State cess on mineral rights for special area development upheld where extraction is only the measure of quantification.

A cess imposed on mineral rights for development of a notified special area was treated as a valid State levy under Entry 5 of List II. The impost was distinguished from a tax on royalty or on mineral production, because it operated as a development levy and its reference to excavation or transport was only a measure of quantification. Section 35 of the Uttar Pradesh Special Area Development Authorities Act, 1986 was read as subject to Parliamentary limits on mineral development, but not as trenching upon the Union field. The challenge to State competence failed, and the cess and recovery proceedings were upheld as valid.

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Issues: Whether the levy of cess on mineral rights under Section 35 of the Uttar Pradesh Special Area Development Authorities Act, 1986 and Rule 3 of the Shaktinagar Special Area Development Authority (Cess on Mineral Rights) Rules, 1997 was within the competence of the State and not hit by the Mines and Minerals (Regulation and Development) Act, 1957 or Entry 54 of List I.

Analysis: The levy was upheld as relating to the special area development scheme and municipal administration under Entry 5 of List II. The Court distinguished cases where cess was imposed directly on royalty or on mineral production, and treated the impugned impost as a cess on mineral rights in a notified special area, the measure of which was linked to excavation or transport only for quantification. It held that Section 35 itself was expressly made subject to Parliamentary limitations on mineral development and did not trench upon the Union field. The reasoning in Goodricke Group and Western Coalfields was applied to conclude that the levy did not amount to an impermissible additional royalty and that the State retained competence to levy such cess for special area development.

Conclusion: The cess and the recovery proceedings were valid, and the challenge to the State's competence failed.

Ratio Decidendi: A cess imposed on mineral rights for the development of a notified special area, and not on minerals or royalty as such, is referable to State power under Entry 5 of List II and is not invalid merely because its measure is linked to mineral extraction.

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