TaxTMI 
TaxTMI 
1983 (3) TMI 297
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....plaint by the public due to lack of uniformity. The present Bill is proposed to be enacted with the primary Objective of condensing and simplifying the existing laws on the subject by consolidating the different enactments, customs and usages having force of law in the State and also to amend the same in such matters where they are found to be defective and deficient." Its object was to have a uniform rate throughout the State. By Section 2, the enactments which were specified, in the first column of the Schedule were repealed to the extent mentioned therein that is to say, the provisions therein relating to assessment and levy of cess ceased to be in force on and from the date the Cess Act came into force. Section 3 defined certain expressions used in the Cess. Act, The expression 'land' was defined, as meaning "lands of whatever description arid includes land which is covered with water, but does not include houses or buildings". Chapter II related to imposition and application of the cess and contained the crucial provisions. Section 4 was the charging section and read as hereunder:-- "4. All lands to be liable to payment of cess- (1) From and after the commencemen....
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.... to make valuation for the purpose of assessment of cess while the record-of-rights for any area was being prepared or revised under any law, etc. Section 10 provided that the cess collected would be credited to the Consolidated Fund, of the State and would be utilised in the manner stated in Clauses (a) and (b) thereof. Section 11 provided that calculation of annual value of land and assessment of cess payable in respect thereof would be in accordance with such rules as might be prescribed. Section 18 contained the provisions for appeals. Section 19 conferred on the Board of Revenue the power of revision. Section 21, authorised the Government to make rules for carrying out all or any of the purposes of the Cess Act and in particular, in regard to matters expressly required or allowed by the Cess Act to be prescribed. In pursuance of the said provision, the Orissa Cess Rules, 1963 were framed. Rule 3 prescribed the date and manner of payment of cess. Rule 4 laid down the procedure for revision of valuation. Sections 8, 9, 18 and 19 were amended and a new section --S. 9-A was inserted and S. 11 was omitted by Orissa Act 10 of 1965. The Orissa Cess (Amendment) Act, 1976 (Orissa Ac....
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....d been taken over by Parliament by declaration in Section 2 of the Central Act of 1957 enacted in exercise of powers under Entry 54 of List I: (b) the Cess Act in so far as it purported to levy cess was a piece of colourable legislation in effect, purpose and design; the Legislature purporting to impose royalty under the garb of cess. Alternatively, it was a tax on royalty. The object of the legislation was totally different from what it ostensibly purported to be; (c) the Cess Act was violative of Article 14, of the Constitution of India in its hostile discrimination, unequal treatment; (d) it also inhibited or impeded free flow of trade and commerce guaranteed under Article 301. It was confiscatory and extortionate in nature, thereby infringing Articles 14 and 19(1)(f); and (e) the impost of cess violated the condition contained in the mining leases--statutory lease--prescribed by the Cess Act and the Orissa Cess Rules. Mr. R. K. Mohapatra appearing for one of the petitioners took a different stand He urged that the initial object of the Cess Act was to levy a fee. By amendment in 1976, the Legislature purported to impose a tax and the imposition after the amendmen....
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....-"Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union." The only difference between the Entries of the 1935 Act and, the Constitution is in the deletion of 'oilfields' from the Entries and that the declaration must be made by Parliament. In 1948, the Legislative Assembly enacted the Mines and Minerals (Regulation and Development) Act, 1948. The said Act made provisions for regulation of mines and oilfields and for development of mines. In 1957, the Parliament enacted the Central Act of 1957. It came into force on 1-6-1958. It made an amendment in the 1948 Act so as to make the latter relate to oil fields only. Section 2 contains the declaration:-- "It is hereby, declared that it is expedient in the public interest that the Union should, take under its control the regulation of Mines and the development of minerals to the extent hereinafter provided." Section 4 of the Central Act of 1957 provides that no mining lease shall be granted after the commencement of the Act otherwise than in accordance with the rules made under the Act. It also provides that no person shal....
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.... any rent, royalty, tax, fee or other sum due to the Government under the Act or the rules or under the terms and conditions of any prospecting licence or mining lease may, on a certificate of such officer as may be specified by the State Government, be recovered, in the same manner as an arrear of land revenue and, such due shall be a first charge on the assets of the holders of the licence or mining lease, as the case may be. Rule 31 of the Mineral Concession Rules 1960 lays down that where an order has been made for the grant of a mining lease, the lease deed in the prescribed form (Form K). or in a form as near thereto as circumstances of each case may require, shall be executed within six months of the order or within such further period as the State Government may allow in this behalf. It is not necessary for our purpose to refer to the other provisions of the Central Act of 1957 or Mineral Concession Rules. 7. It was contended by the counsel for the petitioners that having regard to the declaration in Section 2 of the Central Act of 1967 that "it is expedient in the public interest that the Union should take under its control the regulation of Mines and development of ....
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....isions relating to distribution of powers in our Constitution were adopted from the Government of India Act, 1935. "The British Parliament when enacting the Indian Constitution Act had a long experience of the working of the British North America Act and the Australian Commonwealth Act and must have known that it is not in practice possible to ensure that the powers entrusted to the several Legislatures will never overlap." (Lord Porterprafulla Kumar v. Bank of Commerce, AIR 1947 PC 60). It gave an exhaustive enumeration of powers and distributed them in three Legislative lists--List I being Federal, List II being provincial and List III being Concurrent Legislative List. Section 100(1) of the Government of India Act, 1935, gave the Federal Legislature exclusive power to legislate with respect to matters in List I, Section 100(2) gave the Federal Legislature and, subject to Section 100(1), also to the provincial Legislature, power to legislate in respect of matters in List III; and Section 100(3) gave the Provincial Legislature, subject to Sections 100 (1) and (2), exclusive power to legislate in respect of matters in List II. Such enumeration of powers was made with a view to redu....
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....nnection with the aforesaid scheme pertaining to distribution of legislative powers, two things appear to be well settled. Firstly, every effort having been made to make the three lists as comprehensive and exhaustive as possible, the specific Entries in the three Lists in between them must be held to exhaust all conceivable topics or subjects oi legislation and, therefore whenever any matter is dealt with by any particular Act, aa attempt will have to be made to allocate such matter to one or the other of the Entries in these Lists and secondly, it is only when such attempt fails that the Court can fall back upon the residuary Entry 97 of List I, for, resort to residual powers should be the last refuge. See J.C. Waghmare v. State of Maharashtra, AIR 1978 Bom 119 (FB). The problem of construction of the Entries has engaged the minds of Judges, In the case of United Provinces v. Mt. Atiqua Begum, AIR 1941 FC 16. Maurice Gwyer, C.J., observed: 'The subjects dealt with in the three legislative lists are not always set out with scientific definition. It would be practically impossible lor example to define each item in the Provincial List in such a way as to make it exclusive....
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....tions thereof are intra vires, and what are not........." ".........Notwithstanding that the lists were framed so as to be fairly full and comprehensive, it was not long before it was found that the topics enumerated in the two sections overlapped, and the Privy Council had time and again to pass on the constitutionality of laws made by the Dominion and Provincial legislatures. It was in this situation that the Privy Council evolved the doctrine, that for deciding whether an impugned legislation was intra vires, regard must be had to its pith and substance. That is to say, if a statute is found in substance to relate to a topic within the competence of the legislature, it should be held to be intra vires, even though it might incidentally trench on topics not within its legislative competence. The extent of the encroachment on matters beyond its competence may be an element in determining whether the legislation is colourable, that is, whether in the guise of making a law on a matter within its competence, the legislature is, in truth, making a law on a subject beyond its competence. But where that is not the position, then the fact of encroachment does not affect the vires of t....
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....f on the view of the statute as a whole, you find that the substance of the legislation is within the express powers, then it is not invalidated if incidentally it affects matters which are outside the authorised field. The legislation must not under the guise of dealing with one matter in fact encroach upon the forbidden field. Nor are you to look only at the object of the legislator. An Act may have a perfectly lawful object e.g., to promote the health of the inhabitants, but may seek to achieve that object by invalid methods, e.g., direct prohibition of any trade with a foreign country. In other words, you may certainly consider the clauses of an Act to see whether they are passed in respect of the forbidden subject." In K.C. Gajapati Narayan Deo v. State of Orissa, AIR 1953 SC 375, B.K. Mukherjea, J., observed (at p. 379):-- "It may be made clear at the outset that the doctrine of colourable legislation does not involve any question of 'bona fides' or 'mala fides' on the part of the legislature. The whole doctrine re-solves itself into the question of competency of a particular legislature to enact a particular law. If the legislature is competent to pass ....
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....ust always be as to the true nature and character of the challenged legislation and it is the result of such 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--'vide (1924) AC 328 at p. 337 (B)'. 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--'Vide Attorney-General for Alberta v. Attorney-General for Canada, (1939) AC 117 at p. 130 (C). But these are only relevant for the purpose of ascertaining the true 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. XXX -XXX XXX It may appear on scrutiny that the real purpose of a legislation is different from that appears on the face of it, but it would be a colourable legislation only if it is shewn that the real object is not attainable to it by reason of any constitutional limitation or that it lies within the exclusive field of another legislature...............
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....nbsp; jurisdiction , of the State Legislature under Entry 23 is subject to the limitation imposed by the latter part of the said Entry. If Parliament by its law has declared that, 'regulation and development of mines should in public interest be under the control of the Union, to the extent of such declaration the jurisdiction of the State Legislature is excluded. In other words, if a Central Act has been passed which contains a declaration by Parliament is required, by Entry 54, and, if the said declaration covers the field occupied by the impugned Act the impugned, Act would be ultra vires, not because of any repugnance between the two statutes but because the State Legislature had no jurisdiction to pass the law. The limitation imposed by the latter part of Entry 23 is a limitation on the legislative competence of the State Legislature itself. .......What Entry 23 provides is that the legislative competence of the State Legislature is subject to the provisions of List I with respect to regulation and development under the control of the Union, and Entry 54 in List I requires a declaration by Parliament by law that r....
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....e (AIR 1964 SC 1284) were distinguished on the ground that the provisions of the Madras Act had nothing to do and were not concerned with the development ' of mines and minerals or their regulations. The proceeds of the land cess were credited to the District Fund which were to be utilised "for everything necessary for or conducive to the safety, health, convenience or education of the inhabitants or the amenities of the local area concerned and everything incidental to the administration." The land cess is in truth a 'tax on lands' within Entry 49 of the State List." Their Lordships observed : ".........When a question arises as to the precise head of legislative power under which a taxing statute has been passed, the subject for enquiry is what in truth and substance is the nature of the tax. No doubt, in a sense, but in a very remote sense it has relationship to mining as also to the mineral won from the mine under a contract by which royalty is payable on the quantity of mineral extracted. But that, does not stamp it as a tax on either the extraction of the mineral or on the mineral right......." Their Lordships held that the Central Act of 1957 did not denude....
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....regulation of declared industries and not with ownership of industrial undertakings, the State Legislature had the competence to enact the impugned law. Summing up, their Lordships said in Western Coalfield's case (AIR 1982 SC 697) that the functions, powers and duties of Municipalities did not become an occupied field by reason of the declaration contained in Section 2 of the Central Act of 1957. "........ .Though, therefore, en account of that declaration the legislative field covered by Entry 23, List II may pass on to the Parliament by virtue of Entry 54 List I, the competence of the State Government to enact laws for municipal administration will remain unaffected by that declaration." 11. The various provisions contained in the Central Act of 1957 also indicate that the Parliament while making the declaration in Section 2 has not taken under its control the field of taxation, No provision of the Act or the Rules has been brought to our notice which provides for levy of cess or tax. Learned Counsel for the petitioners strongly relied on Section 25 and contended that it contained, the provisions regarding taxation. In our view, Section 25 is as enabling and not a s....
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....iffered from rent. It was a kind of levy in proportion to the minerals worked. It was an impost, by the Govt. though its origin was riveted in the concept of royal prerogative. It was a compulsory exaction and recoverable in the event of non-payment as arrear of land revenue. All collections made on account of royalty on mines and minerals became part of the consolidated fund. It was not a payment for service rendered, "......royalty on mines and minerals cannot be a fee but a levy of the nature of a tax." In the case of Laxminarayana Mining Co. Bangalore v. Taluk Development Board, AIR 1972 Mys 299, the Taluk Development Board exercising the powers raider Sections 143 and 144 of the Mysore Village Panchayats and Local Boards Act of 1958, levied licence fee on the mining of manganese or iron ore, etc. When challenged, the levy was sought to be sustained as tax. It was observed that by enacting the Central Act of 1957,: "......the Parliament intended that the power to legislate with regard to taxation on mineral rights also should be assumed by it to the exclusion of the State Legislatures. The expression 'royalty' is used differently in different contexts. Sometime....
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.... List because a lessee who is authorised to operate mine and win minerals therefrom, pays price of that property, is prescribed by Parliament, to the lessor or the owner of the minerals the Union of India............." In Dr. Shanti Saroop Sharma v. State of Punjab, AIR 1969 Punj and Har 79, it was held that royalty was neither a tax nor a fee but was more akin to rent. In our view royalty is the payment made for the minerals extracted. It is not tax. The question can also be considered from another angle. The taxing powers of the Parliament and the State Legislatures have been enumerated in List II. In List I, Entries 1 to 81 mention the several matters over which the Parliament has authority to legislate. Entries 82 to 92 enumerate the taxes which can be imposed by a law enacted by the Parliament. "An examination of these two groups of Entries shows that while the main subject of legislation figures in the first group, a tax in relation thereto is separately mentioned in the second." In List II, Entries 1 to 44 form one group enumerating the subjects on which the State Legislature may make laws. Entries 45 to 63 form another group and deal with taxes. Construing the constit....
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....C 1436 (Baijnath Kedia v. State of Bihar). In that case the Bihar Government demanded dead rent, royalty and surface rent from the lessee, contrary to the terms of the lease, by virtue of Section 10 (2) of the Bihar Land Reforms Act, 1950 and, the Rules framed thereunder. It was held (at p. 1443):-- ".........Entry 54 of the Union List speaks both of Regulation of Mines and Minerals Development, and Entry 23 is subject to Entry 54. It is open to Parliament to declare that it is expedient in the public interest that the control should rest in Central Government. To what extent such a declaration can go is for Parliament to determine and this must be commensurate with public interest. Once this declaration is made and the extent laid down, the subject of legislation to the extent laid down becomes an exclusive subject for legislation by Parliament. Any legislation by the State after such declaration and trenching upon the field disclosed in the declaration must necessarily be unconstitutional because that field is abstracted from the legislative competence of the State Legislature......." The Supreme Court observed that the pith and substance of the provision in the Bihar Act f....
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.... whether an enactment is ultra vires, the Court must ascertain the true nature and character of the challenged enactment its pith and substance, and not the form alone which it may have assumed, under the hand of the draftsman. When there is an absolute jurisdiction vested in a legislature, the laws promulgated by it must take effect according to the proper construction of the language in which they are expressed. But where the law-making authority is of a limited or qualified character obviously, it may be necessary to examine, with some strictness, the substance of the legislation, for the purpose of determinating what it is that the legislature is really doing. It is the duty of the courts, however, difficult it may be, to ascertain in what degree, and to what extent authority to deal with matters falling within, these classes of subjects (mentioned in the Central and Provincial Lists) exists in each Legislature and to define, in the particular case before them the limits of their respective powers. It could not have been the intention that a conflict should exist; and in order to prevent such a result the two sections must be read together, and the language of one interpreted a....
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....by Entry 49 of List II. In that context, it was said : ".........By Legislation in exercise of power under Entry 86, List I tax is contemplated to be levied on the value of the assets. For the purpose of levying tax under Entry 49, List II the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not, in our judgment, make the fields of legislation under the two entries overlapping." In the case of Asst. Commr. of Urban Land Tax, Madras v. Buckingham and Carnatic Co. Ltd. (AIR 1970 SC 169) (supra) the vires of the Madras Urban Land Tax Act of 1966 which imposed a tax on urban land at a percentage of the market value was questioned. It was contended that the State Legislature had trespassed upon the field of legislation covered by Entry 86, List I by adopting the annual or the capital value of lands and buildings as the measure. It was held (para 5):-- "..........Tax on lands and buildings is directly imposed on lands and buildings, and bears a definite relation to it.......... B....
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....n an indefinite extent upwards, but in law it extends also downwards, so that whatever is in a direct line between the surface and the centre of the earth by the common law belongs to the owner of the surface (not merely the surface, but all the land down to the centre of the earth and up to the heavens) and hence the word land' which is nomen generalis-simurn, includes, not only the face of the earth, but everything under it or over it". (AIR 1975 SC 1234, Anant Mills Co. Ltd. v. State of Gujarat). In the case of City of Westminster v. Southern Rly. Co., (1936) A. C. 511, Lord Russel of Killowen observed:-- "Subject to special enactments, people are rated as occupiers of land, land being understood as including not only the surface of the earth but all strata above or below." In the case of Electric Telegraph Co. v. Salford Overseers, (1855) 11 Ex. 181 Pollock, C. B. said:-- "There is no distinction between the occupying land, by passing through a fixed point of space in the air to another fixed, point, or by passing in the same manner through land or water. Land extends upwards as well as downward. It is stated in Ryde on Rating, 11th Edn., at page 14 :-- ....
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....stitution of India has succinctly summarised the law thus: In order to determine, whether a tax falls under one or other of the taxing powers conferred by the various Entries in the List, it is necessary to examine the charging section of the taxing statute as distinguished from the means or machinery or basis of taxation. In other words, the mode of assessment does not determine the character of tax." The tax is charged under Section 4 of the Cess Act. The provisions in Sections 5, 6 and 7 contain the mode, the manner or the machinery of taxation. It is therefore, difficult to accept the contention of the counsel for the petitioners that as the annual value of lands held for carrying on mining operations is calculated with reference to royalty or other payments paid or payable for the right of raising minerals, the cess levied under the Cess Act is not on lands but is royalty or a levy on royalty. 14. It was next contended that the Cess Act infringed, Article 14 of the Constitution by singling out lands held for carrying on mining operations and for hostile and unequal treatment. The Cess Act does not apply to houses or buildings. The First proviso to Section 4 exclude....
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....d. v. State of Gujarat) ".........the Court applies a spectrum of standards in reviewing discrimination violative of Article 14. that spectrum comprehends variation in the degree of care with which the Court will scrutinise particular classification and, that in the context of economic and tax matters, a classification made by the legislature is almost always sustained because the Court lacks both the expertise and the familiarity with the local problem so necessary for making a wise decision, with respect to raising and disposing public revenues ................" (See AIR 1975 SC 594, State of Karnataka v. D. P. Sharma. "It is well recognised that a Legislature does not have to tax everything in order to tax something. It can pick and choose districts, objects, persons, methods and even rates of taxation as long as it does so reasonably (Wills Constitutional law of the United States 587). A taxing statute is not invalid on the ground of discrimination merely ....
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.... different persons may be unequal. Hence, if the legislature has classified persons or properties into different qategories, which, are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, Article 14 will not stand in the way or such a classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inquality, the law may be struck down as creating an inequality amongst holders of the same kind of property see Moopil Nair's case, AIR 1961 SC 552. The State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally, and that canno....
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....s placed in course of the hearing should not be looked into. No step was taken to incorporate necessary averments by way of amendment of the writ petition. Assuming that there are the necessary averments we are of the view that the affidavits and the documents filed, by one of the petitioners, i.e., petitioners in. O. J. C. No. 1517 of 1978, do not establish that the cess is confiscatory in character or violative of Article 19(1)(f) of the Constitution. In applying the test of reasonableness, it is essential to notice that the power of taxation is generally regarded as an essential attribute of sovereignty and constitutional provisions relating to the power of taxation are regarded not as grant of power but as limitation upon the power which would otherwise be practically without limit But where the statute is plainly discriminatory or confiscatory or unconstitutional in nature, the tax can be struck down as unreasonable and violative of Article 19(1)(f). In Moopil Nair's ease (AIR 1961 SC 552) (supra), the vires of Travancore-Cochin Land Tax Act, 1955, as amended by Travancore-Cochin Land Tax (Amendment) Act of 1967, was impugned. It was alleged that under the Act the la....
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....impact of the judgment, a larger Bench was constituted to reconsider the same and in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, AIR 1962 SC 1406 the aforesaid principle was upheld; but it was clarified that regulatory measure or measures imposing compensatory tax id not come within the purview of the restrictions contemplated under Article 301. An impost may have some effect on trade and commerce. What Article 301, however, prohibits is an impost which would restrict or impede directly and immediately free flow of trade and commerce. In our opinion, the land cess does not come within the mischief of Article 301. 17. It was also contended that the impost was violative of the terms and conditions contained in the lease deeds, viz., mining leases. We have already held that the Central Act is referable to Entry 54 of List I, whereas the Cess Act has been enacted under the powers conferred on ^e State Legislature by Entry 49 of List II. If the State Legislature has the legislative competence, the petitioners cannot make a grievance that in addition to the amounts stipulated under the lease deed, they will be obliged to pay the cess in respect of the lands held by....
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....and under the Punjab Tobacco Vend Fees Act. The provision was upheld. In Kendriya Nagrik Samiti, Kanpur v. Jal Sansthan, AIR 1982 All 406, imposition of sewerage tax and, water tax was upheld. Cess is assessed at a certain percentage of the annual value. Annual value is determined with reference to royalty or dead rent, as the case may be, paid or payable for lands held for carrying on mining operation. Whether royalty is paid or payable for one type of ore or more and by one person or more are ancillary matters which do not impinge on the taxing power of the State. The contention is, therefore, devoid of substance. 20. It was urged that the Act was also violative of Article 14 by its denial for a fair hearing in course of assessment. It was submitted that whereas in cases of assessments made under Sections 9 and, 9-A remedy by way of appeal has been granted to the aggrieved party, such a remedy has been withheld in case of assessment under Section 9B of cess on lands held for carrying on mining operations. Repelling the attack the learned Advocate-General submitted that the assessment of cess was linked with and dependent upon the assessment of royalty. Determination o....
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....nection, their Lordships observed (at p. 1920):-- "......The cess is nothing more than an addition to existing taxes. As it is a precentage of another tax, the determination of the cess is not by an independent assessment. It is an arithmetical calculation based on the result of assessment under other Act or Acts,........" In the case of Ramchand Maroti v. Malkapur Municipal Council, AIR 1970 Bombay 154, it was urged that no machinery had been provided for the manner of levying and calculating the Maharashtra Education Cess Act, 1962. The plea was negatived by holding that since the levy was a percentage of the annual letting value of the lands and buildings which was determined by separate proceedings, it was not necessary to evolve an independent method for the purpose of assessment and levy of tax under the Cess Act. In our opinion, the aforesaid authorities squarely meet the challenge. The assessment of cess is not an independent exercise. Cess is quantified with reference to the royalty or dead rent, as the case may be. Once there is a determination of royalty or dead rent, quantification of the cess is an automatic process. Moreover, as was pointed out by the Supreme....