TaxTMI 
TaxTMI 
1989 (10) TMI 53
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....f Tamil Nadu. By a G. 0. Ms. No. 3668 dated July 19, 1963, the Government of Tamil Nadu sanctioned a grant to the appellant of a mining lease for limestone and kankar for a period of 20 years over an extent of 133.91 acres of land in the village of Chinnagoundanur in Sankaridurg Taluk of Salem district. Out of the extent of 133.91 acres comprised in the mining lease, an extent of 126.14 acres was patta land and only the balance extent of 7.77 acres Government land. The lease deed was in accordance with the Mineral Concession Rules, 1960. The rates of royalty, dead rent and surface rent, were as follows: Royalty : Limestone: Government lands : Re. 0.75 per tonne, but subject to a rebate of Re. 0.38 per tonne to be given on limestone beneficiated by froth flotation method. Patta lands : Re. 0.38 per tonne but subject to a rebate of Re. 0.19 per tonne to be given on limestone beneficiated by froth flotation method. Kankar: Government lands : five per cent. of the sale price at the pit's mouth. Patta lands : 2 1/2% of the sale price at the pit's mouth. Dead rent: Government lands : Rs. 25 (Rupees twenty-five only....
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....f the Act enjoins that there shall be levied in every panchayat development block, a local cess at the rate of 45 paise on every rupee of land revenue payable to the Government in respect of any land for every fasli. An Explanation to the said section was added and deemed always to have been incorporated by the Tamil Nadu Panchayats (Amendment and Miscellaneous Provisions) Act, 1964, being Tamil Nadu Act, 1964 (18 of 1964), which provided as follows : "Explanation.-In this section and in section 116, 'land revenue' means public revenue due on land and includes water cess payable to the Government for water supplied or used for the irrigation of land, royalty, lease amount or other sum payable to the Government in respect of land held direct from the Government on lease or licence, but does not include any other cess or the surcharge payable under section 116, provided that land revenue remitted shall not be deemed to be land revenue payable for the purpose of this section." 6. Sub-section (2) of section 115 of the Act provides that the local cess shall be deemed to be public revenue due on all the lands in respect of which a person is liable to pay local cess an....
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....on January 12, 1970, the appeal has been filed. 10. The appellant is bound to pay royalty to the Government according to the rates provided in the Second Schedule to the said Act of 1957. Clause (1) of Part VII of the lease document provides as follows : "The lessee/lessees shall pay the rent, water rate and royalties reserved by this lease at such times and in the manner provided in Part V and Part VI of these presents and shall also pay and discharge all taxes, rates, assessment and impositions whatsoever being in the nature of public demand which shall from time to time be charged, assessed or imposed by the authority of the Central and State Government upon or in respect of the premises and works of the lessee/lessees in common with other premises and work of a like nature except demands for land revenue." 11. As mentioned herein before, there is an obligation on the lessee to pay rent and other charges mentioned in the said clause, and all other Central and State Governments dues "except demands for land revenue". The question, therefore, which arises is, is cess on royalty a demand of land revenue or additional royalty. 12. For the appellants and/or petition....
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....ification of September 2, 1964, by Act No. 18 of 1964. In order to appreciate the controversy, it has to be understood that, in this case, royalty was payable by the appellant which was prescribed under the lease deed the terms whereof have been noted hereinbefore. The royalty had been fixed under the statutory rules and protected under those rules. The royalty was fixed under the Mines and Minerals (Regulation and Development) Act, 1957, which is a Central Act by which the control of mines and minerals had been take over by the Central Government. That Act was to provide for the regulation of mines and the development of minerals under the control of the Union of India. Section 2 of the Act declares that it is expedient in the public interest that the Union of India should take under its control the regulation of mines and the development of minerals to the extent provided in the Act. Section 9 of the Act provides as follows . "9. (1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement, pay royalty in respect of any mineral removed or consu....
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....r the State of New South Wales v. Brewery Employees Union of New South Wales [1908] 6 CLR 469 at 611-12). 17. In In re Central Provincess and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 [1939] FCR 18, Chief Justice Gwyer of the Federal Court of India relied on the observations of Lord Wright in James v. Commonwealth of Australia [1936] AC 578 and observed that a Constitution must not be construed in any narrow or pedantic sense, and that construction most beneficial to the widest possible amplitude of its powers, must be adopted. The learned Chief Justice emphasised that broad and liberal spirit should inspire those whose duty it is to interpret the Constitution, but they are not free to stretch or pervert the language of the enactment in the interest of any legal or constitutional theory, or even for the purposes of supplying omissions or correcting supposed errors. Federal Court will not strengthen, but only derogate from, its position, if it seeks to do anything but declare the law, but it may rightly reflect that Constitution of a country is a living and organic thing, which, of all instruments, has the greatest claim to be construed ut res magis valeat qua....
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....Hidayatullah, as the learned Chief Justice then was, in Guruswamy and Co. v. State of Mysore, Shinde Bros. v. Deputy Commissioner, AIR 1967 SC 1512, 1525 ; [1967] 1 SCR 548, where at page 571, the learned judge observed: "The word 'cess' is used in Ireland and it still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way as the validity of the tax to which it is an increment." 20. The said observations were made in a dissenting judgment, but there was no dissent on this aspect of the matter. Relying on the aforesaid observations, Mr. Nariman appearing for the appellant and the petitioners suggested that the impugned levy in this case is nothing but a tax on royalty and is, therefore, ultra vires the State Legislature. Mr. Krishnamurthy Iyer, appearing for the State of Tamil Nadu, submitted that the cess in question in the instant case is a levy in respect....
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....t, and it even went up to 1/4th part, in times of urgent necessity, as of war or invasion. The later commentators, Yajnavalkya, Apastamba, Gautama, Baudhayana and Narada, have all asserted not only the right but the extent of the share. When the British came to India, they followed not only the precedent of the previous Mohamedan rulers who also claimed enormous land revenue, with this difference that what the Mohamedan rulers claimed they could never fully realise, but what the British rulers claimed they realised with vigour. It is not necessary to refer in detail as to how land revenue developed in India after the advent of the British rule. There was an appeal from the said decision of the High Court of Andhra Pradesh and this court dismissed the appeal in State of A. P. v. Nalla Raja Reddy [1967] 3 SCR 28 ; AIR 1967 SC 1458. 21. It is, however, clear that, over a period of centuries, land revenue in India has acquired a connotative meaning of share in the produce of land which the King or the Government is entitled to receive. It was contended on behalf of the appellants that the impugned measure being a tax, not on share of the produce of the land but on royalty ; royalty ....
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.... referable to entry 49. Mr. Krishnamurthy Iyer relied on the said principle. But, in the instant case, royalty being that which is payable on the extraction from the land and cess being an additional charge on that royalty cannot, by parity of the same reasoning, be considered to be a tax on land. But, since it was not tax on land and there is no entry like entry 46 in the instant situation like the position before this court in the aforesaid decision, enabling the State to impose tax on royalty in the instant situation, the State was incompetent to impose such a tax. There is a clear distinction between tax directly on land and tax on income arising from land. The aforesaid decision confirmed the above position. In New Manek Chowk Spinning and Weaving Mills Co. Ltd. v. Municipal Corporation of the City of Ahmedabad, AIR 1967 SC 1801 ; [1967] 2 SCR 679 at 696, this court, after referring to the several decisions, observed that entry 49 of List II of the Seventh Schedule only permitted levy of tax on land and building. It did not permit the levy of tax on machinery contents in or situated on the building even though the machinery was there for the use of the building for a particula....
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.... India Theatres Ltd. v. Cantonment Board [1959] Suppl. 2 SCR 63 at 69 ; AIR 1959 SC 582, it was held that an entertainment tax is dependent upon whether there would or would not be a show in a cinema house. If there is no show, there is no tax. It cannot be a tax on profession or calling. Profession tax does not depend on the exercise of one's profession but only concerns itself with the right to practice. It appears that, in the instant case also, no tax can be levied or is leviable under the impugned Act if no mining activities are carried on. Hence, it is manifest that it is not related to land as a unit which is the only method of valuation of land under entry 49 of List II, but is relatable to minerals extracted. Royalty is payable on a proportion of the minerals extracted. It may be mentioned that the Act does not use dead rent as a basis on which land is to be valued. Hence, there cannot be any doubt that the impugned legislation, in its pith and substance, is a tax on royalty and not a tax on land. 24. On behalf of the State of Tamil Nadu, learned counsel, Mr. Krishnamurthy Iyer, sought to urge that it can also be sustained under entry 50, List II. Entry 50 of List I....
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..... Here also, the extent to which regulation of mines and mineral development under the control of the Union is declared by Parliament by law to be expedient in the public interest, to the extent such legislation makes provisions, will denude the State Legislature of its power to override the provision under entry 50 of List II. In view of the Parliamentary legislation under entry 54, List I and the declaration made under section 2 and provisions of section. 9 of the Act, the State Legislature would be overridden to that extent. Section 2 declares 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 provided therein. In this connection, reference may be made to the decision of this court in Hingir Rampur Coal Co. Ltd. V. State of Orissa, AIR 1961 SC 459 ; [1961] 2 SCR 537. See also the observations in State of Orissa v. M. A. Tulloch and Co., AIR 1964 SC 1284; [1964] 4 SCR 461 and Baijnath Kedia v. State of Bihar, AIR 1970 SC 1436 [1970] 2 SCR 100 at 111 to 115. 27. Our attention was drawn to the decision of the Division Bench judgment of the High Court of Mysore in Laxminara....
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....It was held that land cess paid on royalty has a direct relation to land and only a remote relation with mining. This, with respect, seems to be not a correct approach. It was further observed that it was not necessary to consider the meaning of the expression "tax on mineral right" following under entry 50 of List II inasmuch as, according to this court, Parliament has not made any tax on mineral rights. This is not a correct basis. 29. In H. R. S. Murthy's case, AIR 1965 SC 177; [1964] 6 SCR 666 at page 676 of the report, it was observed by this court as follows (at page 181 of AIR 1965 SC) "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. It is unnecessary for the purpose of this case to examine the question as to what ex....
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....income. In view of the provisions of the Act, as noted hereinbefore, this submission cannot be accepted. Mr. Krishnamurthy Iyer also further sought to urge that, in entry 50 of List 11, there is no limitation to the taxing power of the State. In view of the principles mentioned hereinbefore and the express provisions of section 9(2) of the Mines and Minerals (Regulation and Development) Act, 1957, this submission cannot be accepted. This field is fully covered by the Central legislation. 33. In any event, royalty is directly relatable only to the minerals extracted and on the principle that the general provision is excluded by the special one, royalty would be relatable to entries 23 and 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. Our attention was drawn to a judgment of the High Court of Madhya Pradesh in Miscellaneous Petition No. 410 of 1983, Hiralal Rameshwar Prasad v. State of Madhya Pradesh [1986] MPLJ 514, which was delivered on March 28, 1986, by a Division Bench of the High Court. J. S. Verma, Acting Chief Justice, as his Lordship then was, h....
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.... declare that the said cess, by the Act, under section 115, is ultra vires and the respondent State of Tamil Nadu is restrained from enforcing the same any further. But the respondents will not be liable for any refund of cess already paid or collected. The appeals are disposed of accordingly. The special leave petitions and writ petitions are also disposed of in these terms. In the facts and the circumstances of the case, the parties will pay and bear their own costs. OZA J. 37. While I agree with the conclusions reached by my learned brother hon'ble Mukharji J., I have my own reasons for the same. The main argument in favour of this levy imposed by the State Legislature is on the basis of entry 49 in List II of the Seventh Schedule conferring jurisdiction on the State Legislature. The question, therefore, to be determined is whether the jurisdiction of the State Legislature under item 49 of List II could be so exercised as to impose a cess on the royalty prescribed under section 9 of the Mines and Minerals (Regulation and Development) Act, 1957. 38. The entries which are relevant for the purpose of determining this question are : Entry 54, List I reads: ....
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....Schedule in respect of that mineral. (2A) The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, shall not be liable to pay any royalty in respect of any coal consumed by a workman engaged in a colliery provided that such consumption by the workman does not exceed one-third of 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 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." It is clear that, by this Act, along with the Schedule, limits on royalty have been fixed and authority has been given to Parliament alone to vary it and that too not more than once in a period of three years. Admittedly, royalty is not based on the area of land under mining but per unit of minerals extracted. Section 115 of the Madras Village Panchayat....
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....ent block shall be credited to the funds of the panchayat union council." The Explanation to sub-clause (1) is the subject-matter of controversy in this case. Sub-clause (1) provides for levy of 45 naye paise for every rupee of land revenue payable to the Government. In the Explanation a fiction is created and thereby even the royalty payable have been included within the definition of "land revenue". It provides "royalty, lease amount or any other sum payable to the Government in respect of land." This phraseology has been incorporated by an amendment in 1964 by the Madras Village Panchayats (Amendment) Act, 1964, section 13, wherein the Explanation to section 115 was substituted and substituted retrospectively wherein this royalty has also been included in the definition of "land revenue" and it is on this ground that it was mainly contended that land revenue being a tax on land is within the authority of the State Legislature under item 49 of List II and, therefore, the cess which is a tax on land revenue itself or an imposition on the land revenue and hence could not be anything else but a tax falling within the ambit of tax on land as provided by entry 19, List II, and it w....