the
above, we have no doubt io our miod that the substance of the levy under
the Orissa Rural Employment, Education and Production Act, 1992 is D
._ I really on "mioeral beariog land" and "coal beariog land".

12. The maio contention of the appellants' counsel Mr. B. Sen was
that the levy of the ·tax under Orissa Act 36 of 1992 will come under
Schedule 7, List II Entry 49 • 'Taxes on lands and buildings". In the
alternative, it was contended that the levy will fall under List II Entry 23 E
or Entry 50 of the Seventh Schedule.

List II. "23. Regulation of mioes and mioeral development subject to
the provisions of List I with respect to regulation and develop-
ment under the control of the Union".
F
"50. Taxes on mioeral rights subject to any limitations imposed by
Parliament by law relating to mioeral development.'

It appears to us that Entry 49 of List II is the general entry which enables
the State legislature to impose taxes on lands and buildings. A particular
category or specie is taken but of the general entry, and is provided by G
Entry 50 of List II. B~t the tax that can be levied under List U Entry 50 is
subject to limitations imposed by Parliament by law relating to regulation
of mioes and mioeral development. Similarly, under List II Entry 23,
though the State Legislature can enact a law relating to regulation of mioes
and mioeral development, it is subject to the provisions of List I (Legisla- H
664 SUPREME COURT REPORTS (1995] 3 S.C.R.

A tion by Parliament) with respect to regulation and development under the
control of the Union. In other words, if the impugned Orissa Act 36 of
1992 falls either under List II Entry 50 or List II Entry 23, it is subject to
the law made by Parliament relating to the regulation of mines and mineral
development (List I Entry 54). A perusal of the Mines and Minerals
B (Regulation & Development) Act, 1957 (Central Act 67 of 1957), sections
2, 3(a) & 3(d), sections 9 and 9-A and Second and Third Schedules to the
Act, quoted in paragraph 3 (supra) will clearly point out that taxation on
mineral and mineral rights, viz., any tax, royalty, fee or rent, are provided
in the said Act. In particular, section 9-A provides payment of dead rent
as provided tberein by the holder of a mining lease to the State Govern-
C ment at the rates specified in the Third Schedule to the Act. And the
proviso thereto states that in cases where the holder of the mining lease is
to pay royalty under section 9, he shall be liable to pay either royalty under
section 9 or tbe dead rent, as provided under section 9-A, whii:hever is
greater. Section 9-A enables tbe Central Government to enhance or reduce
D dead rent by amending tbe Third Schedule. The Second and the Third
Schedules provide varying rates for different minerals including coal. Since I •
exhaustive provisions as also the Parliamentary declaration, contemplated
by List I Entry 54, have been made in the Mines and Minerals (Regulation
& Development) Act, 1957, regarding all kinds of taxation on minerals and
mineral rights, - tax, royalty - fee - dead rent etc., the State Legislature is
E denuded or deprived of the power to enact any law or to impose any tax
or other levy with reference to List II Entry 23 or List II Entry 50. We have
already held that levy of tax under Orissa Act 36 of 1992 is in substance
on minerals and mineral rights, which has nothing to do with surface
characteristic of the land. In this view of tbe matter, the levy of tax, on
F mineral bearing lands and coal bearing lands, under section 3 read with
section 2(a)(l) and 2(d) of the Act is beyond the competence of the State
legislature and is ultra vires.

In this connection reference may be made to a seven-Member Bench
decision of this Court in India Cement Ltd. v. State of Tamil Nadu, [1989]
G Supp. 1 SCR 692. In that case, tbe Madras Legislature levied a cess on
royalty. Royalty was payable on extraction of minerals. Section 115(1) of
the Madras Panchayats Act, 1958 levied a local cess at the rate of 45 paise
on every rupee of land revenue payable to tbe Government in respect of
any land for every fasli. The Explanation thereto stated that 'land revenue"
H means public revenue due on land and includes .... .royalty, lease amount or
STATEv. MAHANADICOALFIELDS [PARIPOORNAN,J.] 665

other sum payable to the Government.. .. The levy of cess was sought to be A
sustained as a tax on lands under Schedule VII List II Entry 49. Incidentally
the scope and impact of List I Entry 54, List II Entries 23, 49 & 50 and in
particular, the scope of section 9 of Mines and Minerals (Regulation &
Development) Act came up for consideration. The Court held at page 710
of the report thus:
B
"In this connection, learned Attorney General appearing for the
Union of India submitted before us that in order to sustain the
levy, the power of the, State Legislature has to be found within one
or more of the entries of List II of the 7th Schedule. The levy in
question has to be either a tax or a fee or an impost. If it is neither C
a tax nor a fee then it should be under one of the general entries
undeF List II. The expression 'land' according to its legal sig-
nificance 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. See the observations in Anant D
Mills Co. Ltd. v. State of Gujarat & Ors., (1975] 3 SCR 220 at 249).
The minerals which are under the earth, can in certain circumstan-
ces fall under the expression 'land' but as tax on mineral rights is
expressly covered by entry 50 of List II, if it is brought under the
head taxes under entry 49 of List II, it would render entry 50 of
List II, redundant. Learned Attorney General is right in contend- E
ing that entries should not be so construed as to make any one
entry rednndant. It was further argued that even in pith and
substance the tax fell to entry 50 of List II, it would be controlled
by a legislation under entry 54 of List I."
F
After referring to H.R.S. Mwthy's case (1964] 6 SCR 666, at page 712 of
the report the Court held thus:

"... attention of the Court was not invited to the provisions of Mines
and Minerals (Development & Regulation) Act 1957 and s.9
thereof. S9(3) of the Act in terms states that royalties payable G
under the 2nd Schedule of the Act shall not be enhanced more
than once dnring a period of 4 years. It is, therefore, a clear bar
on the state legislature trucing royalty so as to in effect amend 2nd
Schedule of the Central Act. In the premises, it cannot be right to
say that tax on royalty can be a tax on land, and even if it is a tax, H
666 SUPREME COURT REPORTS [1995] 3 S.C.R.

A if it falls within entry 50 will be ultra vires the State legislature
power in view of s.9(3) of the Central Act."

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

In any event, royalty is directly relatable only to the minerals
D extracted and on the principle that the general provision is ex-
cluded by the special one, royalty would be relatable to entries 23
7 50 of list II, and not entry 49 of list II. But as the fee is covered
by the Central power under entry 23 or entry 50 of list II, the
impugned legislation cannot be upheld.'
E In Federation of Mining Associations of Rajasthan v. State of Rajas-
than and Anr., [1992] Supp. 2 SCC 239, the Rajasthan Land Tax Act of
1985 (Act 6 of 1995) by section 3 read with section 2(a) & (d) of the Act,
imposed a tax on annual value of mineral bearing land based on dead rent
or royalty whichever is higher. Holding that the levy in the said case is
F practically on all fours with the levy in.Orissa Cement's case (supra), a three
Member Bench of this Court observed at page 244 thus:

"The question of validity of levies of this type has come up for
consideration by a seven Judge bench of this Court in India Cement
Ltd. v. State of Tamil Nadu and by a three Judge bench in Orissa
G Cement Ltd. v. State of Orissa .... '
\ .
"... For the reasons set out in India Cement and Orissa Cement
cases, we are of the opinion that the State legislature did not have
the competence to legislate for the levy of a tax on mineral bearing
H lands based on the royalty derived from the land."
STATE v. MAHANADI COALFIELDS (PARIPOORNAN, J.] 667

In the lighf of the aforesaid decisions, we have no hesitation to hold A
that Orissa Act 36 of 1992 purports to impose a tax on coal bearing land
and mineral bearing laod as defined in section 2(a- 1) and 2(d) of the Act,
which is fully covered by Parliamentary legislation - Mines and Mineral
(Regulation & Development) Act, 1957.

B
15. Mr. B. sen, Counsel for the appellaots submitted that in India
Cement's case, [1989) Supp. 1 SCR 692 = [1990) 1 SCC 12 the sole question
that arose for consideration was whether royalty was a tax aod whether cess
on royalty amounts to a tax on tax thereby denuding the legislation of its
true character as a tax on laod. It was held that royalty being within the
purview of section 9 of MMRD Act, the levy was invalid. But, in the instaot C
case, tax is levied on laod, aod so clearly within List II Entry 49. Support
was sought from certain observations in Orissa Cement case [1991) Supp. 1
SCC 430 aod also the latest decision in Goodricke Group Ltd. JT (1994) 7
SC 577 aod in particular, the following observations contained in paragraph
29 of the latter Judgment: D
-)
"It is thus clear from the aforesaid decisions that merely because
a tax on laod or building is imposed with reference to its income
or yields, it does not cease to be a tax on laod or building. The
income or yield of the laod/building is taken merely as a measure
of the tax; it does not alter the nature or character of the levy. It E
still remains a tax on land or building. There is no set pattern of
levy Of tax on laods aod building - indeed there can be no such
staodardisation. No one cao say that a tax under a particular entry
must be levied only in a particular manner, which may have been
adopted hitherto. The Legislature is free to adopt such method of F
levy as it chooses and so long as the character of levy remains the
same, i.e., within the four corners of the particular entry, no
objection cao be taken to the method adopted."

Stress was also laid on the fact that the decisions in India Cement's and
Orissa Cement's case were distinguished in Goodricke case. On the other G
-J hand, counsel
, for the respondents submitted that reliaoce placed on
Goodricke case is erroneous .since the Orissa Rural Employment, Educa-
tion aod Production Act, 1992 is in substaoco and effect a levy on minerals
aod mineral rights aod not on land; and in Goodricke case, the Act was
held to be a law relating to tax on land and that makes all the difference. H
668 SUPREME COURT REPORTS (1995] 3 S.C.R.

A The respondents also took up the plea that some of the observations in
Goodricke case are not in accord with India Cement's case and the Orissa
Cement's case. We are of the view that it is unnecessary to consider the
rival pleas on this score, since we have held that the levy under Orissa
Rural Employment, Education and. Production Act, 1992 is not on land,
but on minerals and mineral rights.
B
14. We concur with the conclusion of the High Court of Orissa that
section 3(2)(c) of the impugned Act as well as the Schedule attached to
the impugned Act, levying a tax of Rs. 32,000 per acre of coal bearing land,
should be declared illegal and ultra vires. The consequential notices issued
C in Form V and the demand notices in Form VII and the certificate
proceedings pending before any forum for the realisation of the dues under
the impugned Act are also illegal and infirm. We further concur with the
decision of the High Court that the demands raised by the Mahanadi
Coalfields Ltd. against the traders and consumers on account of the
D additional burden of tax on land are invalid and illegal. The judgment of
the High Court of Orissa dated 26.4.1994 is affirmed but in the circumstan- I -

ces of the case without any order as to costs.

15. We should hasten to add that we have not pronounced on any
other question raised either before the High Cciurt of Orissa or before us
E by any of the parties, in this batch of cases, and they are left open for
consideration in the future as and when occasion arises therefor. It is
unnecessary to pronounce on those questions at this stage, in view of the
fundamental infirmity regarding the competency of the State Legislature to
enact Orissa Act 36 of 1992 as stated by us earlier. Mr. Shanti Bhushan,
F senior counsel, submitted that M/s. Mahanadi Coal Fields Ltd. should be
afforded sufficient time to return the amounts collected from the traders
~d consumers of coal, as, more than one crore of rupees has been
collected and unless sufficient time is given, it will cause irreparable
hardship. We see force in this plea. We are of the view that it is only
appropriate to afford a breathing time to Mahanadi Coalfields Ltd. in that
G behalf. In our opinion, the amount so collected may be refunded to persons
entitled to the same, within a period of one year from today, failing which \,
they shall pay interest at 18% p.a. on expiry on one year. All the above civil
appea!S and the special leave petitions are disposed of as above.

v.s.s. Appeals disposed.