RAOJIBHAI JIVABHAI PATEL AND ORS. ETC. ETC.versusSTATE OF GUJARAT AND ORS. ETC. ETC.

       RAOJIBHAI JIVABHAI PATEL AND ORS. ETC. ETC.
A
                            v.
          STATE OF GUJARAT AND ORS. ETC. ETC.

                             DECEMBER 7, 1989

B          [E.S. VENKATARAMIAH, CJ. K.N. SINGH, AND
                      N.M. KASLIWAL, JJ.]

         Mines and Minerals (Regulation and Development) Act 1957/
    Gujarat Minor Minerals Rules, 1966: Section 15/Rule 21-Royalty-
    Levy of by State Government on minor minerals validity of.

c         The Petitioners in these petitions have challenged the validity of a
    Notification issued by the Government of Gujarat on June 25, 1985
    whereby the Gujarat Minor Mineral Rules were amended with effect
    from I.7.1985. By the said notification, original Rule 21 of the Rules
    was substituted hy a new Rule 21 which provided that a holder of a
D   quarry lease or any other mineral concession granted under the Rules
    shall pay royalty in respect of minor minerals provided in .:olumn 2 of
    the Schedule. It is under this Notification that the rate of royalty in
    respect of Black trap and Hard Murrum was increased from Rs.4 to
    Rs. 7 per metric tonne.

E         The validity of Rule 21 as it stood prior to its amendment by the
    aforesaid impugned notification was considered and upheld by this
    Court on March 6, 1986 in D.K. Trivedi & Sons & Ors. v. State of'
    Gujarat & Ors., [1986] I SCR 479. The impugned notification was
    issued at a time when the Writ Petitions in the aforesaid case were
    pending in the High Court. The increase in the levy of royalty effected
F   by the impugned notification is now questioned in these petitions. The
    Petitioners raised the following contentions viz;

          ( l) That the royalty levied and covered under the Rules should be
    applied only for mineral development and since the royalty is being
    treated as part of the consolidated fund of the State and used for other 1
G   purposes by the State, the levy was bad; and

          (2) That the impugned notification in question was in contraven-
    tion of clause (c) of Art. 304 of the constitution. -

           (3) That the impugned notificatii.11 is discriminatory in character.
H

                                       406
                  R.J. PATEL v. STATE OF GUJARAT                      407

      Dismissing the Writ Petitions, this Conrt,
                                                                             A
      HELD: That Act is no doubt passed for development of minerals
but while discharging its functions relating to development, if the State
incidentally allows mining to be carried on in the public interest and
levies in that connection a tax, it does not mean that the said tax should
be used only for development of minerals and not for other purposes          B
sanctioned by law. [412B]

     The India Cement Ltd. etc. v. The State of Tamil Nade etc., [1989]
4 SC-Judgment Today 190.

      No restriction is being imposed on the freedom of trade of the
petitioners by the levy of royalty. The minerals belong to the Govern-       c
ment and if anybody wants to have the right as a lessee to exploit the
mines to the exclusion of others and to remove the minerals with a view
to making profit, he has to pay a royalty imposed in accordance with
law. l412E]
                                                                             D
      In the instant case, the levy is made under a law made by the
Central Government. It is not an imposition made by a law made by the
State Legislature on which alone, the restriction contemplated under
Art. 304(b) applies. [412F]

      If the Executive or the administrative authority acts in an            E
arbitrary manner, its action would be bad in law and liable to be struck
down by the Courts but the possibility of abuse of power or arbitrary
exercise of power cannot invalidate the statute conferring the power or
the power which has been conferred by it. l413B-C]

      Since the power exercised is legislative in character, the authority   F
which is exercising the said power has the power to make Rules equit-
able by necessary implication. No express power need be conferred on
such subordinate authority in order to make a classification for
purposes of implementing the policy of the Act under which the Rules
are made. l4ISG)
                                                                             G
     ORIGINAL JURISDICTION: Writ Petition                   (Civil) Nos.
12676-77 of 1985 etc. etc.

      (Under Article 32 of the Constitution of India)

     _R.F. Nariman, P.H. Parekh, N.N. Keshwani, Mrs. H. Wahi                 H
and R.N. Keshwani for the Petitioners.
     408          SUPREME COURT REPORTS                I1989] Supp. 2 S.C.R.
          G.A. Shah, M.N. Shroff, K.M.M. Khan and T.U. Mehta for the
A    Respondents.

           The Judgment of the Court was delivered by

           VENKAT ARAMIAH, CJ. The petitioners in these petitions
B    have questioned the validity of a notification issued by the Govern-
     ment of Gujarat on June 26, 1985 in exercise of its powers conferred by
     Section 15 of the Mines and Minerals (Regulation and Development)
     Act, 1957 (67 of 1957), hereinafter referred to as the Act, amending
     the Gujarat Minor Mineral Rules 1966, hereinafter referred to as the
     Rules, with effect from 1-7-1985 substituting the original rule 21 of the
     Rules by a new rule which reads as follows:
c
                 "2 l. Rate of Royality: The holder of a quarry lease or any
                 other mineral concession granted under these rules shall
                 pay royalty in respect of minor minerals, specified in
                 ~olumn 2 of the schedule, removed or consumed by him or
D                by his agent, manager, employee, contractor or sub lessee
                 from the leased area at the rates respectively specified
                 against them in column 3 of the said schedule.

                 Provided that:

E                (i) the holder of a Parwana granted under these rules shall
                 pay royalty at the rate of fifty percent of the rate of royalty
                 specified in the said schedule.

                 (ii) no royalty shall be charged from Nimbhadas of village
                 potters who manufacture upto one lakh bricks per year.
F
                 (iii) no royalty shall be charged from Nimbhadas of village
                 potters if their annual production is not exceeding two
                 lakhs bricks and they supply at least one lakh bricks to the
                 Rural Housing Board or Panchayats.

G                (iv) Royalty shall be recoverable in whole rupees, fraction
                 fifty paise and above to be rounded upwards to a whole
                 rupee and fraction below fifty paise shall be ignore<i "

     and fixing the royalty payable by the lessees in respect of minor minerals
     known as Black Trap and Hard Murrum at Rs.7 per metric tonne by
ff   amending schedule of the Rules which was being levied at Rs, 4 till
     the date of the said amendment.
     R.J. PATEL v. STATE OF GUJARAT [VENKATARAMIAH, CJ.)             409

       In order to understand the case of the petitioners it is necessary
to set out some other provisions of law governing the case. The;Act         A
was passed in the year 1957 by Parliam.ent to provide for the regulation
of mines and development of minerals. under the control of the Union
and it was made applicable to the whole of'lndia. Under secion 3A of
the Act the word 'minerals' is defined as including all minerals except
mineral oils. Clause (e) of the said section defines 'minor minerals' as    B
building stones, gravel, ordinary clay, ordinary sand oher than sand
used for prescribed purposes and any other mineral which the Central
Government may. by notification in the Official Gazette, declare to be
a minor mineraf. It is not disputed that Black Trap and Hard Murrum
are notified as minor minerals. The Act has made provision with regad
to the issue of prospecting licences and mining leases in respect of
various kinds of minerals other than minor minerals and the procedure       c
to be followed in that connection in the matter of issue of prospecting
licences and mining leases. Section 9 of the act empowers the Central
Government to levy royalty in respect of the minerals which are won
by the mining lease holders under the Act at the rates prescribed in the
Second Schedule to the Act. It empowers the Central Government to           D
enhance or reduce the rate of royalty -prescribed by the Second
Schedule in respect Of any mineral subject to the condition that me
Central Government shall not enhance the rate of royalty in respect of
any mineral more than once during any period of three years. Section
 14 of the Act provides that sections 5 to 13 (inclusive) shall not apply
to quarry leases, mining leases or other mineral concessions in respect     E
of minor minerals. Section 15 as it stood during the relevant time read
thus:

            "15. (1) The State Government may, by notification in
            the Official Gazette, make rules for regulating the grant of
            (quarry leases, mining leases or other mineral concessions)     F
            in respect of minor minerals and for purposes connected
            therewith.

            (2) Until rules are made under sub-section (I). my rules
            made by a State Government regulating the grant of
            (quarry leases, mining leases or other mineral concessions)     G
            in respect of minor minerals which are in force immediately
            before the commencement of this Act shall continue in
            force.

            (3) The holder of a mining lease or any other mineral con-
            cession granted under any rule made under sub-section (I)       H
      410         SUPREME COURT REPORTS               [1989) Supp. 2 S.C.R.

                  shall pay royalty or dead rent, whichever is more in .respect
  A
                  of minor minerals removed or consumed by him or by his
                  agent, manager, employee, contractor or sub-lessee at the
                  rate prescribed for the time being in the rules framed by the
                  State Government in respect of minor minerals;

  B                    Provided that the State Government shall not
                  enhance the rate of royalty in respect of any minor mineral
                  for more than once during any period of three years."

         It is seen from section 15 that the State Government is
   empowered to make rules for regulating the grant of quarry leases,
   mining leases or other mineral concessions in respect of minor mine-
 c rals and for purposes connected therewith. In exercise of the said
   power under section 15 the Government of Gujarat promulgated the
   Gujarat Minor Minerals Rules, 1966 which are referred to as the Rules
   as stated above. Rule i 1 of the Rules provides for the determination of
   the rate of royalty payable in respect of minor minerals. The original
·D rule U was substituted by new rule 21 by the issue of impugned notifi-
   cation on 26-6-1985 which provides that a holder of a quarry lease or
   any other mineral concession granted under the Rules shall pay royalty
   in respect of minor minerals provided in column 2 of the Schedule,
   removed or consumed by him or by his agent, manager, employee,
   contractor or sub-lessee from the leased area at the rates specified in
 E column 3 of the said Schedule. It is under this notification the rate of
   royalty in respect of black trap and Hard Murrum was increased from
   Rs. 4 to Rs. 7 per metric tonne. The rule also provides that the holder
   of a Parwana granted under the Rules shall pay royalty at the rate of 50
   per cent of the rate of royalty specified in the said Schedule and that no
   royalty shall be charged from Nimbhadas of village Potters who
 F manufacture upto one lakh bricks per year. It further provides that no
   royalty shall be charged from Nimbhadas of villages potters if the
   annual production is not exceeding two lakh bricks and they supply at
   least one lakh bricks to the Rural Housing Board or Panchayats. The
   validity of rule 21 as it existed prior to the issue of the impugned
   notification was considered in B.K. Trivedi & Sons and Ors. v. State of
 G Gujarat and Ors., [1986] 1 SCR 479 as under the said rule the royalty
   payable in respect of some of the minor minerals had been enhanced.
   Originally all lessees had to pay a minimum dead rent in respect of the
   area covered by a minor mineral lease issued in respect of any minor
   mineral or the royalty Qrescribed.in respect of quantity of minor mine-
   rals owned by him, whfch-ever was higher. The history of the legisla-
 H lion of the Rule from the year 1986 is set out in detail in the said
      R.J. PAIBL v. STAIB OF GUJARAT [VENKATARAMIAH, Cl.[           411

decision. Hence it is not necessary to refer to it in detail here. By the
said decision the consitutionality of section 15 of the Act and the A
validity of a notification issued on June 18, 1981.under which the rate
of royalty had been raised was upheld and the writ petitions in which
the said validity had been questioned were dismissed. That decision
was rendered on March 5, 1986. During the pendency of the said
petitions in the High Court the impugned notification was issued B
increasing the royalty payable in respect of Black Trap and Hard
Murrum from Rs.4 to Rs.7. In these petitions the impugned notifica-
tion issued in the year 1985 is questioned. Since many of the conten-
tions raised by the parties in respect of the constitutionality of section
 15 of the Act and the validity of Rules made.• thereunder had been
considered and the contentions urged by the petitioners against the
said rule in those petitions had been rejected, in the present case the. C
petitioners have confined their case only to the following pojnts which
according to them had not been considered in the said decision.

      Shri R.F. Nariman, learned counsel for the petitioners in some
of the petitions had two contentions:                                      D

       1. that the royalty levied and coyered under the Rules should be
      applied only for mineral development and since the said royalty
      is being treated as part of the consolidated fund of the State and
      used for other purposes by the State the levy was bad; and
                                                                           E
      2. that the impugned notification in question was in contraven-
      tion of clause (b) of Article 304 of the Constitution.

      The contention of the learned counsel was that under Entry 50 of
List II of the 7th Schedule to the Constitution, the royalty recovered
by the State Government had to be used only for mineral development        F
and could not be used for any other purpose. According to him the Act
had been passed for purposes of regulation and development of mine-
rals. He depended upon the language of Entry 50 which reads thus:

           "taxes on mineral rights subject to any limitations imposed
           by Parliament by law relating to mineral development"           G

      We do not find much substance in this contention. Recently a
Constitution Bench of this Court has held in The India Cement Ltd.
etc. etc. v. The Stateof   Tamil Nadu etc., [1989] 4.s:c~~Judgments
Today 190 that the royalty levied on the extracted mineral was in the ·
nature of a fax and it was not in the nature of a fee which could bb used H
    412         SUPREME COURT REPORTS                  [1989] Supp. 2 S.C.R.

    only for specific purposes. Any tax realised by the State Government
A
    forms part of the consolidated fund of the State and the said tax can be
    used by the State Government for any of the purposes to which its
    executive powers extend subject to any law made by the State Legisla-
    ture in that regard. We do not, therefore, find any substance in the
    above contention. It is no doubt true that the Act is passed for
B   development of minerals, but while discharging its functions relating
    to development, if the State incidentally allows mining to be carried on
    in the public interest and levies in that connection a tax, it does not
    mean that the said tax should be used only for development of miner-
    als and not for other purposes sanctioned by law.

        In support of the second contention the learned counsel Shri
c N ariman  argued that notwithstanding anything contained in Article
    30 1 Qr Article 303 the Legislature of a State inay by law impose such
    ~eas<;>nable restrictions on the freedom of trade, commerce or inter-
    Cllurse with or within that State as required in the public interest.
    Provided that no Bill or amendment for the purpose of sub-clause (b)
D   shall be introduced or moved in the legislature of a State without the
    previous sanction of the president.

          We do not find that clause (b) of Article 304 has any relevance on
    the point in question. No restriction is being imposed on the freedom
    of trade of the petitioners by the levy of royalty. The minerals belong
E   to the Government and if anybody wants to have the right as a lessee
    to exploit the mines in question to the exclusion of all others and to
    remove the minerals with a .view to making profit, he has to pay a
    royalty imposed in accordance with law. In the instant case the levy is
    made under a law made by the Central Government. It is not an
    imposition made by a law made by the State Legislature on which
F   alone the restriction contemplated under Article 304(b) applies.

          We do not also find much substance in the contention that the
    levy in question is unreasonably heavy and has been imposed in an
    arbitrary manner. The burden of establishing that the levy is unreason-
    ably heavy, is on the petitioners. It is urged that in the other States the
G   royalty -is being levied at the rate of Re.1 per metric tonne of Black
    Trap and Hard Murrum and Rs. 7 levied in the notification is excessive.
    The fact th_at i_n other States the royalty is fixed at Re.! is not by itself
    sufficient to hold that Rs.7 per metric tonne is unreasonably high rate
    of royalty. In Trivedi's case (supra) this Court had upheld the levy of
    Rs .4 per metric tonne which had been fixed in 1981 and in 1985 1t was
H   increased to Rs.7. Having regard to the depreciation in the value of
          R.J. PATEL v. STATE OF GUJARAT [VENKATARAMIAH, CJ.I            413

    the rupee and the increase in the cost of administration of the State,
                                                                                A
    which ·is ever increasing, as a welfare State we cannot say that Rs. 7 is
    an unreasonably high rate. We have taken this view after going
    through the observations made by this Court in Trivedi's case (supra)
    at page 544 where this Court has observed that where a statute confers
    discretionary powers upon the executive or an administrative autho-
    rity, the validity or constitutinality of such power cannot be judged on    B
    the assumption that the executive or such authority will act in an
    arbitrary manner in the exercise of the discretion conferred upon it. If
    the executive or the administrative authority acts in an arbitrary
    manner, its action would be bad in law and liable to be struck down by
    the courts but the possibility of abuse of_power or arbitrary exercise of
    power cannot invalidate the statute conferring the power or the power
    which has been c9nferred by it. We do not find that the levy is arbitra-
                                                                                c
    rily imposed.

          It is obvious that the petitioners are lessees who are exploiting
    the mining areas for purposes of business and that the royalty in ques-
    tion is ultimately passed on to the consumers. It is not shown that the     D
    business .of the petitioners has been adversely affected in such a way
    that it is liable to be struck down on the ground of arbitrariness. We do
    not, therefore, find any substance in the contention urged by Shri
    Nariman.

            In Civil Writ Petition No. 618 of 1987 filed by Jai Sholanath E
      Quarry Works and another, Mr. Keswani, learned counsel for the
      petitioners contended that the impugned rule 21 which was substituted
      in the place of the former rule 21 was invalid as it was discriminatory in
      character. He contended that the concession shown in favour of

-     Parwana holders was discriminatory and violative of Article 14 ..Under
      clause 1 of the proviso to the impugned rule 21, a holder of a Parwana F
      gr~nted under the Rules has to pay royalty at the fate of 50 per cent of
      the royalty payable by the lessees and no royalty is payable by village
    · potters who manufacture upto one lakh bricks per year and by the
      village potters whose annual production was not exceeding two lakh
      bricks and who supply at .least one lakh bricks to the Rural Housing
      Board or Panchayats. His contention was that section 15 of the Act G
      which authorised the State Government to make rules in respect ·of
      minor minerals does not specifically authorise the State Government
      to make such discrimination. We find no substance in this contention
      too.

          It is obvious that a valid classification of persons and things for   H
    414          SUPREME COURT REPORTS               [ 1989] Supp. 2 S.C.R.

A purposes of imposing any obligation on them would not be violative of
  Article 14 provided the classification is a reasonable one. It is well
  settled that a classification to be valid has to satisfy two conditions:

          ( 1) that there is an intelligible differentia between those who are
          included in the class which is affected by any law or rule and
B         those who are placed outside the said rule; and

           (2) that there is a reasonable nexus between the classification
           and the object to be achieved by the rule or law in question.

         The Act under the Rules was made for purposes of regulation
   and development and conservation of minerals. It is equally clear that
c  while levying a tax the authority concerned is entitled to grant conces-
   sions and exemptions wherever necessary having regard to the purpose
   of the Act, the levy of royalty is incidental to the regulation and
 'development of minerals. Many a time absence of such classification
   may itself result in the invalidation of the law or rule. Whoever is given
D an exclusive right to exploit a mine will have to pay some amount by
   way of return to the Government of India as authorised by entry 50 of
   List II of the 7th· Schedule to the Constitution. Having regard to the
   broad policy underlying the Constitution if a concession is shown in
   favour of the poor and the down-trodden, it cannot be said that the
   exemption or concession is invalid. According to rule 2(vi)(a) of the
E Rules a "quarrying Parwana" means a quarrying Parwana granted
   under these rules to extract and remove any minor mineral from land
   not exceeding a specified area. Rule 33-A provides that the competent
   officer may notify areas of limestone, Black Trap, sand stone and
   building stones for the purpose of grant of quarrying plirawana, as he
   deems fit. When any area is so notified, no quarry lease shall be
F granted for such notified area. Rule 33-B of the Rules reads thus:

                "33.B.-Grant of quarrying Parwana-On an application
                                                                                 -
                made to the competent officer, he may grant a quarrying
                Parwana to extraet and remove from the specified area
                within his jurisdiction the minor mineral from a plot not
G               exceeding 2,000 square meters, as may be specified by the
                competent officer. The competent officer may grant such
                Parwana in the following priorities:

                (a) Individual families to Khanias belonging to the Sche-
                duled Castes or the Scheduled Tribes, who do physical work
H               of excavating minor mineral in the area applied for.
I
          R.J. PATEL v. STATE OF GUJARAT [VENKATARAMIAH, CJ.]               415

                 (b) Individual faniiHes of 'Khanias' who do physical work
l                                                                                  A
                 in excavating minor minerals in the area applied for.

                 (c) New individual Khanias who do physical work in
                 excavating minor minerals in any other areas."

             Rule 33-C provides that the lease shall be.granted for one year       B
      ending 3 lst December on a payment of a fee of Rs.50 for an area!upto
       1,000 square meters and Rs. 100 fo an area above 1,000 ·square meters
      and upto 2,000 square meters. Thus it is seen that a Parwana can be
      given only respect of plots not exceeding 2,000 square meters and for a
      limited period of one year. It is only in the case of such people who are
      described in the Rules and who invariably belbng to the weaker
      sections of society the concession is shown under 'rule 21, whereas the
                                                                                   c
      mining lease may be given to persons mentioned in rule 9. Under rule
       18 of the Rules the period of lease in the cass of the minor minerals can
      be for a much longer period, it can be up to 10 years in respect of minor
      minerals except in the case of ordinary sand, Kankar, Murram, Gravel
      and in the case of Kankar, Murram and gravel a lease can be granted          D
     ,upto three years, and the area or land covered by a mining lease is
      governed by rule 15 which says that no quarry lease shall be granted
      for an area exceei:fing JO hectares in case of specified minor mineral
      and 20 hectares in the case of other minerals. So a comparison of the
      relevant rules would show that a larger restriction is imposed both on
      the area in respect of which a Parwana could be issued and the dura-         E
      tion of th~ Parwana right and as also stated that the persons who take
      quarrying Parwana are persons belonging to the weaker sections of
      society and if under rule 21 a concession is shown in their favour it
    · cannot be said that there is no reasonable nexus between the classifi-
      cation for purposes of the proviso to rule· 21 to show concession in the
      matter of payment of royalty and the social policy underlying the            F
      Constitution, the statute and the Rules. The fact that section 15 of the
      Act does no authorise the State Government. to show such concession
      while promulgating the Rules which are in the nature of subordinate
      legislation is also of no consequence. Since the power exercised is
      Jegislative in character the authority which is exercising the said power
      has the power to make rules equitable. by necessary implication.             G
      No express power need to conferred on such subordinate authority in
      order to make a classification for purposes of implementing the policy
      of the Act under which the Rules are made.

          We do not also agree with the contention that levying of royalty
    in the State of Gujarat on the minor minerals would impose in any way          H
             •


    416          SUPREME COURT REPORTS             [ 1989] Supp. 2 S.C.R.

~ the freedom guaranteed under Article 301 of the Constitution regard-
  ing movement of goods frnm one State to another for the activity of
  quarrying does not involve any movement as such. The mineral may be
  consumed inside the State and in some cases may latter on be taken
  outside the State. But the movement outside the State is not the direct
  consequence of quarrying.
B
          We do not, therefore, find any substance in any of the conten-
    tions urged before us.

          These petitions are dismissed with costs. Each of the petitioners
    shall pay a sum of Rs.2,000 by way of costs to the State of Gujarat.
c
    Y.Lal                                              Petitions dismissed.