Holding

Cesses levied on coal-bearing land, mineral-bearing land, brick-earth, and tea estates are taxes on land within Entry 49 of List II (or alternatively taxes on mineral rights under Entry 50 of List II) and are intra vires the Constitution; royalty is not a tax; and the measure of a tax does not determine its nature.

Summary

The case involved challenges to State legislation levying cesses on coal-bearing land, mineral-bearing land, brick-earth, and tea estates in West Bengal, and on mineral rights in Uttar Pradesh. The Constitution Bench, by a 4:1 majority (Lahoti, J. for himself, Khare CJI, Agrawal and Lakshmanan JJ.; Sinha, J. dissenting), held that these cesses were intra vires the Constitution. The majority held that the cesses on coal-bearing land and brick-earth bearing land were taxes on land covered by Entry 49 of List II of the Seventh Schedule, and alternatively, taxes on mineral rights under Entry 50 of List II. The majority also upheld the cess on tea estates as a tax on tea-bearing land under Entry 49 of List II, affirming the decision in Goodricke Group. The Court clarified that royalty is not a tax, correcting an apparent typographical error in India Cement. The Court overruled State of Orissa v. Mahanadi Coalfields Ltd. and affirmed the Allahabad High Court's decision in Ram Dhani Singh upholding the U.P. SADA Act cess. The majority held that the measure of a tax (by reference to dispatches or production) does not determine its nature, and that the power to tax remains with the States so long as it does not interfere with the Centre's regulation and control of mines and minerals. Sinha, J. dissented, holding that the field was occupied by Central legislation and the States were denuded of their power to levy these cesses.

Issues considered

Whether the cesses levied on coal-bearing land, mineral-bearing land, brick-earth, and tea estates by State Legislatures are within their legislative competence under Entry 49 or Entry 50 of List II of the Seventh Schedule.
Whether the field of taxation on minerals and mineral rights is occupied by Central legislation (MMDR Act 1957, Tea Act 1953) by virtue of declarations under Entries 52 and 54 of List I.
Whether royalty is a tax.
Whether the measure of tax (by reference to dispatches/production) determines the nature of the tax.
Whether the U.P. SADA Act cess on mineral rights is valid under Entry 5, 49, 50, or 66 of List II.

Legislation cited

Cess Act, 1880s. 5, s. 6
Constitution of Indias. 245, s. 246, s. 248, s. 253, s. 265, s. Seventh Schedule, List I Entries 52, 54, 97, s. Seventh Schedule, List II Entries 5, 23, 49, 50, 66
Mines and Minerals (Development and Regulation) Act, 1957s. 13, s. 15, s. 18, s. 2, s. 25, s. 9, s. 9A
Shakti Nagar Special Area Development Authority (Cess on Mineral Rights) Rules, 1997s. 2, s. 3
Tea Act, 1953s. 10, s. 13, s. 15, s. 2, s. 25, s. 30
U.P. Special Area Development Authorities Act, 1986s. 35
West Bengal Primary Education Act, 1973s. 78
West Bengal Rural Employment and Production Act, 1976s. 4
West Bengal Taxation Laws (Amendment) Act, 1992
West Bengal Taxation Laws (Second Amendment) Act, 1989

Subjects

Constitutional lawlegislative competencetaxationEntry 49 List IIEntry 50 List IIEntry 52 List IEntry 54 List IEntry 97 List Icesscoalteamineral rightsroyaltydoctrine of pith and substanceoccupied fieldfederalismSeventh ScheduleMines and Minerals ActTea Acttax on landmeasure of tax

Judgment

A THE STATE OF WEST BENGAL AND ORS.
V. ~
KESORAM INDUSTRIES LTD. AND ORS.

JANUARY 15, 2004

B [V.N. KHARE, CJ., R.C. LAHOTI, B.N. AGRAWAL, S.8. SINHA AND
DR. AR. LAKSHMANAN, JJ.]

~ '
Constitution of India, 1950:

c Articles 245, 246, 248,253 and 265-Seventh Schedule, List II. Entries
49 and 50, List/, Entries 52 and 54-West Bengal Taxation Laws (Amendment)
Act, 1992 amending West Bengal Primary Education Act and West Bengal
Rural Employment and Production Act-Levy of education cess and rural
employment cess under the two Acts and the Cess Act, 1880 on coal bearing
D land and other mineral bearing lands-Levy of cesses challenged as regards
coal bearing land and brick-earth bearing land-Held, Per majority (Sinha,
J. dissenting), levy of cesses is intra vires the Constitution-The cesses on coal
bearing land and brick-earth bearing land, being tax on land, are covered by
Entry 49 in List /I-Tax andfee not a subject dealt with by Mines and Minerals
(Development and Regulation) Act,1957 and power to levy tax and fee is
E available to States so long as they do not interfere with Centre's power of
regulation and control of mines and minerals-Doctrine of occupied field-
Doctrine ofpith and substance-Doctrine ofpublic trust-West Bengal Taxation
Laws (Amendment) Act, 1992-West Bengal Primary Education Act, 1973, s. 78-
West Bengal Rural Employment and Production Act, 1976, s.4-Cess Act, 1880,
ss. 5 and 6-Mines and Minerals (Development and Regulation) Act,1957.
F
Seventh Schedule,List II, Entries 5,23,49,50 and 66, List/, Entries 52
and 54-Uttar Pradesh Special Area Development Authorities Act,1986 and
Shakti Nagar Special Area Development Authority (Cess on Mineral Rights)
Rules, 1997 levying cess on mineral rights-Levy of cess challenged by stone
G crushers-Held, Per majority (Sinha,J. dissenting), High Court rightly upheld
levy of the cess as a tax covered by Entry 5 in list II-Besides, levy of the cess
as a tax can also be upheld by reference to Entries 49 and 50 in list II-
Although it is termed as "cess on mineral right", impact falls on the land
delivering the mineral and thus levy of the cess falls within the scope of Entry f-, "'
49 in List II-Levy of the cess can equally be upheld as a fee, by reference
H 564
ST ATE v. KESORAM INDUSTRIES LTD. 565
to Entry 66 in list II, for rendering such services as would improve A
infrastructure and general development of the area, benefits whereof would be
availed by stone crushers also-Uttar Pradesh Special Area Development
Authorities Act, 1986-s. 35-Shakti Nagar Special Area Development Authority
(Cess on Mineral Rights) Rules, 1997-rr. 2 and 3.

Articles 245, 246, 248 and 253-Seventh Schedule, list II, Entry 49, B
and list I Entries 52 and 54 -West Bengal Taxation Laws (Second Amendment)
Act, 1989 amending West Bengal Education Act and West Bengal Rural
Employment and Production Act and levying cesses on tea estates-Held.-
Per majority (Sinha,J. dissenting), the cess levied is on tea-bearing land, a
well defined classification and as such is covered by Entry 49 in List II- C
Declaration under s.2 of Tea Act in term~ of Ent1y 52, list I with regard to
the Union taking control of the tea induslly does not amount to vesting the
power to tax or levy fee in the Central Government by reference to tea or tea
estates-Goodricke Group Ltd upheld-West Bengal Taxation Laws (Second
Amendment) Act,1989-Tea Act, 1953.
D
Article I 4-Classification of lands for the purpose of tax-Held, different
pieces of land identically situated but being subjected to different uses, or
~ having different potential can be classified s~parately.

Taxation:
E
Measure of tax-Levy ofcess on coal bearing land, other mineral bearing
lands and tea estates-Assessment of cess by reference to produce dispatched
from land-Held, Per majority (Sinha,J dissenting)-QuantifYing the tax by
reference to annual value of the land on the basis of what it produces or is
capable of producing is a well known mode-Merely because quantum of
produce dispatched from the land is the factor taken into consideration for F
determining the value of the land, ii does not become a tax on the produce.

Royalty-Nature of-Held, royalty is not a tax-It is paid to owner of
land who may be a private person and may not necessari(v be a State-Lessor
receives royalty as his income and for lessee royalty paid is an expenditure G
incurred-It is clarified that in India Cement it was not the finding of the
Court that royalty is a tax. (Sinha, J, dissenting).

Cess-A cess may be a tax or fee and is generally used when the levy
is for special administrative expense suggested by the name of the cess itself
H
I

r
566 SUPREME COURT REPORTS [2004] I S.C.R.
)..

A Interpretation of Constitution: ,._ ,.._
Entries in Lists of Seventh Schedule-Construing of-Explained.

Interpretation of Statutes:

B Taxing statutes-Interpretation of-Explained.

Words and Phrases:·
~ 1

Expression 'Dispatches' as occurring in the statutes levying cess on
minerals and tea es/ates-Meaning of
c The West Bengal Legislature, by enacting the West Bengal Taxation
Laws(Amendment) Act, 1992 amended the provisions of the West Bengal
Primary Education Act,1973 and the 'Yest Bengal Rural Employment and
Production Act, 1976, and levied education cess and rural employment cess
on coal bearing land and other mineral bearing land. The cesses were to
D be assessed with reference to dispatches of minerals produced from the
land.

So far as levy of cesses on coal bearing land was concerned, the same "'
was successfully challenged in writ petitions before the High Court, which
held that the cess assessed and computed on the basis of value of coal
E produced from the coal bearing land, was directly related to the value of
coal produced from the coal mines and, as such, the cess could not be said
to be on land so as to be covered by Entry 49 in List II of the Seventh
Schedule to the Constitution of India. The said judgment of the High Court
in Kesoram Industries Ltd. (Textile Division) v. Coal India Ltd., AIR (1993)
Calcutta 78 was challenged by the State Government in CA No. 1532-33
F
of 1993.
~
As regards levy of cess on brick-earth bearing land, Writ Petition
No. 247 of 1995 was filed before the Supreme Court on behalf of the
persons engaged in brick manufacturing and. owning brick fields,
G contending that brick-earth being a minor mineral was covered under
Mines and Minerals (Development and Regulation) Act, 1957 and by virtue
of declaration made by s.2 thereof, by reference to Entry 54 in List I of
the Seventh Schedule to the Constitution, the field was covered by the 1957 ....
Act; that the levy was on dispatch of minor mineral whereas the process
of manufacturing bricks did not involve any dispatch of brick-earth as it
H !
STATE v. KESORAM INDUSTRIES LTD. 567
was captively consumed in the brick field itself and as such the cess was A
not leviable; and that the State Government was not empowered to levy
any cess on either the extraction of brick-earth or on dispatch thereof. It
was submitted that the same quantity of brick-earth was subjected by the
Central Act to payment of royalty which was a tax and the same quantity
was sought to be levied with cess which was incompetent so far as State B
Legislature was concerned.

! >- The State Government of Uttar Pradesh, in exercise of powers under
Rules 2 and 3 of Shakti Nagar Special Area Development Authority (Cess
on Mineral Rights) Rules, 1997 framed under s.35 of the U.P. Special Area
Development Authorities Act, 1986, sought to levy cess on mineral rights C
and took steps for recovery thereof by issuing notices to several stone
crushers who were extracting stone as mineral. Such stone crushers filed
writ petitions before the High Court, which upheld the levy of cess as being
within the competence of State Legislature by reference to Entry 5 in List
II of Seventh Schedule to the Constitution. (Ram Dhani Singh v. Collector, D
Sonbhadra and Ors., AIR [20011 All. 5. Aggrieved, the stone crushers filed
Civil Appeal No. 5027 of 2000.

Levy of cess on tea estates imposed by virtue of the West Bengal
Taxation Laws (Amendment) Act, 1981 by amending the provisions of
West Bengal Primary Education Act, 1973 and the West Bengal Rural E
Employment and Production Act, 1976, was struck down in Buxa, Dooars
Company ltd. v. State of Wes! Bengal, [198913 SCC 211; and as the State
became liable to refund the cess already collected, the State Legislature
brought the West Bengal Taxation (Second Amendment) Act, 1989
amending the West Bengal Primary Education Act and West Bengal Rural F
Employment and Production Act w.e.f. 1981 and levied cesses on tea
estates at a given rate on the dispatch of green tea leaves produced in such.
tea estates. By a validation clause, it was provided that cess collected for
the period prior to the Amendment Act would be deemed to have been
validly levied and collected thereunder. Constitutional validity of the
Amendment Act, 1989 was upheld in Goodricke Group ltd. and Ors v. State G
of West Bengal and Ors., 119951 Supp. 1 SCC 707. But later, when a similar
cess levied under the pari materia provisions of Orissa Rural Employment,
Education and Production Act, 1982 was struck down in State ofOrissa v.
Mahanadi Coal Fields Limited, [19951Supp.2 SCC 686, Writ Petition No.
262 of 1997 was filed before the Supreme Court again challenging the H
568 SUPREME COURT REPORTS [2004] I S.C.R.

A constitutional validity of the very same amendments which were upheld
in Goodricke 's case, and thus Goodricke was sought to be overruled.

Besides the above matters, some more writ petitions and civil appeals
involving similar issues were filed and all such cases were clubbed together.
The three-Judge Bench before which these cases came up for hearing,
B noticed some conflicting decisions of the Supreme Court on the issues
involved and opined that the matter be referred to a Constitution Bench.
Accordingly, these cases came to be heard by the present Constitution --1 •
Bench.

C Disposing of the matters, the Court,

HELD: Per Lahoti, J. (for himself and for V.N. Khare, CJI, B.N.
Agrawal and Dr. AR. Lakshmanan,JJ)

1.1. It is well settled that it is for the Legislature to draft a piece of
D legislation by making the choicest selection of words so as to give
expression to its intention. The ordinary rule of interpretation is that the
words used by the Legislature shall be given such meaning as the
Legislature has chosen to assign them by coining definitions contained in
the interpretation clause and in absence thereof the words would be given
E such meaning as they are susceptible of in the ordinary parlance, may be
by having recourse to dictionaries. However, still, the interpretation is the
exclusive privilege of the Constitutional Courts and the Court embarking
upon the ·task of interpretation would place such meaning on the words
as would effectuate the purpose of legislation avoiding absurdity,
unreasonableness, incongruity and conflict. 1678-H; 679-A-BI
F
1.2. As is with the words used, so is with the language employed in
drafting a piece of legislation. That interpretation would be preferred ,..
which would avoid conflict between two fields of legislation and would
rather import homogeneity. It follows, as a corollary of the abovesaid
G statement, that while interpreting tax laws the Courts would be guided
by the gist of the legislation instead of by the apparent meaning of the
words used and the language employed. The Courts shall have regard to
the object and the scheme of the tax law under consideration and the
purpose for which the cess is levied, collected and intended to be used.
The Courts shall make endeavor to search where the impact of the cess
H falls. The subject matter of levy is not to be confused with the method and
~
\

STATE v. KESORAM INDUSTRIES LTD. 569

--I manner of assessment or realisation. Legislation in the field of taxation A
and economic activities need special consideration and are to be viewed
with larger flexibility in approach. 1679-B-D; 625-C]

R.K. Garg v. Union of India and Ors., 119811 4 SCC 675, relied on

S.R. Bommai and Ors. v. Union of India, [19941 3 SCC 1, referred to. B
Morey v. Doud, (1957) 354 US 457, referred to.
) >-
M. C. Seta/vad, Tagore law Lectures "Union and State relations under
the Indian Constitution"(Eastern Law House, Calcutta, 1974); referred to.

1.3 The Entries in List I and List II of the Seventh Schedule to the
c
Constitution must be so construed as to avoid any conflict. If there is no
conflict, an occasion for deriving assistance from non-obstante clause
"subject to" does not arise. If there is a conflict, the correct approach is
to find an answer to three questions step by step as under:
D
One - Is it still possible to effect reconciliation between two Entries
so as to avoid conflict and overlapping?

Two - In which Entry the impugned legislation falls by finding out
the pith and substance of the legislation?
E
and

Three - Having determined the field of legislation wherein the
impugned legislation falls by applying the doctrine of pith and substance,
can an incidental trenching upon another field of legislation be ignored?
(672-B-E) F
M.P. V. Sundararamier and Co. v. The State ofAndhra Pradesh and Anr.,
(1958) SCR 1422 and D.G. Gouse v. Kera/a, (1980) 2 SCC 410, relied on.

Governor General in Council v. Province of Madras; AIR (1945) PC
98 - referred to. G
HM. Seervai: Constitutional law of India (Fourth/Silver Jubilee
Edition, Vol.3), referred to.
,.>+
2.1. In the scheme of the Lists in the Seventh Schedule, there exists
a clear distinction between the general subjects of legislation and heads H
570 SUPREME COURT REPORTS [2004] I S.C.R.

A of taxation. They are separately enumerated. (671-B-C)
Synthetics and Chemicals Ltd. and Ors. v. State of UP. and Ors., (1990(
I SCC 109, relied on.

2.2. Article 265 mandates - no tax shall be levied or collected except
B by authority of law. The scheme of the Seventh Schedule reveals an
exhaustive enumeration of legislative subjects, considerably enlarged over
the predecessor Government of India Act. Entry 97 in List I confers
residuary powers on Parliament. Article 248 of the Constitution, which
.speaks of residuary powers of legislation, confers exclusive power on
, P:irliament to make any law with respect to any matter not enumerated
( .• }.Jl the Concurrent List or the State List. At the same time, it provides that
such residuary power shall include the power of making any law imposing
a tax not mentioned in either of those Lists. It is, thus, clear that if any
power to tax is clearly mentioned in List - II, the same would not be
available to be exercised by Parliament based on the assumption of
D residuary power. (656-F-H; 657-A]
Union of India v. Harbhajan Singh Dhillon, (1971 ( 2 SCC 779 and
Mis. Hoechst Pharmaceuticals Ltd. and Ors. v. State of Bihar and Ors., (1983(
4 sec 45, relied on.

E H.M Seervai: Constitutional Law of India, Fourth/Silver Jubilee Edn.
Vol.3 para 22.191, referred to.

2.3. rt is well-settled that the power to tax cannot be inferred by
implication; there must be a charging section specifically empowering the
State to levy tax. There is nothing like an implied power to tax. The source
F of power which does not specifically speak of taxation cannot be so
interpreted by expanding its width as to include therein the power to tax
by implication or by necessary inference. Power to tax is not an incidental
power. (655-F; 658-D; 659-E(

Taxation, by Cooley (Vol. I, Fourth Edn.); Constitutional Law of India,
G H.M Seervai, Fourth/Silver Jubilee Edn. Vol. 3 para 22.20, referred to.
2.4. The judicial opinion of binding authority flowing from several
pronouncements of this Court has settled these principles: (i) in
interpreting a taxing statute, equitable considerations are entirely out of
H place. Taxing statutes cannot be interpreted on any presumption or
\

ST ATE v. KESORAM INDUSTRIES LTD. 571

assumption. A taxing statute has to be interpreted in the light of what is A
clearly expressed; it cannot imply anything which is not expressed; it
cannot import provisions in the statute so as to supply any deficiency; (ii)
before taxing any person it must be shown that he falls within the ambit
of the charging section by clear words used in the Section; and (iii) if the
words are ambiguous a11d open to two interpretations, the benefit of
interpretation is given to the subject. 1659-B-D]
B

"Principles of Statutory Interpretation, Justice G.P. Singh (Eighth
I )..
Edition, 2001), referred to.

3.1. Power of 'regulation and control' is separate and distinct from
the power of taxation and so are the two fields for purposes of legislation. c
Taxation may be capable of being comprised in the main subject of a
general legislative head by placing an extended construction, but that is
not the rule for deciding the appropriate legislative field for taxation
between List I and List II. As the fields of taxation are to be found clearly
enumerated in Lists I and II, there can be no overlapping. There may be D
overlapping in fact but there would be no overlapping in law. The subject
matter of two taxes by reference to the two Lists is different. Simply
because the methodology or mechanism adopted for assessment and
quantification is similar, the two taxes cannot be said to be overlapping.
This is the distinction between the subject of a tax and the measure of a
tax. 1671-C-E) E

3.2. A power to regulate, develop or control would not include within
its ken a power to levy tax or fee, except when it is only regulatory. Power
to tax or levy for augmenting revenue shall continue to be exercisable by
the Legislature in whom it vests i.e. the State Legislature in spite of
F
regulation or control having been assumed by another legislature i.e. the
Union. 1661-E-FI

Synthetics and Chemicals Ltd. and Ors v. State ofU.P. and Ors., (1990)
1 sec 109, referred to.
G
Mis Laxminarayana Mining Co., Bangalore and Anr. v. Taluk
Development Board and Anr., AIR (1972) Mysore 299, explained and
disapproved.
~
State v. Tucker, 56 U.S. 516, referred to,
H
572 SUPREME COURT REPORTS (2004] I S.C.R.

A Taxation, by Cooley (Vol. I, Fourth Edn. Paras 26-27), referred to.

3.3. Entries 52, 53 and 54 in List I are not heads of taxation. They
are general entries. Fields of taxation covered by Entries 49 and 50 in List
II continue to remain with State Legislatures, in spite of Union having
enacted laws by reference to Entries 52, 53, 54 in List I. It is for the Union
B to legislate and impose limitations on the States' otherwise plenary power
to levy taxes on mineral rights or taxes on lands (including mineral bearing
lands) by reference to Entries 50 and 49 in List II and lay down the ~ '
limitations on State's power, if it chooses to do so, and also to define the
extent and sweep of such limitations. [671-G-H; 672-A-BI
c 3.4. The heads of taxation are clearly enumerated in Entries 83 to
92B in List I and Entries 45 to 63 in List II. List III, the Concurrent List,
does not provide for any head of taxation. Entry 96 in List I, Entry 66 in
List II and Entry 47 in List Ill deal with fees. The residuary power of
legislation in the field of taxation spelled out by Article 248 (2) and Entry
D 97 in List I can be applied only to such subjects as are not included in
Entries 45 to 63 of List II. It follows that taxes on lands and buildings in
Entry 49 of List II cannot be levied by the Union. Taxes on mineral rights,
a subject in Entry 50 of List II, can also not be levied by the Union though,
as stated in Entry 50 itself, the Union may impose limitations on the power
of the State and such limitations, if any, imposed by the Parliament by
E law relating to mineral development, to that extent, shall circumscribe the
States' power to legislate. (674-B-D[

3.5. Power to tax mineral rights is with the States; the power to lay
down limitations on exercise of such power, in the interest of regulation,
F development or control, as the case may be, is with the Union. This is the
result achieved by homogeneous reading of Entry 50 in List II and Entries
52 and 54 in List I. So long as a tax or fee on mineral rights remains in
pith and substance a tax for augmenting the revenue resources of the State
or a fee for rendering services by the State and it does not impinge upon
regulation of mines and mineral development or upon control of industry
G by the Central Government, it is not unconstitutional. A reasonable tax
or fee levied by State Legislation cannot be construed as trenching upon
Union's power and freedom to regulate and control mines and minerals.
[674-D-F; 663-H; 664-A) ..,_

3.6. Power to tax is not outside constitutional limitatidns. It is for
H Parliament to exercise power in the field made available to it by Entries
'
~

STATE v. KESORAM INDUSTRIES LTD. 573

52 and 54 in List I. It is also for Parliament to state by law the limitations A
- and the sweep thereof - which it may choose to impose on the field
available to the State for taxation, by reference to Entry 50 in List II. It
may not be for Courts to venture into enquiry in just an individual case
to find and hold what tax would hamper mineral development if
Parliament has chosen to observe silence by not legislating or failed to say
something explicit. (663-F-G(
B

> ,.. 4.1. In the field occupied by the Centre for regulation and control,
power to levy tax and fee is available to the State, so long as it does not
interfere with the regulation - the power assumed and occupied by the
Union. (662-E-F(
c
Baijnath Kadio v. The State of Bihar and Ors., (1969( 3 SCC 838 and
Western Coalfields ltd. v. Special Area Development Authority, Korba and
Anr., [1982( I SCC 125, referred to.

Goodricke Group ltd and Ors. v. State of West Bengal and Ors., (1995)
D
Supp. I SCC 707, upheld.

State of HG1yana and Anr. v. Chanan Mal, 1197711 SCC 340 and H.R.S.
Murthy v. The Collector ofChittoor and Anr., (196416 SCR 666, relied on.

4.2. As Section 2 of the Mines and Minerals (Development and
E
Regulation) Act, 1957 itself provides and indicates, the assumption of
control in public interest by the Central Government is on (i) the
regulation of mines, (ii) the development of minerals, and (iii) to the extent
'hereinafter' provided. The scope and extent of declaration cannot and
could not have been enlarged by the Court nor has it been done. The effect
is that no State Legislature shall have power to enact any legislation F
• .... touching (i) the regulation of mines, (ii) the development of minerals, and
(iii) to the extent provided by 1957 Act. Tax and fee is not a subject dealt
with by 1957Act nor can a power to levy tax or fee be spelled out from
sections 13, 18 and 25 therof. (653-D-E; 655-E)

Synthetics and Chemicals ltd. and Ors v. State of U.P. and Ors., (1990( G
I SCC 109 and The Automobile Transport (Rajasthan) Ltd v. The State of
-<
Rajasthan and Ors., (196311 SCR 491, relied on.
~
State ofOrissa,v. MA. Tulloch and Co., (196414 SCR 461, explained.

4.3. The primary object and the essential purpose of legislation must H
574 SUPREME COURT REPORTS [2004] I S.C.R.

A be distinguished from its ultimate or incidental results or consequences
for determining the character of the levy. A levy essentially in the nature:
of a tax and within the power of State Legislature cannot be annulled as
unconstitutional merely because it may have an effect on the price of the
commodity. A State legislation, which makes provisions for levying a cess,
whether by way of tax to augment the revenue resources of the State or
B by way of fee to render services as quid pro quo but without any intention
of regulating and controlling the subject of the levy, cannot be said to have
encroached upon the field of 'regulation and control' belonging to the -"( \
Central Government by reason of the incidence of levy being permissible
to be passed on to the buyer or consumer, and thereby affecting the price
c of the commodity or goods. [673-B-D[

4.4. Entry 23 in List II speaks of 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. Entries 52 and 54 of List
I are both qualified by the expression "declared by Parliament by law to
D be expedient in the public interest". A reading in juxtaposition shows that
the declaration by Parliament must be for the 'control of industries' in
Entry 52 and 'for regulation of mines or for mineral development' in Entry
54. Such control, regulation or development must be 'expedient in the
public interest'. Legislation by the Union in the field covered by Entries
52 and 54 would not denude the entire field forming subject matter of
E declaration to the State Legislatures. Denial to the State would extend only
to the extent of the declaration so made by Parliament. In spite of
declaration made by reference to Entry 52 or 54, the State would be free
to act in the field left out from the declaration. The legislative power to
tax by reference to Entries in List II is plenary unless the entry itself makes
F the field 'subject to' any other entry or abstracts the field by any
limitations imposable and permissible. [673-D-G I ,, ..
State of Orissa v. MA. Tulloch and Co .. 119641 4 SCR 461 and The
Hingir-Rampur Coal Co. Ltd. v. State ofOrissa, [1961] 2 SCR 537, referred
to.
G
5.1. The nature of tax levied is different from the measure of tax.
While the subject of tax is clear and well defined, the amount of tax is
'
capable of being measured in many ways for the purpose of quantification. .._,
Defining the subject of tax is a simple task; devising the measure of
taxation is a far more complex exercise and, therefore, the Legislature has
H
'
·-'-
STATE v. KESORAM INDUSTRIES LTD. 575

to be given much more nexibility in the latter field. The mechanism and A
method chosen by Legislature for quantification of tax is not decisive of
the nature of tax though it may constitute one relevant factor out of many
for throwing light on determining the general character of the tax.
.. 1671-E-GI

Union of India and Ors. v. Bombay Tyre International Ltd, 11983] 4 B
SCC 210 and The Hingir-Rampur Coal Co. Ltd v. Stale of Orissa, 11961] 2
f ). SCR 537, relied on.

Ra/la Ram v. Province of East Punjab, (1948) FCR 207; Kunnalhat
Thathunni Moopil Nair etc. v. State of Kera/a and Anr., 11961] 3 SCR 77
and Ajay Kumar Mukherjee v. Local Board of Barpeta, (1965] 3 SCR 47,
c
referred to.

Morey v. Doud, 119571 354 US 457, referred to.

Mis. Sainik Motors, Jodhpur v. State of Rajasthan, 11962] l SCR 517
and D.G. Gouse and Co. v. State of Kera/a; 1198012 SCC 410, referred to.
D

Re.: A reference under the Government of Ireland Act 1920 and Section
3 of the Finance Act (Northern Ireland) 1934, (1936) A.C. 352, referred to.

5.2. The method of quantifying the cess by reference to the quantum
of mineral produced would not alter the character of the levy. There are E
myriad methods of calculating the value of the land for the purpose of
quantifying the tax. It does not become excise duty on manufacture and
production of goods merely on account of having relation with the quantity
of product yielded of the land. Rather it is a safe, sound and scientific
method of determining the value of the land to which the product relates. F
The levy of cess in the instant matlers considered as a tax is constitutionally
valid. [681-F-H; 682-AI

Kunnathat Thathunni Moopi/ Nair e/c. v. State of Kera/a and Anr.,
(19611 3 SCR 77, Ajay Kumar Mukherjee v. Local Board of Barpeta, [19651
3 SCR 47; Western Coalfields Ltd v. Special Area Developmenl Aulhority, G
Korba and Anr., [19821 i SCC 125 and Ra/la Ram v. Province of Easl Punjab,
1948 FCR 207, relied on.

~ 6.1. 'Land', the term as occurring in Entry 49 of List II, has a wide
connotation. Land remains land though it may be subjected to different
user. The nature of user of the land would not enable a piece of land being H
576 SUPREME COURT REPORTS [2004) I S.C.R.

A taken out of the meaning of land itself. Different uses to which the land is
subjected or is capable of being subjected provide the basis for classifying
land into different identifiable groups for the purpose of taxation. The
nature of user of one piece of land would enable that piece of land being
classified separately from another piece of land which is being subjected ...
to another kind of user, though the two pieces of land are identically
B situated except for the difference in the nature of user. The tax would
remain a tax on land and would not become a tax on the nature of its
user. [672-E-GI

Anant Mills v. State ofGujarat, [1975] 2 SCC 115;Kunnathat Thathunni
C Moopil Nair etc. v. State ofKera/a and Anr., (1961 [ 3 SCR 77 and Ajay Kumar
Mukherjee v. local Board of Barpeta, (1965] 3 SCR 47, relied on.

Vivian Joseph Ferreira and Anr. v. The Municipal Corporation of
Greater Bombay and Ors., [1972] I SCC 70 and The Government of Andhra
Pradesh and Anr. v. Hindustan Machine Tools ltd., [1975] 2 SCC 274,
D referred to.
6.2. To be a tax on land, the levy must have some direct and definite
relationship with the land. So long as the tax is a tax on land by bearing
such relationship with the land, it is open for the legislature for the purpose
of levying tax to adopt any one of the well-known modes of determining
E the value of the land such as annual or capital value of the land or its
productivity. The methodology adopted, having an indirect relationship
with the land, would not alter the nature of the tax as being one on land.
[672-G-H; 673-A[

6.3. It is open for the Legislature to ignore the nature of the user
F and tax the land. At the same time it is also permissible to identify, for
the purpose of classification, the land by reference to its user. While taxing
the land it is open for the Legislature to consider the land which produces
a particular growth or is useful for a particular utility and to classify it
separately and tax the same. Different pieces of land identically situated
G otherwise, but being subjected to different uses, or having different
potential, are capable of being classified separately without incurring the
wrath of Article 14 of the Constitution. [628-A-C[

Anant Mills v. State ofGujarat, [1975[ 2 SCC 175;Kunnathat Thathunni J..
Moopil Nair etc. v. State of Kera/a and Anr., (1961[ 3 SCR 77, Ajoy Kumar
H Mukherjee v. local Board of Barpeta, [1965[ 3 SCR 47; Assistant
'
ST ATE v. KESORAM INDUSTRIES LTD. 577
Commissioner of Urban land Tax Madras and Ors. etc. v. Buckingham and A
Carnatic Co. ltd. etc., 1196912SCC55; Ralia Ram v. The Province of East
Punjab, (1948) FCR 207; Sir Byramjee Jeejeebhoy v. Province af Bombay
and Ors., AIR (1940) Born 65); Vivian Joseph Ferreira and Anr. v. The
Municipal Corporation of Greater Bombay and Ors., 11972] I SCC 70; The
Government of Andhra Pradesh and Anr. v. Hindustan Machine Tools ltd.,
1197512 SCC 274; Mis. R.R. Engineering Co., etc. v. Zila Parishad, Bareil/y B
and Anr. etc., 11980] 3 SCC 330; District Board of Farrukhabadv. Prag Dutt
and Ors., AIR (1948) Allahabad 382 (F.B.) and The State of Punjab v. The
Union of India through the Secretary to Government Finance Department,
Government of India, New Delhi, AIR (1971) Punjab and Haryana 155
(F.B.), relied on. C
7.1. A cess may be a tax or a fee and is generally used when the levy
is for some special administrative expense, suggested by the name of the
ccss, such as, health cess, education cess, road cess etc. [633-F-G; 681-B]

7.2. Royalty is not a tax. Royalty is paid to the owner of land who D
may be a private person and may not necessarily be State. A private person
owning the land is entitled to charge royalty but not tax. The lessor receives
royalty as his income and for the lessee the royalty paid is an expenditure
incurred. It is clarified that even in India Cement it was not the finding
of the Court that royalty is a tax. In that case what was impugned was a
levy of cess on royalty and the question was whether such cess on royalty E
was within the competence of the State Legislature. In the majority
judgment the word 'royalty' occurring in the expression - 'royalty is a
tax' is clearly an error attributable either to a Jitenographer's devil or to
sheer inadvertence. What the majority wished to say and has in fact said
is 'cess on royalty is a tax'. A statement caused by an apparent F
typographical or inadvertent error in a judgment of the Court should not
be misunderstood as declaration of such law by the Court.
1642-B-C; 633-D-E; 635-E; 636-A-BI

India Cement ltd. and Ors. v. State of Tamil Nadu and Ors., 11990] 1
sec 12; clarified and distinguished G
Orissa Cement ltd. v. State of Orissa and Ors., 11991] Supp. I SCC
430 and Buxa Dooars Tea Company ltd. and Ors. v. State of West Bengal
and Ors, 11989] 3 SCC 211, distinguished.

State of M.P. v. Mahalaxmi Fabric Mills ltd. and Ors., 11995] Supp. 1 H
I
)-

578 SUPREME COURT REPORTS (2004] I S.C.R.

A SCC 642 and Saurashtra Cement and Chemicals Industries and Anr. etc. etc.
v. Union of India and Ors., 1200111 SCC 91, overruled to the extent they
held royalty to be a tax.

H.R.S. Murthy v. Collector of Chit/or, 1196416SCR666, relied on.

B D.K. Trivedi and Sons, and Ors. v. Stale of Gujarat and Ors., (19861
(Supp) SCC 20; Laxmi Narayan Agarwalla and Ors. v. State of Grisso and
Ors., AIR (1983) Orissa 210; Surajdin Laxman!al v. State of M.P., Nagpur ~ •
and Ors., AIR (1960) M.P. 129; Dr. Shanti Saroop Sharma and Anr. v. State
of Punjab and Ors., AIR (1969) Punjab and Haryana 79; Saurashtra Cement
and Chemical Industries Ltd, Ranavav v. Union of India and Anr., AIR
C (1979) Gujarat 180; lnderjeet Singh Sia! and Anr. v. Karam Chand Thapar
and Ors., (19951 6 SCC 166; Ajit Singh v. Union of India and Ors., (19951
Supp. 4 SCC 224 and Quarry Owners' Association v. State of Bihar and
Ors., (20001 8 SCC 655, referred to.

D Words and Phrases Permanent Edition (Vol.37 A, page 597); Stroud's
Judicial Dictionary of Words and Phrases (Sixth Edition, 2000, Vol.3, page
2341); Words and Phrases, legally Defined (Third Edition, 1990, Vol.4,
page 112); Wharton's Law lexicon (Fourteenth Edition, page 893); Mozley
and Whiteley's Law Dictionwy (Eleventh Edition, 1993, page 243); Prem 's
Judicial Dictionary (1992, Vol. 2, page 1458) and Black's law Dictionwy
E (Seventh Edition, p.1330), referred to.

Coal Matters

8.1. The West Bengal Taxation Laws (Amendment) Act, 1992 is intra
vires the Constitution. The amendments incorporated by the said Act w.e.f.
F 1.4.1992 into the provisions of the West Bengal Primary Education Act
1973 and the West Bengal Rural Employment and Production Act 1976
classify the land into three categories: (i) coal-bearing land, (ii) mineral
bearing land (other than coal-bearing land) or quarry and (iii) land other
than the preceding two categories. These three are well-defined .
G classifications by reference to the user or quality and the nature of product
which it is capable of yielding. The cess is levied on the land. The method
of quantifying the tax is by reference to the annual value thereof. It is well
known that one of the major factors contributing to the value of the land
is what it produces or is capable of producing. Merely because the
quantum of coal produced and dispatched or the quantum of mineral
H produced and dispatched from the land is the factor taken into
'
STA TE v. KE SO RAM INDUSTRIES LTD. 579
·i consideration for determining the value of the land, it does not become a A
tax on coal or minerals. Being a tax on land it is fully covered by Entry
49 in List II. [674-G-H; 675-A-FJ

8.2. Assuming the impugned levy of cess to be a tax on mineral rights,
it would be covered by Entry 50 in List II. Taxes on mineral rights lie
within the legislative competence of the State Legislature "subject to" any B
limitation imposed by Parliament by law relating to mineral development.
,> ). Entry 23 in List II speaks of regulation of mines and mineral developments,
subject to the provisions of List I with respect to regulation and
development under the control of the Union. The Central Legislation has
taken over regulation and development of mines and mineral development C
in public interest. By reference to Entry 50 in List II and Entry 54 iri List
I, the Central legislation has not cast any limitations on the State
Legislature's power to tax mineral rights, or land for the matter of that.
Simply because incidence of tax is capable of being passed on to buyers
or consumers by the mine owners with an escalating effect on the price of
the coal, it cannot be inferred that the tax has an adverse effect on mineral D
development. The impugned cess is a tax on coal-bearing and mineral-
.. bearing land. It can at the most be construed to be a tax on mineral rights.
In either case, the impugned cess is covered by Entries 49 and 50 of
List II. (675-8-FJ

8.3. Mahanadi Coalfields* was not correctly decided in as much as E
India Cement Ltd. and Orissa Cement Ltd.** were applied to the levy of
a cess to which they did not apply. In Mahanadi Coalfields Ltd. it was
not rightly opined that the cess was levied on minerals and mineral rights
and not on land. Hence the conclusion reached therein that the State
Legislature did not have the legislative competence and that the State F
legislation trenched upon a field already occupied by Mines and Minerals
(Development and Regulation) Act 1957, a Central Legislation, is
incorrect. [675-G-H; 676-A(

Kesoram Industries Ltd (Textile Division) v. Coal India Ltd., AIR (1993)
Calcutta 78, reversed. G
*State ofOrissa v. Mahanadi Coal Fields Limited, (1995) Suppl. 2 SCC
-4 686, overruled.

**India Cement Ltd. and Ors. v. State of Tamil Nadu and Ors., [1990)
1SCC12 and Orissa Cement Ltd\ v. State of0ris$a and Ors., [1991) Supp. H
I.- }.;
!-
580 SUPREME COURT REPORTS [2004] I S.C.R.

A l sec 430 ' distinguished.
t·
Brick-Earth Matters

9.t. Brick-earth is a minor mineral. The verdict in this judgment with
regard to the impugned cess by reference to coal applies to brick-earth as
B well. The field as to taxation cannot be said to have been covered by
Central Legislation, i.e., the l 957 Act, by reference to Entry 54 in List I.
1676-F-GI
... ,
9.2. Quantification of levy by reference to quantity of brick-earth
dispatched is a methodology adopted for the purpose .of finding out the
c quantity of brick-earth removed from the land. It has a definite and direct
co-relation with the land. The gist and substance of what the Legislature
is taking into account is the brick-earth actually removed. "Dispatched"
has the effect of taking into account the brick-earth "removed" and not
simply "moved" and left behind. The average quantity of brick-earth
utilized in making bricks, whether on the brick field itself or on a place
D
nearby, does involve removal - and consequently, dispatch - of the brick-
earth from the place where it was to the place where it is captively
consumed in making bricks. The fact that the methodology for working
'4
out the royalty payable and the cess payable is the same, does not have
any detrimental effect on the constitutional validity of the cess whether it
E be treated as one on the land - classified by reference to its production,
i.e., the brick-earth or as one on mineral rights in brick-earth. In either
case it would be covered by Entries 49 or 50 in List II.
1676-G-H; 677-A-CI

Minor Mineral Matters
F
10.t. The High Court has rightly held that as a tax the impugned
levy of cess is clearly covered by Entry 5 of List II, and it is added, read
with Entries 49 and 50 of List II. The High Court has upheld the validity
of the U.P. Special Area Development Authorities Act, 1986 by relating it
to Entry 5 in List II which is 'local government'. Any local government
G
exercising the power of governance over a local area shall have to
administer, manage and develop the area lying within its territory which

H
cannot be done without raising funds. 1681-C-D; 680-A-BI

Ram Dhani Singh v. Collector, Sonbhadra and Ors., AIR (2001) All
5, affirmed.
.
I
J.__
\

ST ATE v. KESORAM INDUSTRIES LTD. 581

10.2. The constitutional validity of the enactment as a whole and the A
t rules framed thereunder is not put in issue. What is under challenge is
only the levy of cess. There is nothing wrong in the State legislation levying
cess by way of tax so as to generate its funds. Although it is termed as a
'cess on mineral right', the impact thereof falls on the land delivering the
minerals. Thus, the levy of cess also falls within the scope of Entry 49 of B
List II. Inasmuch as the levy on mineral rights does not contravene any
of the limitations imposed by the Parliament by law relating to mineral
development, it is also covered by Entry 50 of List II. 1681-D-FI

10.3. The levy of the impugned cess can equally be upheld as a fee
by reference to Entry 66 read with Entry 5 of List II. The imposition of C
cess envisaged through the SADA Act and the Rules was a step towards
developing the special area wherein mining activities on the land are
carried on. The impugned cess can, therefore, be justified as a fee for
rendering such services as would improve the infrastructure and general
development of the area the benefits whereof would be availed even by
the stone crushers. It is not necessary that the services ren~ered from out D
of the fee collected should be directly in proportion with the amount of
fee collected. It is equally not necessary that the services rendered by the
fee collected should remain confined to the persons from whom the fee
has been collected. Availability of indirect benefit and a general nexus
between the persons bearing the burden of levy of fee and the services E
rendered out of the fee collected is enough to uphold the validity of the
fee charged. 1680-E-G; 683-D-EI

10.4. The impugned levy does not have the effect of increasing the
royalty. Simply because the royalty is levied by reference to the quantity
of the minerals produced and the impugned cess too is quantified by taking F
into consideration the same quantity of the mineral produced, the latter
does not become royalty. The former is the rent of the land on which the
mine is situated or the price of the privilege of winning the minerals from
the land parted by the Government in favour of the mining lessee. The
cess is a levy on mineral rights with impact on the land and quantified by
reference to the quantum of minerals produced. The distinction, though G
fine, yet exists and is perceptible. 1683-E-Fl

Tea Matters

11.1. The impugned levy of cess on tea estates as levied by the West
Bengal Taxation Laws (Second Amendment) Act, 1989 is intra vires the H
582 SUPREME COURT REPORTS [2004] I S.C.R.

A Constitution. Levy of the cess has already been upheld in Goodricke
Groups Ltd. That case has correctly been decided and the law laid down
t
,,
therein is correct and supported by authority in abundance. India Cement
and Orissa Cement were rightly distinguished. The logic and reasoning
assigned and conclusions drawn by this Court in Goodricke on all the
B counts are upheld. (670-G-H; 671-A;_676-B-Fl

Goodricke Group Ltd. and Ors. v. State of West Bengal and Ors., (19951
Supp. I SCC 707, upheld.

India Cement Ltd. and Ors. v. State of Tamil Nadu and Ors., (199011
C SCC 12; Orissa Cement Ltd. v. State o/Orissa and Ors., 11991 (Supp. I SCC
430 and Buxa Dooars Tea Company Ltd and Ors. v. State of West Bengal
and Ors., (1989( 3 SCC 211, distinguished .

11.2. Section 2 of the Tea Act, 1953 contains a declaration that it is
expedient in the public interest that the Union should take under its control
D the tea industry. The declaration is in terms of Entry 52 in List I. Union's
assumption of control of tea as industry and as being expedient in the
public interest, does not amount to vesting the power to tax or levy fee iii
the Central Government by reference to tea or on tea estates. Section 25
of the Tea Act empowers the Central Government to levy and collect excise
duty on t.ea produces, which on collection shall be credited to the
E Consolidated Fund of India. There is no other provision in the Tea Act
empowering levy of any tax or fee on tea or tea bearing land. The
impugned levy is of cesses on tea estates, i.e. the land forming part of tea
estates as defined in the impugned Act. The impugned cess is a tax on tea-
bearing land, a well-defined classification and is covered by Entry 49 in
F List II. Simply because the method for quantifying the tax is by reference
to the yield of the land determinable by taking into account the quantum
of tea produced and dispatched, it does not become a cess on tea or a tax
on production of tea or a tax on income of land. 1676-C-E)

Per Sinha, J (Dissenting):
G
I. I. The federalism under the Indian context points out to the
supremacy of the Parliament, and the legislative entries contained in
different Lists of the Seventh Schedule to the Constitution oflndia must be
construed accordingly. Fields of legislation carved out under Chapter I of
Part XI of the Constitution clearly spell out that in more important matters
H the Parliament will have greater control thereover. 1805-B; 712-AI
I
.-./.,
'
\

ST ATE v. KESORAM INDUSTRIES LTD. 583
Govt. of A.P. v. Medwin Educational Society and Ors ... JT (2003) 8 SC A
567; State of Andhra Pradesh v. K. Purushotham Reddy, JT (2003) 3 SC 15
State of West Bengal v. Union of India, AIR (1963) SC 1241, Automobile
Transport v. State of Rajasthan, AIR (1962) SC 1406, referred to.

Ref. Under Article 143, AIR (1965) SC 745 ITC Ltd. v. Agricultural
Produce Market Commillee and Ors., 120021 9 SCC 232 and Gov.-Gen. in B
Council v. Madras, (1945) FCR 179, referred to.

Florida Lime and Avocado Growers v. Charles Paul, 373 US 132; 10
Law. Ed. 2d 248; The State of South Australia and Another v. The
Commonwealth and Anr., (1942) 65 C.L.R. 373, referred to. Dicey, Law of C
the Constitution, 10th Ed. P. 164, referred to.

1.2. The interpretation of the legislation will depend upon the
legislative entries to which it relates and intent and purport of the makers
of the Constitution, and no principle of interpretation can be introduced
to the effect that the Court should lean towards a State. 1805-B-CI D
1.3. Tilt in favour of the Centre is required to be construed having
regard to the importance of the subject matter of Parliamentary legislation
and the impact and practical inroad effect of the State Laws entrenching
upon the legislative field occupied by the Parliament. Though the State
Legislature has exclusive power with respect to the subjects specified in E
List II of the Seventh Schedule to the Constitution, some of the Entries in
List II specifically make the States power 'subject to' any law made by
Parliament under the specified Entry in List I. Union and State Relations
under the Indian Constitution by M.C. Setalvad - referred to.
1712-B, G-H]
F
2.1. Article 248 of the Constitution confers power upon the
Parliament to make any law with respect to any matter not enumerated
in the Concurrent List or the State List. Notwithstanding the fact that great
care with which the various entries in the three lists have been framed,
on some rare occasions it may be found that one or the other field is not G
covered by these entries. The makers of our Constitution have, in such a
case, taken care by conferring power to legislate on such residuary subjects
upon the Union Parliament, including taxation, by reason of Article 248
of the Constitution. Once it is found that the Parliament has exercised its
superior power in terms of Article 248, question of levy of any tax on the
product by a State would not arise. (714-F, 715-C-D; 729-F-G( H
584 SUPREME COURT REPORTS (2004] I S.C.R.

A Naga People's Movement of Human Rights v. Union of India, AIR t
(1998) SC 431 and Attorney General for India v. Amratlal Prajivandas, (1994(
5 sec 54, relied on.

S.R. Chaudhuri v. State of Punjab, (2001 ( 7 SCC 126; Union of India
v. Shri Harbhajan Singh Dhillon, (1971 ( 2 SCC 779; Synthetic and Chemicals
B ltd. v. State of U.P., AIR (1990) SC 1927 and State of A.P. v. K. Purushotham
Reddy and Ors., JT (2003) 3 SC IS.
... (
2.2. Once it is found that the State lacks legislative competence for
imposition of tax on any of the subject, indisputably the Parliament alone
C will have legislative competence therefor. (715-F(

Synthetics and Chemicals v. State of U.P., (1991 ( SCC 109, referred
to.

M.P. Sundararamier and Co. v. State of Andhra Pradesh and Anr.,
D (1958( SCR 1422, distinguished.

2.3. There is nothing in the Constitution to debar the Parliament to
legislate under Entry 54 read with Entry 97 of List I of the Seventh
Schedule to the Constitution. However, recourse to the residuary power
must be taken as a last resort i.e. only when all the entries in the three
E lists are absolutely exhausted, that is to say, if the subject matter is beyond
comprehension of the entries contained in the aforementioned three lists.
It is trite that when two interpretations are possible resort to the residuary
power may not be taken recourse to. (721-D-E(

Union of India v. Shri Harbhajan Singh Dhillon, (1971 ( 2 SCC 779 and
p Union of India and Anr. v. Delhi High Court Bar Assn. and Ors., (2002( 4
sec 275, relied on.
His Holiness Kesavananda Bharati Sripadagalbvaru etc. v. State of
Kera/a and Anr., (1973( 4 SCC 225, referred to.

G 3.1. Article 253 of the Constitution, which starts with a non-obstante
clause and operates notwithstanding anything contained in Articles 245
and 246, provides that while giving effect to an international treaty, the
Parliament assumes the role of the State Legislature and once the same is
done the power of the State is denuded.India is a signatory to various
international treaties and covenants and being a party to WTO and GA TT,
H it is obligated to fulfil its trans-national obligations. If for the purpose of
ST ATE v. KESORAM INDUSTRIES LTD. 585
t giving effect to the international treaties, the Parliament, in exercise of A
its power under Article 253 of the Constitution, takes over the legislative
field occupied by List II of the Seventh Schedule to the Constitution, no
exception thereto can be taken. 1715-A-B; 720-AI

Kesavananda Bharati Sripadagalbvaru etc. v. State of Kera/a and Anr.,
1197314sec225; Vishaka and Ors. v. State of Rajasthan and Ors., 11997] B
6 SCC 241 and Maganbhai lshwarbhai Patel v. {Jn ion of India and Anr., AIR
).. (1969) SC 783, relied on.

Kapila Hingorani v. State of Bihar, (2003] 6 SCC I; Islamic Academy
of Edn. and Anr. v. State of Karanataka and Ors. etc., 12003] 6 SCC 325; C
Liverpool and London S.P. Assn. Ltd v. M. V. Sea Success I and Anr., (2003)
JO SCALE I; State of Punjab and Anr. v. Modern Breweries and Anr., (2003)
10 SCALE 202 and Reference by President of India, AIR (1960) SC 845,
referred to.

3.2. Tea and coal being subjects of great importance, the Parliament D
has taken over the complete control of the entire field in respect thereof
and other minerals in terms of the Tea Act, 1953 and Mines and Minerals
(Development and Regulations) Act, 1957 respectively. The Parliament by
enacting Sections 25 both in the 1957 Act and the 1953 Act reserved the
authority unto itself to impose any other tax falling in List I. The E
Parliament may also impose a tax which otherwise would not fall in any
one of the taxing entries but may fall under the residuary entry being
Entry 97 in List I. (805-C-D; 735-F-G]

3.3. Power to regulate the trade and for that purpose imposition of
tax is well-known in India. Mines and Minerals (Development and F
Regulation) Act, 1957 is a regulatory statute. Imposition of tax by way of
regulatory measures is permissible while enacting a regulatory statute.
(739-B-C; 740-A]

Synthetics and Chemicals Ltd and Ors. v~ State of U.P. and Ors., (19901 G
1 SCC 109 and State of Punjab and Anr. v. Mis. Devans Modern Brewaries
ltd. and Anr., (2003) 10 SCALE 202, relied on.

ABL International Ltd and Anr. v. Export Credit Guarantee Corporation
of India limited and Ors., JT (2003) 10 SC 300 and South Eastern Coalfields
limited v. State of M.P. and Ors., (2003) 7 Supreme 539, referred to. H
586 SUPREME COURT REPORTS [2004] I S.C.R.

A 3.4. The importance as regards fixation of price of coal and tea has
a direct bearing with the regulation of mines and minerals development
as also the tea industry. The Central Government has also reduced the
custom duty on coal taking into the aforementioned consideration in view,
as would appear from the Notification dated 8.1.2004 issued under the
B provisions of the Customs Act. As regards tea, under Section 30 of the
Tea Act, the Central Government has the power to fix the market price.
Fixation of a uniform mar~et price by the Central Government would not
be possible if it is held that a different rate of cess can be levied by different --1

States, which will have a direct impact on the sale price thereof.
(731-A-B; 795-A-B; 799-E-FI
c
State of MP. v. Mahalaxmi Fabric Mills Ltd., (19951Supp.1SCC642
and Saurashtra Cement and Chemical Industries ltd. v. Union ofIndia, (20011
I SCC 91, relied on.

The King v. Barger., (1908) 6 CLR 41; Allorney-Genera/for Alberta v.
D Allorney General for Canada., (1939) AC at pp. 130-132 and The State of
South Australia and Anr. v. The Commonwealth and Anr., (19421 65 C.L.R.
373, referred to.

3.5. Having regard to the purport and object of the 1953 Act and
E the 1957 Act and the declarations contained in Section 2 of the two Acts,
as contemplated in Entries 52 and 54 of List I of the Seventh Schedule,
the State must be held to be denuded of its power to levy any tax on coal
or tea, particularly, having regard to the provisions of Sections IO, 13,
15, 25 and 30 of the Tea Act and Sections 9, 9A, 13, 18 and 25 of the 1957
Act. Field of taxation on tea and mineral is specifically covered by Section
F 25 of the two Acts. Even if the doctrine of pith and substance is applied,
it may not be possible to hold that the State legislature has only incidentally
encroached upon the legislative field occupied by the Parliament.
(805-D-HI

G . State of U.P. and Ors. v. Varn Organic Chemicals ltd. and Ors., AIR
(2003) SC 4650 and State of Bihar and Ors. v. Industrial Corporation Pvt.
ltd. and Ors., (2003) 9 SCALE 169, relied on.

Kera/a State electricity Board v. Indian Aluminium Co., 1197611 SCC
468; Harakchand Ratanchand Banthia and Ors. v. Union of India and Ors.,
H (196912 SCC 166; D.C. and G.M Co Ltd. v. Union of India, AIR (1983) SC
STATE v. KESORAM INDUSTRIES LTD. 587
937; lshwtiri Khetan Sugar Mills (P) L1<.I.. v, State of U.P., AIR (1980) SC A
1955; Kartar Singh v. Slale of Punjab, 119941 3 SCC 569; Ch. Tika Ramji
and Ors. v. The S!ale of Uuar Pradesh and Ors.. 119561 SCR 393; Dislrict
Mining Officer and Ors. v. Ta/a Iron and Steel Co. and Anr., (20011 7 SCC
358 and ITC Lid v. Agric11//ural Produce Market Commitlee and Ors., (20021
9 sec 232, referred to.
B
The Hingir-Rampur Coal Co. Ltd. v. State ofOrissa, 1196112 SCR 537,
)>· distinguished.

P. Kannadasan and Ors. v. State of TN. and Ors., 119961 5 SCC 670,
referred to as already overruled.
c
3.6. Once it is found that the entire field of mines and minerals as
also tea, including the power to impose any tax is covered by the 1957
and 1953 Acts, the impugned tax by way of levy of cess on coal and tea
must be held to be u/lra vires. 1738-G-HI

Krishi Utpadan Mandi Samiti and Ors. v. Pilibhit Pantnagar Bee} Ltd. D
and Anr., (2003) 10 SCALE 432, relied on.

Slale of Rajaslhan v. Vatan Medical and General Store, (20011 4 SCC
642, held inapplicable.

4.1. Tax on lands and buildings in terms of Entry 49 of List II of the E
Seventh Schedule of the Constitution can be levied on land as a unit and
not otherwise. Applying the test laid down in several decisions of this
Court, it is opined that the impugned cess is not a tax directly levied upon
land as a unit by reason of the general ownership of the lands and
buildings. 1806-E-F; 749-C-DI F
India Cement Ltd. and Ors. v. State of Tamil Nadu and Ors., 1199011
SCC 12; State of Orissa v. Mahanadi Coalfields Ltd., 119951Supp2 SCC
686; Orissa Cemenl Ltd. v. State of Orissa and Ors., 119911Suppl.1 SCC
430; Stale of Bihar and Ors. v. Indian Aluminium Company and Ors., 119971
8 SCC 360; Central Coalfields Ltd v. The State of Bihar., AIR (1991) Patna G
27 and Krishna Mohan (P) Ltd. v. Municipal Corporation of Delhi and Ors.,
(20031 7 sec 151, relied on.

Goodricke Group Ltd. v. State of W.B., 119951 Supp. 1 SCC 707,
disinguished. 0
H
588 SUPREME COURT REPORTS [2004] 1 S.CR.

A 4.2. An impost on lands and buildings must be a tax directly imposed r
on lands and buildings and must have a definite relation thereto. The
impugned levies, having regard to nature of impost cannot be said to be
a tax on land as : (a) the impost is not directly on land; and (b) the levy
does not concern itself with any aspects of land i.e. extent of land, nature,
character, quality or location thereof. In the case of mineral, it is already
B embedded in the earth and there is no question of any yield in the sense
that there would be an annual yield or annual income; in case of tea, it is
.._
also not concerned with the productive qualities of the land; and (c) the
levy is not based on the land as a unit. 1745-A; 746-F-HI

c on. Sudhir Chandra Nawn v. Wealth Tax Officer., 1196911SCR108, relied
4.3. Entry 49 of List II, however, should be read in such a manner
so that the surface land must have a direct nexus with the sub-soil right
which is an inchoate right. Indisputably, sub-soil right would include
D mineral right. 1742-E-FI

4.4. Levy of tax on coal bearing lands and mineral bearing lands
where mining operations are being carried out through the process of
incline or digging pits is illegal, inasmuch as the underground mining right
would be larger in area than the surface right and, thus, it is not possible
E to uphold the validity of such statute with reference to the extent of the
surface right as mineral is being extracted from a larger underground
area. Different rights may belong to different persons over the same
surface land and similarly different rights may belong to different persons
in respect of or over underground rights. The impugned provisions do not
specify who would be liable to pay in relation to different rights and who
F
would be considered to be the owner of the land and to what extent. The
impugned statutes, having not made any provision of different method of
levy, are ultra vires. 1806-A-Cj

Amrendra Pratap Singh v. Tej Bahadur Prajapati and Ors., JT (2003)
G 9 SC 201 and State of A.P. etc. v. National Thermal Power Corpn. ltd and
Ors. etc., 120021 5 SCC 203, referred to.

As mineral bearing lands cannot be treated as an independent unit
in respect of which tax can be invoked, the impugned Acts must be held
..
to be unconstitutional. Besides, minerals extracted and brought to the
H surface would be treated as personal property and, thus, cannot be the
STATE v. KESORAM INDUSTRIES LTD . 589
,_
.
subject-matter of tax on land. 1806-E; 781-AI A
Palmer v. Corwith 3 Chand (Wis) 297, referred to.

Cooley Taxation Vol.2 Fourth Edition, P.558 and 564, referred to ..

4.5. The definition of land and immovable property as contained in B
the Cess Act, 1880 play an important role insofar as in terms of Section
78 of the West Bengal Primary Education Act and Section 4 of the West
Bengal Rural Employment and Production Act, 1976, cess would be levied
on all immovable properties on which road and public work cesses are
assessed. Section 5 of the Cess Act, 1880 provides all immovable properties
would be liable to road cess and public works cess. The immovable c
property which is, therefore, not liable to a road cess and public works
cess, a fortiori, cannot be subjected to education cess or rural employment
cess. 1775-C-DI

Buxa Dooars Tea Company Ltd. and Ors. v. State of West Bengal and
D
Ors .. 119891 3 SCC 211, relied on.

4.6. In view of the definitions of 'land' and 'immovable property'
contained in the Bengal Cess Act, 1880, as no road cess or public works
cess can be imposed on standing crops or any kind of structures, houses,
shops or other buildings which would include factories and workshops for E
processing tea, no levy by way of cess can be imposed by reason of the
impugned Acts either on the mining leasehold or the tea estate containing
standing crops as also houses and buildings. 1806-G-H; 807-AI

Krishna Mohan (P) Ltd. v. Municipal Corporation of Delhi and Ors.,
120031 7 sec 151, referred to. F
-<C.
The Anant Mills Co. ltd. etc. etc. v. State of Gujarat, AIR (1975) SC
1234; Assistant Commissioner of Urban Land Tax Madras and Ors. etc. v.
Buckingham and Carnatic Co. ltd. etc., AIR (1970) SC 169 and D.G. Gose
and Co. v. State of Kera/a, 119801 2 SCC 410, distinguished.
G

,. 4.7. For the purposes of the Cess Act 'owner' would, with reference
to a tea estate, the possession of which has been transferred by lease or
mortgage or otherwise, mean the transferee so long as his right to
possession subsists. It will, therefore, appear that the cess is levied not on
land as a unit by reason of general ownership of land which may belong H
590 SUPREME COURT REPORTS (2004) I S.C.Jl.

A to a legal owner but the cess may be levied even upon a person who ii in
possession of a tea estate by lease or mortgage or even by a licence or
permission. [774-E-F]

4.8. The legislative competence of the State in relation to agricultural
land as also imposition of tax on land and buildings as contained in Entry
B 49 of List II must be considered having regard to Entry 52 or Entry 54 of
List I and Entry 33 of List Ill. The legislative competence of the State,
having regard to Articles 246, 248 and 253 of the Constitution, it is trite,
would be subject to the legislative competence of the Parliament.
[746-D-El
c Mahabir Prasad Jalan and Another v. The State of Bihar and Ors., AIR
(1991) Patna 40; State of Karna/aka v. Vishwabarathi House Building Coop.
Society and Ors., JT (2003) I SC 344; Shri Krishna Gyanudya Sugar ltd. v.
State of Bihar., (200314SCC378; Bheemagari Bhaskar and Ors. v. Revenue
Divisional Officer, Bhongir and Ors., (2002) I ALT I 59; Jagadish Chandra
D v. Kanai Lal, AIR (1951) Patna 525 and Kusum Kamini v. Jagdish Chandra,
AIR (1941) Patna 13 and Purnendu Narain Singh v. Narendra Nath, AIR
(1943) Patna 31, referred to.

D.G. Gose and Co. v. State of Kera/a, (1980[ 2 SCC 410; State of
E Rajasthan v. Vatan Medical and General Store, (2001[ 4 SCC 642; Ra/la
Ram v. Province of East Punjab, (1948) FCR 207 and New Manek Chowk
Spinning and WeavingMi//s Co. ltd. v. Municipal Corporation of the City of
Allahabad, (1967[ 2 SCR 679, distinguished.

4.9. Once strict construction of a taxing statute is applied it is possible
F to hold that the exercise of the State's jurisdiction is really an act of fraud
on the Constitution inasmuch while imposing tax on land it seeks to levy
tax on mines and minerals or tea in relation whereto it has even no )>
regulatory power. [740-D-E)

4.10. Keeping in view the doctrine of public trust, while imposing a
G tax on land and in particular, mineral bearing land, the legislature must
exercise its power consciously. It, while imposing tax on one subject cannot
indirectly levy an impost on other subject. Entry SO of List II authorizes
the State to tax mineral rights which has no correlation with the power
to tax land. If both the entries are resorted simultaneously, the statutes 11>-
H bear out the same. From the impugned Acts, it cannot be inferred that
ST ATE v. KESORAM INDUSTRIES LTD. 591
the State intended to levy tax both on land and mineral right. A
(750-G-H; 751-C-EJ

M.C. Mehta v. Kamal Nath, 11997) I SCC 388; Perumatty Gram
Panchayat Perumatty Vandithavalam P.O., Chettur Taluk represented by its
President Sri A. Krishnan v. State of Kera/a and Ors., W.P. (C) No. 34292/
2003 (G) decided by Kerala High Court, referred to. B
5.1. Measure of a tax although may not be determinative of the
nature thereof, the same will play an important role in determining the
character thereof particularly keeping in view the purpose and object the
Parliamentary Acts seek to achieve. In determining the legislative
competence, the taxing event also plays an important role. (807-A-BJ C
State ofOrissa v. Mahanadi Coalfields Ltd., (1995) Supp. 2 SCC 686;
Unit Trust of India and Anr. v. P.K. Unny and Ors., (2001) 249 ITR 612;
State ofOrissa v, Mahanadi Coalfields Ltd. (1995) Supp. 2 SCC 686; Unit
Trust of India and Anr. v. P.K. Unny and Ors., (2001) 249 ITR 612; Hoechst D
Pharmaceuticals ltd. v. State of Bihar and Ors., (1983( 4 SCC 45; S.C. Nawn
v. W.TO., Calcutta, 11969) SCR 108 and Bhagwan Das Jain v. Union of
India, (1981) 2 SCR 808 816, referred to.

The London County Council and Ors. v. The Attorney General, 1901
Law Report, Appeal Cases 26; Solomon v. New South Wales Sports Club E
Ltd, 19 Co. L. Rep. 698 and Hylton, Plaintiff in Error v. The United States,
US SCR l Law. Ed. Dallas 169, referred to.
;
5.2. Measure of tax is an indicia for determining the character and
nature of tax. Subject of a tax and the measure of a tax have some
relationship to determine the question as regards character of legislation. F
For the purpose of measure of tax only permissible methods of valuation
can ·be adopted. (785-A; 786-D-E(

A distinction must be borne in mind as regards "use of land" and
"activities on land". Use of land as a 'fair' or 'market• is permissible in
terms of Entry 26 of List II. Imposition of tax, however, would be G
impermissible on 'activity on land' as it does not come within the purview
of any of the entries contained in List II. A tax imposed on activities on
•• land confined to extraction of mineral is clearly beyond the power of the
State Legislature. (726-B-C; 798-B(
H
592 SUPREME COURT REPORTS [2004] I S.C.R.

A D.G. Gose and Co. v. State of Kera/a., 119801 2 SCC 410 and Ra/la
Ram v. Province of East Punjab, (1948) FCR 207, referred to.

5.3. The impugned levy is entirely dependent upon the production
of mineral extracted or production of tea leaves which vary from mine to
mine or garden to garden or location to location and from year to year.
B The impugned statutes having not provided for computing the annual
value of land in such different situations and, thus, the tax on land being
not measurable as an independent unit of the land must be held to be not
workable. (747-A, G-Hl

5.4. The impugned levies are taxes on coal or other minerals raised
C in the mining areas and not a tax on land as contemplated under Entry
49 of List II. Irrespective of imposition of tax on the land as a unit, the
impugned levies have only one consideration, i.e., production of coal which
would, thus fall outside the purview of Entry 49 of List JI. (748-E-FJ

D 5.5. Despite India Cement and Orissa Cement* as also various decisions
of this Court, tax has not been imposed taking the land as a unit. An
endeavour has been made to levy cess only by changing the measure
thereof. The State has not taken recourse to measure for removing the
deficiencies in the Acts pointed out by this Court. 1803-F-Gl

E *India Cement Ltd and Ors. v. State of Tamil Nadu and Ors., 119901
1 SCC 12 and Orissa Cement ltd v. State of Orissa and Ors., 119911 Supp.
1 sec 430, relied on.

The Workmen of Mis. Firestone Tyre and Rubber Co. of India P. Ltd
and Ors. v. The Management and Ors., AIR (1973) SC 1227 and Dharam
F Duft and Ors. v. Union of India and Ors., (2003) 10 SCALE 141, referred
to.

5.6. A statute will not be valid unless the defects pointed out are
removed. Such removal of the defects must be done keeping in view the
principle of 'legislative competence'. Even the Parliament could not
G validate an Act which was enacted without proper legislative competence.
As the measure of tax levied led to the declaration of the law invalid being
in pith and substance to be beyond the competence of the State Legislature
by reason of the impugned Acts, the levy cannot be said to have been II>·
revalidated. They were required to be reenacted but such reenactment
H must also be in tune with any or other entries made in List II. (795-D-El
STATE v. KE SO RAM INDUSTRIES LTD. 593
6.1. The principles of reading a judgment are well-known. What is A
binding in terms of Article 141 of the Constitution oflndia is the ratio of the
judgment. The ratio decidendi of a judgment is the reason assigned in support
of the conclusion. If the reasons contained in a judgment do not appeal to a
subsequent Bench, the matter may be referred to a larger Bench but so long
the same is not done, the ratio can neither be watered down nor brushed
aside. India Cement, Orissa Cement and other judgments of coordinate B
benches are binding. Correctness or otherwise of the said judgments has not
:.. been questioned. It would, therefore, not be proper for this Court to read
.something in the judgment which does not appear therefrom or to exclude
from consideration reasonings on the basis whereof the conclusions of the
judgment had been reached. [741-B-OI C
6.2. This Court while inttrpreting binding judgments cannot in effect
and substance overrule the same or read down the principle of law enunciated
therein. Judicial discipline mandates that binding precedents be followed.
Comments made by an author cannot be the basis for ignoring binding
decisions of larger Benches. [805-A; 741-A) D
7.1. The State being owner of the minerals and grant of mineral right
being controlled by the Parliamentary statute, namely, the Mines and
Minerals (Development and Regulation) Act, 1957, which is a comprehensive
Act and a self-contained Code providing for regulation of mines and mineral
development including the power to levy tax, the State is denuded of its power E
to impose any tax on mineral right in terms of Entry 50 of List II of the
Seventh Schedule to the Constitution. The terms and conditions including
the right to receive royalty, the mode, manner and extent thereof; the
limitations in relation thereto as well as enhancement in the quantum thereof
are fixed by the statutory provisions, and, thus, the State would be denuded F
of its power to impose any further levy, impost or tax thereupon.
[805-F-G; 703-C; 752-B-FI

The Hingir-Rampur Coal Co. Ltd v. State of Orissa., [1961 [ 2 SCR
537; State of Orissa v. MA. Tulloch and Co., [19641 4 SCR 461; India
Cement Ltd. and Ors. v. State a/Tamil Nadu and Ors., [1990[ 1 SCC 12 and G
Orissa Cement Ltd v. State of Orissa and Ors., [19911 Supp. 1 SCC 430,
relied on.

State of MP. v. Mahalaxmi Fabric Mills Ltd., [1995) Supp. 1SCC642
and Laxminarayan Mining Co. v. Taluk Dev Board, AIR (1972) MYS 299,
referred to. H
594 SUPREME COURT REPORTS [2004] I S.C.R.

A Bank of New South Wales v. Common Wealth, 76 CLR 1, referred to.

Black's Law Dictionary, referred to.

7.2. Entry 50 of List II is unique in the sense. that it is the only Entry in
all the Entries in the three Lists (List I, II and III) (apart from Entry 37) in
B the Seventh Schedule where the taxing power of State Legislature has been
subjected to "any limitation imposed by Parliament by law relating to mineral
development". Entry 50 of List II is subject to law enacted by Parliament in
terms of Entry 54 List I. Grant of mineral rights, undoubtedly, would come
within the purview of regulation of mines and minerals development in terms
of the 1957 Act. When a mining lease is granted, consideration for parting
C with the mineral right would be a part of the terms and conditions thereof.
The right to receive royalty is also a mineral right. The power to tax on
mineral rights, therefore, would essentially be different from a right to tax
on mineral actually extracted. State indisputably receives royalty as a
consideration for grant of mining lease in terms of the 1957 Act. As by reason
D of this Parliamentary legislation in terms of Entry 54 of List I, States have
been compensated for parting with the mineral rights, by necessary
implication, States' power to levy tax on such rights would also stand denuded.
(752-B, E-F; 753-B; 762-D-E]

7.3. Once it is found that the entire field of legislation is occupied by
E the Parliament in view of the 1957 Act and the declarations contained therein,
evidently Entry 50 of List II would not be attracted. Under the three impugned
Acts, taxes have been levied on minerals and not on mineral rights and, thus,
the State Legislations cannot be supported in terms of Entry 50 of List II.
The charging section is directly referable to production of coal. The claim,
F thus, would amount to a colourable exercise of power. (755-F; 760-E-G]

Bharat Coking Coal v. State of Bihar, (19901 4 SCC 557; K.C.G.
Narayan Deo v. State of Orissa, 11954) SCR 1 and Central Coalfields Ltd.
and Ors. v. The State of Bihar and Ors., AIR (1991) Patna 27, referred to.

G 7.4. The levy even otherwise cannot be said to be referable to Entry 50
since - (a) it is a levy only on minerals extracted or produced from the coal
mines; and (b) it is on quantity of minerals produced from the mining lease.
(760-F]

7.5. The taxing power of the State in terms of Entry 50, List II of the
H Seventh Schedule must also be viewed from the context that all the mineral
STA TE v. KESORAM INDUSTRIES LTD. 595

f rights as also the right to receive royalty by reason of the West Bengal Estates A
Acquisition Act, 1953 and U.P. Zamindari Abolition Act vested in the State.
The State thus can not impose a tax on its own right. 1764-IB, Fl

8.1. Royalty stricto sensu and in common parlance may not be a tax.
But having regard to the definition of taxation contained in Clause (28) of
Article 366 of the Constitution, there may not be any dispute that royalty being B
a statutory impost would come within the purview thereof. 1765-F-G; 766-AI
).
Quarry Owners' Association v. State of Bihar, 120001 8 SCC 655,
referred to.

8.2. The Second Schedule appended to the 1957 Act states that the C
royalty would be payable at the rates specified on each tonne of coal. It is,
therefore, a levy on the extraction or produce by weight. When the cess is
levied on the royalty, the levy, which remains on extraction by weight, is
enhanced or incremented. It is, thus, an incremental addition to the royalty.
Its nature and character is the same as that of royalty. The value of the coal D
or for that matter of green tea leav~s has a direct nexus with the weight
thereof. Thus, there may not be any significant distinction in principle between
the levy in India Cement's case and levy in the present one. 1766-C-El

India Cement ltd and Ors. v. State of Tamil Nadu and Ors., 1199011
sec 12, relied on. E
lnderjeet Singh Sia/ and Another v. Karam Chand Thapar and Ors.,
[19951 6 SCC 166; Ajit Singh v. Union of India and Ors., [1995) Supp. 4
SCC 224; State of Tamil Nadu v. Hind Stone, 11981) 2 SCC 205 and D.K.
Trivedi and Sons and Ors. v. State of Gujarat and Ors., [1986) Supp. SCC
20, referred to. F

Coal Matters

9.1. Coal was the only mineral which was subjected to nationalisaion in
terms of Coking Coal Mines (Nationalisation) Act, 1972 and Coal Mines
(Nationalisation) Act, 1973. Even coal mining leases granted to the lessees G
stood terminated. by reason of s.4A of Mines and Minerals (Development and
Regulation) Act, 1957 in the year 1976. Fixation of price of coal by the Central
,,,. Government, regard being had to quality thereof, had all along been subjected
to statutory orders. Requirement of maintenance of price of coal on an all
India basis had all along been considered to be imperative in the economic H
>-· ..
596 SUPREME COURT REPORTS [2004] I S.C.R. I

A and industrial development of the country. [684-G-H; 685-B-C[
9.2. Under the Nationalization Acts, except some collieries which belong
to the companies engaged in the business of manufacture of steel, all other
mines for all intent and purport belong to the public sector companies which
are subsidiaries of Coal India Limited. It will be a matter of great concern if
B the price of coal becomes higher in the State of West Bengal than in other
States. (803-E-Fl

9.3. The definition of mineral is wide a Coal washing plants or coke-
.
oven plants are collieries or coal mines and 'washed coal', 'slurry', sludges
and cokes of different grades would also come within the definition of 'coal'.
c Thus, the owners of the industries like coke-oven plants or coal washeries
which may be set-up either within the precincts of a coal mine or outside the
same, would be subject to payment of tax on their products although carrying
out such operations is controlled and governed by Parliamentary regulatory
statutes. Having regard to the definition of a mine vis-a-vis that of"immovable
D property" and "land" contained in Cess Act, 1880, reconciliation of imposition
of tax on 'coal' and 'tea' is not possible. [795-F-Hl

9.4. Coal is also an essential commodity in terms of Essential
Commodities Act, 1955, and its distribution, marketing as well as price is
regulated and controlled by Colliery Control Order 1945 made under the
E Essential Commodities Act. As the price of coal is to be determined by the
Central Government or the Coal Controller under the Colliery Control Order
1945 which was continued under Essential Commodities Act, 1955 and thus
being covered by Entry 33 List III of the Seventh Schedule to the Constitution,
no tax on coal can be imposed which will have a direct nexus on the value
thereof. The impugned Acts must be construed having regard to the other
F
statutes operating in the field. [795-B-DI

BRICK-EARTH MATTERS
,.
10. l. In view of the fact that royalty on minor mineral is required to be
paid on dispatches, any imposition of tax at the point of dispatch must be
G
held to be bad in law. Despatches of brick-earth from the Raiyati field for
manufacture of brick having regard to the process of brick manufacturing
would be clearly ultra vires as what is being dispatched is not brick-earth but -
bricks manufactured on the raiyati lands. Bricks so manufactured cannot be
the subject matter of land tax. A tax imposed on the finished product would "·
H be excise duty. [768-E-FI
~.
ST ATE v. KESORAM INDUSTRIES LTD . 597
.. Bwca Dooars Tea Company ltd and Ors. v. State of West Bengal and Ors., A
(1989( 3 sec 211, relied on.

India Cement Ltd and Ors. v. State of Tamil Nadu and Ors., (1990( 1
sec 12, referred to.
'
10.2. Once the quantification of tax is made by reference to quantity of B
brick-earth or brick dispatched, measure of tax would be based on total value
> of the mineral dispatched or the material dispatched. The measure of cess on
brick-earth on the dispatches of bricks which is a finished product would not
be on dispatches of minerals but on the materials produced from minor
mineral and, thus, must be held to be bad in law being beyond the purview
of Entry 49 of List II of the Seventh Schedule to the Constitution. Brick-earth
c
and other minor minerals also being subject to Parliamentary control and
regulation in terms of the 1957 Act, the State is denuded of its power to impose
any tax thereupon or a product therefrom. (768-G; 769-D-E(

10.3. Furthermore, the very fact that the methodology of royalty or cess D
is the same is also a relevant factor for the purpose of ascertaining the nature
.. of tax. Tax is, thus, being imposed on the activities on the land and not on
the land itself. (769-C(

MINOR MINERAL MATTERS:
E
11.1. Section 3 of the U.P. Special Area Development Authorities Act,
1986 provides for imposition of cess on mineral rights. Such a cess has been
imposed subject to limitations imposed by Parliament by law relating to
mineral development. The SADA Act refers to mineral development which
indtsputably is the subject matter of the 1957 Act. Once the 1957 Act has been
made, the power of the State to grant lease on the terms and conditions which F
being provided under the statutes, the State, over and above the amount by
way ~f royalty, surface rent, dead rent, fees etc., cannot realize any other sum.
Such an impost would directly come in the way of mineral development.
(769-E-G; 770:-E)

The Hingir-Rampur Coal Co. Ltd. v. State ofOrissa., (1961) 2 SCR G
537; India Cement Ltd and Ors. v. State of Tamil Nadu and Ors., (1990) 1
~_. SCC 12 and Central Coalfields ltd v. the State of Bihar, AIR (1991) Patna
27, relied on

Western Coalfields ltd v. Special Area Development Authority, Korba
H
598 SUPREME COURT REPORTS [2004] I S.C.R.
A and Anr. (19821 1 sec 125, overruled.
Jindal Stripe ltd. And Another v. State of Haryana and Ors., (20031 8
SCC 60; Bhagatram Rajeev Kumar v. CST, 119951 Supp I SCC 673 and
State of Bihar v. Bihar Chamber of Commerce, 119961 9 SCC 136, referred
to. '
B
11.2. In terms of Entry 5 of the State List, the State cannot be held to
have the legislative competence to levy tax on major mineral or minor mineral,
as the case may be, as the field is covered by the 1957 Act and the rules framed
thereunder and, thus, it cannot delegate the said power in favour of the
statutory authority. 1770-B-Cl
c
11.3. A local authority has no right over the mineral or the mineral right.
The power to impose tax on mineral right or mine and mineral cannot be
bestowed by the State upon a local authority by delegation of power or
otherwise. The said power per se does not fall within the purview of Entry 5.
D The statutory authorities having regard to the provisions contained in Entry
5 may be delegated with the power to impose tax on land and buildings etc.
which would have a direct nexus for which such authority has been constituted
but not on 'mineral right' which is vested in the State. Besides, even the State
is denuded of its power to impose any tax on mineral right or mines and
minerals having regard to the provisions of the 1957 Act. 1770-F-H; 771-A-BJ
E
11.4. Conceptually fee and tax stand on different footings; whereas the .
element of tax is based on the principle of compulsory exaction, the concept
of fee relates to the principle of quid pro quo. No material having been brought
on record that any services invoking the principles of quid pro quo are rendered
to the owners of the mine, the impost cannot also be upheld on the ground
F that the same is a fee within the meaning of Entry 66, List II of the Seventh
Schedule to the Constitution. (771-D; 772-C-DI

11.5. Keeping in view the decisions of this Court, the SADA Act cannot
be held to have been validly enacted in terms of Entry 50, List II. Once levy
on mineral right contravenes the limits imposed by the Parliament, the
G question of upholding its validity in terms of Entry 50 or for that matter in
terms of Entry 49, would not arise. The cess levied under SADA Act will have
a direct effect on royalty and ultimately the value of the mineral. Even
otherwise, in terms of the provisions of Zamindari Abolition Act, the mineral
right has vested in the State. Mineral right, therefore, cannot be subject matter
H of taxation as the State cannot impose a tax on itself. (771-F-H; 769-F-GI
STA TE v. KESORAM INDUSTRIES LTD. 599

Hingir-Rampur Coal Co. ltd. v. State of Orissa.. 119611 2 SCR 537 A
and Central Coalfields ltd. v. The State of Bihar, AIR 1991 Patna 27, relied
on.

Tea Matters:

12.1. Sections lO and 30 of the Tea Act clearly show that not only the B
production of tea by way of manufacture in a factory but also cultivation
thereof is under the Union control. The fields of legislation relating to
agriculture and imposition of tax on land, which belong to the State legislature,
have been taken away by Entry 52 List I of the Seventh Schedule to the
Constitution read with Article 253 thereof. 1773-B-q
c
Buxa Dooars Tea Company ltd. and Ors. v. State of West Bengal and
Ors., 119891 3 SCC 211, relied on.

12.2. Tea industry is not only a controlled industry b~t also a declared
one, and the Tea Act, having been enacted in terms of Entries 10 and 14 of
List I as also A11icle 253, the State's power to make any law dealing with tea D
including levy of any tax on any types of tea which would include green tea
leaves would completely be denuded, as a tax either in terms of Entries 14,
18 or 49 of List II would affect the said commodity. The expression 'tea' should
be give~,,a broad meaning and Entry 52 of List I of the Seventh Schedule to
the Constitution should be interpreted in relation to tea having regard to the E
purport and object it seeks to achieve. The definition of tea is "for the purposes
of the Act" which would mean for all the purposes of the Act.
1807-B-C; 773-E-FI

Maganbhai /shwarbhai Patel v. Union of India and Anr., AIR (1969)
SC 783; State of Bihar v. Bihar Chamber of Commerce, 119961 9 SCC 136 F
and H.L. Sud, Income Tax Officer, Companies Circle /(/), Bombay v. Tata
Engineering and locomotive Co. ltd., AIR 1969 SC 319, relied on.

MK. Kochu Devassy v. State ofKerala etc.. 1197912 SCC 117, referred
to.

12.3. In the instant case, tax has been imposed not on the tea estate as G
a unit but on the activities on land inasmuch as growing of tea would be such
activity which having regard to the provisio.ns of the Tea Act squarely falls
within the purview of Entry 52, List I. Imposition of cess calculated on value
of coal, tea etc. is beyond the legislative competence of the State.
1796-C-D; 798-A) H
600 SUPREME COURT REPORTS (2004) 1 S.C.R.

A 12.4. If a tea estate is taken to be a unit and green tea leaves are taken
as the measure of tax on land comprising the tea estate, the levy of cess can
never be uniform and will have no nexus with the land as the land used for
factory, workshop and the houses for persons employed in the tea estate have
no contribution to the production of tea leaves which have nexus only with
B the land where tea plants are grown which produce green tea leaves. Apart
from this, in a tea estate, there are fallow land, nursery and other areas apart
from the factory, workshop, and house where cultivation of tea bushes or plant
are not possible. By use of the so-called measure of production of tea leaves,
such lands would remain outside the levy of cess. Nexus between the levy and
the measure of the levy is lost in the present case. The impugned levy is a tax
C only on production of tea leaves and hence beyond the competence of the State.
1785-H; 786-A-B; 787-A-Bl

District Council of the Jowai Autonomous Dist/. v. Dwet Singh Rymbi,
119861 4 sec 38, referred to.
D 12.5. Measure of tax by way of levy of cess must also have a direct nexus
with the point of taxation. In the instant case, tax is levied on green tea leaves
which is produced out of an activity on land and which has no bearing with
the tax on land as a unit. Thus, the point at which such tax is levied may also
provide for a relevant factor for the purpose of judging the legislative
E competence of the State. [788-E-FI

Diamond Sugar Mills Ltd. and Anr. v. The State of VIiar Pradesh and
Anr., 1196113 SCR 242, relied on.

Goodyear India ltd v. State of Hmyana, AIR (1990) SC 781 119901
p 2 sec 71, referred to.

12.6. In "Goodricke Group" the Court assumed that 'green tea leaves'
was not marketable and proceeded on the basis that 'green tea leaves' has
no nexus with the control over production of tea. If it is held that 'green tea
leaves' is a raw material for production of tea or use thereof is necessary for
G processing it, the same would be a marketable commodity. 1776-AI
As 'green tea leaves' is marketable, the decision in Goodricke group
having mainly been rendered on the premise that 'green tea leaves' was not
marketable must be held to have passed sub-silentio and, thus, does not lay
down correct legal position. 1806-F-GI
H
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.) 60\

Goodricke Group ltd and Ors. v. State of West Bengal and Ors., 11995) A
Supp. I SCC 707, overruled.

Kunnathat Thathunni Moopil Nair etc. v. St(Jle of Kgrala and Anr.,
11961 I 3 SCR 77, referred to.

CIVIL APPELLATE.JURISDICTION: Civil Appeal Nos. 1532-1533 B
of 1993.

From the Judgment and Order dated 25.11.92 of the Calcutta High
Court in A.No. Nil of 1992 Arising out of Matter No, 1224/91 and A.No. Nil
of 1992.
WITH c
C.A. Nos. 3518-3519, 5149-54/92, 2350/93, 7614/94, 298, 299, 297/
2004, W.P. (C) Nos. 262, 515, 641, 642/97, 347, 360199,50, 553/2000, 207,
288, 3891200 I, 81/2003, 247, 412/95, C.A. Nos, 5027, 6643-6650, 68941
2000, l 077 of 200 I.

Mukul Rohtagi, Additional Solicitor General, Rakesh Dwivedi, B. Sen, D
Bhaskar P Gupta, Dipankar P. Gupta, A.K. Ganguli, M.N, Krishnamani, R.
Venkatarmani, Dr. Debi Pal, V.R. Reddy, K.K. Saha, Ms. Niranjana Singh,
Dayan Krishnan, Dilip Sinha, J.R. Das, S. Misra, G. Biswal, Abhishek
Chaudhary, Ms. Shruti Chaudhury, Ms. Sumita Goel, Suman J. Khaitan, D.
Manda!, Gaurab K. Banerjee, Ms. Sangeeta Manda!, Kapil Chaudhary, Ms. E
Swati Sinha, lndranil Ghosh, Arvind Verma, Ms. Jayasree Singh, Ms. Vineeta
Bharadwaj, Ms. Mamta Tiwari, Pramod Kumar, Arvind Kumar Gupta, G.S.
Chatterjee, P. Venugopal, P.S. Sudheer, K.J. John, Rana Mukherjtte,. Siddharth
Gautam, Goodwil lndeevar, Bijan Kumar Ghosh, Sushi! Kumar Jain, Prakash
Shrivastava Prateek Jalan, Ms. Ruby Singh Ahuja, Ms. Bina Gupta, S. Ravi
Shankar, S. Jayasinha, Arun, Ms. Rekha Pandey, A. Mariarputham, Ms. Neera F
Gupta, D.S. Mehra, Bijan Kumar Ghosh, Anip Sachthey, Ajit Kumar Sinha,
Raj Kumar Gupta, Sheo Kumar Gupta, A.N. Bardiyar, Ms. Anil Katiyar, T.C.
Sharma, Ms. Neelam Sharma, Ajay Sharma, H.K. Puri, S.K. Puri, Ujjwal
Banerjee, Ms. Anindita Gupta, U.A. Rana, Ms. Anuradha Priyadarshini,
Shreekant N. Terdol, B.V. Balaram Das, Ajay K. Agrawal, Ms. Atka Agrawal, G
Gaurav Jain, Ms. Abha Jain for the appearing parties.

The Judgments of the Court were delivered by

• _.. R.C. LAHOTI, J. This batch of matters, s~me appeals by special leave
under Article 136 of the Constitution and some writ petitions filed in this
Court, raise a few questions of constitutional significance centering around H
).

602 SUPREME COURT REPORTS [2004] I S.C'.R.

A Entries 52, 54 and 97 in List I and Entries 23, 49, 50 and 66 in List II of the
Seventh Schedule to the Constitution of India as also the extent and purport
of the residuary power of legislation vested in the Union of India. Cesses on
coal bearing land, levied in exercise of the power conferred by State
Legislation, have been struck down by a Division Bench of the Calcutta High
Court. In exercise of the same power conferred by State legislation whereunder
B cesses were levied on coal bearing land, cesses have also been levied on tea
plantation land which are the subject-matter of writ petitions filed in this
Court. The Bengal Brickfield Owners' Association have also come up to this
... .,..
Court by filing a writ petition under Article 32 of the Constitution, laying
challenge to the same cesses levied on the removal of brick earth. These three
c sets of matters arise from West Bengal. The High Court of Allahabad has
upheld the constitutional validity of cess levied in the State of U.P. on minor
minerals which decisions are the subject-matter of civil appeals filed under
Article 136 of the Constitution. For the sake of convenience, we would call
these matters, respectively as (A) 'Coal Matters', (B) 'Tea Matters', (C)
'Brick Earth Matters', and (D) 'Minor Mineral Matters'. Inasmuch as the
D basic constitutional questions arising for decision in all these matters are the
same, all the matters have been heard analogously.
.. ~

We would first set out the facts in brief and so far as relevant for
appreciating the issues arising for decision and thereafter deal with the same.

E (A) Col Matters

A Division Bench of the Calcutta High Court has, vide its judgment
dated 25.11.92 reported as Kesoram Industries Ltd (Textiles Division) v.
Coal India Ltd, AIR (1993) Calcutta 78, struck down certain levies by way
F of cess on coal as unconstitutional for want of legislative competence in the
State Legislature. Feeling aggrieved, the State of West Bengal has come up
in appeal by special leave.

The levies which are the subject matter of challenge are as under:

The Cess Act, 1880
G
"S.5 All immovable property to be liable to a road cess and
public works cess. From and after the. commencement of this Act in
any district or part of a district, all immovable property situate therein
except as otherwise in (Section 2) provided, shall be liable to the
H payment of a road cess and a public works cess."
STATE v. KESORAM INDUSTRIES LTD. (R.C. LAHOTI, J.] 603

"S.6 Cesses how to be assessed The road cess and the public A
works cess
[shall be assessed -

(a) in respect of lands on the annua,I Y!\lue thereof,
(b) in respect of all mines and quarries, on the annual dispatches B
therefrom, and,
(c) in respect of tramways, railways and other immovable
property, on the annual net profit thereof, ascertaineQ respectively
as in this Act prescribed.]
and the rates at which such cesses respectively shall be levied
c
for each year shall be determined for such ye11r in the manner in
this Act prescribed:
Provided that -
(I) the rates of such road cess and public works cess shall not D
exceed six paise and twenty-five paise respectively on each rupee
of such annual value,
(2) the rates of each of such. roacl cess and public works cess
shall not exceed-
(i) fifty paise on each tonne of coal, minerals or sand of such E
annual dispatches, and
(ii) six paise on each rupel,l of such annual net profits,
Explanation. For the purposes of this proviso, one tonne of
coke shall be counted as one and a quarter tonne of coal." F
2. West Bengal Primary Education Act, 1973
"78. Education cess.-{I) All immovable properties on which
road and public works cesses are assessed, [or all such properties
which are liable to such assessment] according to the provisions
of the Cess Act, 1880, shall be liable to the payment of education G
cess.
(2) The rate of the education cess shall be determined by the
state Government by notification and shall not exceed -
(a) [in respect of lands, other than a tea estate] ten paise on H
604 SUPREME COURT REPORTS [2004] I S.C.R.

A each rupee of the annual value thereof;
(aa) xxx xxx xxx
(b) in respect of coal mines [five per centum of the value of
coal] on the dispatches therefrom;
B (c) in respect of quarries and mines other than coal mines, [one
rupee on each tonne of materials or minerals other than coal on
the annual dispatches therefrom)
...
Explanation-For the purpose of clause (b) the expression 'value
of coal' shall mean-
c (i) in the case of dispatches of coal as a result of sale thereof,
the prices charged by the owner of a coal mine for such coal, but
excluding any sum separately charged as tax, cess, duty, fee or
royalty for payment of such sum to Government to a local body,
or any other sum as may be prescribed or
D (ii) in the case of dispatches other than those referred to in item
(i), the prices chargeable by the owner of a coal mine for such ).
coal if they were dispatched as a result of sale thereof, but ...
excluding any sum separately chargeable as tax, cess, duty, fee or
- royalty for payment of such sum to Government or a local body
E or any other sum as may be prescribed:
Provided that if more than one price is chargeable for the same
variety of coal, the maximum price chargeable for that variety of
coal shall be taken as the basis of valuation for the purpose of this
item."
F 3. West Bengal Rural Employment and Production Act, 1976.
"S.4. Rural employment cess. (I) On and from the
commencement of this Act, all immovable properties on which
road and public work cesses [are assessed or liable to be assessed)
according to the provisions of the Cess Act, 1880, shall be liable
G to the payment of rural employment cess;
Provided that on raiyat who is exempted from paying revenue
in respect of his holding under clause (a) of sub-sec.(I) of S.23B
of the West Bengal Land Reforms Act, 1955 shall be liable to pay

H
rural employment cess. "'
~ I

STATE v. KESORAM INDUSTRIES LTD. (R.C. LAHOTI, J.] 605
(2) The rural employment cess shall be levied annually - A
(a) [in respect of lands, other than a tea estate,] at the rate of
six paise on each rupee of development value thereof;
(aa) xxx xxx xxx
(b) in respect of coal mines, at the rate of [thirty-five paise per B
centum] on each tonne of coal on the xxx dispatches therefrom;
(c) in respect of mines other than coal mines and quarries, [at
the rate of fifty paise on each tonne of materials other than coal
on the annual dispatches therefrom]
Exp/anation.-For the purpose of clause (b) the expression C
'value of coal' shall mean. -
(i) in the case of dispatches of coal as a result of sale thereof,
the prices charged by the owner of a coal mine for such coal but
excluding any sum separately charged as tax, cess, duty, fee or
royalty for payment of such sum to Government or a local body, D
or any other sum as may be prescribed, or

-· (ii) in the case of dispatches, other than those referred to in
item (i), the prices chargeable by the owner of a coal mine for
such coal if they were dispatched as a result of sale thereof, but
excluding any sum separately chargeable as tax, cess, duty, fee or E
royalty for payment of such sum to Government or a local body,
or any other sum as may be prescribed:
Provided that if more than one price is chargeable for the same
variety of coal, the maximum price chargeable for that variety of
coal shall be taken as the basis of valuation for the purpose of this p
item."
All the three legislations above-referred to are State enactments. The
provisions of the West Bengal Primary Education Act, 1973 and the West
Bengal Rural Employ1mnt and Production Act, 1976, which levied cess were
amended by the West Bengal Taxation Laws (Amendment) Act, 1992 with G
effect from 1-4-1992. The text of the said Amendment Act is as follows:
"West Bengal Act II of 1992
THE WEST BENGAL TAXATION LAWS
.>
(AMENDMENT) ACT, 1992.
[Passed by the West Bengal Legislature J H
606 SUPREME COURT REPORTS [2004] I S.C.R.

A [Assent of the Governor was first published
in the Calcutta Gazette, Extraordinary, of the 27th
March, 1992.]
An Act to amend the West Bengal Primary

B
Education Act, 1973 and the West Bengal Rural
Employment and Production Act, 1976.
-
WHERAS it is expedient to amend the West Bengal Primary
Education Act, 1973 and the West Bengal Rural Employment and
Production Act, 1976, for the purposes and in the manner hereinafter
appearing:
c
It is hereby enacted in the Forty-third Year of the Republic of
India, by the Legislature of West Bengal, as follows:-

!. (I) This Act may be called the West Bengal Taxation Laws
(Amendment) Act, 1992.
D
(2) It shall come into force on the I st day of April, 1992.

(Section 2.)

2. In the West Bengal Primary Education Act, 1973, -

E (1) in section 78 for sub-section (2), the following sub-section
shall be substituted:-

'(2) The education cess shall be levied annually_
(a) in respect of land, except when a cess is leviable and payable
under clause (b) or clause (c) of sub-section (2A), at the rate of
F ten paise on each rupee of annual value thereof as assessed under
the Cess Act, 1880;
(b) in respect of a coal-bearing land, at the rate of five per centum
of the annual value of the coal-bearing land as defined in clause
(I) of Section 2 of the West Bengal Rural Employment and
G Production Act, 1976;
(c) in respect of a mineral-bearing land (other than coal-bearing
land) or quarry, at the rate of one rupee on each tonne of minerals
(other than coal) or materials despatched within the meaning of
clause (I b) of Section 2 of the West Bengal Rural Employment
H
-('
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 607

and Production Act, 1976, from such mineral bearing land or A
quarry;
Provided that when in the coal-bearing land referred to in clause
(b) there is no production of coal for more than two consecutive
years, such land shall be liable for levy of cess in respect of any
year immediately succeeding the said two consecutive years in B
accordance with clause (a):
Provided further that where no despatch of minerals or materials
is made during a period of more than two consecutive years from
the mineral-bearing land or quarry as referred to in clause (c),
such land or quarry shall be liable for levy of cess in respect of c
any year immediately succeeding the said two consecutive years
in accordance with clause (a).
Explana(ion.-For the purposes of this chapter, 'coal-bearing land'
shall have the same meaning as in clause (la) of Section 2 of the
West Bengal Rural Employment and Production Act, 1976.'. D
(2) in section 78A, -

(a) for clause (a), the following clause shall be substituted:-

"(a) the education cess payable for a year under sub-section
(I) of section 78 in respect of coal-bearing land referred to E
in clause (b) of sub-section (2) of that section shall be paid
by the owner of such coal-bearing land in such manner, at
such intervals and by such dates as may be prescribed;";
(b) for clause (b ), the following clause shall be substituted:-

- ..... "(b) every owner of a coal-bearing land shall furnish a
declaration relating to a year showing the amount of education
cess payable by him under clause (a) iri such form and by
F

such date as may be prescribed and to such authority as may
be notified by the State Government in this behalf in the
Official Gazette (hereinafter referred to as the notified G
,. authority);";
,...;.. (c) in clause (c),_

(i) for the words "coal mine", wherever they occur, the words
"coal-bearing land" shall be substituted; H
608 SUPREME COURT REPORTS [2004] I S.C.R.

A (ii) for the word "return", wherever it occurs, the word
"declaration" shall be substituted;

(iii) for the word "period", wherever it occurs, the word
"year" shall be substituted;

B (d) for clause (d), the following clause shall be substituted:-
"(d) the education cess under clause (b) of sub-section (2)
of section 78 shall be assessed by the notified authority in
the manner prescribed, and if the declaration under clause
(b) is not accepted, the owner of the coal-bearing land shall
C be given a reasonable opportunity of being heard before
making such assessment;";
(e) in clause (g), for the words "coal mine" in the two places where
they occur, the words "coal-bearing land" shall be substituted;
(t) for clause (ga), the following clause shall be substituted:-
D
"(ga) where an owner of a coal-bearing land furnishes a
declaration referred to in clause (b) in respect of any year by
the prescribed date or thereafter, but fails to make full
payment of education cess payable in respect of such period
by such date, as may be prescribed under clause (a), he shall
E pay a simple interest at the rate of two per centum for each
English calendar month of default in payment under clause
(a) from the first day of such month next following the
prescribed date up to the month preceding the month of full
payment of such cess or up to the month prior to the month
F of assessment under clause (d) in respect of such period,
whichever is earlier, upon so much of the amount of education
cess payable by him according to clause (a) as remains unpaid ..
at the end of each such month of default;"
(g) for clause (gb), the following clause shall be substituted:-
G "(gb) where an owner of a coal-bearing land fails to furnish
a declaration referred to in clause (b) in respect of any year
by the prescribed date or thereafter before the assessment
under clause (d) in respect of such year and, on such
assessment, full amount of education cess l'ayable for such
H year is found not to have been paid in the manner and by the
-(

STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.) 609
date prescribed under clause (a), he shall pay a simple interest A
at the rate of two per centum for each English calendar
month of default in payment under clause (a) from the first
day of the month next following the prescribed date for such
payment up to the month preceding the month offu II payment
of education cess under clause (a) or up to the month prior
to the month of such assessment under clause (d), whichever B
is earlier, upon so much of the amount of education cess
payable by him according to clause (a) as remains unpaid at
the end of each such month of default:

Provided that where the education cess payable under
clause (a) is not paid in the manner prescribed under that c
clause by the owner of a coal-bearing land, the notified
authority shall, while making the assessment under clause
(d) in respect of a year, apportion on the basis of such
assessment the education cess payable in accordance with
clause (a);"; D
(h) in clause (gc), for the words "coal mine'', the words "coal-
bearing land" shall be substituted;
(i) in clause (ge), for the words "coal mine", the words "coal-
bearing land" shall be substituted;
E
(j) for clause (gf), the following clause shall be substituted:-

"(gf) interest under clause (ga) or clause (gb) shall be payable
in respect of payment of education cess which falls due on
any day after the 30th day of April, 1992, and interest under
clause (gc) shall be payable in respect of assessment for F
which notices of demand of education cess under clause (d)
are issued on or after the date of commencement of the West
Bengal Taxation Laws (Amendment) Act, 1992:

Provided that interest under clause (ga) or clause (gb) in
respect of any period ended on or before the 31st day of G
March, 1992, or interest under clause (gc) in respect of
assessment, for which notices of demand of education cess
r ), under clause ( d) are issued before the date of commencement
of the West Bengal Taxation Laws (Amendment) Act, 1992,
shall continue to be payable in accordance with the provisions
of this Act as they stood immediately before the coming into H
610 SUPREME COURT REPORTS (2004] I S.C.R.

A force of the aforesaid Act as if the aforesaid Act had not
come into force;";
.,
(k) in clause (gh), for the words "coal mine", the words "coal-
bearing land" shall be substituted;

B (I) in clause (gi), for the words "coal mine", the words "coal-
bearing land" shall be substituted;
(m) in clause (gj), for the words "coal mine", the words "coal-
bearing land" shall be substituted;
"3. In the West Bengal Rural Employment and Production Act, 1976,-
c ( 1) in Section 2, _
(a) for clause ( 1), the following clauses shall be substituted -
(I) "annual value of coal-bearing land", in relation to a financial
year, means one-half of the value of coal, produced from such coal-
D bearing land during the two years immediately preceding that financial
year, the value of coal being that as could have been fetched by the
entire production of coal during the said two immediately preceding
years, had the owner of such coal-bearing land sold such coal at the
price or prices excluding the amount of tax, cess, fee, duty, royalty,
crushing charge, washing charge, transport charge or any other amount
E
as may be prescribed, that prevailed on the date immediately preceding
the first day of that financial year.

Explanation.-Where different prices are prevailing on the date
immediately preceding the first date of that financial year for different
F grades or qualities of coal, the value of coal of each grade or quality
produced during the two years immediately preceding that financial
year shall be determined accordingly;
(Ia) "coal-bearing land" means holding or holdings ofland having
one or more seams of coal comprising the area of a coal mine;
G (lb) 'despatched', for a financial year, shall, in relation to a
mineral-bearing land (other than coal-bearing land) or a quarry, mean
one-half the quantity of minerals, or minerals, despatched during two
years immediately preceding that financial year from such mineral-
bearing land or quarry;
H
--'' '
STA TE: v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.) 611

-. (le) 'development value' means a sum equivalent to five times
the annual value of land as assessed under the Cess Act, I 880; ';

(b) after clause (3 ), the following clause shall be added and shall
A

be deemed always to have been added:-

'{4) 'year' means a financial year as defined in clause (15) of B
Section 3 of the Bengal General Clauses Act, 1899;';

(2) in section 4, for sub-section (2), the following sub-section
shall be substituted:-

"(2) The rural employment cess shall be levied annually_
c
(a) in respect of land, except when a cess is leviable and
payable under clause (b) or clause (c) or sub-section (2A),
at the rate of six paise on each rupee of development value
thereof;

(b) in respect of a coal-bearing land, at the rate of thirty-five D
per centum of the annual value of coal-bearing land as defined
in clause (I) of Section 2;

(c) in respect of a mineral-bearing land (other than coal-
bearing land) or quarry, at the rate of fifty paise on each
tonne of minerals (other than coal) or materials despatched E
therefrom:

(g) for clause (gb ), the following clause shall be substituted:-

"(gb) where an owner of a coal-bearing land fails to furnish
a declaration referred to in clause (b) in respect of any year F
-"" by the prescribed date or thereafter before the assessment
'
under clause (d) in respect of such year and, on such
assessment, full amount of rural. employment cess payable
for such year is found not to have been paid in the manner
and by the date prescribed under clause (a), he shall pay a
G
simple interest at the rate of two per centum for each English
calendar month of default in payment under clause (a) from
\ the first day of the month next following the prescribed date
.,.., "'
for such payment up to the month preceding the month of
full payment of rural employment cess under clause (a) or
up to the month prior to the month of such assessment under H
612 SUPREME COURT REPORTS [2004] .1 S.C.R.

A clause (d), whichever is earlier, upon so much of the amount
of rural employment cess payable by him according to clause
(a) as remains unpaid at the end of each such month of
default:

Provided that where the rural employment cess payable
B under clause (a) is not paid in the manner prescribed under
that clause by the owner of a coal-bearing land, the notified
authority shall, while making the assessment under clause
(d) in respect of a year, apportion on the basis of such
assessment the rural employment cess payable in accordance
c with clause (a);";

(h} in clause (gc), for the words "coal mine", the words "coal-
bearing land" shall be substituted;

(i) in clause (ge), for the words "coal mine", the words "coal-
bearing land" shall be substituted;
D
G) for clause (gt), the following clause shall be substituted:-

"(gf) interest under clause (ga) or clause (gb) shall be payable
in respect of payment of rural employment cess which falls
due on any day after the 30th day of April, 1992, and interest
E under clause (gc) shall be payable in respect of assessments
for which notices of demand of rural employment cess under
clause (d) are issued on or after the date of commencement
of the West Bengal Taxation Laws (Amendment) Act, 1992:

Provided that interest under clause (ga) or clause (gb) in
F respect of any period ended on or before the 31st day of
March, 1992, or interest under clause (gc) in respect of
assessments for which notices of demand of rural employment
cess under clause ( d) are issued before the date of
commencement of the West Bengal Taxation Laws
(Amendment) AC!, 1992, shall continue to be payable in
G accordance with the provisions of this Act as they stood
before the coming into force of the said Act as if the said
Act had not come into force;";

(k) in clause (gh), for the words "coal mine'', the words "coal-
'.
bearing land" shall be substituted;
H
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTl,J.] 613

(1) in clause (gi), for the words "coal mine", the words "coal-bearing A
land" shall be substituted;

(m) in clause (gj), for the words "coal mine", the words "coal-bearing
land" shall be substituted;
By order of the Governor
R.BHATTACHARYYA, B
Secy. to the Govt. of West Bengal."
It is the constitutional validity of the amendment in the two legislations,
given effect to from I .4.92, which was successfully impugned in the High
Court and is sought to be restored in these appeals.

The High Court has placed reliance mainly on two decisions of this
c
Court, namely India Cement ltd. and Ors. v. State of Tamil Nadu and Ors.,
(1990] I SCC 12 (Seven-Judges Bench decision) and Orissa Cement Ltd v.
State of Orissa and Ors., (1991] Supp. I SCC 430 (Three-Judges Bench
decision). In both these decisions the levy of cess impugned therein was
struck down as unconstitutional. The High Court of Calcutta has held that the D
levy impugned herein is similar to the one held ultra vires the legislative
competence of the State twice by the Supreme Court, and hence the same
was liable to be struck down.

In the opinion of the High Court, the cess is assessed and computed on E
the basis of value of coal produced from the coal bearing land, and coal
bearing land has been defined to mean land having one or more seams of
coal comprising the area of a coal mine. Therefore, it is the production of
coal from a coal mine which is the basic event for the levies and the cess is
to be levied at 35 per centum of the 'annual value of the coal bearing land',
which, as per definition, is directly related to the value of coal produced from F
.....;' the coal mines. The value of the coal has been related to the price. Explanation
to Clause (I) of Section (2) of the 1976 Act, as amended by the 1992 Act,
makes the real nature of the levy clearer by providing that where different
prices are prevailing on the relevant date for different grades or qualities of
coal, the value of coal of each grade or quality shall be refevant. The High
Court has concluded that the cess cannot be said to be on land so as to be G
covered by Entry 49 in List II. On behalf of the writ petitioner -respondents,
the judgment of the High Court has been supported on similar grounds as
were successfully urged before the High Court and which we shall presently
Geal with. On the other hand, the learned counsel for the appellant-State of
West Bengal has submitted that having regard to the real nature of the levy, H
614 SUPREME COURT REPORTS (2004) I S.C.R.

A it clearly falls within the legislative field of Entry 49 in List II. •.

(B) Tea matters

The writ petitions in which the validity of the levy of cesses relatable
to tea estates is involved has an interesting legislative history behind it. By
B virtue of the West Bengal Taxation Laws (Amendment) Act, 1981,
amendments were effected in the provisions of the West Bengal Primary
Education Act, 1973, and the West Bengal Rural Employment And Production -.I

Act, 1976. Cesses were sought to be levied upon certain lands and buildings
in the State for raising funds for the purpose of providing primary education
throughout the State and to provide for employment in rural areas. Different
c rates in respect of lands, coal mines and other mines on annual basis were ·-
provided. Tea estates were carved out as a separate category and a separate
rate was prescribed therefor as under.

"Section 4(2) : The rural employment cess shall be levied annually -
D (a) in respect of lands, other than a tea estate, at the rate of six paise
on each rupee of development value thereof; .
(aa) in respect of a tea estate at such rate, not exceeding rupees six •
on each kilogram of tea on the despatches from such tea estate of tea
grown therein, as the State Government may, by notification in the
E
Official Gazette, fix in this behalf :

Provided that in calculating the despatches of tea for the purpose
of levy of rural employment cess, such despatches for sale made at
such tea auction centers as may be recognized by the State Government
F by notification in the Official Gazette shall be excluded:

Provided further that the State Government, may fix different
rates on despatches of different classes of tea.

Explanation-For the purpose of this section, 'tea' means the
plant Camelia Sinensis (L) 0. Kuntze as well as all varities of the
G
product known commercially as tea made from the leaves of the plant
Camelia Sinensis (L) 0. Kuntze, including green tea and green tea
leaves, processed or unprocessed." ... '
Sub-section (4) was introduced in Section 4 which empowered the State
H Government to exempt "such categories of dispatches or such percentage of
l
STA TE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI. J.] 615
dispatches from the liability to pay the whole or any part of the rural A
employment cess or reduce the rate ..... " By another amendment effected in
1982, the first proviso to clause (aa) in Section 4(2) was omitted. Several
notifications were issued by the Government from time to time as contemplated
by Section 4(2).

The constitutional validity of the abovesaid amendment was challenged B
successfully in Buxa Dooars Tea Company ltd and Ors. v. State of West
Bengal and Ors., (1989] 3 SCC 21 I. The decision is by a Bench of two
learned Judges. The levy of cess having been struck down, the State became
liable to refund the cess already collected and the relevant schemes which
were financed by the cesses so collected came under jeopardy. The West C
Bengal Taxation Laws (Second Amendment) Act, 1989 was enacted, which
is under challenge herein.

Section 2 of the impugned Act contains amendments to West Bengal
Primary Education Act while Section 3 sets out the amendments to West
Bengal Rural Employment and Production Act, 1976. As mentioned D
hereinbefore, it would be enough to notice the gist of the amendments made
. in one of the two Acts of 1973 or 1976, since the amendments in both are
identical.

Clause (aa) in sub-section (2) of Section 4 was omitted with effect from
1.4.1981. After sub-section (2), sub-section (2-A) was introduced with E
retrospective effect from 1.4.1981. Sub-section (2-A) reads :

(2-A) The rural employment cess shall be levied annually on a
tea estate at the rate of twelve paise for each kilogram of green tea
leaves produced in such estate.
F
Explanation. - For the purposes of this sub-section, sub-section
(3) and Section 4-B-

(i) 'green tea leaves' shall mean the plucked and unprocessed
green leaves of the plant Camelia Sinensis (L) 0. Kuntze;
G
(ii) 'tea estate' shall mean any land used or intended to be used
for growing plant Camelia Sinensis (L) O.Kuntze and producing green
tea leaves from such plant, and shall include land comprised in a
factory or workshop for producing any variety of the product known
commercially as 'tea' made from the leaves of such plant and for
housing the persons employed in the tea estate and other lands for H
616 SUPREME COURT REPORTS [2004] I S.C.R.

A purposes ancillary to the growing of sucli plant and producing green
•
tea leaves from such plant."

Clause (a) in sub-section (3) was also substituted which had the effect
of making the owner of the tea estate liable for the said cess. The other
provisions require the owner of the tea estate to maintain a true and correct
B account of green tea leaves produced in the tea estate. Sub-section (4) was
also substituted. The substituted sub-section (4) empowered the State
Government to exempt from the cess such categories of tea estates producing
green tea leaves not exceeding two lakh fifty thousand kilograms and located
in such area as may be specified in such notification. Section 4-B contains
C the validation clause. It says that any cess collected for the period prior to the
said Amendment Act shall be deemed to have been validly levied by it and
collected under the Amended Act. Any assessment made or other proceedings
taken in that behalf for assessing and collecting the said tax were also to be
deemed to have been taken under the Amended Act.

D Goodricke Group ltd and Ors. filed a writ petition under Article 32 of
the Constitution of India in this Court. The levy of cesses under both the
State enactments as amended by the West Bengal Taxation Laws (Second
Amendment) Act, 1989 was impugned. A few matters raising a similar
challenge and pending in various High Courts were also withdrawn to this .
Court. All the matters were heard and decided by a three-Judges Bench of
E this Court, vide judgment dated November 25, 1994, reported as Goodricke
Group Ltd and Ors. v. State of West Bengal and Ors., [1995] Supp. I SCC
707. The decision of this Court in India Cement Ltd and Ors. v. State of
Tamil Nadu and Ors., [1990] I SCC 12 (seven-judges Bench) and Orissa
Cement limited v. State of Orissa and Ors., [1991] Suppl. I SCC 430 (three-
F judges Bench) were cited before the three-judges Bench in Goodricke. Both
the decisions were distinguished and the constitutional validity of the 1989
amendments was upheld. The writ petitions were dismissed.

It appears that a similar cess was levied by a pari materia provision
·enacted by the State Legislature of Orissa as the Orissa Rural Employment,
G Education and Production Act, 1982. The cess was on land bearing coal and
minerals. Challenge to the constitutional validity of such cess was successfully
laid before this Court, and the Orissa Legislation was struck down as
unconstitutional and ultra vires the competence of the State Legislature in
State of Orissa v. Mahanadi Coal Fields limited, [1995] Suppl. 2 SCC 686
H decided on April 21, 1995.
l.
STATE v. KESORAM INDUSTRIES LTD. (R.C. LAHOTI, J.] 617
On 30.3.1996 a writ petition under Article 32 of the Constitution of A
India has been filed in this Court laying challenge to the constitutional validity
of the very same amendments which were unsuccessfully impugned in the
Goodricke 's case.

The writ petitioners in the Tea Matters have in their petition state:! a
few grounds in support of the relief sought for. However, a perusal of the B
grounds reveals that in substance the challenges is only one, i.e., the decision
't in Goodricke runs counter to the view of the law taken by Seven-Judges
~ Bench in India Cement and three-Judges Bench in Orissa Cement; Goodricke
was rightly not followed in Mahanadi Coal Fields; rather Mahanadi Coal
Fields has whittled down the authority of Goodricke and that being the position
of law the impugned cess is ultra vires the power of the State Legislature and
c
deserves to be pronounced so. In short, the same challenge as was laid and
turned down in Goodricke, is reiterated drawing support from the decisions
of this Court previous and subsequent to Goodricke, and seeks the overruling
of Goodricke.
D
,, (C) Brick-Earth Matters
" The Bengal Brickfield Owners' Association, being a representative body
" of the persons engaged in the activity of brick manufacturing and owning
brickfields as also one of the brickfield owners, have joined in filing a writ
petition before this Court wherein the constitutional validity of the very same E
provisions as contained in the Cess Act, 1880, the West Bengal Primary
Education Act, 1973 and the West Bengal Rural Employment and Production
Act, 1976 ( both as amended by the West Bengal Taxation Laws Amendment
Act, 1992) has been put in issue, as has been subjected to challenge by the
coal mine owners and the tea estate owners disputing the levy of cess allegedly
F
on coal and tea. The grounds of challenge, briefly stated, are three in number:
~
firstly, that brick-earth is a minor mineral to which the Mines and Minerals
Development and Regulation Act, 1957, applies and by virtue of the declaration
made by Section 2 of the Act by reference to Entry 54 in List I of the Seventh
Schedule to the Constitution, the field relating to such minor minerals is
entirely covered by the Central Legislation and hence the State Legislations G
are not competent to levy the impugned cess; secondly, that the levy is on
the dispatch of minor minerals for sale while the process of manufacturing
..... bricks does not involve any dispatch of the brick-earth inasmuch as the brick-
earth is consumed then and there, on the brickfield itself, in the process of
manufacturing of bricks, and there being no dispatch of brick-earth, the cess
H
618 SUPREME COURT REPORTS (2004) I S.C.R.

A is not leviable; and thirdly, that the State Government is not empowered to
levy any cess on either the extraction of brick-earth or on the dispatch of
brick-earth. In support of these three grounds, it is further submitted that the
same quantity of brick-earth is subjected by Central Legislation to payment
of royalty which is a tax, and the same quantity of brick-earth is sought to
be levied with cess which is incompetent so far as the State Legislature is
B concerned. The writ petition places reliance on the decisions of this Court in
India Cement ltd. and Ors., (supra), Orissa Cement Ltd., (supra) and Buxa
Dooars Tea Company ltd. and Ors. (supra). Some of the members of the
petitioner association were served with demand notices. The relief sought for
in the petition is striking down of the relevant provisions of the three State
C Legislations as ultra vires the Constitution and quashing of the demand notices.
The reason for filing the petition in this Court, as stated in the writ petition,
is that the provisions sought to be impugned herein have already been declared
ultra vires by the High Court of Calcutta in relation to 'tea', an appeal
against which decision has been filed in this Court and by an interim order
the operation of the judgment of the High Court was stayed.
D
According to the respondents, the cess sought to be levied by the
impugned State Legislation is in the nature of fee and not tax. The purpose
of levying fee, as stated in the Preamble to the relevant legislation, is rendering
different services to the society and for public benefit. The cesses have been
E levied by the State Government for securing of welfare to the people by the
State as is enshrined in Part IV of the Constitution of India by providing
communication facilities, removal of illiteracy and rural employment to the
poor living below the poverty line. The impugned legislations levying the
cess, do not encroach upon the field covered by the Central legislation. The
brick-klin owners extract the brick-earth as an item of trade. From every I 00
F cft of brick-earth which weighs 5 metric tones, 1382 bricks are manufactured.
The dispatch of 1382 bricks means the dispatch of JOO cft or 5 metric tones
of brick-earth. A brickfield owner performs dual functions: firstly, he extracts
a quantum of brick-earth from the quarry, and secondly, he dispatches the
same for manufacture of bricks in the same quarry~field. The brickfield owner
G is an extractor of brick-earth and also a manufacturer of bricks. The element
of dispatch is kept hidden. That is why the cess is now assessed on annual
dispatches. Dispatch, in the context of brick-earth, means removal of brick-
earth from one place to another which may be within the same complex and
for domestic or captive use or consumption. In any case, the removal of
brick-earth involved in the process cannot escape assessment.
H
I
Ji.

STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI. J.] 619
(0) Minor Mineral Matters A
This batch of appeals puts in issue the judgment dated 1.3.2000 delivered
by a Division Bench of the Allahabad High Court (reported as Ram Dhani
Singh v. Collector, Sonbhadra and Ors., AIR (2001) Allahabad 5, upholding
the constitutional validity of a cess on mineral rights levied under Section 35
of the U.P. Special Area Development Authorities Act, 1986, read with Rule B
3 of the Shakti Nagar Special Area Development Authority (Cess on Mineral
Rights) Rules, 1997 (herein referred to briefly as 'SADA Act' and 'SADA
Cess Rules' respectively). There was a bunch of 73 writ petitions filed in the
High Court which have all been dismissed. The challenge is being pursued
in this Court by ten writ petitioners through these appeals by special leave. C
The Governor of Uttar Pradesh promulgated U.P. Ordinance No.15 of
1985, which was repealed by U.P. Special Area Development Authorities
Act, 1986 (U.P. Act No.9 of 1986), containing identical provisions as were
contained in the preceding Ordinance. The said Act received the assent of the
President of India on 19.3.1986 and was published in U.P. Gazette of that D
day. Section 35 of the Act provides as under :

"35. Cess on mineral rights.-
(I) Subject to any limitations imposed by Parliament by law relating
to mineral development, the Authority may impose a cess on E
mineral rights at such rate as may be prescribed.
(2) Any Cess imposed under this section shall be subject to
confirmation by the Sta.le Government and shall be leviable with
effect from such date as may be appointed by the State Government
in this behalf."
F
On 24.2.1997, in exercise of the power conferred by Section 35 of the
Act, the Governor made the Shakti Nagar Special Area Development Authority
(Cess on Mineral Rights) Rules, 1997, which were published on the same day
in the U.P. Gazette and came into force. Rule 2(b) and Rule 3(1) and (2),
relevant for our purpose, are extracted and reproduced hereunder : G
"2. In these rules, unless there is anything repugnant in the subject or
context -
(a) xxx xxx xxx
(b) "Mineral Rights" means rights conferred on a lessee under a H
1
620 SUPREME COURT REPORTS [2004] I S.C.R.

A mining lease granted or renewed for mining operations in relation
to Minerals (providing operation for raising, winning or extracting
coal) as defined in the Mines and Minerals (Regulation and
Development) Act, 1957 (Act No.67 of 1957)".
"3. (I) The Authority may, subject to sub-rules (2) and (3) impose a
B cess on mineral rights on such minerals and minor minerals and
at such rates are specified below :

MINERAL/MINOR MINIMUM MAXIMUM
,,,
MINERAL RATE" RATE ~

(I ) Cess on Coal Rs.5.00 Rs.10.00
c (per ton) (per ton).
(2) Cess on Stone,
Coarse Sind/Sand Rs.2.00 Rs.5.00
(Per Cubic metre) (Per Cubic metre)

(2) The rates shall not be less than the minimum rates or more than
D
the maximum rates specified in sub-rule (I) and shall be detennined
by the Authority by a special resolution which shall be subject to
confirmation by the State Government.''

In exercise of the power conferred by the Act and the Rules, the State
E Government proceeded to levy cess and take steps for recovery thereof by
serving notices and issuing citations on the several stone crushers (which the
appellants are), who extract stone as mineral and convert the same into metal
by a process of crushing. They filed the writ petitions disputing the levy and
the demand by the State Government.

F On behalf of the writ-petitioners, the SADA Cess Rules as also the
legislative competence of the State Legislature to enact Section 35 of the
SADA Act were challenged on the ground that the MMDR Act, 1957, having
been enacted containing a declaration under Section 2 as contemplated by
Entry 54 of List-I and the Act being applicable to Sonbhadra falling within
the State of U.P. as well, the State Legislature was denuded of its power to
G enact the impugned law and levy the impugned cess. It was also submitted
that the impugned cess would have the effect of adding to the royalty already
being paid and thereby increasing the same, which was 11/tra vires the power
of the State Government as that power was exercisable only by the Central
Government.
H
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 621

The High Court has held the SADA Act, the SADA Cess Rules and the A
levy of cess thereunder within the competence of State Legislature by reference
to Entry 5 in List II.

Reference to Constitution Bench

Since the appeals referable to coal matters and the writ petition referable B
to tea matters raised common issues, the cases were taken up for hearing
together. On 12.10.1999, the conflict amongst several decisions of this Court
was brought to the notice of the three-judges Bench hearing the matter which
passed the following order :

"Great emphasis has been placed by learned counsel for the State of C
West Bengal upon the judgment of a Bench of three learned Judges
in Goodricke Group Ltd. and Ors. v. State of West Bengal and Ors.,
[1995] Suppl. I SCC 707. Quite apart from the fact that there are
pending proceedings in this Court seeking to reconcile the judgment
in Goodricke with that in State of Orissa and Ors. v. Mahanadi D
Coalfields Ltd and Ors., [1995] Suppl. 2 SCC 686, we find some
difficulty in accepting as correct the view taken by Goodricke,
particularly having regard to the earlier decision (of a Bench of two
learned Judges) in Buxa Dooars Tea Co. Ltd. v. State of West Bengal,
[1989) 3 SCC 211. We think, therefore, that these matters should be
heard by a Constitution bench. E
The papers and proceedings may, accordingly, be placed before
·the Hon'ble Chief Justice for appropriate directions."

The brick-earth matters were also clubbed with the abovesaid matters
for hearing. F
The impugned judgment of the High Court of Allahabad in Minor
Mineral Matters has placed reliance on the decision of this Court in Goodricke
Group Ltd and Ors. v. State of West Bengal and Ors., [1995] Supp. I SCC
707. The correctness of the said decision was in issue ih Civil Appeal Nos.
1532-33 of 1993 and batch matters and hence these appeals were also directed G
to be placed before the Constitution Bench for hearing.

Th is is how the four sets of matters have been listed before and heard
by the Constitution Bench.

H
622 SUPREME COURT REPORTS [2004) I S.C.R.

A Relevant Entries and principles of interpretation
Before we proceed to examine the merits of the submissions and counter
submissions made on behalf the pa11ics, it will be useful to recapitulate and
summarise a few principles relevant for interpreting entries classified and
grouped into the three Lists of the Seventh Schedule of the Constitution. The
B law is legion on the point and the principles which are being briefly stated
hereinafter are more than settled. These principles are referred to in the
several decisions which we shall be referring to hereinafter. So far as the
principles are concerned they have been followed invariably in all the
decisions, however diverse results have followed based on facts of individual
C cases and manner of application of such principles to the facts of those cases.
The relevant entries to which reference would be required to be made
during the course of this judgment are extracted and reproduced herein:-
"SEVENTH SCHEDULE
(Article 246)
D List I - Union List
52. Industries, the control of which by the Union is declared by
Parliament by law to be expedient in the public interest.
54. Regulation of mines and mineral development to the extent to
E which such regulation and development under the control of the
Union is declared by Parliament by law to be expedient in the
public interest.
96. Fees in respect of any of the matters in this List, but not including
fees taken in any court.
F 97. Any other matter not enumerated in List II or List III including
any tax not mentioned in either of those Lists.
List II-State List
23. Regulation of mines and mineral development subject to the
provisions of List I with respect to regulation and development
G
under the control of the Union.
49. Taxes on lands and buildings.
50. Taxes on mineral rights subject to any limitations imposed by a~
Parliament by law relating to mineral development.
H
l

STA TE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI. J.) 623
66. Fees in respect of any of the matter in this List, but not including A
fees taken in any court."

Article 245 of the Constitution is the fountain source of legislative
... power. It provides - subject to the provisions of this Constitution, Parliament
may make laws for the whole or any part of the territory of India, and the
Legislature of a State may make laws for the whole or any part of the State. B
The legislative field between the Parliament and the Legislature of any State
is divided by Article 246 of the Constitution. Parliament has exclusive power
to make laws with respect to any of the matters enumerated in List I in
Seventh Schedule, called the 'Union List'. Subject to the said power of the
Parliament, the Legislature of any State has power to make laws with respect C
to any of the matters enumerated in List III, called the 'Concurrent List'.
Subject to the abovesaid two, the Legislature of any State has exclusive
power to make laws with respect to any of the matters enumerated in List II,
called the 'State List'. Under Article 248 the exclusive power of Parliament
to make laws extends to any matter not enumerated in the Concurrent List or
State List. The power of making any law imposing a tax not mentioned in the D
Concurrent List or State List vests in Parliament. This is what is called the
residuary power vesting in Parliament. The principles have been succinctly
summarized and restated by a Bench of three learned Judges of this Court on
a review of the available decisions in Mis. Hoechst Pharmaceuticals ltd. and
Ors. v. State of Bihar and Ors., [1983] 4 SCC 45, they' are - E
(I) the various entries in the three Lists are not 'powers' oflegislation
but 'fields' of legislation. The Constitution effects a complete
separation of the taxing power of the Union and of the States
under Article 246. There is no overlapping anywhere in the taxing

- power and the Constitution gives independent sources of taxation
to the Union and the States.

(2) In spite of the fields of legisfation having been demarcated, the
question of repugnancy between law made by Parliament and a
law made by the State Legislature may arise on Iy in cases when
F

both the legislations occupy the same field with respect to one of G
the matters enumerated in the Concurrent List and a direct conflict
is seen. If there is a repugnancy due to overlapping found between
List JI on the one hand and List I and List III on the other, the
State law will be ultra vires and shall have to give way to the
Union law.
H
1
624 SUPREME COURT REPORTS [2004] I S.C.R.

A (3) Taxation is considered to be a distinct matter for purposes of
legislative competence. There is a distinction made between general
subjects of legislation and taxation. The general subjects of
legislation are dealt with in one group of entries and power of
taxation in a separate group. The power to tax cannot be deduced
from a general legislative entry as an ancillary power.
B
(4) The entries in the List being merely topics or fields of legislation,
they must receive a liberal construction inspired by a broad and -¥
generous spirit and not in a narrow pedantic sense. The words ..,.
and expressions employed in drafting the entries must be given
the widest possible interpretation. This is because, to quote V.
c Ramaswami, J., the allocation of the subjects to the lists is not by
way of scientific or logical definition but by way of a mere simplex
enumeratio of broad categories. A power to legislate as to the
principal mat/er specifically mentioned in the entry shall a/so
include within its expanse the legislations touching incidental
D and ancillary mailers.

(5) Where tl1e legislative competence of a Legislature of any State is
questioned on the ground that it encroaches upon the legislative •
competence of Parliament to enact a Jaw, the question one has to
ask is whether the legislation relates to any of the entries in Lists •
E I or III. If it does, no further question need be asked and
Parliament's legislative competence must be upheld. Where there
are three Lists containing a large number of entries, there is bound
to be some overlapping among them. In such a situation the
doctrine of pith and substance has to be applied to determine as
to which entry does a given piece of legislation relate. Once it is
F
so determined, any incidental trenching on the field reserved to
the other Legislature is of no consequence. The Court has to look '-
at the substance of the matter. The doctrine of pith and substance ""
is sometimes expressed in terms of ascertaining the true character
of legislation. The name given by the Legislature to the legislation
......
J is immaterial. Regard must be had to the enactment as a whole,
to its main objects and to the scope and effect of its provisions.
Incidental and superficial encroachments are to be disregarded.
(6) The doctrine of occupied field applies only when there is a clash ;t. •

between the Union and the State Lists within an area common to
-I both. There the doctrine of pith and substance is to be applied
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTLJ.] 625
and if the impugned legislation substantially falls within the power A
expressly conferred upon the Legislature which enacted it, an
incidental encroaching in the field assigned to another Legislature
is to be ignored. While reading the three Lists, List I has priority
over Lists III and II, and List III has priority over List II. However,
still, the predominance of the Union list would not prevent the
State legislature from dealing with any matter within list II though B
it may incidentally affect any item in Lisi I.

(emphasis supplied)

Tax Legislation
c
The abovestated are general principles. Legislations in the field of
taxation and economic activities need special consideration and are to be
viewed with larger flexibility in approach. Observations of the Constitution
Bench in R.K. Garg v. Union of India and Ors., [1981] 4 SCC 676, are
apposite, wherein this Court has emphasized a greater latitude - like play in D
the joints-being allowed to the Legislature because it has to deal with complex
problems which do not admit of solution through any doctrinaire or straitjacket
formula. In this field the Court should feel more inclined to give judicial
deference to legislative judgment. Their Lordships qu~ted with approval the
following statement of Frankfurter, J. in Morey v. Doud, (1957) 354 US
457:- E
"In the utilities, tax and economic regulation cases, there are
good reasons for judicial self-restraint if not judicial deference to
legislative judgment. The legislature after all has the affirmative
responsibility. The Courts have only the power to destroy, not to
reconstruct. When these are added to the complexity of economic F
regulation, the uncertainty, the liability to error, the bewildering
conflict of the experts, and the number of times the judges have been
overruled by events, self-limitation can be seen to be the path to
judicial wisdom and institutional prestige and stability".

Their Lordships further observed that the Courts ought to adopt a pragmatic G
approach in solving problems rather than measuring the propositions by
abstract symmetry. The exact wisdom and nice adaptations of remedies may
not be possible. Even crudities and inequities have to be accommodated in
complicated tax and economic legislations.
H
626 SUPREME COURT REPORTS (2004] I S.C.R ..

A We now proceed to enter a deeper dimension in the field of tax legislation
by considering the problem of devising the measure of taxation. This aspect
has been dealt with in detail in' Union of India and Ors. v. Bombay Tyre
International Ltd., [ 1983) 4 SCC 210. Tracing the principles from the leading
authority of Re.: a reference under the Government of Ireland Act 1920 and
Section 3 of the Finance Act (Northern Ireland) 1934, (1936) A.C. 352,
B passing through Rafla Ram v. Province ofEast Punjab, (1948) FCR 207, and
treading through the law as it has developed through judicial pronouncements
one after the other, this Court has made subtle observations therein. It has
long been recognized that the measure employed for asse.ssing a tax must not
be confused with the nature of the tax. A tax has two elements: first, the
C person, thing or activity on which the tax is imposed, and secondly, the
amount of tax. The amount may be measured in many ways; but a distinction
between the subject matter of a tax and the standard by which the amount of
tax is measured must not be lost sight of. These are described respectively as
the subject of a tax and the measure of a tax. It is true that the standard
adopted as a measure of the levy may be indicative of the nature of the tax,
D but it does not necessarily determine it. The nature of the mechanism by
which the tax is to be assessed is not decisive of the essential characteristic
of the particular tax charged, though it may throw light on the general character
of the tax.

E Here we may refer to certain illustrative cases of well settled authority-
the authority which has not been shaken so far and has rather withstood the
test of time.

Taxation - measure of levy not suggestive of nature of tax - illustrative
cases
F In Ra/la Ram (supra) the Federal Court held that a tax on buildings
under Section 3 of the Punjab Urban Immovable Property Tax Act, 1940,
measured by a percentage of the annual value of such building, remained a
tax on buildings even though the measure of annual value of a building was
also adopted as a standard for determining income from property under the
G Income Tax Act. The same standard was adopted as a measure for the two
levies, yet the levies remained separate imposts by virtue of their distinctive
nature. The measure adopted, it was held, could not be identified with the
nature of the tax levied .

. In Mis. Sainik Motors, Jodhpur v. State of Rajasthan, [1962] I SCR
H
I
-+

STATE v_ KESORAM INDUSTRIES LTD. [R.C. LAHOTI, .1.) 627
): A. 517, a tax on passengers and goods was assessed as a rate on the fares and A
freights payable by the owners of the motor vehicles. The contention that the
levy was a tax upon income and not upon passengers and goods was repelled
by this Court. The Court pointed out that though the measure of the tax is
furnished by the fares and freights it does not cease to be a tax on passengers
and goods.
B
In D.G. Gouse and Co. v. State of Kerala, [1980] 2 SCC 410, the Court
.,. examined the different modes available to the Legislature for measuring the
~
levy of tax on buildings. The Court upheld the provision made by the
Legislature linking the levy with the annual value of the building and
prescribing a unifom1ed fonnula for determining its capital value and for
calculating the tax.
c
In The Hingir-Rampur Coal Co. ltd. v. State of Orissa, [1961] 2 SCR
537, the form in which the levy was imposed was held to be an impermissible
test for defining in itself the character of the levy. It was argued that the
method of determining the rate of levy was by reference to the minerals D
produced by the min es and, therefore, it was levy in the nature of a duty of
'c
\. excise. This Court held that the method thus adopted may be relevant in
considering the character of the impost but its effect must be weighed alongwith
" and in the light of the other relevant circumstances. Referring to Bombay
Tyre International ltd (supra), the Court further held that it is clear that
when enacting a measure to serve as a standard for assessing the levy, the E
Legislature need not contour it along lines whi~h spell out the character of
.
the levy itself. A broader based standard of reference is permissible to be
adopted for the purpose of determining the measure of the levy. Any standard
which maintains a nexus with the essential character of the levy can be
regarded as a valid basis for assessing the measure of the levy. F
~
,;
Meaning of 'Lands '-as used in Entry 49 in List ll

The word 'land'-as used in Entry 49 in List II, came up for the
consideration of this Court in Anant Mills v. State of Gujarat, [1975] 2 SCC
175. It was held that the word 'land' cannot be assigned a narrow meaning G
so as to confine it to the surface of the earth. It includes all strata above or
below. In other words, the word 'land' includes not only the surface of the
. "'- earth but everything under or over it, and has in its legal significance an
indefinite extent upward and downward. The four-Judges' Bench upheld the
~ validity of the law levying tax in respect of area occupied by underground
H
628 SUPREME COURT REPORTS [2004] I S.C.R.

A Jines by reference to Entry 49 in List II, holding it to be a tax on land only. _).._

Ample authority is available for the concept that under Entry 49 in List
II the land remains a land without regard to the use to which it is being
subjected. It is open for the Legislature to ignore the nature of the user and
tax the land. At the same time it is also permissible to identify, for the
B purpose of classification, the land by reference to its user. While taxing the
land it is open for the Legislature to consider the land which produces a
particular growth or is useful for a particular utility and to classify it separately -(

and tax the same. Different pieces of land identically situated otherwise, but
~
being subjected to different uses, or having different potential, are capable of
c being classified separately without incurring the wrath of Article 14 of the
Constitution. The Constitution Bench in Kzmnathat Thathunni Moopi/ Nair
etc. v. State of Kera/a and Anr., (1961] 3 SCR 77, held that the land on
which a forest stands is not to be excluded necessarily from Entry 49. The
erstwhile Entry 19 of List II applied to 'forest'. Their Lordships held that the
use of the word 'forest' in Entry 19 could not be pressed into service to cut
D down the plain meaning of the word 'land' in Entry 49. It was permissible
to tax the land on which a forest stands by reference to Entry 49. In Ajay
Kumar Mukherjee v. Local Board of Barpeta, (1965] 3 SCR 47, the appellant, ...
a land holder, held a halt (or market) on his land. The Local Board asked the
~
appellant to take out a licence and pay Rs. 600, later Rs. 700, by way of
licence fee for holding the market. It was urged that the impost was
E
unconstitutional, inter a/ia, on the ground that the tax was actually imposed
on the market, which infringed Article 14 of the Constitution, and also because
the State Legislature had no legislative competence to tax a market. The
Local Board relied on E~try 49 in List II. The appellant urged that Entries
45 to 63 which deal with taxes do not contemplate a tax on markets. Repelling
F the plea, the Constitution Bench held that the tax was on the land though the
charges arise only when the land is used for a market. The tax remained a '·
tax on land in spite of the imposition being dependant upon the user of the "-'
land as a market. The tax was an annual tax as contrasted to a tax for each
day on which the market was held. The owner or occupier of the land was
responsible for payment of tax on an annual basis. The amount of tax depended
G upon the are;f of the land on which the market was held and the importance
of the market. Thus, the tax was held to be a tax on land, though the incidence
depended upon the use of the land as a market.
-"'•
In Vivian Joseph Ferreira and Anr. v. The Municipal Corporation of
H Greater Bombay and Ors., (1972] I SCC 70, the tax was confined to the \.
I
~

STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, .I.] 629

residential tenanted buildings. The classification was held to be valid. In The A
Government of Andhra Pradesh and Anr. v. Hindustan Machine Tools ltd.,
(1975] 2 SCC 274, house tax was levied on the buildings. The new definition
of 'house' included 'a factory'. However, the house tax was levied only on
the building occupied by the factory and not on the machinery and furniture.
The State Legislature claimed competence to do so under Entry 49, List II. B
The power to tax a building, exercisable without reference to the use to
which the building is put, was held to be valid. In the opinion of the Court,
it was irrelevant t~at the building was occupied by a factory which could not
conduct its activities without the machinery and furniture.

Once it is held that the land or building is available to be taxed, it does C
not matter to what use the land is being subjected though the nature of the
user may enable land of one particular user being classified separately from
the land being subjected to another kind of user. The tax would remain a tax
on land. It cannot be urged that what is being taxed is not the land but the
nature of its user. So also it is permissible to adopt myriad forms and methods
·of valuation for the purpose of quantifying the tax. D
In Ra/la Ram v. The Province of East Punjabu-(1948) FCR 207, the
Federal Court made it clear that every effort should be made as far as possible
to reconcile the seeming conflict between the provisions of the Provincial
Legislation and the Federal Legislation. Unless the court forms an opinion
that. the extent of the alleged invasion by a Provincial Legislature into the E
field of the Federal Legislature is so great as would justify the view that in
pith and substance the impugned tax is a tax wit,hin the domain of the Federal
Legislature, the levy of tax would not be liable to be struck down. The test
laid down in Sir Byramjee Jeejeebhoy's case AIR (1940) Born 65 by the Full
Bench of the Bombay High Court was approved. F
In Assistant Commissioner of Urban Land Tax Madras and Ors. etc. v.
Buckingham and Carnatic Co. Ltd. etc., [1969] 2 SCC 55, for the purpose of
attracting the applicability of Entry 49 in List II, so as to cover the impugned
levy of tax on lands and buildings, the Constitution Bench laid down twin
tests, namely, (i) that such tax is directly imposed on lands and buildings, and G
(ii) that it bears a definite relation to it. Once these tests were satisfied, it was
open for the State Legislature, for the purpose of levying tax, to adopt the
annual value or the capital value of the lands and buildings for determining
the incidence of tax. Merely, on account of such methodology having been
adopted, the State Legislature cannot be accused of having encroached upon H
630 SUPREME COURT REPORTS [2004) I S.C.R.

A Entries 86, 87 or 88 of List I. Entry 86 in List I proceeds on the Principle
of Aggregation and tax is imposed on the totality of the value of all the
assets. It is quite permissible to separate lands and buildings for the purpose
of taxation under Entry 49 in List II. There is no reason for restricting the
amplitude of the language used in the Entry 49 in List II. The levy of tax,
calculated at the rate of a certain per centum of the market value of the urban
B land was held to be intra vires the powers of the State Legislature and not
trenching upon Entry 86 in List I. So is the view taken by another Constitution
Bench in Shri Prithvi Collon Mills ltd., etc. v. Broach Borough Municipality •
and Ors., [1969] 2 SCC 283, where the submission that the levy was not a
rate on lands and buildings as appropriately understood, but rather a tax on
C capital value was discarded.

Mis. R.R. Engineering Co., etc. v. Zila Parishad, Bareilly and Anr. etc.
[ 1980] 3 sec 330, is a case of circumstance and properties tax levied on the
basis of income which the assessee receives from his profession, trade, calling
or property. The plea that the tax was a tax on income was discarded. The
D test propounded by the Constitution Bench is that an excessive levy on
circumstance may tend to blur the distinction between a tax on income and
a tax on circumstances. Income will then cease to be a measure or yardstick
of the tax and will become the very subject-matter of the tax. Restraint in this
behalf is a prudent prescription for the local authorities to follow. The "'·
E Constitution Bench observed that it was only a matter of convenience that
income was adopted as a yardstick or measure for assessing the tax and the
evolvement of such mechanism was not conclusive on the nature of tax.

We are inclined to make a reference to a few selected Full Bench
decisions of different High Courts which have been cited with approval before
p this Court in many of the decisions to which we are making reference during
the course of this judgment.

In Sir Byramjee Jeejeebhoy v. Province of Bombay and Ors., A.LR.
(1940) Bombay 65 (F.B.) the Provincial Government levied a tax at the rate
of 5% of the annual letting value in the City of Bombay on the buildings and
G lands. The buildings were classified by reference to their annual letting value,
and exception from payment of tax was also carved out in favour of such
buildings as remained vacant and unproductive of rent for the specified period.
It was urged that the impugned tax purported or desired to tax the value.
Placing reliance on the Federal Court's decision in 'In Re: C. P. Motor Spirit
H Act , 1939' (1939 FCR 18) Chief Justice Beaumont held that the impugned
·~.

STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, .I.] 631
tax was a tax on lands and buildings. Three submissions were made in support A
of the challenge: (i) that the tax is graded by reference to the annual value
of the property charged, (ii) that an allowance was available to be made in
respect of vacant properties, and (iii) that the basis of the tax was the same
as the basis on which tax on income from property was imposed by Sections
6 and 9 of Income Tax Act and, therefore in reality the rate was a tax on B
income. Beaumont, C.J. held that regard must be had to the pith and substance
of the impugned tax and not merely to the form. All the items in the Provincial
List must be so construed as to exclude taxes on income. The tax is charged
on lands and buildings and it is based on the estimated rent which the property
would fetch. Such a value may bear very little relation to the actual income
of the property. It is imposed without any relation to the capital value except C
insofar as such value can be ascertained by reference to the rateable value.
It did not make any difference if the arbitrary basis which was adopted for
the purpose of the rate might as well be applied for ascertaining the capital
value as for ascertaining income. The fact that some concession is allowed
to the small owner, a concession which may be based as much on political D
as on economic considerations and that an allowance may be made where the
property is shown to produce no income, a fact which may be taken to show
that the estimated value was found to be erroneous, cannot alter the nature
of the tax. The concept that in case of conflict between the Federal List and
Provincial List, an entry in the Federal List may be given a more restricted
meaning, was endorsed. The legality of the levy was upheld. E
In District Board of Farrukhabad v. Prag Dutt and Ors., AIR (1948)
Allahabad 382 (F.B.), a tax on 'circumstances and property' was under
challenge. It was urged that it was· a tax on income. Chief Justice Malik held
that the fundamental difference between the tax on 'income' and a tax on
'circumstances and property' is that income tax can only be. levied if there F
is income and if there is no income, no tax is payable. But in the case of
'circumstances and property' tax, where a man's status has to be determined,
his total business turnover may be considered for purposes of taxation, though
he may not have earned any taxable income.
G
The State of Punjab v. The Union of India through the Secrtary to
Government Finance Department, Government of India, New Delhi. AIR
(I 97 I) Punjab and Haryana I 55 (F.B.), is a Five-Judges Bench decision
•· ll delivered by Chief Justice Harbans Singh. Conflict was noticed between List
I, Entry 86 and List II, Entry 49. Dealing with the scope of Entry 49 in List
II, it was held that it empowers the State Legislatures to directly tax lands and H
632 SUPREME COURT REPORTS [2004] I S.C.R.

A buildings, and for determining the basis of the tax the State Legislature may
take either the area, annual rental value, market value or the capital value of
the land as a basis for calculating and quantifying the tax on land. Merely
because tax was calculated on the basis of annual rental value, it will not turn
it into a tax on income, and if it is based on capital value, it will not turn it
B into a tax on capital value.

Yet another angle, which the Constitutional Courts would advisedly do
better to keep in view while dealing with a tax legislation, in the light of the
purported conflict between the powers of the Union and the State to legislate,
which was stated forcefully and which was logically based on an analytical
C examination of the constitutional scheme by Jeevan Reddy, J. in SR. Bomai
and Ors. v. Union ofIndia, [1994] 3 SCC I, may be touched. Our Constitution
has a federal structure. Several provisions of the Constitution unmistakably
show that the Founding Fathers intended to create a strong centre. The
historical background relevant at the time of the framing of the Constitution
warranted a strong centre naturally and necessarily. This bias of the framers
D towards the centre is found reflected in the distribution of legislative heads
between the Centre and the States. More important heads of legislation are
placed in List I. In the Concurrent List the parliamentary enactment is given
primacy, irrespective of the fact whether such enactment is earlier or later in
point of time to a State enactment on the same subject matter. The residuary
E power to legislate is with the Centre. By the Forty-second Amendment a rew
of the entries in List II were omitted or transferred to the other Lists. Articles
249 to 252 further demonstrate the primacy of Parliament, allowing it liberty
to encroach on the field meant exclusively for the State legislature though
subject to certain conditions being satisfied. In the matter of finances, the
F States appear to have been placed in a less favourable position. True, the
Centre has been given more powers but the same is accompanied by certain
additional responsibilities as well. The Constitution is an organic living
document. Its outlook and expression as perceived and expressed by the
interpreters of the Constitution must be dynamic and keep pace with the
changing times. Though the basics and fundamentals of the Constitution
G remain unalterable, the interpretation of the flexible provisions of the
Constitution can be accompanied by dynamism and lean, in case of conflict,
in favour of the weaker or the one who is more needy. Several taxes are
collected by the Centre and allocation of revenue is made to States from time
to time. The Centre consuming the lion's share of revenue has attracted good
H amount of criticism at the hands of the States and financial exp.erts. The
interpretation of Entries can afford to strike a balance, or at least try to
STATE v. KESORAM INDUSTRIES LTD. [\l.C. LAHOTI, J.) 633
;..._ remove imbalance, so far as it can. Any conscious whittling down of the A
powers of the State can be guarded against by the Cour(s. "Let it be said that
the federalism in the Indian Constitution is not a matter of administrative
convenience, but one of principle - the outcome of our own historical process
and a recognition of the ground realities." Quoting from M.C. Setalvad,
Tagore Law Lectures "Union and State relations under the Indian
Constitution" (Eastern Law House, Calcutta, ] 974), Jeevan Reddy, J. B
observed-"!! is enough to note that our Constitution has certainly a bias
\. towards the Centre vis-a-vis the States.It is equally necessary to emphasise
-;: -that Courts should be careful not to upset the delicately-crafted constitutional
scheme by a process of interpretation."

The Conflict-a cautious evaluation of "India Cement"
c
We will now refer to and deal with those cases which have led to the
three learned Judges of this Court, placing the matter for consideration by a
Constitution Bench. We would refer to the cases mentioned in the order of
reference and also to those cases which were heavily relied upon on behalf D
of the respondents, disputing the validity of the impugned tax. Immediately,
... we take up India Cement .

..( In India Cement ltd. and Ors. v. State of Tamil Nadu and Ors., [1990]
I SCC 12, what was impugned was a levy of cess on royalty and the question
was, whether such cess on royalty is within the competence of the State E
Legislature. The appellant was required to pay, by the Madras Panchayats
Act, 1958, local cess at the rate of 45 paise per rupee of the royalty already
being paid. The question formulated by the Court, as arising for decision was
: is cess on royalty a demand of land revenue or additional royalty? The
Court found that the royalty was payable by the appellant as prescribed under
F
the lease deed. The rates of the royalty were fixed under the Mines and
y Minerals (Development and Regulation) Act, 1957, which is a Central Act,
passed under Entry 54 in List I, by which the control of mines and minerals
has been taken over by the Central Government. The State Legislature sought
to justify and sustain the levy by reference to Entry 49, 50 or 45 in List IL
Cess is a tax and is generally used when the levy is for some special G
administrative expense, suggested by the name of the cess, such as health
cess, education cess, road cess etc. This is a well-settled position of law. The
...... levy WC!s so11ght to be justified under Entry 45 in List II by including it within
the me!lning of l!lnd revenue, and in the alternative under Entry 49 in List II
as tax on lands. The challenge to the constitutional validity of the levy was
H
)

634 SUPREME COURT REPORTS (2004] I S.C.R.

A upheld. We would briefly state the reasoning which prevailed with the learned
Judges.

G.L. Oza, J. delivered a separate concurring opm1on. The ma1onty
opinion expressed through Sabyasachi Mukharji, J. (as his Lordship then
was), first clarified the distinction between 'royalty' and 'land revenue'. 'Land
B revenue' is connotative of the share in the produce of land which the king
or the Government is entitled to receive. 'Royalty' is a charge payable on the
extraction of minerals from the land. A cess on royalty cannot, therefore, be
called additional land revenue and as such the State was disabled from
imposing tax on royalty. There is a clear distinction between 'tax directly on
C land' and 'tax on income arising from land'. Royalty is indirectly connected
with land and a cess on royalty cannot be called a tax directly on land as a
unit. The levy could also not be sustained under Entry 50 in List II which
deals with taxes on mineral rights subject to limitation imposed by Parliament
relating to mineral development. Assuming that the tax in pith and substance
fell to Entry 50 in List II, it would be controlled by a legislation under Entry
D 54 in List I.

A Division Bench decision of Mysore High Court in Mis. Laxminarayana
Mining Co., Bangalore and Anr. v. Taluk Development Board and Anr., AIR
( 1972) Mysore 299 was cited with approval in India Cement. The Mysore
High Court struck down as violative of MMDR Act, 1957 a licence fee on
E mining manganese or iron ore etc. imposed by a State Legislation. A perusal
of the judgment of the Mysore High Court shows that the impost was by way
of licence fee on the mining of certain minerals. Regulation and development
of mines and minerals was undertaken by the Central Legislation and therefore
the power of the State Legislature under Entries 23 and 52 in List-II got
p denuded in the field of regulation and development covered by the Central
Legislation. The Division Bench vide para 6 held "it is therefore clear that
to the extent the Central Act makes provision regarding the regulation and
development of minerals, the powers of the State Legislatures under Entry 23
of List II stand curtailed". The State Government had sought to defend the
licence fee on the ground that it was in the nature of a tax and not a licence
G fee. This plea has been specifically noted by the High Court and dealt with.
However, what is significant to note is the revelation, made by careful reading
of the judgment, that provision for licence fee was made in the Central
Legislation and licence fee was sought to be imposed by the State too. In ,. ,
fact, the licence fee was a step trenching upon the field of regulation and
H therefore was liable to be struck down on this ground alone. Yet, another
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 635
reasoning which prevailed with the Higli Court was that Section 143 of the A
State Act, which was not inconsistent with the Central Act, was reli11d on by
the State Government as conferring power on it to levy the impugned licence
fee. On that plea the High Court formed an opinion that. on the framing of
Section 143 of the State Act it did not in express terms authorize a levy of
fee or tax. The High Court observed - "It (Section 143) cannot also be
construed as conferring such a power on the respondents to levy a tax or fee B
on mining, in view of the well-settled and statutory construction that a Court
construing a provision of law must presume that the intention of the authority
in making it was not to exceed its power but to enact it validly". The ratio
of the decision of the Mysore High Court is that provision for licenses and
license fees, operating in the field of regulation of mines and minerals is not C
available to be made by State legislation - in view of the declaration in terms
of Entry 54 in List I.

In our view, the decision by Mysore High Court cannot be read so
widely as laying down the law that Union's power to regulate and control
results in depriving the States of their power to levy tax or fee within their D
legislative competence without trenching upon the field of regulation and
control. There is a distinction between power to regulate and control and
power to tax, the two being distinct and that difference has not been kept in
view by the Mysore High Court.

(A diversion from main issue) Royalty, if tax? E
We would like to avail this opportunity for pointing out an error,
attributable either to a stenographer's devil or to sheer inadvertence, having
crept into the majority judgment in India Cement Ltd. 's case (supra). The
error is apparent and only needs a careful reading to detect. We feel constrained F
t1 rather duty-bound - to say so, lest a reading of the judgment containing
such an error t1 just an error of one word - should continue to cause the likely
embarrassment and have adverse effect on the subsequent judicial
pronouncements which would follow India Cement Ltd 's case, feeling bound
and rightly, by the said judgment having the force of pronouncement by
seven- Judges Bench. Para 34 of the report reads as under : G
"In .the aforesaid view of the matter, we are of the opinion that
royalty is a tax, and as such a cess on royalty being a tax on royalty,
is beyond the competence of the State legislature because Section 9
of the Central Act covers the field and the State legislature is denuded
of its competence under Entry 23 of List II. In any event, we are of H
636 SUPREME COURT REPORTS r2004] I S.C.R.

A the opinion that cess on royalty cannot be sustained under Entry 49
of List ll as being a tax on land. Royalty on mineral rights is not a
lax on land but a payment for the user of land."

(underlining by us)

B In the first sentence the word 'royalty' occurring in the expression-
'royalty is a tax', is clearly an error. What the majority wished to say, and
has in fact said, is • 'cess on royalty is a tax'. The correct words to be printed
in the judgment should have been 'cess on royalty' in place of 'royalty' only.
The words 'cess on' appear to have been inadvertently or erroneously omitted ~
while typing the text of judgment. This is clear from reading the judgment
C in its entirety. Vide para 22 and 3 I, which precede para 34 above said, their
Lordships have held that 'royalty' is not a tax. Even the last line of para 34
records 'royalty on mineral rights is not a tax on land but a payment for the
user of land'. The very first sentence of the para records in quick
succession' ........ as such a cess on royalty being a tax on royalty, is beyond
D the competence of the State Legislature ..... .' What their Lordships have
intended to record is ' ..... that cess on royalty is a tax, and as such a cess on
royalty being a tax on royalty is beyond the competence of the State
Legislature .... .' That makes correct and sensible reading. A doubtful expression
occurring in a judgment, apparently by mistake or inadve11ence, ought to be
read by assuming that the Court had intended to say only that which is
E correct according to the settled position of law, and the apparent error should
be ignored, far from making any capital out of it, giving way to the correct
expression which ought to be implied or necessarily read in the context, also
having regard to what has been said a little before and a little after. No
learned Judge would consciously author a judgment which is self-inconsistent
F or incorporates passages repugnant to each other. Vide para 22, their Lordships
have clearly held that there is no entry in List ll which enables the State to
impose a tax on royalty and, therefore, the State was incompetent to impose
such a tax (cess). The cess which has an incidence of an additional charge
on royalty and not a tax on land, cannot apparently be justified as falling
under Entry 49 in List II.
G
It is of significance for the issue before us, to determine the nature of
royalty and whether it is a tax, and if not, then, what it is. Until the
pronouncement of this Court in India Cement (supra), it has been the uniform
and unanimous judicial opinion that royalty is not a tax.

H First we will refer to certain dictionaries oft-cited in courts of law.
I

~

STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.) 637

Words and Phrases, Permanent Edition, (Vol. 37A, page 597)- A
"Royalty" is the share of the produce reserved to owner for permitting
another to exploit and use property. The word "royalty" means
compensation paid to landlord by occupier of land for species of
occupation allowed by contract between them. "Royalty" is a share
of the product or profit (as of a mine, forest, etc.) reserved by the B
owner for permitting another to use his property."

Stroud's Judicial Dictionary of Words and Phrases (Sixth Edition,
2000, Vol. 3, page 2341) -

"the word "royalties" signifies, in mmmg leases, that part of the C
reddendum which is variable, and depends upon the quantity of minerals
gotten or the agreed payment to a patentee on every article made according
to the patent. Rights or privileges for which remuneration is payable in the
form of a royalty"

Words and Phrases, Legally Defined (Third Edition, 1990, Vol.4, page D
112) -

"A royalty, in the sense in which the word is used in connection with
mining leases, is a payment to the lessor proportionate to the amount
of the demised mineral worked within a specified period"
E
Wharton's Law Lexicon (Fourteenth Edition, page 893) -

"Royalty, payment to a patentee by agreement on every article made
according to his patent; or to an author by a publisher on every copy
of his book sold; or to the owner of minerals for the right of working
the same on every ton or other weight raised." F
Mozley and Whiteley's Law Dictionary (Eleventh Edition, 1993, page
243) -

"A pro rota payment to a grantor or lessor, on the working of the
property leased, or otherwise on the profits of the grant of lease. The G
word is especially used in reference to mines, patents and copyrights."

Prem's Judicial Dictionary (1992, Vol. 2, page 1458) -

"royalties are payments which the Government may demand for the
appropriation of minerals, timber or other property belonging to the H
638 SUPREME COURT REPORTS (2004) I S.C.R.

A Government. Two important features' of royalty have to be noticed,
they are, that the payment made for the privilege of removing the
articles is in proportion to the quantity removed, and the basis of the
payment is an agreement."

Black's law Dictionary (Seventh Edition, p.1330) -
B
"Royalty - A share of the product or profit from real property, reserved
by the grantor of a mineral lease, in exchange for the lessee's right
to mine or drill on the land.

Mineral Royalty : A right to a share of income from mineral
C production.,

In D.K. Trivedi and Sons. and Ors. v. State a/Gujarat and Ors., (1986]
Supp SCC 20, a Bench of two learned Judges of this Court dealt with "rent",
"royalty" and "dead rent" and held as follows. Rent is an integral part of
the concept of a lease. It is the consideration from the lessee to the lessor for
D the demise of the property to him. In a mining lease the consideration usually
moving from the lessee to the lessor is the rent of the area leased (often
called surface rent), dead rent and royalty. Since the mining lease confers
,,L
upon the lessee the right not merely to enjoy the property as under an ordinary
lease but also to extract minerals from the land and to appropriate them for >
his own use or benefit, in addition to the usual rent for the area demised, the
E lessee is required to pay a certain amount in respect of the minerals extracted
proportionate to the quantity so extracted. Such payment is called "royalty".
It may, however, be that the mine is not worked properly so as not to yield
enough return to the lessor in the shape of royalty. Jn order to ensure for the
lessor a regular income, regardless of whether the mine is worked or not, a
F fixed amount is provided to be paid to him by the lessee. This is called "dead
rent". "Dead rent" is calculated on the basis of the area leased while
"royalty" is calculated on the quantity of minerals extracted or removed. ~
.,_
Thus, while dead rent is a fixed return to the lessor, royalty is a return which
varies with the quantity of minerals extracted or removed. Since dead rent
and royalty are both a return to the lessor in respect of the area leased, looked
G at from one point of view dead rent can be described as the minimum

.-
guaranteed amount of royalty payable to the lessor but calculated on the basis
of the area leased, and not on the quantity of minerals extracted or removed.
Jn H.R.S. Murthy v. Collector of Chittor, (1964] 6 SCR 666, too the -"
Constitution Bench of this Court had defined Royalty to mean 'the payment
H made for the materials or minerals won from the land'.
STA TE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 639
The judicial opinion as prevailing amongst the High Courts 1nay be A
noti<ced. A Full Bench of the High Court of Orissa held in laxmi Narayan
Agarwal/a and Ors. v. State of Orissa and Ors., AIR (1983) Orissa 210,
'Royalty is the payment made for the minerals extracted; it is not tax'. In
.... Surajdin laxmanlal v. State of M.P., Nagpur and Ors., AIR (1960) M.P. 129,
a Division Bench of the High Court of Madhya Pradesh referred to the B
Wharton's Law Lexicon and Mozley and Whiteley's Law Dictionary and
said - "royalties are payments which the Government may demand for the
appropriation of minerals, timber or other property belonging to the
Government." The High Court opined that there are two important features
of royalty: (i) the payment is in proportion to the quantity removed; and (ii)
the basis of the payment is an agreement. c
Drawing a distinction between 'royalty' and 'tax', a Division Bench of
the High Court of Punjab and Haryana High Court held in Dr. Shanti Saroop
Sharma and Anr. v. State of Punjab and Ors., AIR ( 1969) Punjab and Haryana
79 as under -
D
"if a person is merely in occupation of land which contains minor
minerals, he is not liable to pay any royalty, but it is only when he
holds a mining lease and by virtue of that extracts one or more minor
minerals that he is called upon to pay royalty to the Government
where the lease is in respect of the land in which minor minerals vest
in the Government. Royalty thus has its basis in the contract. For E
payment to the owner of the minerals for the privilege of extracting
the minor minerals computed on the basis of the quantity actually
extracted and removed from the leased area. It is more akin to rent
or compensation payable to an owner by the occupier or lessee of

- land for its use or exploitation of the resources contained therein.
Merely because the provision with regard to royalty is made by virtue
of the rules relating to the regulation of the mining leases and a
uniform rate is prescribed, it does not follow that it is a compulsory
exaction in the nature of tax or impost."
F

A Division Bench of Gujarat High Court in Saurashtra Cement and G
Chemical Industries Ltd., Ranavav v. Union of India and Anr., AIR (I979)
Gujarat 180, emphatically said -

"royalty may not be a fee but it is not a tax. It is a payment for the
mineral which is removed or consumed by the holder of the mining
H
640 SUPREME COURT REPORTS [2004] I S.C.R.

A lease. The minerals themselves,-the property beneath the soil - belong
to the Union. When the holder of a mining lease removes these
minerals or consumes them, he can do so only on payment of its price
or value. Therefore, royalty is a share which the Union claims in the
minerals which have been won from the soil by the lessee and which
otherwise belong to it. Royalty is a share in such minerals and not a
B tax in the form of a compulsory exaction. It is not compulsmy because
anyone who applies for a mining lease to win minerals for being
removed or consumed must pay its price. If he does not want to pay
the price, he may not apply for a mining lease. Royalty which is a
share of the owner of the minerals - the Union - won by the lessee
c from the soil with the authority of the Union can never be said to be
an imposition on the holder of a mining lease.

We need not further multiply the authorities. Suffice it to say -that until
the pronouncement in India Cement, nobody doubted the correctness of
'royalty' not being a tax.
D
Such has been the position even subsequent to the pronouncement in
India Cement.
J.

In Jnderjeet Singh Sia/ and Anr. v. Karam Chand Thapar and Ors.-
[ I 995] 6 SCC I 66, a Bench of two learned judges held that -
E
"In its primary and natural sense 'royalty', in the legal world, is
known as the equivalent or translation of jura regalia or jura regia.
Royal rights and prerogatives of a sovereign are covered thereunder.
In its secondary sense the word 'royalty' would signify, as in mining
leases, that part of the reddendum, variable though, payable in cash
F or kind, for rights and privileges obtained. It is found in the clause
of the deed by which the grantor reserves something to himself out
of that which he grants. It may even be a clause reserving rent in a
lease, whereby the lessor reserves something for himself out of that
which he grants."
-
G In Ajit Singh v. Union of India and Ors., [I 995] Supp. 4 SCC 224,
another Bench of two learned Judges held that the grant of mining lease
involves grant of a privilege by the State. In both these decisions India
Cement's is not noticed.

In Quarry Owners' Association v. State of Bihar and Ors., [2000] 8
H
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 641

sec 655, a Bench of two learned Judges was faced with a submission, based A
on India Ceme~·t and subsequent decisions following it, that royalty is a tax.
The learned Judges found it difficult to accept the concept but tried to wriggle
out of the situation by observing -

"royalty Includes the price for the consideration of parting with the
right and P'rivilege of the owner, namely, the State Government who B
owns the mineral. In other words, the royalty/dead rent, which a
lessee or licensee pays, includes the price of the minerals which are
the property of the State. Both royalty and dead rent are integral parts
of a lease. Thus, it does not constitute usual tax as commonly
understood but includes return for the consideration for parting with C
its property.' '

In India Cement (vide para 31, SCC) decisions of four High Courts
holding 'Royalty is n•ot tax' have been noted without any adverse comment.
Rather, the view seems to have been noted with tacit approval. Earlier (vide
para 21, SCC) the con notative meaning of royalty being 'share in the produce D
of land' has been not.ed. But for the first sentence (in para 34, SCC) which
we find to be an apparent error, no where else has the majority judgment held
royalty to be a tax.

How the abovenoted inadvertent error in India Cement has resulted into E
throwing on the loop line the movement of later case law on this point may
be noticed. In State of MP. v. Mahalaxmi Fabric Mills ltd. and Ors., [1995]
Supp. 1 SCC 642 (decision by a Bench of three learned Judges) and Saurashtra
Cement and Chemicals Industries and Anr. etc. etc. v. Union of India and
Ors., [2001] 1 SCC 91 (decision by a Bench of two learned Judges) para 34
(from SCC) in India, Cement has been quoted verbatim and dealt with. In F
Mahalaxmi Fabric Mills ltd. and Ors. 's case (supra), the Court noticed several
dictionaries defining royalty and also the decisions of High Courts available
and stated that traditionally speaking royalty is an amount which is paid
under contract of lease by the lessee to the lessor, namely, the State
Governments concerned and it is commensurate with the quality of minerals G
extracted. But then (vide para 12), the Court felt bound by the view taken in
India Cement, reiterated in Orissa Cement, to hold that royalty is a tax. The
point that there was apparently a 'typographical error' in para 34 in India
Cement was specifically raised but was rejected. In Saurashtra Cement and
Chemicals Industries and Anr. (supra) too the Court felt itself bound by the
decision in Mahalaxmi Fabric Mills Ltd. and Ors., (supra), backed by India H
642 SUPREME COURT REPORTS ,,2004] I S.C.R.

A Cement, arid therefore held royalty to be tax.

We have clearly pointed out the said error, as we are fully convinced
in that regard and feel ourselves obliged constitutionally, leg,ally and morally
to do so, lest the said error should cause any further hann to the trend of
jurisprudential thought centering around the meaning of 'royalty'. We hold
B that royalty is not tax. Royalty is paid to the owner of land who may be a
private person and may not necessarily be State. A private person owning the
land is entitled to charge royalty but not tax. The lessor receives royalty as
his income and for the lessee the royalty paid is an e>(penditure incurred.
Royalty cannot be tax. We declare that even in India Cement it was not the
C finding of the Court that royalty is a tax. A statement c:aused by an apparent
typographical or inadvertent error in a judgment of the Court should not be
misunderstood as declaration of such law by the Courlt. We also record our
express dissent with that part of the judgment in Mahalaxmi Fabric Mills ltd
and Ors. which says (vide para 12 of SSC report) that there was no
D 'typographical e.rror' in India Cement and that the said c:onclusion that royalty
is a tax logically flew from the earlier paragraphs of the judgment.

Inter-relationship of list I Entry 54 and List II Entry 23

With the abovesaid reflection of ours on clarifying India Cement,
E clarification now we proceed to examine the inter-relatiionship of List I Entry
54 and List II Entry 23 which have been quoted and reproduced in the earlier
part of this judgment.

Conflict in Entries (in the three lists in Seventh Schedule)

F

-
The analysis of decided cases as made by eminent constitutional jurist
H.M. Seervai in his work on Constitutional Law of India (Fourth/Silver Jubilee
Edition, Vol.3) is apposite. Vide para 22. I 68, he states-" In Gov .-Gen. in .._.
Council v. Madras, (I 945) FCR I 79, the Privy Council laid down important
principles for interpreting apparently conflicting legislative entries in general,
and apparently conflicting_tax entries in particular. The Privy Council held,
G first, that though a tax in List I (e.g. a duty of excise) and a tax in List II (e.g.
a tax on the sale of goods) of the Government of India Act, 1935, may
overlap, in fact there would be no overlapping in law, if the taxes were
separate and distinct imposts; secondly, that the machinery of tax collection
did not affect the real nature of a tax. Another principle for reconciling
H apparently conflicting tax entries follows from the fact that a tax has two
I
-\._

STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 643
elements : the person, thing or activity on which the tax is imposed, and the A
amount of the tax. The amount may be measured in many ways; but decided
cases establish a clear distinction between the subject matter of a tax and the
standard by which the amount of tax is measured. These two elements are
'l
described as the subject of a tax and the measure of a tax. In D. G. Gouse v.
Kera/a, [I 980] 2 sec 410, which is considered later, the above passage was B
quoted with approval by the Supreme Court as stating precisely the two
elements involved in almost all tax cases, namely, the subject of a tax and
the measure of a tax."

It is necessary to examine the scheme underlying the Seventh Schedule
of the Constitution. We are relieved of the need of embarking upon any C
maiden voyage in this direction in view of the availability of a Constitution
Bench decision in M.P. v. Sundararamier and Co. v. The State of Andhra
Pradesh and Anr., [1958] SCR 1422. Venkatarama Aiyar, J., speaking for the
Constitution Bench, traced the history of legislations preceding the
Constitution, analysed the scheme underlying the division oflegislative powers D
between the Centre and the States and then succinctly summed up the
quintessence of the analysis. It was held, inter alia:

I. In List I, Entries I to 81 mention the several matters over which
Parliament has authority to legislate. Entries 82 to 92 enumerate the
taxes which could be imposed by a law of Parliament. An examination E
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.

2. In List ll, Entries I to 44 form one group mentioning the subjects
on which the States could legislate. Entries 45 to 63 in that List form F
another group, and they deal with taxes.

3. Taxation is not intended to be comprised in the main subject in
which it might on an extended construction be regarded as included,
but is treated as a distinct matter for purposes of legislative competence.
And this distinction is also manifest in the language of Art. 248, G
Cls.( I) and (2) and of Entry 97 in List I of the Constitution. Under
the scheme of the Entries in the Lists, taxation is regarded as a
distinct matter and is separately set out.

4. The entries in the Legislative Lists must be construed broadly and H
644 SUPREME COURT REPORTS [2004) I S.C.R.

A not narrowly or in a pedantic manner.

5. The entries in the two Lists - List I and II u must be construed, if
possible, so as to avoid conflict. Faced with a suggested co1ntlict
between entries in List I and List II, what has first to be decided is
whether there is any conflict. If there is none, the questi•Jn of
B application of the non-obstante clause 'subject to' does not arise.
And, if there be conflict, the correct approach to the question is. to see
whether it was possible to effect a reconciliation between tlhe two
Entries so as to avoid a conflict and overlapping.

Illustration
c
If it is possible to construe Entry 42 in List I as not incltuding tax
on inter-state sales it should be so construed and the power to levy
such tax must be held to be included in Entry 54 in List II (Entries
as they existed pre-Forty Second Amendment, 1976) (Sec: Governor
General in Council v. Province of Madras, AIR ( 1945) PC 98, and
D
Province of Madras v. Badder Paidenna and Sons, AIR (1942) FC
33.

6. In the event of a dispute arising it should be detennined by applying
the doctrine of pith and substance to find out whether between two
E Entries assigned to two different legislatures the particu far subject of
the legislation falls with in the ambit of the one or the other. Where
there is a clear and irreconcilable conflict of jurisdiction between the
Centre and a provincial legislature it is the law of the Centre that
must prevail.

F [underlining by us]

Referring to M.P. v. Sundararamier and Co., (supra) Sabyasachi
Mukharji, J. (as his Lordship then was) speaking for six out of the seven
Judges constituting the Bench in Synthetics and Chemicals Ltd. and Ors. v.
G State of U.P. and Ors., (1990] I SCC I 09 held that under the constitutional
scheme of division of powers in the Seventh Schedule, there are separate
entries pertaining to taxation and other laws. A tax cannot be levied under a
general entry.

The abovesaid principles continue to hold the field and have been
H followed in cases after cases.
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI • .1.) 645
General power of "Regulation and Control' does not include power of A
taxation

One thing, which too is well settled by a series of decisions is that the
power of "regulation and control". is separate and distinct from the power
of taxation. How this principle has been applied in myriad situations may be
illustratively noticed. B
The Constitution Bench in The Hingir-Rampur Coal Co. Ltd and Ors.
v. The State of Orissa and Ors. etc., [1961) 2 SCR 537, was faced with a
challenge·tothe constitutional validity of the Orissa Mining Areas Development
Fund Act, 1952. The petitioner-company was engaged in producing and selling C
coal excavated from its collieries at Rampur in the State of Orissa. The Act
and the Rules framed and the notification issued thereunder levied the payment
of cess on the petitioner's Rampur Colliery. The cause of action had arisen
to the petitioner therein on account of the communications made to the
company in March 1959 calling upon them to file monthly returns for the
assessment of the cess which was levied by issuance of a notification dated D
June 24, 1958.

The challenge to the constitutional validity of the levy imposed by the
impugned Act came to be examined by reference to Entry 54 in List I !·ead
with the Mines and Minerals (Regulation and Development) Act, 1948 (Act
No. 53 of 1948) as also by reference to Entry 52 in List I read with the E
Industries (Development and Regulation) Act, 1951 (Act No.65of1951). On
behalf of the State of Orissa, the levy was defended as a fee relatable to
Entries 23 and 66 in List II. The Constitution Bench entered into an enquiry
as to what is the primary object of the levy and the essential purpose which
it is intended to achieve. It was observed that its primary object and the F
essential purpose must be distinguished from its ultimate or incidental results
or consequences, as that is the true test in determining the character of the
levy. The submission that the impugned levy could be either duty of excise
or tax, was dismissed. The Constitution Bench held that the form in which
the levy is imposed and the extent of the levy, i.e., being too high, do not
alter the character of the levy from a fee into that of a duty of excise. The G
Constitution Bench laid down the features which would distinguish excise
fro111 a tax or fee and also the features which distinguish a tax from a fee
, ..._ though there is no generic difference in a tax and a fee, both being compulsory
exactions of money by public authorities.
-· H
I
/~

646 SUPREME COURT REPORTS (2004] I S.C.R.

A The scheme of the impugned Orissa 'Act was examined in-depth and
their Lordships found that the cess levied by the impugned Act was a fee.
The Act was passed for the purpose of the development of mining areas in
the State. Orissa is a poor State carrying in its womb a lot of mineral wealth
of great potential value, but the areas where its mineral wealth is located lack
B infrastructure which would enable the exploitation of minerals. The primary
and the principal object of the Act was to develop the mineral areas in the
State and to assist more efficient and extended exploitation of its mineral
wealth. The cess levied did not become a part of the consolidated fund and
was not subject to an appropriation in that behalf ; it went into the special
fund earmarked for carrying out the purpose of the Act and thus its existence
C established a correlation between the cess and the purpose for which it was
levied, satisfying the element of quid pro quo in the scheme. The scheme of
the Act showed that the cess was levied against the class of persons owning
mines in the notified area and to enable the State Government to render
specific services to the said class by developing the notified mineral area. Its
application was regulated by a statute and was confined to its purposes.
D There was a definite correlation between the impost and the purpose of the
Act which was to render services to the notified area. These features of the
Act impressed upon the levy the character of a fee as distinct from a tax.

The inter-relationship of Entries 23 and 66 in List II qua Entry 54 in
E List I was so stated by the Constitution Bench:-
"The effect ofreading the two Entries together is clear. The 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
p public interest be under the control of the Union, to the extent of such
declaration the jurisdiction of the State Legislature is excluded. Jn
other words, if a Central Act has been passed which contains a
declaration by Parliament as ~equired 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
G 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."

The Constitution Bench then proceeded to test the validity of the cess
H
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.) 647
by" reference to two Central Acts, namely (A) the Mines and Minerals A
(Regulation and Development) Act, 1948 (Act No.53 of 1948) and (B) The
Industries (Development and Regulation) Act, 1951 (Act No.65 of 1951 ).

(A) Act No.53 of 1948 is a pre-constitutional piece of Central legislation.
It was found that the applicability of the Act which was initially attracted to
mines as well as oil fields remained confined to oil fields in view of the B
subsequent parliamentary enactment, i.e., the MMDR Act, 1957 (Act No.67
'!- of I 957). Therefore, the question which remained to be examined was only
-~ for the year 1952 as at that time the Act No.53 of I948 applied to mines as
well as oil fields. The factual constitutional position was that Act No.53 of
1948 ceased to apply to Orissa post-constitution and assuming it applied yet
there was no such declaration post-constitution made by Parliament as is
c
referred to in Entry 23 in List II read with Entry 54 in List I and therefore
in either case the validity of the said State Legislation was not impaired in
spite of the finding recorded by the Court that 'there can be no doubt that the
field covered by the impugned (State) Act is covered by the Central Act 53
of 1948'. D
).
(B) What is significant for our purpose is the law laid down by the
~ Constitution Bench as to the validity of the impugned State legislation by
reference to Act No. 65 of 1951, Section 2 whereof contained a declaration
- "it is hereby declared that it is expedient in the public interest that the
Union should take under its control the industries specified in the First E
Schedule" as contemplated by Entry 52 in List 1 to which Entry 23 in List
II is sl'bject. The first schedule included coal as an article as to which the
industry engaged in the manufacture or production was brought within the
purvkw of the Act. Section 9 empowered the Central Government to levy
cess for the purpose of the Act on all goods manufactured or produced in any F
.,... scheduled industries including coal. The Constitution Bench held that the
Central Act was passed to provide for the development and regulation of
certain industries one of which undoubtedly is coal mining industry. The
declaration made by Section 2 of the Act covered the same field as is covered
by the impugned State Act. Then the Constitution Bench held :-
G
" ........ but in dealing with this question it is important to bear in mind
the doctrine of pith and substance. We have already noticed that in
~ .,.. pith and substance the impugned Act is concerned with the development
of the mining areas notified under it. The Central Act, on the other
hand, deals more directly with the control of all industries including
H
648 SUPREME COURT REPORTS [2004] I S.C.R.

A of course 1he industry of coal. Chapter II of this Act provides for the
constitution of the Central Advisory Council and Development
Councils, Chapter III deals with the regulation of scheduled industries,
Chapter IIIA provides for the direct management or control of
industrial undertakings by Central Government in certain cases, and
Chapter IIIB is concerned with the topic of control of supply,
B distribution, price, etc. of certain articles. The last chapter deals with
miscellaneous incidental matters. The functions of the Development
Councils constituted under this Act prescribed by S.6(4) bring out the
real purpose and object of the Act. It is to increase the efficiency or
productivity in the scheduled industry or group ofscheduled industries,
c to improve or develop the service that such indus/ly or group of
industries renders or could render to !he community, or to enable
such induslry or group of industries to render such service more
economically. Section 9 authorises the imposition of cess on scheduled
industries in certain cases. Section 9(4) provides that the Central
Government may hand over the proceeds of the cess to the
D Development Council there specified and that the Development
Council shall utilize the said proceeds to achieve the objects mentioned
in els. (a) to (d). These objects include the promotion of scientific and
industrial research, of improvements in design and quality, and the
provision for the training of technicians and labour in such industry
E or group of industries. II would thus be seen thal !he objecl of the Act
is to regulate !he scheduled industries with a view to improvemenl
and development of the service that they may render to the society,
and lhus assist the solulion of the larger problem of national economy.
It is difjicull to hold that the field covered by the declaration made
by S.2 of this Act, considered in the light of its several provisions, is
F the same as the field covered by the impugned Act. That being so, it
cannot be said that as a result of Entry 52 read with Act LXL of 1951
the vires of the impugned Act can be successfully challenged.

Our conclusion, therefore, is that the impugned Act is relatable to Entries
G 23 and 66 in list If of/he Sevenlh Schedule, and its validity is not impaired
or ajfecled by Entries 52 and 54 in list I read with the Act LXV of 195 I and
Act l/11of1948 respectively. In view of this conclusion it is unnecessary to
consider whether the impugned Act can be justified under Entry 50 in List
II, or whether it is relatable to Entry 24 in List III and as such suffers from
the vice of repugnancy with the Central Act XXXII of 194 7.''
H [Underlining by us]
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 649

In spite of having held that the Central Act of 1951 was attracted to A
coal industries, their Lordships, by applying the doctrine of pith and substance,
refused to annual the levy of cess under the impugned Orlssa Act based on
the following distinction:-

Central Act, 1951 State Legislation of 1952.
~~~~~~~~~~-'-~~~~~
B
Deals more directly with the control Is concerned with the development of
of all industries including the the mining areas notified under it.
industry of coal with a view to
improvement and development of
the service that they may render to C
the society and thus assist the
solution of the larger problem of
national economy.

Though both were cesses, one levied by the Central Act and the other D
levied by the State Act, inasmuch as they had different fields to operate,
Entries 52 and 54 in List I were held not to have any adverse or denuding
effect on the legislative competence of the State referable to Entries 23 and
66 in List II.

As a result, the writ petitions laying challenge to the constitutional E
validity of Orissa Act of 1952 were directed to be dismissed.

The distinction: Here we will pause for a moment with a view to
highlight a feature of singular significance in The Hingir-Rampur Coal Co.
as it would be the decisive factor for the applicability of the ratio of the case
- where it would apply and where it would not. Section 6 of Act No.43 of F
1948 which came up for the consideration of the Constitution Bench,
specifically provides:-

"6. Power to make rules as respects minerals development - (I) The
Central Government may, by notification in the official Gazette, make
rules for the conservation and development of minerals. G
(2) In particular, and without prejudice to the generality of the
foregoing power, such rules may provide for all or any of the following
matters, namely:-

xxx xxx xxx H
650 SUPREME COURT REPORTS [2004] I S.C.R.

A (i) the levy and collection of royalties, fees or taxes in respect of
minerals mined, quarried, excavated or collected;.

xxx xxx xxx

I0. Rules to be laid before the Legislature. -All rules made under
B any of the provisions of this Act shall be laid before the Central
Legislature as soon as may be after they are made."

Thus, the power to levy and collect fees or taxes in respect of minerals
mined, quarried, excavated or collected was expressly conferred on the Central
Government by a specific provision made in that regard by the Act itself.
C Because the power to levy tax or fee was appropriated to itself by a Central
Legislation it was held that the impugned Orissa Act-a State Legislation,
could not have provided for the levy of a fee as by virtue of the Central
Legislation, the Union having exercised its power to legislate, the field was
covered and excepted from the legislative competence of the State. Yet the
recovery was held not liable to be annulled inasmuch as the Central Act
D No.53 of 1948 was a pre-Constitution Legislation and as to which a declaration
in terms of Entry 54 in List I was not made by the Parliament after the
coming into force of the Constitution.

As to the Central Act of 1951, though it contained a declaration as
E contemplated by Entry 52 of List I, and though it applied to several goods
including coal, the doctrine of pith and substance when correctly applied
showed that the Central Act was intended for improvement of service while
the State Act of 1952 was intended to deal with development of mining areas
and the latter was valid.

F The.MMDR Act, 1957, which we are called upon to deal with, stands
on much better footing for the writ petitioners herein as it does not contain
any provision similar to Sections 6 and I0 of the Central Act No.53- of 1948
or Section 9 of the Central Act No.65 of 1951.

Challenge to levy under the abovesaid Orissa Act 27 of 1952 did not
G come to an end with Hinger-Rampur Coal Co .. It was once again raised in
the High Court with success and the State of Orissa came up in appeal which
was heard and decided by a Constitution Bench in State of Orissa and Anr.
v. Mis. M.A. Tulloch and Co., (1964] 4 SCR 461. The respondent writ-
petitioner was working a manganese mine in the State of Orissa under a lease JI ~
H granted under the provisions of the MMRD Act, 1948. The fee levied under
)- '
.

STATE v. KESORAM INDUSTRIES LTD. (R.C. LAHOTI, J.] 651

the Orissa Act for the period of six quarters from September 30, 1956, to A
March 31, 1958, was under challenge. The MMDR Act 1957 came into force
w.e.f. June 1, 1958. The recovery impugned, therefore, related to the period
pre-MM DR Act 1957 i.e. for the period during which Industries (Development
and Regulation) Act 1951 was applicable. The recovery was sought to be
effected after the enactment and coming into force of the Act No.67 of 1957,
though the recovery was referable to the period prior to it. It was held that B
the demand was liable to be raised for the period for which it was raised and
the validity of the demand was an issue concluded by Hingir-Rampur Coal
Co .. The demand having validly accrued prior to June I, 1958, the recovery
thereof could be validly enforced, notwithstanding the repeal of Act No.65
of 1951, on the general principles of interpretation of statutes as also under C
Section 6 of the General Clauses Act. Reiterating the findings in Hingir-
Rampur Coal Co. the Constitution Bench held that the impugned Act
empowered the State Government to levy a fee on a percentage of the value
of the mined ore at the pit's mouth, the collections being intended for the
development of the "mining areas" in the State. This finding is very
significant. D

The Constitution Bench laid down the following principles which are
relevant for our purpose :-

(I) Entry 23 of the State List vests in the State Legislature power to
enact laws on the subject of 'regulation of mines and mineral E
development subject to the provisions of List I with respect to
regulation and development under the control of the Union'. It
would be seen that "subject to" the provisions of list I the
power of the State to enact Legislation on the topic of "mines
and mineral development" is plenary. The relevant provision in F
List I is, as already noticed, Entry 54 of the Union List.
(2) To the extent to which the Union Government had taken under its
control the regulation and development of minerals that much
(i.e. to that extent) was withdrawn from the ambit of the power
of the State Legislature under Entry 2 3 and legislation of the G
State which had rested on the existence of power under that entry ~·
would, to the extent of that control, be superseded or rendered
ineffective, for here we have a case not of mere repugnancy
between the provisions of the two enactments but of a denudation
or deprivation of State legislative power by the declaration which
Parliament is empowered to make, and has made. H
652 SUPREME COURT REPORTS (2004) I S.C.R.

A (3) The States would lose legislative competenc'e only to the "extent
to which regulation and development under the control of the
Union has been declared by Parliament to be expedient in the
public interest".
(4)\ It would be logical first to examine and analyse the State Act and
B determine its purpose, width and scope and the area of its operation
and then consider to what "extent" the Central Act cuts into it
or trenches on it.

As to the MMDR Act, 1957, the Constitution Bench in MA. Tulloch )t
observed by reference to Section 18 of the Act that the intention of Parliament
C was to cover the entire field and thus to leave no scope for the argument that
until rules were framed there was no inconsistency and no supersession of the
State Act.

The following holding of the above Constitution Bench is again worth
noting :
D
" ... that technically speaking the power to levy a fee is under the
entries in the three lists treated as a subject-matter of an independent
grant of legislative power, but whether it is an incidental power related
to a legislative head or an independent legislative power it is beyond
dispute that in order that a fee may validly be imposed the subject-
E matter or the main head of legislation in connection with which the
fee is imposed is within legislative power. The material words of the
Entries are : "Fees in respect of any of the matters in this List". It
is, therefore, a prerequisite for the valid imposition of a fee that it is
in respect of "a matter in the List". If by reason of the declaration
F by Parliament the entire subject-matter of "conservation and
development of minerals" has been taken over, for being dealt with
by Parliament, thus depriving the State of the power which it therefor
possessed, it would follow that the "matter" in the State List is, to
the extent of the declaration, subtracted from the scope and ambit of
Entry 23 of the State List. There would, therefore, after the Central
G Act of 1957, be "no matter in the List" to which the fee could be
related in order to render it valid."

In the last but one para of M.A. Tulloch this sentence occurs:- "If this
were the true position about the effect of the Central Act 67 of 1957 as the
H liability to pay the fee which was the subject of the notices of the demand
~

STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.) 653
'
...... had accrued prior to June I, 1958, it would follow that these notices were A
valid and the amounts due thereunder could be recovered notwithstanding the
disappearance of the Orissa Act by virtue of the superior legislation by the
Union Parliament''. This observation, read out of the context and facts of the
case alongwith the Court having referred to Sections 18 and 25 of the MMDR
Act 1957, creates an impression that the power to levy fee having been
appropriated by the Central Legislation to the Central Government, the cess B
levied by the State would stand obliterated or repealed, is the holding by the
'! Court. But that is not the ratio of the case and it could not have been because
~
in Hingir-Rampur Coal Co. the Constitution Bench has clearly held to the
contrary and the Constitution Bench in MA. Tulloch has squarely followed
the holding in Hingir-Rampur Coal Co.. Nobody should act on an assumption c
that in MA. Tulloch the Constitution Bench has held - much less as a ratio
of the decision-that under Act No. 67 of 1957 the Central Government has
appropriated to itself the power to levy tax or cess on minerals or mineral
bearing land. All that the Court has said is that the 1957 enactment covers
the field of legislation as to the regulation of mines and the development of
minerals. As Section 2 itself provides and indicates, the assumption of control D
in public interest by the Central Government is on (i) the regulation of mines,
)l (ii) the development of minerals, and (iii) to the extent hereinafter provided.
~
The scope and extent of declaration cannot and could not have been enlarged
by the Court nor has it been done. The effect is that no State Legislature shall
have power to enact any legislation touching (i) the regulation of mines, (ii) E
the development of minerals, and (iii) to the extent provided by Act No.67
of 1957. The Preamble to the Central Act 67 of 1957 itself speaks-An Act
to provide for the development and regulation of mines and minerals under
the control of the Union. Tax and fee is not a subject dealt with by Act No.67
of 1957. Let us demonstrate the same from the provisions of the Act and for
that purpose relevant part of Section 13, sub-Section (1) and relevant part of F
... ~ sub-Section (2) of Section 18, sub-Section (3) of Section 18 and Section 25
are extracted and reproduced as under :

"13. Power of Central Government to make rules in respect of
minerals. - ( 1) The Central Government may, by notification in the
Official Gazette, make rules for regulating the grant of reconnaissance G
permits, prospecting licences and mining leases in respect of minerals
and for purposes connected therewith.
~ )ol.
(2) In particular, and without prejudice to the generality of the
foregoing power, such rules may provide for all or any of the following
H
654 SUPREME COURT REPORTS [2004) I S.C.R.

A matters, namely: )...

(a) to (h)******

(i) the fixing and collection of fees for reconnaissance permiis,
prospecting licences or mining leases, surface rent, security deposit,
B fines, other fees or charges and the time within which and the manner
in which the dead rent or royalty shall be payable;

18. Mineral development. - (I) It shall be the duty of the Central •
Government to take all such steps as may be necessary for the
conservation and systematic development of minerals in India and for
c the protection of environment by preventing or controlling any
pollution which may be caused by prospecting or mining operations
and for such purposes the Central Government may, by notification
in the Official Gazette, make such rules as it thinks fit.

(2) In particular, and without prejudice to the generality of the
D foregoing power such rules may provide for all or any of the following
matters, namely:

(a) to (o)--(Not reproduced) JI.

,,..
(p) the procedure for and the manner of imposition of fines for
the contravention of any of the rules framed under this section and
E the authority who may impose such fines; and

(q) the authority to which, the period within which, the form and
the manner in which applications for revision of any order passed by
any authority under this Act and the rules made thereunder may be
made, the fee to be paid and the documents which should accompany
F
such applications.
.......
(3) All rules made under this section shall be binding on the
Government.

25. Recovery of certain sums as arrears of land revenue, - Any
G rent, royalty, tax, fee or other sum due to the Government under this
Act or the rules made thereunder or under the terms and conditions
of any reconnaissance permit, prospecting licence or mining lease
may, on a certificate of such officer as may be specified by the State .w '
Government in this behalf by general or special order, be recovered
H in the same manner as an arrear of land revenue.
STATE v. KESORAM INDUSTRIES LTD. (R.C. LAHOTI, .1.] 655
We have th~ee comments to offer on M.A. Tulloch. Firstly, the·provisions A
of the Act No.67 of I 957 did not directly come up for the scrutiny of the
Constitution Bench as there was no demand raised after the commencement
of this Act which was put in issue before the Constitution Bench; the
Constitution Bench was only adjudicating upon the issue whether a liability
to pay cess incurred under the previous Act could be enforced under Act
No.67 of I957 or in other words if Act No.67 of I957 had any castigating B
effect on the demand validly raised under the previous enactment. Secondly,
the extent to which power to legislate by the States was excluded by the
Central Act No.65 of 1951 was not a question dealt with in-depth as it was
done in Hingir-Rampur Coal Co .. Thirdly, M.A. Tulloch, if·not correctly
read, creates a wrong impression that Act No.67 of 1957 provides for levy C
of tax and fee, which in fact it does not.

Section 13(2)(i) cannot be read as empowering the Central Government
to levy any tax or fee. The expression "other fees and charges" have to be
interpreted ejusdem generis taking colour from other words and phrases
employed in the same clause. The word "charges" cannot and does not D
include within its meaning any tax. The expression "other fees or charges"
must be assigned such meaning as to include therein only such fees and
charges as are meant for regulation or development.

We are clear in our minds that a power to levy tax or fee cannot be
spelled out from sections 13, 18 and 25 of the Act No.67of1957. It is well- E
settled that power to tax cannot be inferred by implication; there must be a
charging section specifically empowering the State to levy tax. Section I 8
(2)(q) speaks of fee to be paid on applications for revision and not on minerals,
mineral rights or mining land. Section 25 speaks of 'recovery of tax and fee'
amongst others. Two observations are spontaneous. Firstly, a provision for F
recovery, being a machinery provision, cannot be read as empowering the
levy of tax or fee. Secondly, it speaks of tax or fee being due to the Government
without defining the same and without qualifying the word 'Government'
with Central or State. A perusal of several provisions of the Act and in
particular Sections 9-A, 15, 15 (I-A) (a) and (g), 15(3), 17(3), 21(5), 25 goes
to show that the power of recovery is invariably given to the State Government - G
and obviously the word 'Government' in Section 25 refers to the State
Government, which only is empowered to recover the sums due as arrears of
land revenue.

The relevant principles of Jaw laid down in M.A. Tulloch, which we H

I
656 SUPREME COURT REPORTS [2004) I S.C.R.

A have extracted and reproi:luced hereinabove, do not run contrary to the view
we are taking in the present case. The recovery of fee could have been held
to be vitiated in that case because the field of mining activity in manganese
ore was fully covered by the MMDR Act, 1957, and the levy under the
impugned State Act, as found by the two Constitution Benches in Hingir-
Rampur Coal Co. and MA. Tulloch was being collected for the development
B of the mining areas in the State. The doctrine of pith and substance noted and
applied in Hingir-Rampur Coal Co. has been restated in MA. Tulloch wherein
the Constitution Bench had said, as noted hereinabove, that the Orissa Act
was concerned with the development of the mining areas notified under the
Act while the Central Act on the other hand dealt more directly with the
C control of all industries including of course the industry of coal and the
object of the Central Act was to regulate the scheduled industry with a view
to make improvement and development of the service that they may render
to the society and thus assisting the solution of the larger problem of the
national economy. In spite of the declaration made by Section 2 of the Central
Act of 1951 considered in the light of its several provisions it was found
D difficult to hold that the field covered by the Central Act was the same as the
field covered by the impugned Orissa Act. None of the two Constitution
Benches have held that power to regulate and develop with which the Central
Act of 1951 was concerned would include the power to levy tax and fee,
which power shall have to be traced to some other entry in List J.. List I
E contains a general entry i.e. Entry 96 for levy of fee in respect of matters in
List I but so far as levy of tax is concerned there are separate and specific
entries (see Entries 82 to 92B in List I and Entries 45 to 63 in List 11). Further
in view of Entry 50 of List II, Parliament can by any law relating to mineral
development limit or place limitations on the power of the State Legislatures
to impose taxes on mineral rights.
F
Power to tax not a residuary power

Article 265 mandates - no tax shall be levied or collected except by
authority of law. The scheme of the Seventh Schedule reveals an exhaustive
enumeration of legislative subjects, considerably enlarged.over the predecessor
G Government of India Act. Entry 97 in List I confers residuary powers on
Parliament. Article 248 of the Constitution which speaks of residuary powers
of legislation confers exclusive power on Parliament to make any law with
respect to any matter not enumerated in the Concurrent List or the State List. ;,,1 ~
At the same time, it provides that such residuary power shall include the
H power of making any law imposing a tax not mentioned in either of those
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTJ, J.] 657
Lists. It is, thus,· clear that if any power to tax is clearly mentioned in List- A
II the same would not be available to be exercised by Parliament based on
the assumption of residuary power. The Seven-Judges Bench in Union of
India v. Harbhajan Singh Dhillon, [1971] 2 SCC 779, ruled, by a majority
of 4:3, that the power to legislate in respect of a matter does not carry with
it a power to impose a tax under our constitutional scheme. According to
Seervai (Constitutional Law of India, Fourth/Silver Jubilee Edition, Vol. 3, B
para 22.l91):- "Although in Dhil/on's case conflicting views were expressed
about the nature of the residuary power, the nature of that power was stated
authoritatively in Kesvananda's case, [1973] 4 SCC 225. Earlier, in Golak
Nath's, case AIR (1967) SC 1643, Subha Rao C.J. (for himself, Shah, Sikri,
Shelat and Vaidyalingam JJ) had held that Art. 368 only provided the procedure C
for the. amendment of the Constitution, but that the power to amend the
Constitution was to be found in the residuary power conferred on Parliament
by Arts. 245 and 246(1) read with entry 97, List I and by Art. 248. Seven
out of the nine Judges who overruled Golak Nath 's case held, inter a/ia, that
the power to amend the Constitution could not be located in the residuary
powers of Parliament. Hegde and Mukherjea JJ. held that - D
"It is obvious that these Lists have been very carefully prepared.
They are by and large exhaustive. Entry 97 in List I was included to
meet some unexpected and unforeseen contingencies. It is difficult to
believe that our Constitution-makers who were keenly conscious of E
the importance of the provision relating to the amendment of the
Constitution and debated that question for several days, would have
left the important power hidden in entry 97 of List I leaving to the
off chance of the courts locating that power in that entry. We are
unable to agree with those learned judges when they sought to place
reliance on Arts. 245, 246 and 248 and entry 97 of List I for the F
purpose of locating the power of amendment in the residuary power
conferred on the Union." (italics supplied)

Similar views were expressed by five other judges. According to
Seervai, "the law laid down in Kesavananda 's case is that if a subject of
legislation was prominently present to the minds of the frames of our G
Constitution, they would not have left it to be found by courts in the residuary
power; a fortiori, if a subject of legislative power was not only present to the
-,.. minds of the framers but was expressly denied to Parliament, it cannot be
located in the residuary power of Parliament."

Vide para 22.194 the eminent jurist poses a question: "Does Art. 248 H
658 SUPREME COURT REPORTS (2004] I S.C.R.
A add anything to the exclusive residuary power of Parliament under Art. 246 )
(I) read with Entry 97 List I to make laws in respect of "any other matter"
not mentioned in List II and List III including any tax not mentioned in those
Lists?" and answers by saying - "The answer is 'No'."

As to the riddle arising in the context of mines and minerals development
B legislation by reference to the Entries in List I and List II, Seervai states -
"the regulation of mines and mineral development is a subject of exclusive
State legislation, but for the limitation placed upon that power by making it
subject to the provisions in that behalf in List I. If Parliament does not ,.
exercise its power under Entry 54, List I, the States' power under Entry 23,
C List II would remain intact. If Parliament exercised its power under Entry 54,
List I, only on a part of the field, as for example, major minerals, the States'
legislative power over minor minerals would remain intact." (para 22.195 at
p. 2433)

Power to tax must be express, else no power to tax
D
There is nothing like an implied power to tax. The source of power
which does not specifically speak of taxation cannot be so interpreted by
expanding its width as to include therein the power to tax by implication or
by necessary inference. States Cooley in Taxation (Vol.I, Fourth Edition)-
"There is no such thing as taxation by implication. The burden is always
E upon the taxing authority to point to the act of assembly which authorizes the
imposition of the tax claimed." (para 122 at p.278).

Justice G.P. Singh in Principles of Statutory Interpretation (Eighth
Edition, 200 I) while dealing with general principles of strict construction of
F taxation statutes states, -"A taxing statute is to be strictly construed. The
well-established rule in the familiar words of Lord Wensleydale, reaffirmed
by Lord Halsbury and Lord Simonds, means : "The subject is not to be
taxed without clear words for that purpose; and also that every Act of
Parliament must be read according to the natural construction of its words".
In a classic passage Lord Cairns stated the principle thus : "If the person
G sought to be taxed comes within the letter of the law he must be taxed,
however great the hardship may appear to the judicial mind to be. On the
other hand, if the Crown seeking to recover the tax, cannot bring the subject
within the letter of the law, the subject is free, however apparently within the
spirit of law the case might otherwise appear to be. In other words, if there
H is admissible in any statute, what is called an equitable construction, certainly,
'
):.,

STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 659

:... such a construction is not admissible in a taxing statute where you can simply A
adhere to the words of the statute. Viscount Simon quoted with approval a
passage from Rowlatt, J. expressing the principle in the following words :
"In a taxing Act one has to look merely at what is clearly said. There is no
. , room for any intendment. There is no equity about a tax. There is no
presumption as to tax. Nothing is to be read in, nothing is to be implied. One
can only look fairly at the language used." (at p.635)
B

} The judicial opinion of binding authority flowing from several
pronouncements of this Court has settled these principles: (i) in interpreting
i a taxing statute, equitable considerations are entirely out of place. Taxing
statutes cannot be interpreted on any presumption or assumption. A taxing
statute has to be interpreted in the light of what is clearly expressed; it cannot
c
imply anything which is not expressed; it cannot import provisions in the
statute so as to supply any deficiency; (ii) before taxing any person it must
be shown that he falls within the ambit of the charging section by clear words
used in the Section; and (iii) if the words are ambiguous and open to two
interpretations, the benefit of interpretation is given to the subject. There is D
nothing unjust in the tax-payer escaping if the letter of the law fails to catch
't him on account of Legislature's failure to express itself clearly. (See, Justice
G.P. Singh, ibid, pp.638-639) .
.../
Power to tax is not an incidental power. According to Seervai, although
legislative power includes all incidental and subsidiary power, the power to E
impose a tax is not such a power under our Constitution. It is for this reason
that it was held that the power to legislate in respect of inter-state trade and
commerce (Entry 42, List I, Schedule 7) did not carry with it the power to
tax the sale of goods in inter-state trade and commerce before the insertion
of Entry 92A in List I and such power belonged to the States under Entry 54 F
..,,. in List II. Entry 97 in List I also militated against the contention that the
power to tax is an incidental power under our Constitution (See: Constitutional
law of India, H.M. Seervai, Fourth/Silver Jubilee Edition, Vol. 3, para 22.20).

Power to regulate and control and power to tax - determining the nature of
legislation by reference to the power exercised G

~ .. It is of par'.'111ount significance to note the difference between 'power
to regulate and develop' and 'power to tax'.

The primary purpose of taxation is to collect revenue. Power to tax
may be exercised for the purpose of regulating an industry, comrnerce or any H
I

~

660 SUPREME COURT REPORTS [2004) I S.C.R.

A other activity; the purpose of levying such tax, an impost to be more correct,
is the exercise of sovereign power for the purpose of effectuating regulation
though incidentally the levy may contribute to the revenue. Cooley in his
work on Taxation (Vol. I, Fourth Edition) deals with the subject in paragraphs.
26 and 27. "There are some cases in which levies are made and collected
B under the general designation of taxes, or under some term employed in
revenue laws to indicate a particular class of taxes, where the imposition of
the burden may fairly be referred to some other authority than to that branch
of the sovereign power of the state under which the public revenues are
apportioned and collected. The reason is that the imposition has not for its
object the raising of revenue but looks rather to the regulation of relative
C rights, privileges and duties as between individuals, to the conservation of
order in the political society, to the encouragement of industry, and the
discouragement of pernicious employments. Legislation for these purposes it
would seem proper to look upon as being made in the exercise of that authority
which is inherent in every sovereignty, to make all such rules and regulations
as are needful to secure and preserve the public order, and to protect each
D individual in the enjoyment of his own rights and privileges by requiring the
observance of rules of order, fairness and good neighbourhood, by all around
him. This manifestation of the sovereign authority is usually spoken ofas the
police power. The power to tax must be distinguished from an exercise of the
police power. (State v. Tucker, 56 SC 516). The political power 'is a very
E different one from the taxing power, in its essential principles, though the
taxing power, when properly exercised, may indirectly tend to reach the end
sought by the other in some cases. "(p.94) "The distinction between a demand
of money under the police power and one made under the power to tax is not
so much one of form as of substance." (p.95). The distinction between a levy
in exercise of police power to regulate and the one which would be in nature
F of tax is illustrated by Cooley by reference to a license. He says-"So-called
license taxes are of two kinds. The one is a tax for the purpose of revenue.
The other, which is, strictly speaking, not a tax at all but merely an exercise
of the police power, is a fee imposed for the purpose of regulation." (p.97)

G "Suppose a charge is imposed partly for revenue and partly for
regulation. Is it a tax or an exercise of the police power? Other considerations
than those which regard the production of revenue are admissible in levying
taxes, and regulation may be kept in view when revenue is the main and
primary purpose. The right of any sovereignty to look beyond the immediate ,;,, •
purpose to the general effect neither is nor can be disputed. The government
H has general authority to raise a revenue and to choose the methods of doing
STATE v. KESORAM INDUSTRIES LTD. (R.C. LAHOTI, J.] 661
so; it has also general authority over the regulation of relative rights, privileges A
and duties, and there is no rule of reason or policy in government which can
require the legislature, when making laws with the one object in view, to
exclude carefully from its attention the other. Nevertheless cases of this nature
are to be regarded as cases of taxation. If revenue is the primary purpose, the
imposition is a tax. Only those cases where regulation is the primary purpose B
can be specially referred to the police power. If the primary purpose of the
legislative body in imposing the charge is to regulate, the charge is not a tax
'r even if it produces revenue for the public." (Cooley, ibid, pp.98-99)
1'. This Court in seven-Judges Bench decision in Synthetics and Chemicals
ltd. and Ors. v. State of U.P. and Ors., [1990] l SCC 109, agreed that C
regulation is a necessary concomitant of the police power of the State.
However, it was an American doctrine and in the opinion of the Court it was
not perhaps applicable as such in India. The Court endorsed recognizing the
power to regulate as a part of the sovereign power of the State exercisable
by the competent legislature. Brushing aside the need for discussio~ on the
question - whether under the Constitution the States have police power or D
not, the Court accepted the position that the State has the power to regulate.
However, in the garb of exercising the power to regulate, any fee or levy
which has no connection with the cost or expenses of administering the
regulation, cannot be imposed; only such levy can be justified as can be
treated as part of regulatory measure. Thus, the State's power to regulate E
perhaps not as emanation of police power but as an expression of the sovereign
power of the State has its limitations. In our opinion, these observations of
the Court lend support to the view which we have formed that a power to
regulate, develop or control would not include within its ken a power to levy
tax or fee except when it is only regulatory. Power to tax or levy for
augmenting revenue shall continue to be exercisable by the Legislature in F
whom it vests i.e. the State Legislature in spite of regulation or control
having been assumed by another legislature i.e. the Union. State Legislation
levying a tax in such manner or of such magnitude as can be demonstrated
to be tampering or intermeddling with Center's regulation and control of an
industry can perhaps be the exception to the rule just stated.
G
In Synthetics and Chemicals ltd. and Ors. v. State ofU.P. and Ors.,-
[1990] I SCC I 09 the question before the seven-Judges Bench was as to the
power of State to legislate on industrial alcohol as a subject. Entry 8 in List
II and Entry 33 in List III came up for consideration. Their Lordships noticed
the provisions of Industries (Development and Regulation) Act, 1951 (as H
662 SUPREME COURT REPORTS [2004] I S.CR.

A amended in 1956), especially Section 18-G thereof, and held that the provisions
evinced clt:ar intention of the Union to occupy the whole field relating to
industrial alcohol and therefore the State. could not claim to regulate it. The
power with regard to the control of alcoholic industries was considered and
their Lordships concluded that in spite of the Central Legislation operating
B in the field the State was left with the following powers available to legislate
in respect of alcohol -

"(a) It may pass any legislation in the nature of prohibition of potable
liquor referable to Entry 6 of List II and regulating powers.
(b) It may lay down regulations to ensure that non-potable alcohol is
C not diverted and misused as a substitute for potable alcohol.
(c) The State may charge excise duty on potable alcohol and sales
tax under Entry 52 of List II. However, sales tax cannot be charged
on industrial alcohol in the present case, because under the Ethyl
Alcohol (Price Control) Orders, sales tax cannot be charged by
D the State on industrial alcohol.
(d) However, in case State is rendering any service, as distinct from
its claim of so-called grant of privilege, it may charge fees based
on quid pro quo. See in this connection, the observation of Indian
Mica case, (1971] 2 SCC 236."
E It may be seen that the power to levy sales tax on industrial alcohol was
available to the State but for the provisions of the Ethyl Alcohol (Price
Control) Orders on account of which the State could not charge sales tax on
industrial alcohol. The State could levy any fee based on quid pro quo. The
seven-Judges Bench decision lends support to the view we are taking that in
F
.
the field occupied by the Centre for regulation and control, power to levy tax
and fee is available to the State so long as it does not interfere with the
..,
regulation - the power assumed and occupied by the Union.

Before a seven-Judges Bench in The Automobile Transport (Rajas/hon)
ltd v. The State of Rajasthan and Ors., (1963] I SCR 491, the question
G arose if State could make Jaws imposing regulatory restrictions on free trade,
commerce and intercourse guaranteed by Article 30 I of Constitution and
whether a State tax could be treated as impeding freedom under Article 30 I
of Constitution. The following statement of law by majority speaking through
S.K. Das, J. (at pp.524-525) is very much in point for our purpose:-.
H
STATEv. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.) 663
"Such an interpretation would, in our opinion, seriously affect A
the legislative power of the State Legislatures which power has been
held to be plenary with regard to subjects in list II. The States must
also have revenue to carry out their administration and there are
several items relating to the imposition of taxes in list II. The
Constitution-makers must have intended that under those items the
States will be entitled to raise revenue for their own purposes. If the B
widest view is accepted, then there would be for all practical purposes,
an end of State autonomy even within the fields allotted to them
under the distribution of powers envisaged by our Constitution. An
examination of the entries in the lists of the Seventh Schedule to the
Constitution would show that there are a large number of entries in C
the State list (list II) and the Concurrent list (list III) under which a
State Legislature has power to make laws. Under some of these entries
the State Legislature may impose different kinds of taxes and duties,
such as property tax, sales tax, excise duty etc., and legislation in
respect of any one of these items may have an indirect effect on trade
and commerce. Even laws other than taxation laws, made under D
different entries in the lists referred to above, may indirectly or
remotely affect trade and commerce. If it be held that every law made
by the Legislature of a State which has repercussion on tariffs,
licensing, marketing. regulations, price-control etc., must have the
previous sanction of the President, then the Constitution in so far as E
it gives plenary power to the States and State Legislatures in the
fields allocated to them would be meaningless."
'·
Their Lordships also observed (at p.526-527) that the freedom guaranteed by
Article 30 I does not mean freedom from taxation. The power of levying tax
is essentially for the very existence of Government, though its exercise may F
.,.. be controlled by constitutional provisions made in that behalf. Power to tax
is not outside constitutional limitations. It is for Parliament to exercise power
in the field made available to it by Entry 52 and 54 in List I. It is also for
Parliament to state by law the limitations - and the sweep thereof - which it
may choose to ·impose on field available to State for taxation by reference to G
Entry 50 in List II. It may not be for Courts to venture into enquiry in just
an individual case to find and hold what tax would hamper mineral
development if Parliament has chosen to observe silence by not legislating or
failed to say something explicit.

A reasonable tax or fee levied by State legislation cannot, in our opinion, H .
664 SUPREME COURT REPORTS (2004) I S.C.R.

A be construed as trenching upon Union's power and freedom to regulate and
control mines and minerals.

India Cement and decisions post India Cement, based thereon :

India Cement is clearly distinguishable so far as the present cases are
B concerned. As we hav~ already pointed out it was a case of cess levied by
Sate Legislature on royalty and not on mineral rights or land and buildings.
That is why the levy was held ultra vires. Seervai's comment and objective
criticism on India Cement is noteworthy (See - ibid, para 22.257 C). Royalty
•
is income and State Legislatures are not competent to tax an income. This
C single ground was enough to strike down the levy of cess impugned in India
Cement. Nothing more was needed. The Orissa Cement Ltd., (supra) also, as
the very opening part of the report shows, dealt with the levy of a cess by
the State based on the royalty derived from mining lands which was held to
be directly and squarely governed by India Cement and, therefore, struck
down.
D
In State of Orissa and Ors. v. Mahanadi Coalfields Ltd and Ors.,
[ 1995] Supp. 2 SCC 686, the impugned levy by the State Legislature was a
tax of Rs. 32 per thousand acre on coal bearing lands. It was sought to be
defended as falling under Entry 49 or in the alternative under Entry 23 or
Entry 50 in List II. The attack was that the legislation being one on mineral
E lands and mineral rights and the Parliament having enacted the Mines and
Minerals (Development and Regulation) Act, 1957, the field was entirely
covered and the State Legislature was incompetent to levy the tax. Reliance
was placed on India Cement, Orissa Cement and Buxa Dooars Tea Co. Ltd.,
·'
(supra). Only mineral bearing land and coal bearing land were the subject of
F the levy of tax. The three-Judges Bench speaking through K.S. Paripoornan,
J., concluded that the charging section of the impugned Act imposed a tax on
the minerals also, and was not confined to a levy on land or surface
characteristic of the land. All non-mineral bearing lands and non-coal bearing
lands were left out of the levy. The levy was struck down as levying a tax
not on land (related to surface characteristic of the land) but on minerals and
G mineral rights. Goodricke 's case (supra) was cited before their Lordships and
it was observed that in Goodricke 's case the impugned levy was held to be
a tax on land and that makes all the difference.

We find it difficult to subscribe to the reasoning adopted in Mahanadi
Coalfields Ltd.
H
I

' STA TE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 665
Buxa Dooars Tea Co. ltd. and Ors. v. Staie of West Bengal and Ors., A
[1989] 3 SCC 211 is a two-Judges Bench decision. Rural employment cess
was levied at the rate of Rs.5 per kg. on all dispatches of tea. The rate was
changed from time to time but that is not very material. A careful reading of
the report shows that the primary challenge was on the ground of the impugned
cess being violative of Article 14 and 30 I of the Constitution as it had the B
direct and immediate effect of impeding the movement of goods throughout
the territory of India. The challenge was sustained. Incidentally, and VP.ry
briefly, their Lordships have in one paragraph also dealt with the question of
legislative competence of the State Government by reference to Entry 49 in
List II. Their Lordships have observed, "if the legislation is in substance
legislation in respect of dispatches of tea, legislative authority must be found C
for it with reference to some other entry. No Entry in Lists II and III is
pertinent. Moreover, the Union had, in public interest, assumed control over
the tea industry including the tea trade and control of tea prices." Therefore,
the Court concluded that the impugned legislation was also void for want of
legislative competence as it pertained to a covered field. Suffice it to observe D
that to the extent the learned Judges have dealt with the challenge ~y niference
to legislative competence of the State Legislature under Eqtry 49 in List JI,
there is not much of discussion and is just incidental and the ot>s!!rvotions are
too wide to be countenanced. Another distinguishing feature common to
these decisions is that the distinction and demarcation of fields of operation
between Central and State Acts by reference to the doctrine of pith an.d E
substance seems to have been not adverted to.

From Baijnath Kadio to Eastern Coalfields

Before we proceed to deal with Goodricke, it will be necessary to
complete the chain of thought by referring to four decisions and the law F
which developed therewith between the years 1970 and 1982 which can be
...... termed a period by itself on the issues at hand,

In Baijnath Kadio v. The State of Bihar and Ors., [1969) 3 SCC 838,
the writ-petitioners were holding mining leases for minor minerals. The State G
of Bihar amended the Bihar Mino.r Mineral Concession Rules, 1964, whereby
with effect from 27 .1.1964 the rates of dead rent, royalty and surface rent
were revised. Additional demands were raised. It was submitted that in view
of the provisions contained in the MMDR Act, 1957 incorporating (vide,
Section 2 thereof) a declaration within the meaning of Entry 54 in List I, it
was, not competent for the State Legislature to revise the rates as abovesaid. H
I

~

666 SUPREME COURT REPORTS (2004) I S.C.R.

A This Court held that the whole of the legislative field relating to mihor
minerals was covered by the Central Legislation by virtue of the declaration
made by Section 2 and the enactment of Section 15 in the Act, thereby
leaving no scope for the enactment of the second proviso to Section 10 of the
Bihar Land Reforms Act whereunder the powers to increase the royalty, dead
B rent and surface rent were sought to be exercised. There were pre-existing
old leases which could have been modified only by a legislative enactment
made by the Parliament on the lines of Section 16 of Act No.67 of 1957. Any
attempt to regulate such old mining leases will fall not in Entry 18 but in
Entry 23 of List II even though the regulation incidentally touches them. The
pith and substance of the amendment of Section 10 of the Bihar Land Reforms
C Act falls within Entry 23 although it incidentally touches land and not vice
versa. Entry 18 did not come to the rescue of the State Government and
Entry 23 was subject to the provisions of List I. The impugned provision and
the action taken thereunder were held ultra vires the Constitution. The decisions
of this Court in The Hingir-Rampur Coal Co. ltd and Ors. and Mis. MA.
D Tulloch and Co. were referred to. However, the law laid down by the
Constitution Bench (vide para 13) is significant. It held :-

" ....... 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 ex/en/ such a declaration can go is for Parliament to determine
E and this must be commensurate with public interest. Once this
declaration is made and the extent laid down, the subject of legislation
10 the extent laid dawn becomes an exclusive subject for legislation
by Parliament. Any legislation by the State after such declaration and
lrenching upon the field disclosed in the declaration must necessarily
be unconstitutional because that field is abstracted from the legislative
F competence of the State Legislature."

[Underlining by us]

H.R.S. Murthy v. The Collector of Chilloor and Anr., [1964) 6 SCR 666
was a writ petition filed -under Article 32 of the Constitution laying challenge
G to the validity of notices of demand for the payment of land cess under the
Madras District Boards Act, 1920. The mining lease dated September 15,
1953, authorised the lessee to work and win iron ore in a tract of land in
Chittoor; dead rent, royalty and surface rent were payable under the mining
lease. The District Board levied land cess on the annual rental value of all
H occupied lands. The challenge to the constitutional validity of the land cess
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 667
was dismissed. The Court held:- A
(1) It is therefore not possible to accept the contention, that the fact
that the lessee or licensee pays a royalty on the mineral won,
which is in excess of what he would pay if his right over the land
extended only to the mere use of the surface land, places it in a
category different from other types where the lessee uses the B
surface of the land alone. Jn each case the rent which a lessee or
licensee actually pays for the land being the test, it is manifest
that the land cess is nothing else except a land tax.
(2) When a question arises as to the precise head of legislative power
under which a taxing statute has been passed, the subject for C
enquiry is what in pith 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 D
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
exactly is a tax on mineral rights seeing that such a tax is not
leviable by Parliament but only by the State and the sole limitation
on the State's power to levy the tax is that it must not interfere
with a law made by Parliament as regards mineral development. E
Our attention was not invited to the provision of any such law
enacted by Parliament. In the context of Ss.78 and 79 and the
scheme of those provisions it is clear that the land cess is in truth
a "tax on lands" within Entry 49 of the State List.

The only decisions referred to in H.R.S. Murthy were Hingir-Rampur F
Coal Co. Ltd and Ors. and MA. Tulloch.

In State of Haryana and Anr. v. Chanan Mal, [1977) I SCC 340,
referring to the provisions of the MMDR Act, 1957 and a State enactment of
Haryana, (the constitutional validity whereof was under challenge) the
Constitution Bench held that subject to the overall supervision of the Central G
Government, the State Government has a sphere of its own power and can
take legally specified action under the Central Act and rules made thereunder.
; '°" Thus, the whole field of controi and regulation under the provisions of the
Central Act 67 of 1957 cannot be said to be reserved for the Central
Government. H
668 SUPREME COURT REPORTS (2004] I S.C.R.

A Western Coalfields ltd. v. Special Area Development Authority, Korba
and Anr., [1982] 1 SCC 125 is a Division Bench decision. The M.P.
Municipality Act, a State enactment, levied property tax payable by the owner
of the land or buildings and could also be recovered from the occupier of the
land or the building in certain contingencies. The validity of the property tax
was upheld by reference to Entry 5 (Local Government) read with Entry 49
B (Taxes on lands and buildings) in List II. The availability of the MMDR Act,
1957, and the declaration incorporated in Section 2 thereof did not come in
the way of the validity of the property tax inasmuch as the property tax 1
levied by the State Government through municipalities had nothing to do ~
with the development of mines. The Court opined that the functions, powers
C and duties of municipalities did not become part of the occupied field by
virtue of declaration under Section 2 of the Act No.67 of 1957 and the
competence of the State to enact laws for municipal administration will remain
unaffected by that declaration. Baijnath Kadio was distinguished.

Goodricke 's case
D
Now, we come to Goodricke's case. The impugned provisions were
incorporated by the West Bengal Taxation Laws (Second Amendment) Act f
1989 into the West Bengal Primary Education Act, 1973 and the West Bengal
Rural Employment and Production Act, 1976. Both the amendments were
identical and have been set out in the earlier part of this judgment.
E
While the State sought to justify the levy of impugned cess by reference
to Entry 49 of List 11, the writ petitioner laid challenge to the validity of levy
on very many grounds. It was submitted, firstly, that to bring the levy within
the field of Entry 49 of List 11 it must be directly upon the land whereas the
F levy in question is really a tax on production of tea, a subject covered by
Entry 84 of List I; secondly, that a tax on land must be a constant figure
whereas the impugned levy varies from year to year based as it is on the
quantity of tea produced in a tea estate in a given year and where there is no
production of tea leaves at all in a particular year, no cess would be payable
by tea· estate in that year; thirdly, that the definition of 'tea estate' further
G establishes the absence of any nexus between 'cess' and the 'land'; land
covered by the factory and building and even fallow land, is included within
the meaning of 'tea estate' and if no tea leaves are produced and plucked,
there would not be levy on the estate at all; and fourthly, that the levy is
clearly invalid in view of the seven-Judges Bench decision of this Court in
H India Cement and the three-Judges Bench decision in Orissa Cement. It was
STATEv. KESORAM INDUSTRfES LTD. [R.C. LAHOTI, J.] 669
x urged that the impugned amendment was brought to remove the defect in the A
levy pointed out in Buxa Dooars, but the f1\aw was persisting. Jeevan Reddy,
J., spoke for the three-Judges Bench, placing on record their unanimous
opinion. The Court noticed, vide para I0, the real factual situation as generally
obtains about the tea estate. The definition o•f 'tea estate' as incorporated by
the amendment is a well-understood entity and hence is legitimately and B
reasonably capable of being classified as a se1parate category for the purpose
of taxation and the rate of tax. The Court, on a near - exhaustive review of
~ the available decisions on the point, arrived ar a few conclusions which, so
"'\ far as relevant for our purposes, are summed up as under:

(i) a financial levy must have a mode of assessment but the mode C
of assessment does not determine thie character of a tax. The
nature of machinery for assessment is often complicated and is
not of much assistance except insofar as it may throw light on the
general character of the tax. The annual value is not necessarily
an actual income but only a standard by which income may be
measured. Merely because the same standard or mechanism of D
assessment has been adopted in a legislation covered by an entry
under the Union List and also by a legislation covered by an
entry in the State List, the latter legislation cannot be said to have
. -<(
encroached upon the field meant for the former;
(ii) the subject of tax is different from the measure of the levy; E
(iii) merely because a tax on land or building ,is imposed by
reference to its income or yield, it does not cease to be a tax on
land or building. The income or yield of the lanc.Vbuilding is
taken merely as a measure of the tax; it does not alter the nature
or character of the levy. It still remains a tax on land or building. F
No one can say that a tax under a particular entry must be levied
only in a particular manner. The legislature is free to adopt such
method of levy as it chooses. So long as the essential character
of levy is not departed from within the four comers of the particular
entry, the manner of levying the tax· would not have any vitiating G
effect;
(iv) ample authority is available to hold that a tax on land within
the meaning of Entry 49 of List II can be levied with reference
to the yield or income. Whether an agricultural land or an orchard
or a tea estate, they do require some capital and labour to make H
670 SUPREME COURT REPORTS [2004] I S.C.R.

A them yield or to produce income which yield or income can
without difficulty be taken as measure for quantifying the tax
which would undoubtedly be a levy on the land;
(v) it is not an essence of a tax, nor a condition of its validity, that
the tax must be constant and uniform for all the years or for a
B particular number of years. The tax on land or building can be
levied and assessed by reference to previous year's income or
yield. In short, it is open to the State Legislature to adopt such
formula as it thinks appropriate for levying the tax and so long
as the character of the tax remains the same as contemplated by
the entry, it does not matter how the tax is calculated, measured
c or assessed;
(vi) it is permissible to classify land by reference to its user as a
separate unit for the purpose of levy of cess. Tea estate, as a
separate category of land, is a valid classification;
D (vii) the fact that the Tea Act empowers the Central Government
to levy a duty or cess upon tea or tea leaves for the purposes of
that Act, can in no manner deprive the State Legislature of its
power to tax the land comprised in a tea estate. By levying the
cess the State Legislature is not seeking to control the cultivation
of tea but only to levy the tax on land comprised in a tea estate.
E The fact that ultimately the tax may have to be borne by the tea
industry is no ground for holding that the said levy is upon the
tea industry. The State Legislature is not denuded of its power to
levy a tax upon the land or upon a building merely because such
land or building is held or owned by an industry which is governed
F by a central legislation.

On applying the abovesaid principles the Court concluded that taking
the quantum of yield of a tea estate for measuring the amount of tax is
perfectly valid and cannot be equated to the situation in India Cement. We
may observe that the reasoning adopted in Goodricke accords with the
G reasoning in Hingir-Rampur.

Having made an independent review of several judicial decisions and
the several settled legal principles, as dealt with hereinabove, we are satisfied
that the Goodricke 's case (supra) was correctly decided and the law laid
H down therein is correct and supported by authority in abundance. The
distinguishing features which exclude the applicability of law laid down in
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.) 671
x India Cement and Orissa Cement to the fact situations like the ones we are A
called upon to deal with, were rightly pointed out in Goodricke and those
very reasons additionally explained by us do not permit the cases on hand
being ruled by India Cement and Orissa Cement.

In a nutshell
B
The relevant principles culled out from the preceding discussion are
summarized as under:-

(I) In the scheme of the Lists in the Seventh Schedule, there exists
a clear distinction between the general subjects of legislation and
heads of taxation. They are separately enumerated. C
(2) Power of 'regulation and control' is separate and distinct from the
power of taxation and so are the two fields for purposes of legislation.
Taxation may be capable of being comprised in the main subject of
general legislative head by placing an extended construction, but that
is not the rule for deciding the appropriate legislative field for taxation D
between List I and List II. As the fields of taxation are to be found
clearly enumerated in Lists I and II, there can be no overlapping.
There may be overlapping in fact but there would be no overlapping
in law. The subject matter of two taxes by reference to the two Lists
is different. Simply because the methodology or mechanism adopted E
for assessment and quantification is similar, the two taxes cannot be
said to be overlapping. This is the distinction between the subject of
a tax and the measure of a tax.

(3) The nature of tax levied is different from the measure of tax.
While the subject of tax is clear and well defined, the amount of tax F
is capable of being measured in many ways for the purpose of
quantification. Defining the subject of tax is a simple task; devising
the measure of taxation is a far more complex exercise and therefore
the legislature has to be given much more flexibility in the latter
field. The mechanism and method chosen by Legislature for
quantification of tax is not decisive of the nature of tax though it may G
constitute one relevant factor out of many for throwing light on
determining the general character of the tax.

(4) Entries 52, 53 and 54 in List 1 are not heads of taxation. They are
general entries. Fields of taxation covered by Entries 49 and 50 in
H
672 SUPREME COURT REPORTS [2004) I S.C.R.

A List II continue to remain with State Legislatures in spite of Union
having enacted laws by reference to Entries 52, 53, 54 in List I. It is
for the Union to legislate and impose limitations on the States'
otherwise plenary power to levy taxes on mineral rights or taxes on
lands (including mineral bearing lands) by reference to Entry 50 and
49 in List II and lay down the limitations on State's power, if it
B chooses to do so, and also to define the extent and sweep of such
limitations.

(5) The Entries in List I and List II must be so construed as to avoid
any conflict. If there is no conflict, an occasion for deriving assistance
from non-obstante clause "subject to" does not arise. If there is
c conflict, the correct approach is to find an answer to three questions
step by step as under:

One - ls it still possible to effect reconciliation between two Entries
so as to avoid conflict and overlapping?
D Two - In which Entry the impugned legislation falls by finding out
the pith and substance of the legislation?

and

Three- Having determined the field of legislation wherein the
E impugned legislation falls by applying doctrine of pith and
substance, can an incidental trenching upon another field of
legislation be ignored?

(6) 'Land', the term as occurring in Entry 49 of List II, has a wide
connotation. Land remains land though it may be subjected to different
F
user. The nature of user of the land would not enable a piece of land
being taken out of the meaning of land itself. Different uses to which
the land is subjected or is capable of being subjected provide basis
for classifying land into different identifiable groups for the purpose
of taxation. The nature of user of one piece of land would enable that
G piece of land being classified separately from another piece of land
which is being subjected to another kind of user, though the two
pieces of land are identically situated except for the difference in
nature of user. The tax would remain a tax on land and would not
become a tax on the nature of its user.

H (7) To be a tax on land, the levy must have some direct and definite
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.) 673
relationship with the larid. So long as the tax is a tax on land by A
bearing such relationship with the land, it is open for the legislature
for the purpose of levying tax to adopt any one of the well known
modes of determining the value of the land such as annual or capital
value of the land or its productivity. The methodology adopted, having
an indirect relationship with the land, would not alter the nature of B
the tax as being one on land.

(8) The primary object and the essential purpose of legislation must
be distinguished from its ultimate or incidental results or consequences,
for determining the character of the levy. A levy essentially in the
nature of a tax and within the power of State Legislature cannot be C
annulled as unconstitutional merely because it may have an effect on
the price of the commodity. A State legislation, which makes
provisions for levying a cess, whether by way of tax to augment the
revenue resources of the State or by way of fee to render services as
quid pro quo but without any intention of regulating and controlling
the subject of the levy, cannot be said to have encroached upon the 01
field of 'regulation and control' belonging to the Central Government
by reason of the incidence of levy being permissible to be passed on
to the buyer or consumer, and thereby affecting the price of the
commodity or goods. Entry 23 in List II speaks of regulation of
mines and mineral development subject to the provisions of List I E
with respect to regulation and development under the control of the
Union. Entries 52 and 54 of List I are both qualified by the expression
"declared by Parliament by law to be expedient in the public interest".
A reading in juxtaposition shows that the declaration by Parliament
must be for the 'control of industries' in Entry 52 and 'for regulation
of mines or for mil)eral development' in Entry 54. Such control, F
regulation or development must be 'expedient in the public interest'.
Legislation by the Union in the field covered by Entries 52 and 54
would not like a magic touch or a taboo denude the entire field
forming subject matter of declaration to the State Legislatures. Denial
to the State would extend only to the extent of the declaration so
made by Parliament. In spite of declaration made by reference to G
Entry 52 or 54, the State would be free to act in the field left out from
the declaration. The legislative power to tax by reference to Entries
in List II is plenary unless the entry itself makes the field 'subject to'
any other entry or abstracts the field by any limitations imposable
and permissible. A tax or fee levied by State with the object of H
~
674 SUPREME COURT REPORTS (2004] I S.C.R.

A augmenting its finances and in reasonable limits" does not ipso facto
trench upon regulation, development or control of the subject. It is
different if the tax or fee sought to be levied by State can itself be
called regulatory, the primary purpose whereof is to regulate or control
and augmentation of revenue or rendering service is only secondary
or incidental.
B
(9) The heads of taxation are clearly enumerated in Entries 83 to 92B
in List I and Entries 45 to 63 in List II. List Ill, the Concurrent List,
does not provide for any head of taxation. Entry 96 in List I, Entry
66 in List II and Entry 47 in List III deal with fees. The residuary
poweroflegislation in the field of taxation spelled out by Article 248
c (2) and Entry 97 in List I can be applied only to such subjects as are
not included in Entries 45 to 63 of List II. It follows that taxes on
lands and buildings in Entry 49 of List II cannot be levied by the
Union. Taxes on mineral rights, a subject in Entry 50 of List II can
also not be levied by the Union though as stated in Entry 50 itself the
D Union may impose limitations on the power of the State and such
limitations, if any, imposed by the Parliament by law relating to
mineral development and to that extent shall circumscribe the States'
power to legislate. Power to tax mineral rights is with the States; the
power to lay down limitations on exercise of such power, in the
interest of regulation, development or control, as the case may be, is
E with the Union. This is the result achieved by homogeneous reading
of Entry 50 in List II and Entries 52 and 54 in List I. So long as a
tax or fee on mineral rights remains in pith and substance a tax for
augmenting the revenue resources of the State or a fee for rendering
services by the State and it does not impinge upon regulation of
F mines and mineral development or upon control of industry by the
Central Government, it is not unconstitutional.

The Result - individual cases

(A) Coal Matters
G The amendments incorporated by the West Bengal Taxation Laws
(Amendment) Act 1992 w.e.f. 1.4.1992 into the provisions of the West Bengal
Primary Education Act 1973 and the West Bengal Rural Employment and
Production Act 1976 classify the land into three categories: (i) coal-bearing
land, (ii) mineral bearing land (other than coal-bearing land) or quarry and
H (iii) land other than the preceding two categories. These three are well-defined
STATEv. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 675
classifications by reference to th'e user or quality and the nature of product A
which it is capable of yielding. The cess is levied on the land. The method
of quantifying the tax is by reference to the annual value thereof. It is well-
known that one of the major factors contributing to the value of the land is
what it produces or is capable of producing. Merely ~ecause the quantum of
coal produced and dispatched or the quantum of mineral produced and B
dispatched from the land is the factor taken into consideration for determining
the value of the land, it does not become a tax on coal or minerals. Being a
... tax on land it is fully covered by Entry 49 in List II. Assuming it to be a tax
on mineral rights it would be covered by Entry 50 in List II. Taxes on
mineral rights lie within the legislative competence of the State Legislature
"subject to" any limitation imposed by Parliament by law relating to mineral C
development. The Central legislation has not placed any limitation on the
power of the States to legislate in the field of taxation on mineral rights. The
challenge to constitutional validity of State legislation is founded on non-
availability of legislative field to State; it has not been the case of any of the
writ petitioners that there are limitations enacted by Central legislation and D
the State of West Bengal has breached or crossed those limits. Simply because
incidence of tax is capable of being passed on to buyers or consumers by the
mine owners with an escalating affect on the price of the coal, it cannot be
inferred that the tax has an adverse effect on mineral development. Entry 23
·+ in List II speaks of regulation of mines and mineral developments, subject to
the provisions of List I with respect to regulation and development under the E
control of the Union. The Central Legislation has taken over regulation and
development of mines and mineral development in public interest. By reference
to Entry 50 of List II and Entry 54 in List I, the Central legislation has not
cast any limitations on the State Legislature's power to tax mineral rights, or
land for the matter of that. The impugned cess is a tax on coal-bearing and F
mineral-bearing land. It can at the most be construed to be a tax on mineral
rights. In either case, the impugned cess is covered by Entries 49 and 50 of
List II. The West Bengal Taxation Laws (Amendment) Act 1992 must be and
is held to be intra vires the Constitution.

We also hold that Mahanadi Coalfields was not correctly decided in as G
much as India Cement Ltd and Orissa Cement Ltd. were applied to the levy
of a cess to which they did not apply. The learned Judges, deciding Mahanadi
Coalfields Ltd were, with respect, not right in forming the opinion that the
4i. cess was levied on minerals and mineral rights and not on land and hence the
conclusion reached therein that the State Legislature did not have the legislative H
competence and that the State legislation trenched upon a field already
I

~

676 SUPREME COURT REPORTS [2004] I S.C.R.

A occupied by Mines and Minerals (Regulation and Development) Act 1957, a
Central Legislation is incorrect. State of Orissa and Ors. v. Mahanadi
Coalfields ltd. and Ors., [1995] Supp. 2 SCC 686, is overruled.

(B) Tea Matters

B Inasmuch as we have held Goodricke Group ltd. and Ors. v. State of
West Bengal and Ors., [1995] Supp. I SCC 707 to have been correctly
decided the impugned levy on tea estates as levied by the West Bengal
Taxation Laws (Second Amendment) Act 1989, is held to be intra vires the
Constitution. However, in brief, we may state that the impugned levy is of
C cesses on tea estates i.e. the land forming part of tea estates as defined in the
impugned Act. The land forming part of the tea estates is a well-defined
classification. Simply because the method for quantifying the tax is by
reference to the yield of the land determinable by taking into account the
quantum of tea produced and dispatched, it does not become a cess on tea
or a tax on production of tea or a tax on income of land. The Tea Act of 1953
D contains a declaration vide Section 2 thereof that it is expedient in the public
interest that the Union should take under its control the tea industry. The
declaration is in terms of Entry 52 in List I. Union's assumption of control
of tea as industry and as being expedient in the public interest, does not
amount to vesting the power to tax or levy fee in the Central Government by
E reference to tea or on tea estates. Section 25 of Tea Act empowers the Central
Government to levy and collect excise duty on tea produces, which on
collection shall be credited to the Consolidated Fund of India. There is no
other provision in Tea Act empowering levy of any tax or fee on tea or tea
bearing land. The impugned cess is a tax on tea-bearing land, a well-defined
classification and is covered by Entry 49 in List II. We uphold the logic and
F reasoning assigned and conclusions drawn by this Court in Goodricke on all
the counts.

(C) Brick Earth Matters

Brick earth is a minor mineral. What we have stated about the impugned
G cess by reference to coal applies to brick earth as well. The field as to
taxation cannot be said to have been covered by Central Legislation by
reference to Entry 54 in List I. Quantification of levy by reference to quantity
of brick earth dispatched is a methodology adopted for the purpose of finding
out the quantity of brick earth removed from the land. It has a definite and
H direct co-relation with the land .. There is no particular charm about the
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTi, J.] 677
)( challenge developed by the writ petitioners laying emphasis on the meaning A
of the word "dispatched". The gist and substance of what the legislature is
taking into account is the brick earth actually removed. "Dispatched" has
the effect of taking into account the brick earth "removed" and not simply
"moved" and left behind. The average quantity of brick earth utilized in
making bricks whether on the brick field itself or on a place nearby, does B
involve removal - and consequently dispatch-of the brick earth from the
place where it was to the place where it is captively consumed in making
bricks. The fact that methodology for working out the royalty payable and
the cess payable is the same, does not have any detrimental effect on the
constitutional validity of the cess whether it be treated as one on the land u
classified by reference to its production, i.e., the brick earth or as one on C
mineral rights in brick earth. Jn either case it would be covered by Entries 49
or 50 in List II. None of the pleas raised has any merit.

(D) Minor Mineral Matters

While narrating the facts, we have quoted in the earlier part of the D
judgment Section 35 of the U.P. Special Area Development Authorities Act,
" 1986 (SADA Act, for short) which is the charging section and the Rules
-+ framed under the Act. We refer to other relevant provisions of the Act in
brief.

Section 3 of the SADA Act authorizes the State Government to declare E
by notification an area to be a special development area upon its forming an
opinion that any area of special importance in the State needs to be developed
in a planned manner. The authority is empowered to prepare a master plan
for the special development area, to provide for the development of lands in
the area, to compulsorily acquire land and so on. The powers are drastic and F
all-oriented with the object of effecting a planned intensive and extensive
development of an area as to which the State Government may have fonned
an opinion that it was an area of special importance. Declaring an area as a
special development area in view of its special importance and constituting
an authority for the administration and management of the area entrusted
with the obligation of its development is not a matter of empty formality. The G
empowerment of the authority is accompanied by an obligation cast on it by
the State Government through the special legislation of fulfilling the object
behind the declaration of special area and constitution of the authority. The
Act has been given an over-riding effect by virtue of Section 52 thereof. Not
only the area is taken out of the administration by the other bodies of local H
678 SUPREME COURT REPORTS (2004] I S.C.R.

A self-government such as municipality or panchayat, but any other master plan
or development plan formulated by any other authority ceases to apply to
such area.

It was contended on behalf of the writ petitioners-appellants that whether
a major or a minor mineral, by virtue of the provisions contained in the
B MMDR Act, 1957 and U.P. Mine and Minerals Concession Rules 1963,
framed in exercise of the power conferred by Section 15 of the MMDR Act,
the mineral rights in any land are subject to payment of royalty which is
fixed. Sections 8 and 9 of the MMDR Act confer the power to enhance or
reduce the rate at which royalty or dead rent shall be payable in respect of
C any mineral. Any cess levied by the State Government would have the effect
of increasing the royalty. Section 2 of the MMDR Act makes the requisite
declaration to the effect that it is ex.pedient 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'. Such declaration
is in the terms contemplated by Entry 54 of List I. It was submitted that the
D levy of cess by the State Government would be clearly repugnant to the
power reserved by the Constitution and the MMDR Act to be exercised only
by the Central Government and hence the impugned levy of cess is repugnant
to the central legislation. To test the validity of the submission we have to t
examine the real nature of the levy and find out if such levy encroaches upon
E the field reserved for central legislation.
All the minerals form part of the land. Minerals are conceived by the
mother eai1h by the process of nature and nurtured over innumerable number
of years and delivered on their assuming value and utility for the earthlings.
Generally and broadly speaking - and that would suffice for our purpose, a
F mine is an excavation in the earth which yields minerals. Mineral is something
which grows in a mine and is capable of being won or extracted so as to be
subjected to a better or precious use. Until extracted, the mineral forms part
of the crust of the earth. A mineral right, according to Black's Law Dictionary
(Seventh Edition) is the right to search for, develop, and remo~e materials
from the land. It also means the right to receive a royalty based on the
G production of minerals which right is usually granted by a mineral lease. In
both the senses, the right vests in the owner of the land and is capable of
being parted with.

It is well settled that it is for the legislature to draft a piece of legislation
H by making the choicest selection of words so as to give expression to its
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 679
)._
intention. The ordinary rule of interpretation is that the words used by the A
legislature shall be given such meaning as legislature has chosen to assign
them by coining definitions contained in the interpretation clause and in
absence thereof.the words would be given such meaning as they are susceptible
of in the ordinary parlance, may be by having recourse to dictionaries. However
still, the interpretation is the exclusive privilege of the Constitutional Courts
and the Court embarking upon the task of interpretation would place such B
~·
meaning on the words as would effectuate the purpose of legislation avoiding
absurdity, unreasonableness, incongruity and conflict. As is with the words
~-
used so is with the language employed in drafting a piece of legislation. That
interpretation would be preferred which would avoid conflict between two
fields of legislation and would rather import homogeneity. It follows as a c
corollary of the abovesaid statement that while interpreting tax laws the
Courts would be guided by the gist of the legislation instead of by the apparent
meaning of the words used and the language employed. The Courts shall
have regard to the object and the scheme of the tax law under consideration
and the purpose for which the cess is levied, collected and intended to be
used. The Courts shall make endavour to search where the impact of the cess D
)I falls. The subject matter of levy is not to be confused with the method and
. manner of assessment or realisation.
-+
It is true that once a central legislation declares regulation of mines and
mineral development by law to be expedient in the public interest, the
E
legislation relating to regulation of mines and development of minerals shall
fall within the sweep of Entry 54 of List I. The entry has to be liberally and
widely interpreted. Yet it cannot be lost sight of that the entry itself employs
an expression "to the extent to which such regulation and development under
the control of the Union is declared by Parliament by law" as qualifying the
preceding expression stating the subject - ''regulation of mines and minerals F
development". Section 2 ofMMDR Act too qualifies the relevant declaration
by suffixing to it the expression ''to the extent hereinafter provided''. Section
15 of the Act has excepted and preserved the power of State Governments
to make rules in respect of minor minerals. The qualifying words used in
Entry 54 of List I and in Section 2 of the MMDR Act contain an in-built
indication that in spite of an inclination on the part of the Courts to be liberal
G
in assigning a wide meaning to the scope of the said provisions, the boundaries
' ,..I. of limitation are there and the expanse of these provisions cannot be so
stretched as to strike at the State Legislations which are adequately
accommodated within the field of an Entry in List 11 which too shall have to
H
680 SUPREME COURT REPORTS [2004) 1 S.C.R.

A be meaningfully and liberally construed.
The MMDR Act enables control over the regulation of mines and the
development of minerals being exercised by the Central Government through
legislation. The High Court has upheld the validity of the SADA Act by
relating it to Entry 5 in List II which is 'local government'. Any local
B government exercising the power of governance over a local area shall have
to administer, manage and develop the area lying within its territory which ..
cannot be done without raising funds. It is usual for every piece of legislation
giving birth to an institution of local government to feed it by incorporating
provisions conferring power of generating funds for meeting the expenses of
C governance. The SADA Act intends to achieve a level of local governance
which the usual models of local government such as boards and municipalities
are not considered capable of achieving and that is why a special development
area and a Special Area Development Authority. The fund established under
the Act meets expenses of administration needed to be incurred by the
authority. The funds cannot be utilized for any purpose other than the
D administration of the Act. There are pieces of land which though containing
a mine yet fall within the territory of special development area. It was pointed
out by the respondents before the High Court that in spite of the Act having
been enacted in the year 1986 the successive State Governments, which had
preceded, did not take care of the legislation and it was only the then
E government which became conscious of its obligations under the SADA Act
and commenced identifying special areas requiring development such as
Sonbhadra. The imposition of cess envisaged through the SADA Act and the
Rules was a step towards developing the special area. It is a matter of common
knowledge, and does not need any evidence to demonstrate, that mining
activity carried on the land within the special area involves extraction, removal,
F loading-unloading, and transportation of the minerals accompanied by its
natural consequences entailed on the environment and the infrastructure such
as roads, water and power supply etc. within the special area. The impugned
cess can, therefore, be justified as a fee for rendering such services as would
improve the infrastructure and genera.I development of the area the benefits
G whereof would be availed even by the stone crushers. Entry 66 in List II is
available to provide protective constitutional coverage to the impugned levy
as fee.

As held in Goodricke Group Lid., [1995] Supp. I SCC 707, which we
have held as correctly decided, this Court has noted the principle of law well
H established by several decisions that the measure of tax is not determinative
\
1'.
STATE v. KESORAM INDUSTRIES LTD. [R.C. LAHOTI, J.] 681
of its essential character. The same transaction may involve two or more A
taxable events in its different aspects. Merely because the aspects overlap,
such overlapping does not detract from the distinctiveness of the aspects. In
our opinion, there is no question of conflict solely on account of' two aspects
of the same transaction being utilized by two legislatures for two levies both
of which may be taxes or fees or one of wh;ch may be a tax and other a fee
falling within two fields of legislation respectively available to the two. B
As we have pointed out earlier, a cess may be tax or fee. So far as the
present case is concerned, this distinction does not need any further enquiry
by reference to the facts of the case inasmuch as the impugned cess is
constitutionally valid considered whether a tax or a fee. We do not propose C
to continue dealing therewith any more inasmuch as it would be an exercise
in futility. We would only place on record briefly our reasons for upholding
the validity of the impugned levy whether a tax or a fee.

As a tax the impugned levy of cess is clearly covered by Entry 5 of List
II (as the High Court has held, and we add) read with Entries 49 and 50 of D
List II. There is no challenge to the declaration of the area as a special
development area and the constitution of Special Area Development Authority
.., for the administration thereof. In other words, the constitutional validity of
the enactment as a whole and the rules framed thereunder is not put in issue.
What is under challenge is only the levy of cess. There is nothing wrong in
the state legislation levying cess by way of tax so as to generate its funds. E
Although it is termed as a 'cess on mineral right', the impact thereof falls on
the land delivering the minerals. Thus, the levy of cess also falls within the
scope of Entry 49 of List II. Inasmuch as the levy on mineral rights does not
contravene any of the limitations imposed by the Parliament by law relating
to mineral development, it is also covered by Entry 50 of List II. The power F
to levy any tax or fee lying within the legislative competence of the State
Legislature can be delegated ~o any institution of local government constituted
by law within the meaning of Entry 5 in List II. The Entries 5, 23, 49, 50 and
66 of List II provide adequate constitutional coverage to the impugned levy
· of cess. True it is that the method of quantifying the cess is by reference to
the quantum of mineral produced. This would not alter the character of the G
levy. There are myriad methods of calculating the value of the land for the
purpose of quantifying the tax reference whereto has already been made by
us in the other part of this judgment. Validity ofcess upon the land quantified
by reference to the quantity of its produce was held to be a levy on the land
and hence constitutional in Ra/la Ram, AIR (1949) FC 81, Moopi/ Nair, AIR H
682 SUPREME COURT REPORTS (2004] I S.C.R.

A (1961)'SC 552 and Ajoy Kumar Mukherjee, AIR (1965) SC 1561. It does not
become excise duty on manufacture and production of goods merely on
account of having relation with the quantity of product yielded of the land.
Rather it is a safe, sound and scientific method of determining the value of
the land to which the product relates. The levy of cess considered as a tax
B is constitutionally valid.

In Western Coalfields ltd. v. Special Area Development Authority, Korba
and Anr., [1982] I SCC 125, the levy of a cess almost similar to the one in
issue in the present case, came up for the consideration of this Court. The ·•
levy was for the purpose of enabling the municipal administration to exercise ).
C its power and discharge its functions under the Act. It was held that the
declaration contained in Section 2 of the MMDR Act does not have the effect
of bringing the powers, duties and functions of the local authority within the
purview of occupied field. The power to levy tax on lands and buildings
within their jurisdiction by the local authority was upheld by this Court.

D The following observations of Constitution Bench in Hingir-Rampur
Coal Co. squarely apply to SADA Act and SADA Rules for upholding their
constitutional validity -

" .... in pith and substance the impugned Act is concerned with the
development of the mining areas notified under it. The Central Act,
E on the other hand, deals more directly with the control of all industries
including of course the industry of coal."

"The functions of the Development Councils constituted under this
Act prescribed by Section 6( 4) bring out the real purpose and object
of the Act. It is to increase the efficiency of productivity in the
F scheduled industry or group of scheduled industries, to improve or
develop the service that such industry or group of industries renders
or could render to the community, or to enable such industry or
group of industries to render such service more economically."

'' ... the object of the (Central) Act is to regulate the scheduled industries
G with a vi~w to improvement and developm~nt of the service that they
may render to the society, and thus assist the solution of the larger
problem of national economy. It is difficult to hold that the field
covered by the declaration made by Section 2 of this Act, considered
in the light of its several provisions, is the same as the field covered
H by the impugned Act. That being so, it cannot be said that as a result

"
STATE v. KESORAM INDUSTRIES 1-TP. (R,C. 1-AHOTI, J.] 683

of Entry 52 read with Act LXV Qf 195 l the vires of the impugned A
)I.. ..
Act can be successfully challe11g11d."

"Our conclusion, therefore, is that the impugned Act is relatable to
Entries 234 and 66 in List II of the Stlvilnth Schedule, and its validity
is not impaired or aff~qted by Entries S2 aad 54 in List I read with
Act LXV of 1951 and Act Lill of 1948 respectively." B
As stated earlier also, th<i impugned cess can be justified as fee as well.
.... The term cess is commonly employ\ld to connote 11 tax with a purpose or a
tax allocated to a particular thing. However, it also means an assessment or
levy. Depending on the context and purpose of levy, cess may not be a tax;
it may be a fee or fee as well. I! is not necessary that the services rendered C
from out of the f~e collec\ed should be directly in proportion with the amount
of fee collected. It is leCj!lilllY not necessary that the services rendered by the
fee collected should remain confined to the persons from whom the fee has
been collected. Availability of indirect benefit and a general nexus between
the persons be&ring the bµrden pf levy of foe and the services rendered out D
of the fee collected is eno11gh !o uph11ld the validity of the fee charged. The
levy of the impugned cess can equally be upheld by reference to Entry 66
read with En\ry 5 pf List II.

Roy!!hY is n.ot a tali\, The impugned cess by no stretch of imagination
can be callecj a tax on tall;. The impugned levy also does not have the effect E
pf increasing the royalty. Simply because the royalty is levied by reference
to the quantity of the 111inerals produced and the impugned cess too is
quantified by taking into consideration the same quantity of the mineral
produced, (he latter does not become royalty. The former is the rent of the
land on wl\ich the mine is situated or the price of the privilege of winning F
the minerals from the land parted by the government in favour of the mining
lessee. The cess is a levy on mineral rights with impact on the land and
-+'· quantified by reference to the quantum of minerals produced. The distinction,
thp4gh fine, yet el(ists and is perceptible.

!n qur opiriion Rmn f)hani Singh v. Collector, Sonbhadra and Ors., G
AIR (2001) All. 5 has been correctly decided. We uphold and affirm the
saine .

~nd Resu((

C.A. Nos. 1532,;i3 of 1993 (Coal Molters) are allowed. The decision H
684 SUPREME COURT REPORTS [2004) I S.C.R.

A by Calcutta High Court [Kesoram Industries ltd (Texiile Division) v. Coal
India ltd., AIR {1993) Calcutta 78 is set aside. The writ petitions filed in ""
the High Court of Calcutta shall stand dismissed.

Leave granted in SLP (C) Nos. 3986 of 1993, I 1596 and 17549 of
1994.
B
C.A. Nos. 298, 299 and 297of 2004 (Ambuja Cement Ltd. and Anr. v.
State of West Bengal and Ors. and C.A.) Nos. 3518-3519, 5149-54of1992,
C.A. No. 2350 of 1993, C.A. No.7614 of 1994 (Coal Matters) are directed ·~
to be dismissed. ._
c W.P.(C) Nos. 262 of 1997 (Tea matters) W.P. (C) Nos. 515, 641, 642
of 1997, W.P. (C) Nos. 347, 360 of 1999, \V.P. (C) Nos. 50, 553 of2000,
W.P.(C) Nos. 207, 288, 389 of 2001 and W.P. (C) No. 81 of 2003 are
directed to be dismissed.

D W.P.(C) No. 247 of 1995 and W.P. (C) No. 412 of 1995 (Brick Earth
Matters) are directed to be dismissed.

C.A. Nos. 5027 of 2000, C.A. Nos. 6643, 6644, 6645, 6646, 6647,
6648, 6649, 6650, 6894 of2000 and C.A. No. 1077 of2001 (Minor Mineral
Matters) are dismissed. The decision by the Allahabad High Court (Ram
E Dhani Singh v. Collector, Sonbhadra and Ors., AIR (2001) Allahabad 5) is
affirmed.

S.B. SINHA, J. INTRODUCTION:

'Coal' and 'Tea' play important roles in the development of economy
F of the country. Coal has been subject matter of regulatory measures even
under the Defence of India Rules. Production, distribution, supply and price
of coal were controlled and regulated under the Colliery Control Order, I 945. ,
'~
The said order was continued under the Essential Commodities Act, I 955.
Under the Colliery Control Order, the Coal Controller was even authorized
G to allot quotas of coal to the Central Government as well as the ·State
Government although the said procedure is not now in vogue, in view of
decontrolling notification issued by the Central Government under the Colliery
Control Order, I 945. The quality of coal and the quantity required by all the
consumers are regulated by the Coal Controller. Coal was the only mineral
which was subjected to nationalization, in terms of Coking Coal Mines
H (Nationalization) Act, I972 and Coal Mines (Nationalization) Act, 1973. The
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 685
coking coal mines mentioned in the 1972 Act and all the coal mines vested A
in the Central Government under the Nationalization Acts. Coking Coal Mines
and Coal Mines except in certain cases belong. to the public sector undertakings
which are companies subsidiary to Coal India Ltd. Even coal mining leases
granted to the lessees stood terminated by reason of Section 4A of Mines and
Minerals (Regulation and Development) Act, 1957 in the year 1976. Coal is
used as a primary raw-material in many core sectors which are vital for the B
economy of the country, e.g., power, steel, oil, etc. Fixation of price of coal
by the Central Government, regard being had to quality thereof, had all along
been subjected to statutory orders. The gradation of coal dependent upon the
quality thereof was to be determined by the 'Coal Board' constituted under
the Coal Mines Conservl!tion and Safety Act. Quality of coal may depend not C
only on the location of\the coal mines but also from the particular seams
wherefrom it is extracted. Requirement of maintenance of price of coal on an
All-India basis had all along been considered to be imperative in the economic
and industrial development of the country.

Despite the same, price of coal produced in India is considered to be D
on the high side as a result whereof it is imported also from other countries
despite its availability in abundance. With a view to reduce the price of coal,
the Central Government has recently even reduced the rate of custom duty.

Tea is also one of the important commodities having regard to its
export potential. An agency of the Central Government .even furnishes E
guarantees to the exporters of tea for export thereof to several countries. [See
ABL International Ltd. and Anr. v. Export Credit Guarantee Corporation of
India Limited and Ors., JT (2003) I 0 SC 300 Export of tea has been the
subject matter of international treaties.
F
Necessity of regulation of price and quality of Coal and Tea having
regard to competitive international market, by the Central Government cannot,
therefore, be minimized.

The constitutional significance involved in these matters is required to
be considered on the aforementioned backdrop. G
SUBJECT MATTER:

The constitutionality of the Cess Act, 1880, West Bengal Primary
Education Act, 1973, West Bengal Rural Employment and Production Act;
1976 as amended by the West Bengal Taxation Laws (Amendment) Act, H
686 SUPREME COURT REPORTS (2004] I S.C.R.
A 1992 whereby and whereunder cess was levied on 'coal', 'tea', 'brick-earth'
and 'minor minerals' is in question in this batch of appeals and writ petitions.

The Calcutta High Court by reason of the impugned judgment in coal
matters declared the cess imposed on coal to be unconstitutional inter alia
having regard to the decisions of this Court in India Cement Ltd. and Ors.,
B v. State of Tamil Nadu and Ors., [1990] I SCC 12 and Orissa Cement
Cement Ltd etc. v. State of Orissa and Ors etc., [1991] Supp I SCC 430.

The Terai Indian Planters' Association and another filed a writ petition -~
under Article 32 of the Constitution of India questioning the imposition of ;..
cess on 'Tea' in terms of the provisions of the impugned Acts.
c
Brick Earth Matters:

The Bengal Brickfield Owners' Association filed a writ pet1t1on
questioning the validity of the impugned Acts inter alia on the ground that
the field relating to minor mineral is covered by the 1957 Act and as such
D the State of West Bengal was denuded of its power to levy any cess on either
extraction of brick earth or on despatch of bricks.

It has been urged that the operations involved in the manufacturing of
bricks as set out in the writ petition are required to be considered by this
E Court, as being relevant to show that the Cess Act, 1880 is not applicable and
that the notices issued demanding payment of cess are arbitrary, illegal and
liable to be quashed being also in breach of the fundamental rights of the
petitioners guaranteed under Articles 14 and 19( I)(g) of the Constitution of
India to run their business of manufacture and sale of bricks.

p It is averred that the brick earth extracted is mixed with sand, fibre and
water and bricks are shaped with the help of moulds; thereafter, the bricks
are sun-dried and put in the kiln for baking at the required temperature to
make finished marketable bricks. The fuel used is coal. All the operations
from quarrying to manufacture of finished marketable bricks are carried out
in the brick-field itself and brick earth is not removed from the quarrying
G field so much so the element of despatch of this minor mineral for sale or for
any other purposes contemplated by Section 6(1)(b) and defined in Section
4 of the Cess Act, 1880 does not arise.

The writ petition was filed questioning a demand made at the rate of
H Rs. 12.50 paise per hundred cubit feet of extracted brick earth in relation
STATE v. KESORAM INDUSTRIES LTD. (S.B. SINHA, l.] 687
whereto the Collector, Hooghly in purported exercise of its 'power under A
Section 72 of the Cess Act, 1880 directed each brick earth quarrier to file
returns in the prescribed form on the average of despatch of brick earth for
the previous three years failing which it was threatened that a daily fine of
Rs. 50 would be imposed. The said deniand was referable to Section 6( 1)(b)
of the Bengal Cess Act, 1880. B
The contention of the respondent is that the cess has been levied for
securing the welfare of the people of the State as enshrined in Part IV of the
Constitution of India. It is, however, accepted that cess is assessed on annual
despatches.

HIGH COURT JUDGMENTS:
c
Coal Matters:

Before the Division Bench of the Calcutta High Court the sole question
which was raised by the parties was as to whether the impugned statutes D
imposing cess are in pari materia with the statutes which have been held
ultra vires by this Court in India Cement (supra) and Orissa Cement (supra).
The High Court in its impugned judgment in extenso referred to the provisions
of Orissa Acts, Madhya Pradesh Act, Bihar Acts and compared the same with
the impugned Acts, noticing that therein also the levy was apparently claimed E
on the 'land', but were declared unconstitutional.

The findings of this Court in India Cement (supra) and Orissa Cement
(supra) were extensively quoted by the High Court. The High Court found
that all the three impugned acts provide that Cess shall be assessed or levied
on different types of lands. It observed that Section 6 of the Cess Act deals F
with three types of immovable properties namely "land", "in respect of all
mines, quarries" and "in respect of tramways, railways and other immovable
property", whereas the West Bengal Primary Education Act divides the subject
matter of the levy into broadly two categories "in respect of Coal Mines and
other mines",. etc. The Division Bench further observed that the impugned G
statutes having made those divisions, each of them provide for assessment of
cess in respect of coal mines on the value of annual despatches of coal. While
holding that the impugned Acts as ultra vires in terms of decisions of this
Court in India Cement (supra) and Orissa Cement (supra), the High Court
applied the tests of "real impact" or "substance of the levy" holding that the
levies in question after the amendment of 1992 are directly upon coal. The H
688 SUPREME COURT REPORTS [2004] I S.C.R.

A High Coui1 also relied upon the decision of this Court in The Federal ion of
Mining Associalion of Rajasthan, and etc. etc. v. State of Rajas than and Anr.,
AIR (1992) SC 103 wherein a three-Judge Bench of this Court in relation to
a similar levy rejected a contention that the Rajasthan Act provided for
imposition of cess not only with reference to royalty but also on dead rent
B and, thus, it is possible to read that the State intended to impose the tax by
reference to the amount of dead rent (even if it is valid insofar as it purported
to make royalty the basis of the tax).

Minor Mineral Mailers:

C The State of U.P. enacted U.P. Special Area Development Authorities
(SADA) Act, 1986. Pursuant to and in furtherance of the power conferred
upon it, the State of U.P. framed rules under the said Act known as Shakti
Nagar Special Area Development Authority (Cess on Mineral Rights) Rules,
1997, inter alia whereby and whereunder cess was levied on minerals on the
ground that the special area development authority had been conferred with
D the powers of municipal corporation.

The writ petitions filed by Ram Dhani Singh and Others questioning
imposition of cess in terms of Shakti Nagar Special Area Development
Authority (Cess on Mineral Rights) Rules, 1997 was dismissed by the High
E Court of Allahabad on the ground that the said rules can be upheld in terms
of Entry 5 of List II of the Seventh Scheduled of the Constitution of India.

SUBMISSIONS:

State of West Bengal has been represented by Mr. Dwivedi in the coal
F matter and Mr. Reddy in the tea matter. Their submissions would, therefore,
be noticed separately. Writ Petitioners and the Respondents, however, have
been represented by a number of counsel.
...
RE:COAL MATTERS:
G Drawing our attention to a comparative chart of the Cess Act, West
Bengal Primary Education Act, 1973 and West Bengal Rural Employment
and Production Act, 1976 as amended from time to time, Mr. Dwivedi would
contend that as by reason of the amendments carried out therein in tenns of
West Bengal Taxation Laws (Amendment) Act, 1992; remedial measures as
H regard the deficiencies pointed out by this Court in India Cement (supra) and
STATE v. KESORAM INDUSTRIES LTD. (S.B. SINHA, J.] 689
Orissa Cement (supra) were taken by the State of West Bengal, the High A
Court committed a manifest error in declaring the same unconstitutional.

The learned counsel would urge that the decisions rendered by this
Court in India Cement (supra) and Orissa Cement (supra) would not be
applicable in these matters as the levy has been imposed on the value of
'coal' being yield from the land and not on royalty. Contention of Mr. Dwivedi B
is that the impugned levy would squarely come within the purview of Entry
49, List II of the Seventh Schedule of the Constitution on the following
grounds:

(i) The impugned enactments exclude consideration of royalty from
the "value of coal" and therefore royalty did not become part of C
cess.
(ii) Value of coal despatched from coal mine is only a basis of measure
of cess as it has a direct and definable relation with value of land.
Produce of land has always been considered to have direct
relevance in determining the value of land. D
)
(iii) That the quantum of levy is dependent upon production of coal
being a matter of collection machinery, the same has no relevance
to the essence thereof.
(iv) Post amendment levy of cess being on the annual value of coal E
which is detem1ined on the basis of sale price thereof but excluding
royalty and other taxes and charges, the despatches of coal is not
the determinative factor for the purpose of judging the nature of
import.

In the alternative it was submitted that cess imposed by reason of the F
impugned enactments would be sustainable with reference to Entry 50 of List
II of Seventh Schedule of the Constitution of India as the same would be tax
on mineral rights.

By reason of the 1957 Act, the Parliament, Mr. Dwivedi would contend,
is only empowered to make a legislation so as to limit the State of its power G
but thereby the Parliament cannot arrogate unto itself the power to impose
tax on mineral rights. Royalty according to the learned counsel has wrongly
been held to be 'tax' in India Cement.

Submissions of the learned counsel appearing on behalf of the
respondents, on the other hand, are: H
690 SUPREME COURT REPORTS [2004] I S.C.R.

A (i) The impugned cess is beyond the legislative competence of the
State either in terms of Entry 49 or in terms of Entry 50 of List
II of the Seventh Schedule of the Constitution.
(ii) As by reason of the impugned acts, cess has been levied on the
value of coal despatched (before 1992) and on the value of coal
B produced (after 1992), they having been levied 011 minerals and,
thus, not either on mineral rights or on land.
. !
(iii) Although mineral is extracted from land but therefor three things
are required viz.
(a) land from which the mineral could be extracted;
c
(b) capital for providing machinery, instruments and other
requirements

(c) labour :
Such a tax is neither a tax on land (Entry 49 of List II) nor 011
D
mineral rights (Entry 50 of List II) but a hybrid tax on mines plus
capital plus labour. It, thus, could only be imposed by the
Parliament under Entry 97 of List I.
(iv) In any event, no tax on mineral right can be imposed as the entire
field of legislation is occupied by the Parliament in view of
E Sections 9, 9A, 13, 18 and 25 of the Mines and Minerals
(Regulations and Development) Act 1957 and the declaration
contained in Section 2 therein. Once it is held that the field is
cov1~red by an act of Parliament the guidelines for determining
the constitutionality of the State Acts not only should be considered
F with reference to the Parliamentary Act and the rules framed
thereunder but also upon taking into account, matters and aspects -....
which can be legitimately brought within the purview of the
legislative competence of the State.
(v) As imposition of tax will have a bearing on mineral rights, the
G Parliament in its wisdom has taken over the entire control
thereover. Whether royalty is a tax on minerals is not an issue
although there is substantial authority for the proposition that the
royalty would be a tax. The Parliament can impose tax not only
under Entry 54 but also in terms of Entry 97 of List I. When an
entry is made subject to another entry the same would mean that
H
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, .I.) 691

out of the scope ofihe former entry a field of legislation covered A
by the later entry has been reserved to be dealt by the appropriate
legislature.
(vi) Tax on land and buildings can be imposed on land as unit and not
on the basis of product thereof. The impugned tax is on activity
of land and as all relevant provisions are required to be taken into B
account and the essential substance thereof is required to be
1. . ascertained for determining the true nature of the impugned
legislation, and, thus, the standard on which the tax is levied is
a relevant consideration for determining the nature thereof.

RE: TEA MATTERS c
The submissions of Mr. V.R. Reddy, learned Senior Counsel aie :

(i) Even if it be held that the legislative fields of the State Li~t and
the Union List overlap, applying the doctrine of pith and substance
and having regard to the history of legislation, Entry 49 must be D
held to be applicable in these matters.
)
(ii) The State has a wide discretion in the matter of taxation.
(iii) For the purpose of interpreting the respective legislative fields of
the Union ·and State Lists, competence of the State legislative E
must be seen first so as to enable the Courts to find out as to
whether it falls within the residuary power of the Parliament or
not.
(iv) The State's power to impose tax must be considered having regard
to the economic activities of the State.
F
The learned counsel would submit that the cases are squarely covered
by the decision of this Court in Goodricke Group ltd. v. State of W.B.,
(1995] Supp I SCC 707 which in turn had relied upon Rafla Ram v. Province
of Eas/ Punjab, AIR (1949) FC 81 and Ajay Kumar Mukherjee v. local
Board of Barpeta, (1965] 3 SCR 47. Mr. Reddy would urge that the principles G
emerging from the said decisions are that - (i) what is relevant is the use of
the land and annual value of the property and not the real value of the
property; (ii) the yield/income, actual or potential productivity would be
relevant factors; (iii) the subject of a tax is different from the measure thereof.

It was pointed out that the municipal law relating to property tax would H
692 SUPREME COURT REPORTS (2004] I S.C.R.

A also be relatable to Entry 49, List II and this Court in relation thereto has held
that actual value may be a relevant consideration.

According to the learned counsel green tea leaf is not a marketable
commodity and in that view of the matter, it cannot be said that there exists
B a competing entry for levy of excise duty thereupon in terms of the provisions
of the Central Excise and Salt Act, 1944 and, thus, the State must be held to
have the legislative competence to impose the impugned tax. Strong reliance,
in this connection, has been placed on Union Carbide India Limited v. Union · 1
of India and Ors., (1986] 2 SCC 547 and Ra/la Ram's case (supra). )..

C The learned counsel would submit that despite Entry 52, List I, this
Court has held that thereby the other taxing powers of the State have not
been taken away.

The learned counsel appearing on behalf of Writ Petitioners, on the
other hand, submitted:
D
(i) The Parliament in its wisdom has taken over the control of entire
tea industry including the manner and extent of cultivation,
regulation of production, regulation of sale and export of tea, '
increasing the consumption in India and elsewhere in tea and )'

propagandas to be made for that purpose as would appear from
E Sections 10, 13, 15, 25 and 30 thereof.

(ii) A!though agriculture is a State subject, the Tea Act ha·1ing been
enacted by the Parliament in terms of Article 253 of the
Constitution, the State of West Bengal was denuded of its power
to make any legislation whatsoever.
F
(iii) Having regard to the declaration made in Section 2 of the Tea 1..,.
Act, 1953, the entire tea industry having been taken over in terms
of Entry 52 of List l of the Seventh Schedule of the Constitution,
the impugned legislation must be held to be bad in law.
G
(iv) The purported levy is not relatable to Entry 49, List II of the
Seventh Schedule of the Constitution of India as in terms thereof
the tax is required to be levied directly on the land as a unit.
.J.
(v) The structure of the levy clearly indicates that it is directly on
H production.
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 693
(vi) Whereas a small tea estate employing modern cultivation A
techniques may produce a larger quantity of tea leaves and,
thus, are required to pay a higher amount of tax but a larger
estate employing primitive methods and thus producing smaller
quantity of tea leaves would pay less amount of cess.
(vii) Furthermore, the quality of tea leaves varies from place to place B
and depend upon the quality and characteristics of the land.
(viii)As by reason of the impugned Act, a uniform cess on quantity
of tea leaves without regard to the quality, quantity or
productivity of land has been levied, the same is illegal.
(ix) Imposition of tax at a flat rate, it was urged, has nothing to do C
with the potential productivity and thus the same is ultra vires
Article 14 of the Constitution of India.
(x) If measure of the tax is not in tune with reference to the value
or potential productivity, the same would be a pointer to the
conclusion that the legislative intent was not to impose tax on D
land but on the production of tea.

BRECK EARTH AND MINOR MINERAL MATTERS:

The learned counsel appearing on behalf of the Brick Earth matters and E
Minor Mineral matters would contend that although the State has the requisite
power to make rules in relation to minor minerals in terms of Section 15 of
the 1957 Act, but as the entire field is covered, no cess can be levied by the
State Government purported to be in exercise of its power under Entry 5 of
List II of the Constitution of India.
F
ISSUE:

The core issue with which this Court is concerned is as to whether the
legislative competence of the State to impose cess is traceable to Entries 49
and 50 of List II vis-a-vis Entries 52, 54 read with Entry 97 of List I of the
Seventh Schedule of the Constitution of India. G

OVERVIEW OF THE STATUTES:

The impugned Acts:

Cess Act, 1880: H
694 SUPREME COURT REPORTS [2004] I S.C.R.

A Under Section 4 (Interpretation Clause) of the Cess Act, 1880
"immovable property" and "land" have been defined as follows:

(i) "immovable property" includes lands and all benefits to arise
out of land and things attached to the earth, or permanently
fastened to anything which is attached to the earth, but does not
B include crops of any kind, or houses, shops or other buildings.

"land" means land which is cultivated, un-cultivated covered
with water and does not include houses or buildings.
"Despatch" in the said Act has been defined as:
c "despatch" in relation to a coal mine, means the quantity of
coke and coal despatched from the coal mine and that, in relation
to other mines and quarries including sand quarries, means the
quantity of minerals/ sand despatched from such mine or quarry."

Section 5 of the Cess Act, 1880 inter alia imposes road cess and public >--
D works cess on all immovable properties which in terms of Section 6 are
required to be assessed in respect of mines and quarries on annual despatches
subject to maximum of 50 paise on each tonne of coal and in the case of
coke, the same shall be counted as one and a quarter tonne of coal.

E West Bengal Primary Education Act, 1973:

Under Section 78(2)(b) of the West Bengal Primary Education Act,
1973, cess is imposed at five per centum of the value of the coal on the
despatches therefrom. While determining the value of such coal, any sum
separately charged as tax, cess, duty, fee or royalty is to be excluded but in
F case of despatches other than sale which may be for the purpose of its own
consumption or given to the workmen the cess shall be determined on the
prices chargeable by the owner of the coal mine for such coal as if they were
despatched for sale thereof. In case, however, more than one price is charged
for the same variety of coal, the maximum price chargeable for that variety
G shall be the basis of valuation.

West Bengal Rural Employment and Production Act, 1976:

Under Section 4(2)(b) of the West Bengal Rural Employment and ..t
Production Act, 1976, 35 per cent of cess is levied on each tonne of coal on
H the despatches therefrom. The other provisions are, however, same as in
~..
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 695
Education Act A
Amendments:

After the decision of this Court in India Cement (supra), the State of
West Bengal enacted West Bengal Taxation Laws (Amendment) Act, 1992
which came into force with effect from 1.4.1992. The relevant amendments B
made thereunder are:

"2. In the West Bengal Primary Education Act, 1973,-
(1) in section 78 for sub-sec.(2), the following sub-section
shall be substituted C
(2) The education cess shall be levied annually
(a) in respect of land, except when a cess is leviable and
payable under clause (b) or clause (c) ofsub-sec.(2A) at the rate
of ten paise on each rupee of annual value thereof as assessed
under the Cess Act, 1880; D
(b) in respect of a coal-bearing land, at the rate of five per
centum of the annual value of the coal-bearing land as defined
in clause (1) of S.2 of the West Bengal Rural Employment and
Production Act, 1976;
(c) in respect of a mineral-bearing land (other than coal-
E
bearing land) or quarry, at the rate of one rupee on each tonne
of minerals (other than coal) or materials despatched within the
meaning of clause (lb) of S.2 of the West Bengal Rural
Employment and Production Act, 1976, from such mineral
bearing land or quarry; F
Provided that when in the coal-bearing land referred to in
clause (b) there is no production of coal for more than two
consecutive years, such land shall be liable for levy of cess in
respect of any year immediately succeeding the said two
consecutive years in accordance with clause (a); G
Explanation. For the purposes of this chapter, 'coal-bearing
land' shall have the same meaning as in clause (la) ofS.2 of the
West Bengal Rural Employment and Production Act, 1976."

Similar provisions were inserted by reason of Section 3 of West Bengal H
696 SUPREME COURT REPORTS [2004] I S.C.R.

A Rural Employment and Production Act and as such is not being reproduced
once over again.

However, it may be noticed that by reason of the said amendment, cess
has been imposed even on a mine when there has been no production of coal
for more than two consecutive years and in that event the coal bearing land
B shall be subject to payment of cess for any year succeeding the said two
consecutive years. Similar provision has been made in Section 4 of the West
Bengal Rural Developme_nt and Production Act also.

Various amendments made in the said two acts will appear from the
C following chart:

Changes in unit and rate of cess under the West Bengal Primary
Education Act, 1973 arc as under :

Statute Coal Tea
D Act XLIII of 1973* S. 78(2)(b): Not exceeding Rs. No separate section S.
p.I at 2 0.50 per tonne on annual 78(2)(a): Not exceeding
despatches of coal Rs. 0.10 on annual value
of the land

Act IX of 1981 S. 6: Rs. 0.50 raised to Re. I No change
E p.6

Act V of 1982 S. 5: Re. 1 raised to Rs. 2 Word No change
p.9 "annual" deleted

Act XV of 1983 S. 6: Rate changed to 2% of No change
p. 14-15 the value of coal despatched.
F (Value of coal defined in the
Explanation)

Act IV of 1984 S. 5(1)(b)(iii): 2%raised to 3% S. 5(1)(b): Tea estates
p. 16-17 taken out of the ambit of
S. 78(2)(a). New
G S. 78(2)(aa): Not exceeding
Rs. 6 per kg of tea on
despatches from the tea
estate

Act XX of 1989** No change. S.2: S. 78(2)(aa) omitted
p. 30 at 31 and replaced by S. 78(2A).
H S. 78(2A): Cess at the rate
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 697
of Rs. 0.04 per kg of A
green tea leaves produced
(Effective from 14.4.1984
and validation clause also
passed.)

Act l1 of I 992 S. 2( 1): S. 78(2) replaced by No change
B
p. 37 at 38 a new section. New S.
78(2)(b): cess on coal-bearing
lands @ 5% of the annual
value of the land, as defined
in S. 2(1) of Act XIV of 1976
(on the basis of value of coal
produced in the preceding c
two years).

Act X of 1996 S. 5: 5%raised to 7% No change
p. 48

Act Vlll of 1998 S. 2: 7% reduced to 5% No change
p. 49
D

* West Bengal Primary Education Act, 1973
** West Bengal Taxation Law~ (Second Amendment) Act 1989
Changes in unit and rate of cess under the West Bengal Rural Employment E
· and Production Act, 1976

Statute Coal Tea

Act XIV of 1976* S.4(2)(b): Not exceeding Rs. No separate section.
p. 3-4 0.50 per tonne on annual S. 4(2)(a): Not exceeding F
despatches of coal Rs. 0.06 on development
value of the land
(Defined in S.2(1) as five
times the annual value.)

Act XIV of 1978 S.5: Rs. 0.50 raised to Rs. No change G
p.5 2.50

Act IX of 1981 S. 7(b)(iii): Rs. 2.50 raised S. 7(b): Tea estates taken
p. 6-7 to Rs. 5. out of the ambit of S.
4(2)(a). New S. 4(2)(aa):
Not exceeding Rs. 6 per H
698 SUPREME COURT REPORTS [2004) l S.C.R.

A kg of tea on despatches
from the tea estate.
(Proviso that auction
sales may be excluded.)

Act V of 1982 S. 7( I )(a)(ii): Rs. 5 raised S. 7(l)(a)(i): Proviso
p. 9 at 11 to Rs. 7.50. Word "annual" deleted
B deleted

Act Vlll of 1983 S. 8: Rs. 7.50 raised to No change
p. 13 Rs.15

Act XV of 1983 S. 7(i): Rate changed to No change
C p. 14 at 15 15% of the value of coal
despatched. (Value of coal
defined in the Explanation)

Act IV of 1984 S. 7: 15% raised to 17% No change
p. 16 at 19

D
Act l of 1986 S. 8(1 ): 17% raised to "not No change
p. 20 at 24 exceeding 25%"

Act Ill of 1988 S. 6: 25% raised to 35% No change
p. 29
E Act XX of 1989** No change S. 3: S. 4(2)(aa) omitted
p. 30 at 33-34 and replaced by S.
4(2A). S. 4(2A): Cess at
the rate of Rs. 0.12 per
kg of green tea leaves
produced (Effective
F from 1.4.1981 and
validation clause also
passed).

Act II of 1992 S. 3(2): S.4(2) replaced by No change
p. 3 7 at 42-43 a new section. New
S.4(2)(b): Cess on coal-
G bearing lands@ 35% of the
annual value of the land, as
defined in S.2(1) of the Act.
(Inserted by S. 3( l )(a) of
this Act - annual value
defined on the basis of
H value of coal produced in
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 699
the preceding two years. A

Act XVI of 1994 No change S. 6: Rs. 0.12 reduced
p. 47 to Rs. 0.08

Act X of 1996 S. 6: 35% raised to 38% No change
p. 48
B

Act Vlll of 1998 S. 3: 38% reduced to 20% No change
p. 49-50

*West Bengal Rural Employment and Production Act, 1976 c
**West Bengal Taxation Laws (Second Amendment) Act 1989
The aforementioned charts go to show that in relation to Education
Cess, variation has been made from 0.50 p. per M.T. to 7% of the value of
coal and in relation to Rural Education, the rate of cess varied from 0.50 p. D
to 38% of the value of coal.

So far as tea is concerned, the following amendment has been made in
the Act:

"(2A) The education cess shall be levied annually on a tea estate at E
the rate of four paise for each kilogram of green tea leaves produced
in such tea estate.

Explanation to Section 2A provides that for the purpose of the said
sub-section, Section 78B and Section 78C -
F
(i) 'green tea leaves' shall mean. the plucked and unprocessed green
leaves of the plant Camelia Sinensis (L) 0. Kuntze;
(ii) 'tea estate' >hall mean any land used or intended to be used for
growing plant Camelia Sinensis (L) 0. Kuntze, and producing
green tea leaves from such plant, and shall include land comprised G
in a factory or workshop for producing any variety of the product
commercially known as 'tea' made from the leaves of such
plant and for housing the persons employed in the tea estate and
other lands for purposes ancillary to the growing of such plant
and producing green tea leaves from such plant."
H
~/
'

700 SUPREME COURT REPORTS (2004] I S.C.R.

A U.P. Special Area Development Authorities Act, 1986: ;;1,

Section 35 of the Act provides as under:

"35. Cess on mineral rights:

B (I) Subject to any limitations imposed by Parliament by law relating
to mineral development, the Authority may impose a cess on
mineral rights at such rate as may be prescribed.
(2) Any Cess imposed under this section shall be subject to
confirmation by the State Government and shall be leviable with
c effect from such date as may be appointed by the State
Government in this behalf."

In exercise of the power conferred by Section 35 of the Act, the Governor
made the Shakti Nagar Special Area Development Authority (Cess on Mineral
Rights) Rules, 1997. Rule 2(b) and Rule 3(I) and (2) thereof read as under:
D
"2. In these rules, unless there is anything repugnant in the subject or
context.

(a) xxx xxx xx xx

E (b) "Mineral Rights" means rights conferred on a lessee under a
mining lease granted or renewed for mining operations in relation to
Minerals (providing operation for raising, winning or extracting coal)
as defined in the Mines and Minerals (Regulation and Development)
Act, 1957 (Act No. 67 of 1957).
F
"3.( I) The Authority may, subject to sub-rules (2) and (3) impose a
cess on mineral rights on such minerals and minor minerals and at
such rates as specified below:

Mineral/Minor Minimum Rate Maximum Rate
G Mineral
(I) Cess on Coal Rs. 5.00 per ton Rs. I0.00 per ton
(2)' Cess on Storie, Rs. 2.00 Rs. 5.00
CoArse Sind/ Sand per cubic metre. per cubic metre.

H
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.) 701
(2) The rates shall not be less than the minimum rates or more than A
the maximum rates specified in sub-rule (1) and shall be determined
by the Authority by a special resolution which shall be subject to
confirmation by the State Government."

M.M.R.D. Act, 1957-Purport and object:
B
While enacting the 1957 Act, it was stated:

"Amending Act 15 of 1958:- In view of its importance as basic fuel
and the position it occupies in the country's economy, coal has always
been treated differently from other minerals. It is in recognition of
this that no rules have been framed so far under Section 7 of the C
Mines and Minerals (Regulation and Development) Act, 1948, in
regard to modification of the terms and conditions of mining leases
for coal granted before the commencement of that Act, though other
minerals have been covered.

2. The Mines and Minerals (Regulation and Development) Act, 1957 D
(67 of 1957), which replaces the Act of 1948, however, specifically
extends the rate of royalty prescribed in the Second Schedule to
f
mining leases granted before the 25th October, 1949, in respect of
'(
coal also and makes it obligatory for the other terms and conditions
of such leases to be brought into conformity with the provisions of
the Act and the rules made under sections 13 and 18. It is considered
E
that these changes will have numerous undesirable consequences.
The area covered by these mining leases are principally in West
Bengal and Bihar and they account for as much as 80 per cent, of the
total coal production in the country. The royalties paid on this coal
vary over a wide range but are generally much below the rate per ton F
prescribed in the Second Schedule. A sudden and uniform increase of
-~
these royalties is likely to have an unsettling effect on the industry
and may retard the programme of coal production under the Second
Five Year Plan. The same adverse effect would be felt by a sudden
modification of the other terms and conditions.
G
3. The object of the present Bill is accordingly to exempt mining
leases for coal granted before the 25th October, 1949 from the
J. operation of sub-section (I) of section 9 and sub-section (I) of section
16 of the Act, with powers to Government to extend these provisions
to such leases at a future date subject to such exceptions and
H
702 SUPREME COURT REPORTS [2004] I S.C.R.

A modifications as may be considered necessary.-See. Gaz. Of India,
28-5-1958, Pt. II, section 2, Ext., p. 502."

The 1957 Act was enacted for regulation of mines and development
of minerals under the control of Union. Section 2 provides for the requisite
declaration which is as under:
B
"Declaration as to expediency of control by the Union:- 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." f;c

C In the said Act, "minor minerals" is defined as:

"minor minerals" means building stones, gravel, ordinary clay,
ordinary sand other 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 mineral;"
D
In terms of Section 4, mining operations either under a prospecting
licence or mining lease is to be carried out only under a licence or lease to
be granted in the manner prescribed by the rules made under Sections 13 and
15 thereof as the case may be. Section 9 of the said Act provides for royalty.
E Section 9A provides for dead rent. Section 13 confers power on Central
Government to.make rules in respect of major minerals. Rules may provide
for fixing and collection of rent, fees, charges, etc. for prospecting Iicenses
or Mining Leases.

Section 15 of the said Act provides for rule making power by the State
F in relation to the minor minerals; pursuant to or in furtherance whereof the
State Government framed Minor Mineral Concession Rules for regulating
grant of quarry lease, mining lease and other mineral concessions in respect
of minerals and purposes connected therewith. Section 15( 1-A)(g) reads thus:

"l-A. In particular and without prejudice to the generality of the
G foregoing power, such rules may provide for all or any of the following
matters, namely:-

(g) the fixing and collection of rent, royalty, fees, dead rent, fines or
other charges and the time within which and the manner in which
these shall be payable;"
H
STATE v. KESORAM INDUSTRIES LTD. (S.B. SINHA. J.) 703
Sections 17 and 17 A grants special power to the Central Government A
to undertake prospecting and mining operation in certain cases and reservation
of area for the purpose of conservation. Section 18 of the Act imposes a
statutory duty upon the Central Government to take all such steps as may be
necessary for the conservation and systematic development of minerals in
India and for the protection of environment by preventing or controlling any B
pollution which may be caused by prospecting or mining operations and for
such purposes the Central Government may, by notification in the Official
Gazette, make such rules, as it thinks fit.

Sub-section (2) of Section 18 provides illustrations of some of the
matters which are to be governed by such rules. Section 21 provides for C
penalties. The 1957 Act is a complete code providing for regulation of mine
and mineral development including the power to levy tax. Section 25 deals
with recovery of rent, royalty, tax, fee or other sums due to the Government
under the Act or the Rules framed thereunder which shall be a first charge
on the assets and recovery as an arrear of land revenue and, thus, by necessary
implication confers power to impose tax on the mineral. D

TEA ACT, 1953

The Tea Act was enacted by the Parliament indisputably in exercise of
its legislative power contained in Entry 52, List I of the Seventh Schedule of
the Constitution of India. A requisite declaration to that effect also finds E
place in Section 2 of the Act. The preamble of the Tea Act clearly points out
that the same was enacted to provide for the control by the Union of the tea
industry including the control, in pursuance of the International Agreement
now in force, of the cultivation of tea in, and of the export of tea from, India
and for the purpose of establishing a Tea Board and levy a duty of excise on F
tea produced in India.

The Statement of Objects and Reasons, the report of the Select
Committee as also the various amendments made therein from time to time,
particularly Amending Act 21 of 1967, Amending Act 22 of 1970, Amending
Act 75 of 1976, Amending Act 38 of 1983 and Amending Act 24 of 1986 G
leave no manner of doubt that the tea industry had occupied a very important
position in the country and in that view of the matter alone the Union
Government took the industry under its control.

'Cess' has been defined in Section 3(c) to mean the duty of excise H
704 SUPREME COURT REPORTS [2004] I S.C.R.

A imposed by Section 25.

'Owner' has been defined in Section 3(k) in the following terms :

''Owner!' -

B (i) with reference to a tea estate or garden or a sub-division thereof
the possession of which has been transferred by lease, mortgage
or otherwise, means the transferee so long as his right to
possession subsists; and
(ii) with reference to a tea estate or a garden or a sub-division for
c which an agent is employed, means the agent if and in so far
as, he has been duly authorised by the owner in that behalf;"

We may further note the definition of 'tea' as contained in Section
3(n) thereof which is in the following terms :

""tea" means the plant Camellia Sinensis (L) 0. Kuntze as well as
D all varieties of the product known commercially as tea made from
the leaves of the plant Camellia Sinensis (L) 0. Kuntze including
green tea;'';

is in pari materia with the State Act.
E Chapter II of the Act provides for constitution of the Tea Board. Section
to provides for the duties and functions of the Board which in no uncertain
terms states that it shall be the duty of the Board to promote by such measures,
as it thinks fit, the development under the control of the Central Government
of the tea industry. Sub-section (2)(a) of Section IO unlike other Act provides
p for regulation of production and extent of cultivation of tea. The Board has,
inter a/ia, a duty to regulate the sale and export of tea; increasing the
consumption in India and elsewhere of tea and carrying on propaganda for
that purpose; and improving the marketing of tea in India and elsewhere.
The Board in terms of sub-section (3) of Section I0 is enjoined with a duty
to act in accordance with and subject to such rules as may be made by the
G Central Government. Chapter Ill provides for control over the extension of
tea cultivation. Section 12 prohibits planting of tea on any land unless
permission therefor is granted by the Board. Section 13 provides for the
limitations to the extension of tea cultivation. Even the total area of land in
respect of whicli such permission may be granted shall be such as may be
H determined by the Board, as is explicit from sub-section (2) of Section 13
STATE v. KESORAM INDUSTR !ESL TD. [S.B. SINHA, J.] 705
in terms whereof information in relation to such matters are to be notified. A
Section 14 provides for the manner in which the applications for grant of
permission to plant tea are to be dealt with. Any decision taken by the Board
in terms of sub-section (3) of Section 14 on such applications is not to be
called in question by any Court. Section 15, however, makes an exception for
grant of permission in special circumstances as specified therein. Section 16 B
empowers the owner of a tea estate to establish tea nurseries but even for that
purpose all areas of land utilized therefor shall be excluded when computing
for the purpose of Section 13 the total area of land in respect of which the
permissions referred to in Section 12 may be granted. Chapter IIIA which
was inserted by Act No.75 of 1976 provides for management or control of
tea undertakings or tea units by the Central Government in certain C
circumstances specified therefor. Management of such tea undertakings or
tea units can be taken over in the event any exigency/situation as referred to
therein comes into being. The definition of 'tea unit' as contained in Chapter
IIIA is also a pointer to the fact that a tea unit would mean a tea estate or
garden. Chapter IV provides for control over the export of tea and tea seed.
Chapter V of the said Act deals with finance, accounts and audit. Section 25 D
of the Act has undergone a substantial amendment by reason of Amending
Act 24 of 1986, the Statement of Objects and Reasons whereof reads thus :

"Amending Act 24 of 1986: Under section 25 of the Tea Act, 1953
(29 of 1953 ), the Central Government is empowered to levy and E
collect as a cess, a duty of excise on all tea produced in India at the
rate of four paise per kilogram. The Central Government is, however,
empowered to fix a higher rate of cess not exceeding 8.8 paise per
kilogram. The present rate of cess of eight paise per kilogram was
made effective from August, 1978. Although, this rate is almost at
the maximum rate allowed under the Act, the amount of cess collected F
h1s become insufficient to meet the expenditure of the various
developmental and other activities of the Tea Board. The gap between
the proceeds from the cess and the actual expenditure of the Tea
Board is likely to when further in view of the higher level of
expenditure envisaged in the Seventh Plan. The ceiling of 8.8 paise G
per kilogram, therefor, needs to be revised. It is, accordingly, proposed
to amend section 25 of the Act for providing higher ceiling of levy
of cess at a rate not exceeding fifty paise per kilogram as the Central
Government may, from time to time, fix by notification. It is also
proposed to empower the Central Government to fix different rates
for different varieties and grades of tea having regard to the H
706 SUPREME COURT REPORTS [2004] I S.C.R.

A geographical, climatic and other circumstances relating to the
production of the different varieties and grades of tea. "

The said provision, therefore, enables the Central Government to provide
for imposition of cess on tea produced in India. Sub-section (I) of Section
25 provides that ''there shall be levied and collected as a cess for the purposes
B of this Act a duty of excise on all tea produced in India at the rate of four
paise per kilo gram".

Section 30 of the Act occurring in Chapter VI of the Act specifies the
area of control taken over by the Central Government. It reads thus :-

c "30. Power to control price and distribution of tea or tea waste:

(I) The Central Government may, by order notified in thc: Official
Gazette, fix in respect of tea of any descripti_on specified therein -

(a) the maximum price or the minimum price or the maximum
D and minimum prices which may be charged by a grower of tea,
manufacturer or dealer, wholesale or retail, whether for the Indian
market or for export; 1
)r
(b) the maximum quantity which may in one transaction be sold
to any person.
E
(2) Any such order may for reasons to be specified therein -

(a) fix prices for such tea differently in different localities or for
different classes of dealers, or for growers of tea or manufacturers;
F (b) instead of specifying the price or prices to be charged, direct
that price or prices shall be computed in such manner and by reference
to such matters as may be provided by the order.

(3) The Central Government may, by general or special order -
G (a) prohibit the disposal of tea or tea waste except in such
circumstances and under such conditions as may be specified in the
order;
>
(b) direct any person growing, manufacturing or holding in stock
tea or tea waste to sell the whole or a part of such tea or tea waste
H
STATE v. KESORJ\M INDUSTRIES LTD. [S.B. SINHA. J.] 707
so grown or manufactured during any specified period, or to sell the A
whole or a part of the tea or tea waste so held in stock, to such person
or class of persons and in such circumstances as may be specified in
the order;

(c) regulate by licences, permits or otherwise the production,
siorage, transport or distribution of tea or tea waste. B
(4) Where in pursuance of any order made with reference to clause
(b) of sub-section (3), any person sells the whole or a part of any
quantity of tea or tea waste, there shall be paid to him as price
therefor -

(a) where the price can be fixed by agreement consistently with
c
the order, if any, relating to the fixation of price issued under sub-
section (I), the price so agreed upon;

(b) where no such agreement can be reached, the price calculated
with reference to any such order as is referred to in clause (a); D
(c) where neither clause (a) nor clause (b} applies, the price
calculated at the market rate prevailing in the locality at the date of
sale.

(5) Without prejudice to the generality of the power conferred by E
sub-sections (1) and (3), any order made thereunder may provide -

(a) for requiring persons engaged in the production, supply or
distribution of, or trade and commerce in, tea or tea waste to maintain
and produce for inspection such books, accounts and records relating
to their business and to furnish such information relating thereto as
F
may be specified in the order;

(b) for such other matters, including in particular the entering and
search of premises, vehicles, vessels and aircraft, the seizure by a
person authorized to make such .search, of tea or tea waste in respect
of which such person has reason to believe that a contravention of the G
order has been, is being or is about to be committed, the grant or
issue of licences, permits or other doc11ments and the charging offees
therefor."

The Central Government in exercise of its power conferred upon it
under Section 30 of the Tea Act made an order known as Tea (Marketing) H
/

y

708 SUPREME COURT REPORTS [2004] I S.C.R.

A Control Order 2003 in terms whereof different types of tea had been brought
within the interpretation clause. Clause 2(q) of the Order defines "Bought
leaf tea factory" as follows:

"2(q) "Bought leaf tea factory" means a tea factory which sources not
less than two-thirds of its tea leaf requirement from other tea growers
B during any calendar year for the purpose of manufacture of tea".

FEDERALISM-

Federalism is one of the basic pillars of the Indian Constitution. The
C federal distribution of powers are one of its unique features. Having regard
to Articles 245, 248, 250, 256, 257, 356 and Entry 97 in list I of the VII
Schedule of the Constitution, it is not possible to say that India is not a
subscriber to federalism but although having unique federal character it can
be said to be quasi-federal or hybrid federal State. Constitutional courts have
interpreted that India has a federal polity. Each State has independent
D constitutional existence assigned with important political role.

Having regard to the aforementioned principles in mind, the Center-
State relations as regards the distribution of legislative power must be viewed.

We may notice that Livingston in his treatise "Federation and
E Constitutional Change, I956, pp.6-7" has observed that federation is a more
functional than institutional concept and it is wrong to suppose that there are
certain inflexible features in the absence of which a political system cannot
be federal stating:

"Such a set of criteria ignores the fundamental fact that institutions
F are not the same things in different social and cultural environments ....
No two societies are the same and each will require very different
instrumentalities in accordance with the complex of psychological
and sociological determinants that is peculiar to it."

G It is not in dispute that the founding fathers intended to create strong
Centre having regard to the historic background. Such a tilt in favour of the
Centre as regard distribution of legislative field was felt to be a matter of
necessity and that is precisely the reason why more important heads of
legislation are in the Union List. Even the residuary power has been conferred
upon the Parliament. The amendments made in the Constitution whereby and
H whereunder a few entries in List II which were either omitted or transferred
STATE v. KESORAM INDUSTRIES LTD. (S.B. SINHA, J.] 709
to other lists also is a pointer to the said fact. A
In Florida lime and Avocado Growers v. Charles Paul, 373 US 132:
10 Law. Ed. 2d 248), it is stated:

"We have, then, a case where the federal regulatory scheme is
comprehensive, pervasive, and without a hiatus which the state B
regulations could fill. Both the subject matter and the statute call for
uniformity. The conflict is substantial - at least six out of every I00
federally certified avocados are barred for failure to pass the California
test - and it is located in a central portion of the federal scheme. The
effect of the conflict is to disrupt and burden the flow of commerce C
and the sale of Florida avocados in distant markets, contrary to the
congressional policy underlying the Act. The State may have a
legitimate economic interest in the subject mal/er, but it is adequately
serred by the federal regulations and this interest would be but slightly
impaired, if at all, by the suppression of S.792."
D
As would be discussed hereinafter in detail, the same principle would
apply in the instant case .
..
"'( Latham, C.J. in The State of South Australia and Anr. v. The
Commonwealth and Anr., (1942) 65 C.L.R. 373 explained the legalistic feature
stating: E

"The problem for the Court is a legal problem which is 1»1known in
countries with a unitary form of government and a supreme legislature.
It arises only when legislative powers of a law-making agency are
limited. This is the case in Australia .. lf either the Commonwealth F
Parliament or a State Parliament attempts to make a law which is not
within its powers, the attempt fails, because the alleged law is
unauthorized and is not a law at all...

The law is not valid until a court pronounces against it...lf it is beyond
power. It is invalid ab initio. G
Thus the controversy before the Court is a legal controversy, not a
political controversy .. .lt has been argued that the Acts now in question
discriminate, in breach ofs. 5l(ii) of the Constitution, between States.
The. Court must consider and deal with such a legal contention. But
the Court is not authorised to consider whether the Acts are fair and H
710 SUPREME COURT REPORTS [2004] I S.C.R.

A just as between States ... These are arguments to be used in Parliament
and before the people. They raise questions of policy which it is not
for the Court to determine or even to consider."

Jmpo1tance of federalisam has recently been noticed by us in State of
Andhra Pradesh v. K. Purushotham Reddy, JT (2003) 3 SC 15 which has
B been followed in Govt. of A.P. v. Medwin Educational Society and Ors., JT
(2003) 8 SC 567, albeit in a different context. It was held when the State acts
in obedience of a legislative policy formulated under the Parliamentary Acts
in relation to Higher Education, the State action would be intra vires.

C Durga Das Basu in his celebrated work "Comparative Federalism" at
pp. 175-176 states:

"The strong Central bias has indeed been a boon to keep India together
when we find the separatist forces of communalism, linguism and
scramble for power playing havoc notwithstanding all the devices of
D Central control, even after more than three decades of the working of
the Constitution. It also shows that the States are not really functioning
as agents of the Union Government or under the directions of the
latter, for then, events like those in Assam (over the language problem)
or in Punjab (pp. I 15ff., ante) could not have taken place at all.

E But, by reason of such centralizing trends, federalism cannot be
. said to be dead in India. A radical change in the background has
taken place since 1967. So long as the Union and all the States in
India were under the rule of one-Party under the strong leadership of
a towering personality such as Pandit Jawaharlal or Mrs. Gandhi,
there could hardly arise any tussle between the Union and the States
F which could not be settled by the Party leadership at Delhi, and, thus,
Indian federalism came to work almost as a unitary system. But in
1967, different parties came to power in a number of States, so that
they would naturally refuse to act as dictated by the Party in power
at Delhi.
G
The frequent resort to the extraordinary power under Art. 356 to
keep recalcitrant State politics under Union control, the abuse of
Governor's powers in some cases, and the like, have accelerated the
forces of separatism.

H In such a situation, which is prevailing till the time of this writing
ST ATE v. KE SO RAM INDUSTRIES LTD. (S.B. SINHA, .J.) 711

in 1986, the question of 'State powers' under the provisions of the A
existing Constitution, as well as the question of their revision by
amendment of the Constitution, are bound to raise their head and
agitations over these questions have led to the constitution of the
Sarkaria Commission (1983) to examine and revise, if necessary, the
'Centre State relations' under the Constitution."
B
In the said treatise at page 178 quoting Dicey, Law of the Constitution,
10th Ed. P. 164, the learned author states:

"There are, according to Dicey, three essential legal features in a
federal Constitution, namely,
c
(a) Supremacy of a written Constitution;
(b) Distribution of powers amongst the various organs of the
federation and of the regional units of the federation, by the
provisions of that Constitution; and
(c) Judicial review or enforcement of that supreme Constitution as D
law.
If these legal features are present in the Indian Constitution, it
would be immaterial to a lawyer whether academicians would classify
it as 'quasi-judicial' or 'a unitary constitution with subsidiary federal E
features,' or the like."

In his book, Central Power in the Australian Commonwealth, Cassell,
London, Sir Robert Menzies states:

"My central purpose has been to demonstrate a great truth about the F
study of a federal Constitution. That truth is that although it is a
sound rule to go back to the language of the Constitution - me/ius est
petere fonts quam sectare rivulos - it is a mistake to think that a
Constitution is something rigid and inflexible, to be interpreted like
any ordinary statute, to have a meaning fixed for all time. I· have
defended legalism as something inherent in federalism. But it is not G
inconsistent with the legalistic approach to recognize that a written
Constitution is an expressed scheme of government designed to give
a basic structure in a changing world; not designed to inhibit growth
in a growing world, nor to make the contemporary world subject to
the political, social or economic ideas of a bygone age."
H
712 SUPREME COURT REPORTS (2004] I S.C.R.

A The doctrine of federalism in the Indian context would mean proper
and effective interpretation of the Constitution in respect whereof political or
economic views have no role to play. Fields of legislation carved out under
Chapter I of Part XI clearly spells out that in more important matters the
Parliament will have greater control thereover.

B Tilt in favour of the Centre is required to be construed having regard
to the importance of the subject matter of Parliamentary legislation and the
impact and practical effect of the in road of the State Laws entrenching upon
the legislative field occupied by the Parliament.
~
It would, therefore, not be correct for the superior courts to advocate
c the theory that while interpreting the Constitution, courts should lean in favour
of the State. Federal character of the Union of States in India do not support
the said theory.

LEGISLATIVE FIELD
D
The principles required to be deduced as regard field of legislation,
may not be much in dispute. The question, however, is that of its application.
of
Before analyzing the relevant provisions, we may have an overview of )r
the constitutional scheme in this behalf. Articles 245 and 246 of the
E Constitution of India read with Seventh Schedule and Legislative Lists
contained therein prescribe the extent of legislative competence of Parliament
and State Legislatures. Parliament has exclusive power to make laws with
respect of any of the matters enumerated in List I in the Seventh Schedule.
Similarly, State Legislatures have exclus.ive power to make laws in' respect of
any of the matters enumerated in List II. Parliament and State Legislatures
F both have legislative power to make laws with respect to any matter
enumerated in List Ill, the Concurrent List. ...
The various entries in the three Lists are fields of legislation. They are
designed to define and delimit the respective areas of legislative competence
G of the Union and State Legislatures. Since legislative subjects cannot always
be divided into water tight compartments; some overlappings between List I,
II and III of the Seventh Schedule is inevitable. Hence, though the State
Legislature has exclusive power with respect to the subjects specified in List
II, some of the Entries in List II specifically make the State power 'subject >
to' any law made by Parliament under the specified Entry in List I.
H
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA. J.) 713
Article 245 of the Constitution of India empowers the Parliament not A
only to make laws for the whole or any part of the territory of India but also
indicate that no law made by the Parliament shall be deemed to be invalid
on the ground that it would have extra-territorial 9peration. Clause (I) of
Article 246 of the Constitution of India confers exclusive legislative power
upon the Parliament with respect to any of the matters enumerated in List I
in the Seventh Schedule whereas in terms of clause (2) thereof, the Legislature B
of any State also have power to make laws with respect to any 9f the matters
enumerated in List Ill in the Seventh Schedule, subject of course to the
"°" legislative competence of the Parliament as contained in clause (I) but
notwithstanding anything contained in clause (3) thereof. The power of the
State Legislature in terms of clause (3) of Article 246 is subject to clauses (I) C
and (2) in relation to the matters enumerated in List II in the Seventh Schedule.

In Union and State Relations under the Indian Constitution by M.C.
Setalvad, upon noticing the expressions used in different clauses of Article
246, it is stated:
D
"In the United States and in Canada, judicial decisions have established
that, where a federal law or a dominion law conflicts with a State law
on the same subject, the relevant federal or dominion law must prevail.
The same position has been achieved by an express provision in
section I09 of the Commonwealth of Australia Act. In the Indian E
Constitution, this is sought to be achieved in part by the language of
Article 246. The purpose of the provisions which we have set out in
Article 246(i), (2) and (3), is clearly to carve out not only two
exclusive legislative fields for the Union and the States and a further
field in which both the general and the regional governments can
operate, but also lo provide by the language used in each of three F
clauses of the Article that the legislative power of the Union in List
I is predominant. That power Is exercisable "notwithstanding anything
in clauses (2) and (3)" of Article 246. The concurrent Union power
of legislation conferred by clause (2) of Article 246 is exercisable
"notwithstanding anything in clause (3)" which deals with the G
exclusive legislative power of the State. But the State's concurrent
)egislative power is "subject to clause (I)", which deals with the
exclusive Union power of legislation. The State's legislative power in
(he field carved oµt for it by List II is again exercisable "subject to
clauses (I) and (2)", which deal with the Union power and the
Concurrent power, the first vested exclusively in the Union and the H
714 SUPREME COURT REPORTS (2004) I S.C.R.

A second in both the Union and the State."

[Emphasis supplied)

The Constitution makers found the need for power sharing devices
between the Central and the State having regard to the imperatives of the
B State's security and stability and, thus, propelled the thrust towards
centralisation by using non obstante clause under Article 246 so as to see that
the federal supremacy is achieved.

A perusal of the provisions of entries in List II would show that there
are 17 entries in List II (Entries 1, 2, 12, 13, 17, 22, 23, 24, 26, 27, 32, 33,
C 37, 50, 54, 57 and 64) which are one way or the other 'subject to' either
provisions of Entries in List I and/ or List III or subject to laws made by
Parliament. There are four models of entries to that effect.

(i) Eight Entries (2, 13, 17, 22, 23, 24, 33, 54) out of the aforesaid
17 entries have been made 'subject to' the provisions of Entries
D in List I.
(ii) Three Entries (26, 27, 57) have been made subject to provisions ~
of Entries in List III.
(iii) Four Entries (1, 12, 32, 63) out of the aforesaid 17 entries have
E been given power to the State Legislatures. to make laws on
subjects 'other than' those specified in List I and/ or dealt with
by law made by Parliament.
(iv) Only two Entries (37and50) have been made subject to the
provisions of any law made by Parliament."
F Article 248 of the Constitution of India confers power upon the
Parliament to make any law with respect to any matter not enumerated in the
Concurrent List or the State List.

Article 253 of the Constitution of India reads thus :-
G
"Legislation for giving effect to international agreements -
Notwithstanding anything in the foregoing provisions of this Chapter,
Parliament has power to make any law for the whole or any part of
the territory of India for implementing any treaty, agreement or
convention with any other country or countries or any decision made
H at any international conference, association or other body." ·
ST ATE v. KESORAM INDUSTRIES LTD. (S.B. SINHA, J.) 715
It can be seen that Art. 253 contains non-obstante clause. Art. 253, A
thus, operates notwithstanding anything contained in Art. 245 and Art. 246.
Art. 246 confers power on the Parliament to enact laws with .respect to
matters enumerated in List I of the Seventh Schedule to the Constitution.
Entries I0 to 21 of List I of the Seventh Schedule pertain to International
Law. In making any law under any of these entries, parliament is required to B
keep Art. 51 in mind.

Article 253 of Constitution provides that while giving effect to an
..( international treaty, the Parliament assumes the role of the State Legislature
and once the same is done the power of the State is denuded.

Notwithstanding the fact that great care with which the various entries
c
in the three lists have been framed; on some rare occasions it may be found
that one or the other fieid is not covered by these entries. The makers of our
Constitution have, in such a case, taken care by conferring power to legislate
on such residuary subjects upon the Union Parliament including taxation by
reason of Article 248 of the Constitution. D

.. We may notice that in the Government of India Act, I 935 no provision
of the nature of Entry 97 in List I existed. In terms of Section I04 thereof
the Governor General could empower either the Dominion Legislature or a
Provincial Legislature to enact a law with respect to any matter not enumerated
in any of the Lists in the Seventh Schedule to the Act, including a law E
imposing a tax not mentioned in any such list a1;1d the executive authority of
the Dominion or of the Province, as the case may be, shall extend to the
administration of aity law so made, unless the Governor General otherwise
directs. In Constitution of India, however, such a residuary power has expressly
been conferred on the Parliament. F
•' Once it is held that the State lacks legislative competence for imposition
of tax on any of the subject, indisputably the Parliament alone will have
legislative competence therefor.

CASE LAWS RE: LEGISLATIVE COMPETENCE: G
Observation made by this Court in S.R. Chaudhuri v. State of Punjab,
[2001] 7 sec 126, in this regard, is apposite:

"Constitutional provisions are required to be understood and
interpreted with an object-oriented approach. A Constitution must not H
716 SUPREME COURT REPORTS [2004] I S.C.R.

A be construed in a narrow and pedantic sense. The words used may be
general in terms but, their full import and true meaning, has to be
appreciated considering the true context in which the same .are used
and the purpose which they seek to achieve."

In Allorney Genera/for India v. Amratlal Prajivandas, (1994] 5 SCC
B 54, the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property)
Act, 1976 (SAFEMA) made by Parliament was challenged inter alia as lacking
legislative competence. The Constitution Bench of nine Judges relying on
Union of India v. Shri Harbhajan Singh Dhillon, [ 1971] 2 SCC 779 observed >
as under:
c "Be that as it may, it is not necessary to pursue this line of reasoning
since we are in total agreement with the approach evolved in Union
of India v. H.S. Dhillon-a decision by a Constitution bench of seven
Judges. The test evolved in the said decision is this in short: Where
the legislative competence of Parliament to enact a particular statute
D is questioned, one must look at the several entries in List II to find
out (applying the well known principles in this behalf) whether the
said statute is relatable to any of those entries. If the statute does not
relate to any of the entries in List II, no further inquiry is necessary.
It must be held that Parliament is competent to enact that statute
whether by virtue of the entries in List I and List III or by virtue of
E Article 248 read with Entry 97 of List I."

We may at this juncture also notice the decision of this Court in Naga
People's Movement of Human Rights v. Union of India, AIR (I 998) SC 431
which states:
F "While examining the legislative competence of Parliament to make
a law what is required to be seen is whether the subject-matter falls
in the State List which Parliament cannot enter. If the law does not
fall in the State List, Parliament would have legislative competence
to pass the law by virtue of the residuary powers under Article 248
G read with Entry 97 of the Union List and it would not be necessary
to go into the question whether it falls under any entry in the Union
List or the Concurrent List. (See Union of India v. H.S. Dhillon,
(1972] 2 SCR 33 at pp. 61 and 67-68 : AIR (1972) SC 1061 at pp.
1074-75 and (1078); S.P. Milla/ v. Union of India, (1983] I SCR 729
at pp. 769 7770: AIR (1983) SC I at pp. 18-19 and Kartar Singh v.
H
~

STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 717
,..j 'State ofPunjab, [1994] 3 SCC 569 at pp. 629-630). What is, therefore, A
>.
required to be examined is whether the subject-matter of the Central
Act falls in any of the entries in the State List."

Yet again in Synthetic and Chemicals Ltd v. State of U.P., AIR (1990)
SC 1927, it has been held:
B
" ... It has also to be borne in mind that where division of powers and
jurisdiction in a federal Constitution is the scheme, it is desirable to
read the Constitution in harmonious way."
~-
In State of A.P. v. K. Purushotham Reddy and Ors. reported in JT
(2003) 3 SC 15, it was held: c
"The conflict in legislative competence of the Parliament and the
State Legislatures having regard to Article 246 of the Constitution of
India must be viewed in the light of the decisions of this Court which
in no uncertain terms state that each Entry has to be interpreted in a
broad manner. Both the parliamentary legislation as also the State D
legislation must be considered in such a manner so as to uphold both
I· of them and only in a case where it is found that both cannot co-exist,
.... the State Act may be declared ultra vires ..."

In India Cement Ltd. (surpa), it is stated :
E
" .. .It is well settled that widest amplitude should be given to the
language of these entries, but some of these entries in different lists
or in the same list may overlap and sometimes may also appear to be
in direct conflict with each other. Then, it is the duty of the court to
find out its true intent and purpose and to examine a particular

-
F
legislation in its pith and substance to determine whether it fits in one
.... or the other of the lists."

In Bharat Coking Coal v. State ofBihar, [1990] 4 SCC 557, it has been
held:
G
" ... No doubt under Entry 23 of List II, the State legislature has power
to make law but that power is subject to Entry 54 of List I with
·~
respect to the regulation and development of mines and minerals. As
.,J.
discussed earlier the State legislature is denuded of power to make
laws on the subject in view of Entry 54 of List I and the Parliamentary
declaration made under S. 2 of the Act." H
x
718 SUPREME COURT REPORTS (2004) I S.C.R.
1'
A The decisions of this Court, therefore, also lead to the conclusion that A.
in case the State for one reason or the other lacks legislative competence, the
court must proceed on the basis that Parliament alone has the legislative
competence and it would not be permissible to uphold the State Act by
leaning in favour of the State or by giving a broader meaning to the entry in
List II relating to the subject matter of legislation.
B
PITH AND SUBSTANCE:

Doctrine of pith and substance, however, is taken recourse to when
.>-
examining the constitutionality of an Act with respect to competing legislative
c competence of the Parliament and the State Legislature qua the subject matter.
Incidental entrenchment however is permissible.

In D.C. and G.M. Co ltd. v. Union of India, AIR (1983) SC 937, it has
been held:

D "When a law is impugned on the ground that it is ultra vires the
powers of the legislature which enaeted it, what has to be ascertained
is the true 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. To resolve the controversy if it becomes ....
necessary to ascertain to which entry in the three Lists, the legislation
E is referable, the court has evolved the doctrine of pith and substance.
If in pith and substance, the legislation falls within one entry or the
other but some portion of the subject-matter of the legislation
incidentally trenches upon and might enter a field under another List,
then it must be held to be valid in its entirety, even though it might
F incidentally trench on matters which are beyond its competence."

In lshwari Khetan Sugar Mills (P) Ltd. v. State of U.P., AIR (1980) SC
1955, it was held:
... -
''When validity of a legislation is challenged on the ground of want
G of legislative competence and it becomes necessary to ascertain to
which entry in the three lists the legislation is referable to, the court
has evolved the theory of pith and substance. If in pith and substance _,
a legislation falls within one entry or the other but some portion of ~
the subject-matter of the legislation incidentally trenches upon and
might enter a field under another list, the Act as a whole would be
H valid notwithstanding such incidental trenching."
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 719
The question which, therefore, is required to be posed and answered is A
as to whether both the Acts can stand together or not.

While determining the question as to whether there exists any conf1ict,
the real test would be as to whether both the legislations covering the field
can stand together. For the purpose of determination thereof, it may be
necessary to look to the legislative history as also the decisions of this Court. B

In Kartar Singh v. State of Punjab, (1994] 3 SCC 569 this Court held:
.... "67. In order to ascertain the pith and substance of the impugned
enactments, the preamble, Statement of Objects and Reasons, the
legal significance and the intendment of the provisions of these Acts, c
their scope and the nexus with the object that these Acts seek to

.. subserve must be objectively examined in the background of the
totality of the series of events ............"

Ascertainment of pith and substance is synonymous to ascertainment of
true nature and character of the legislative competence necessitated for the· D
purpose of determining whether it is a legislation with respect to one of the
matters of the list. Human expression and fallibility of legal draftsmanship
.,., cannot be lost sight of. The principles of pith and substance is, thus, required
to be applied only in appropriate cases.
E
ANALYSIS: RE: LEGISLATIVE FIELD:

In the economic front, the country has to compete with the developed
countries. Global competition has reached such a stage that despite adequate
production of coal and steel, the same are imported from other countries in
India. In the international markets also the quantum of import is going up as F
..... compared to export. The manner in which the revenue is collected by the
Centre and distributed to States falls for consideration by the appropriate
constitutional authorities in terms of the provisions of the Constitution. It is
not correct to say that while interpreting the legislative field the court in case
of conflict would Jean in favour of the State keeping in view the fact that
taxes under different heads are collected by the Centre and a part of revenue G
is made available to the States from time to time. This Court is not concerned
as to whether the Centre consumes the lion's share of revenue or the same
+ is subject matter of criticism at the hands of the State or financial observers.
Such an approach would not only run counter to the doctrine of federalism
with a strong Centre but in the long run would prove to be counter-productive. H
720 SUPREME COURT REPORTS [2004] I S.C.R.

A India is a signatory to various international treaties and covenants and beino<>
a party to WTO and GATT, it is obligated to fulfill its trans-national
obligations. If for the purpose of giving effect to the international treaties, it
in exercise of its power under Article 253 of the Constitution of India had
taken over the legislative field occupied by List H of the Seventh Schedule
B of the Constitution, no exception thereto can be taken. While doing so, the
Central Government shall give effect to the will of the makers of the
Constitution and would not act contrary thereto or inconsistent therewith.
The legislative fields of the Union and the State vary from country to country
depending upon the requirement of the situation in which such provisions are
made. Although a lot can be said on the subject, keeping in view the fact that
C our job is confined to interpretation of the legislative entries vis-a-vis the
Parliamentary and Legislative Acts, it may not be necessary to do so. But
suffice however it to point out that when such an approach is adopted, we
would be more prone to committing errors. We must proceed on the basis
that neither the Union nor the State is supreme on the Constitution, as both
the Union and the State will have to trace their power from the provisions of
D the Constitution. We should treat the subject with caution and circumspection.
The interpretive principles whether leaning in favour of the Union or
the State may, in ce1tain situations, depend upon the subject malter of
legislation, the importance thereof and its effect and impact within and outside
E the country. Both mineral and tea deserve more control only by the Union
having regard to their importance in national economy.

In ascertaining the subject matter, or the scope or purpose of the
legislation, the Court is entitled to give due regard to its economic effect.
(See The King v. Barger, (1908] 6 CLR 41 and Allorney-Genera/ for Alber/a
F v. Allorney General for Canada, (1939) AC at pp. 130-132) The
aforementioned decisions have been referred to in The State ofSouth Australia
and Anr. v. The Commonwealth and Anr., (1942) 65 C.L.R. 373].

Distribution of taxes by the Central Government in favour of the State
Government is of no moment' in the instant case as the entire royalty fixed
G by the Central Government in terms of the 1957 Act is payable to the States.
The Union Government has nothing to do therewith.

If the Constitution as a living organ is not interpreted having regard to
the intention of the constitution makers and in case of conflict in the legislative
H field contained in List I and List II, if an interpretation that leans in the
~ \

STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.) 721
favour of the State is adopted without· reference to the subject matter thereof A
,). .
or national interest, the same would be subject to judicial vagaries which
cannot be countenanced.

The impairment of State's economic interest is of no moment even if
Parliament had taken over the entire legislative field by enacting Acts in
terms of Entry 52 or 54 of List I. As noticed by Brother Lahoti, J in South B
Eastern Coalfields limited v. State of MP. and Ors., (2003] 7 Supreme 539
the rate of royalty has been enhanced by the Central Government from Rs.
6.5 per ton to Rs. 120 per ton. All other States have accepted the same. They
'<I are getting enhanced royalty but despite India Cement (supra) and Orissa
Cement, (supra) the State of West Bengal alone amended the impugned acts
and had been insisting that it can levy cess on minerals.
c
It may not be necessary for us to delve deep into the matter as to
whether there exists a distinction between a general subject of legislation and
taxation as such a question does not directly arise for consideration. It may
only be of some academic interest. It is, however, trite that there is nothing D
in the Constitution to debar the Parliament to legislate under Entry 54 read
with Entry 97 of the List I of the Seventh Schedule of the Constitution.

_,,, However, recourse to the residuary power must be taken as a last resort
i.e. only when all the entries in the three lists are absolutely exhausted, that
is to say, ifthe subject matter is beyond comprehension of the entries contained E
in the aforementioned three lists. It is trite that when two interpretations are
possible resort to the residuary power may not be taken recourse to.

But it is also trite that the entries have to be given a liberal construction
irrespective of the fact that as to whether they are in List I or List 11. (See
F
South Eastern Coalfields (supra)).
+-'
There cannot be any doubt whatsoever that for the said purpose, the
main object as also the scope and purport of the Central legislation vis-a-vis
the State legislation must be kept in mind and, thus, there cannot by any
question of examining the same with jaundiced eyes. G
With the greatest respect, in Indian context it is difficult to follow
,.
Morey v. Doud, (1957) 354 US 457 wherein Frankfurter, J. says "The Courts
II' .j..
have only the power to destroy, not to reconstruct." The Courts in India
generally leans in favour of upholding the constitutionality of the statute
H
722 SUPREME COURT REPORTS [2004] I S.C.R.

A whether enacted by the State Legislature or the Parliament. Iii this context,
reference may be made to the decisions of this Court in Indian Handicraft
Emporium v. Union of India, [2003] 7 SCC 589 and Bairam Kumawat v.
Union of India, [2003) 7 SCC 628, wherein vires of Wild Life Protection Act
has been upheld by applying the principles of "Purposive Construccion".

B I~ is relevant to note that in R.K. Garg v. Union of India [AIR 1981 SC
2138] in which reference of Morey (supra) has been made while judging the
constitutionality of Special Bearer Bonds (Immunities and Exemptions)
Ordinance, this Court rejected the argument that the said ordinance is immoral
stating:
c "It was then contended that the Act is unconstitutional as it offends
against morality by according to dishonest assessee who have evaded
payment of tax, immunities and exemptions which are denied to honest
tax-payers. Those who have broken the law and deprived the State of
its legitimate due.s fare given benefits and concessions placing them
D at an advantage over those who have observed the law and paid the
taxes due from them and this, according to the petitioners,, is clearly
immoral and unwarranted by the Constitution. We do not think this
contention can be sustained. It is necessary to remember that we are
concerned here only with the constitutional validity of the Act and
not with its morality."
E
It is, however, well-settled that although both the Union and the State
derive their power from the same Constitution, the States would not have any
legal right as against the overriding powers of the Union, because of a general
theory of paramountcy or su.periority of the Union. The Union can claim
p overriding powers or superior powers over the State in certain situation because
the Constitution itself provides therefor. (See State of West Bengal v. Union
of India, AIR (1963) SC 1241, Automobile Transport v. State of Rajasthan, I~

AIR (1962) SC 1406 and Ref. Under Article 143, AIR (1965) SC 745), ITC
Ltd v. Agricultural Produce Market Committee and Ors., (2002] 9 SCC
232).
G
The importance of the provisions of Article 249 to 253 has been
highlighted hereinbefore. The Court is required to interpret the Constitution
which is an organic ongoing document. For the said purpose, we are not only
required to take into consideration the experience we had had keeping in
H view the socialistic pattern of the society but having regard to the new vistas

'
STATE v. KESORAM INDUSTRIES LTD. (S.B. SINHA, J.) 723
opened by reason of globalisation. (See for example, Kapi/a Hingorani v. A
State of Bihar, (2003] 6 SCC 1, Islamic Academy of Edn. and Anr. v. State
of Karanataka and Ors. etc., (2003] 6 SCC 325, Liverpool and London S.P.
Assn. Ltd v. M. V. Sea Success I and Anr., (2003) 10 SCALE 1 and State of
Punjab and Anr. v. Modern Breweries and Anr., (2003) 10 SCALE 202.

ENTRIES 52 AND 54 OF LIST I: B

It may be that the interpretation of the legislative fields of the State List
should be construed in deference to the extent of declaration made by the
Parliament in terms of Entry 52 List I of the Constitution of India.

It may also be true that ordinarily the declaration contained in Section
c
2 of the 1953 and 1957 Acts in regard to this requirement as contemplated
in Entries 52 and 54 of List I of the Seventh Schedule of the Constitution of
India would not affect the legislative competence of the State in relation to
raw material.
D
Although a liberal construction of a State Entry is desirable but at the
same time the Court should guard against extending the meaning of the word
beyond a reasonable limit.

In Kera/a State electricity Board v. Indian Aluminium Co., (1976] 1
sec 468, it was held that the entire field of "Electricity" as contemplated E
under Entry 38 of List Ill is covered under Indian Electricity Act, 1910 and
Electricity (Supply) Act, 1948.

For the purpose of finding out the true nature and character of the Act
and the legislative entry whereunder it was enacted, the Statement of Objects F
and Reasons and the purport and object thereof may be referred to. For that
purpose even debates in the Constituent Assembly may be looked into.

In Harakchand Ratanchand Banthia and Ors. v. Union of India and
Ors., (1969] 2 SCC 166 this Court gave a broad meaning to Entry 52 holding
that even preparation of gold ornaments would come within the purview of G
Entry 52 stating: .

"But this contention was not accepted. It was contended by Mr.
Daphtary that ifthe process of production was to constitute "industry"
a process of machinary or mechanical contrivance was essential. But
we see no reason why such a limitation should be imposed on the H
724 SUPREME COURT REPORTS [2004] I S.C.R.

A meaning of the word "industry" in the legislative lists. Similarly it
was argued by Mr. Palkhivala that the manufacture of gold ornaments
was not an industry because it required application of individual art
and craftsmanship and aesthetic skill. But mere use of skill or art is
not a decisive factor and will not take the manufacture of gold
ornaments out of the ambit of the relevant legislative entries."
B
In P. Kannadasan and Ors. v. State of T. N. and Ors., [1996] 5 SCC
670, B.P. Jeevan Reddy, J. speaking for the Bench held:

"35. The fifth contention of the learned counsel for the appellants- )-

petitioners is equally misconceived. Parliament has already denuded
c the State Legislatures of their power to levy tax on minerals inhering
in them by making the declaration contained in Section 2 of the
MMRD Act. Shri Sanghi argued that the denudation is not absolute
but only to the extent provided in the MMRD Act. Section 9, learned
counsel submitted, is one of the facets of the extent of denudation.
D Section 9, it is submitted, sets out the rates of royalty levied and also
states that such rates of royalty can be revised only once in three
years. If Section 9 is sought to be amended, whether directly or
indirectly, the learned counsel says, a fresh declaration in terms of
Entry 54 of List I is called for. This contention assumes that '>'
notwithstanding the declaration contained in Section 2 of the MMRD
E Act, the States still retain the power to levy taxes upon minerals over
and above those prescribed by the MMRD Act and that a fresh
declaration is called for whenever such subsisting power of the State
is sougl1t to be further encroached upon. This supposition, however,
flies in the face of the decisions of this Court in India Cement, [1990]
F 1 SCC 12 : [1989] Supp. 1 SCR 692 and Orissa Cement, [1991]
Supp. l SCC 430: [ 1991] 2 SCR l 05. The said decisions are premised
upon the assumption that by virtue of the said declaration, the States
are totally denuded of the power to levy any taxes on minerals. lt is
for this reason that the State enactments were declared incompetent
insofar as they purported to levy taxes/cesses on minerals. The
G denudation of the State is not partial. It is total. They cannot levy any
tax or cess on minerals so long as the declaration in Section 2 stands.
Once the denudation is total, there is no occasion or necessity for any
further declaration of denudation or, for that matter, for repeated ;.
declarations of denudation."
H (Emphasis supplied)
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 725
We are not oblivious of the fact that the said decision has been overruled A
by a three-Judge Bench in District Mining Officer and Ors. v. Tata Iron and
Steel Co. and Anr., [200 l] 7 SCC 358 on a different question as therein the
Court laid emphasis that Cess and Other Taxes on Minerals (Validation) Act,
1992 in so far as imposition and collection of cess on minerals extracted upto
4-4-1991 on which date the Supreme Court delivered its judgment in Orissa
Cement case (supra) was valid as thereby the Parliament by legal fiction B
injected legislative competence unto the laws enacted by the Legislature. It
was held that the Validation Act did not confer any right to make levy and
collection of tax and minerals which was collectable after 4-4-1991.

In Ch. Tika Ramji and Ors. v. The State of Uttar Pradesh and Ors., C
[1956] SCR 393, the question which arose for consideration was as to whether
there existed a repugnancy between the U.P. Sugarcane (Regulation of Supply
and Purchase) Act 1953 which was enacted in terms of Entry 33 of List Ill
of the Seventh Schedule of the Constitution and the notifications i~sued
thereunder vis-a-vis the Industries (Development and Regulation) Act, 1951,
the Court referred to Nicholas's Australian Constitution, 2nd Ed. Page 303, D
in the following terms :

"(I) There may be inconsistency in the actual terms of the competing
statutes (R. v. Brisbane licensing Court, (1920 28 CLR 23).
(2) Though there may be no direct conflict, a State law may be E
inoperative because the Common-wealth law, or the award of
the Commonwealth Court, is intended to be a complete
exhaustive code (Clyde Engineering Co. ltd. v. Cowburn, ( 1926)
37 C.L.R. 466.
(3) Even in the absence of intention, a conflict may arise when both F
State and Commonwealth seek to exercise their powers over the
same subject matter (Victoria v. Commonwealth, (1937) 58
C.L.R. 618; Wenn v. Attorney-Genera/ (Viet.), (1948) 77 C.L.R.
84).lsaacs, J. In Clyde Engineering Company, limited v.
Cowburn laid down one test of inconsistency as conclusive :
"If, however, a competent legislature expressly or implicitly G
evinces its in/en/ion to cover rhe whole field, that is a conclusive
test of inconsistency where another Legislature assumes to enter
to any extent upon the same field"."

Applying the said tests, the Court upheld the validity of the said Act
H
726 SUPREME COURT REPORTS (2004] I S.C.R.

A only on the ground that altho"ugh raw-material sought to be regulated under
the State Act would be essential in the process of manufacture of production
of articles in the Scheduled industries but would not be of the same nature
or description as the article· or class of articles manufactured or produced
thereunder. It is in that context, this Court considered the provisions of Section
B 18-G of the 1951 Act.

A distinction must be borne in mind as regard "use of land" and
"activities on land". Use of land as a 'fair' or 'market' is permissible in
terms of Entry 26 of List II. Imposition of tax, however, would be
....
~
impermissible on 'activity on land' as it does not come within the purview
c of any of the entries contained in List II.

Different considerations may arise as regard interpretation of different
entries keeping in view the lists in which they belong. The Comt may have
to look from a different angle in a case where it relates to interpretation of
conflicting entries in List I vis-a-vis List II; and List II vis-a-vis List III. In
D a case where both the State Act and the Central Act have been enacted in
terms of List Ill, the question of repugnancy as envisaged under Article 254
would arise. In that type of cases, it is well-settled that in absence of
Presidential Assent, the Parliamentary Act would prevail. (See Ch. Tika Ram.Ji ,..
(supra) and MP.A.I. T. Permit Owners Assn. and Anr. v. State of Madhya
Pradesh, [2003) IO SCALE 380.
E
The question, however, must be considered from a different angle where
an entry in List 11 is subject to entry in List !. The Court in such a situation
would compare the provisions of the two Acts so as to find out as to whether
the entire field has been occupied by the Parliamentary Act or not. The
F situation may, however, be different where there is no apparent conflict
between an entry in List II and one in List I. Afte1 having compared the
provisions of the two Acts, if it is possible to determine that the parameters
of the State Legislation and the Central Legislation are distinct and different,
a broader meaning to one Entry or the other may be given having regard to
the "pith and substance" doctrine.
G
What would be the effect of a State entry dealing with the subject
matter vis-a-vis Entry 52 of List I came up for consideration before a
Constitution Bench of this Court in ITC ltd. v. Agricultural Produce Market A
Commillee and Ors., [2002] 9 SCC 232. The majority applied Tika Ramji v.
State of UP., AIR (1956) SC 676, [1956] SCR 393 both having regard to the
H
ST ATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 727
positive test and negative test evolved therein. Sabliarwal, J. proceeded to A
uphold the market fee levied on tobacco on the basis that Par! iament was not
competent to pass legislation in respect of sale of agricultural produce of
tobacco covered by Entry 52 of the Union List under which the Parliament
can legislative only .in respect of the industries, namely, "the process of
manufacture or production". It was in that premise held that the activity B
regarding sale of raw tobacco as provided in the Tobacco Board Act would
not be regarded as "industry''.

Ruma Pal, J. in her concurrent judgment observed :

"To sum up: the word 'Industry' for the purposes of Entry 52 of List C
I has been firmly confined by Tika Ramji to the process of manufacture
or production only. Subsequent decisions including those of other
Constitution Benches have re-affirmed that Tika Ramji case
authoritatively defined the word 'industry' -to mean the process of
manufacture or production and that it does not include the raw
materials used in the industry or the distribution of the products of D
the industry. Given the constitutional framework, and the weight of
judicial authority it is not possible to accept an argument canvassing
a wider meaning of the word 'industry'. Whatever the word may
mean in any other context, it must be understood in the Constitutional
context as meaning 'manufacture or production'."
E
Pattnaik, J., however, for himself and Bharucha, J. (as the learned Chief
Justices then were) observed:

"In view of the aforesaid rules of interpretation as well as the
Constitution Bench decision referred to above, it is difficult for us to F
accept the contention of Mr. Dwivedi that the word "industry" in
Entry 52 of List I should be given a restricted meaning, so as to
exclude from its purview the subject of legislation coming within
entry 27 or Entry 14 of List II. Bearing in mind the constitutional
scheme of supremacy of Parliament, the normal rule of interpretation
of an Entry in any of the lists in the Seventh Schedule of the G
Constitution, the object of taking over the control of the tobacco
industry by the Parliament, on making a declaration as required under
Entry 52 of List I and on examining the different provisions of the
Tobacco Board Act, we see no justification for giving a restricted
meaning to the expression 'industry' in Entry 52 of List I, nor do we H
728 SUPREME COURT REPORTS [2004] I S.C.R.
A find 'any justification in the contention of the counsel appearing for
the States and also different Market Committees that the provisions
contained in Tobacco Board Act dealing with the growing of tobacco
as well as making provisions for sale and purchase of tobacco, must
be held to be beyond the legislative competence of Parliament, as it
does not come within the so-called narrow meaning of the expression
B "industry" on the ground that otherwise it would denude the State
Legislature of its power to make law dealing with markets under
Entry 28, dealing with agriculture under Entry 14 and dealing with
goods under Entry 27 of List II. Such an approach of interpretation
in our considered opinion would be against the very scheme of the
c constitution and supremacy of Parliament and such an approach
towards interpreting the power sharing devices in relation to entries
in List I and List II would be against the thrust towards centralisation.
In our considered opinion, therefore, the word "industry" in Entry 52
of List I should not be given any restricted meaning and should be
interpreted in a manner so as to enable the Parliament to make law
D in relation to the subject matter which is declared and whose control
has been taken over to bring within its sweep any ancillary matter,
which can be said to be reasonably included within the power and
which may be incidental to the subject of legislation, so that Parliament
would be able to make an effective law. So constructed and on
E examining different provisions of the Tobacco Board Act, we do not
find any lack of legislative competence with Parliament so as to enact
any of the provisions contained in the said Act, the Act in question
having been enacted by Parliament on a declaration being made of
taking over of the control of the Tobacco industry by the Union and
the Act being intended for the development of the said industry.
F
Even the majority opinion in /.TC. Ltd (supra) would not come on the
way of giving a broad interpretation of 'tea' or 'mineral'.

In State of U.P. and Ors. v. Vam Organic Chemicals Ltd. and Ors.,
AIR (2003) SC 4650 a Division Bench of this Court held that having regard
G to the declaration made in Section 2 of the 1951 Act the whole field of
industrial alcohol and its products being covered, the State Legislatures are
constitutionally incompetent to levy tax. (See also State of Bihar and Ors. v.
Industrial Corporation Pvt. Ltd. and Ors., (2003) 9 SCALE 169. J..

H Tea Act, 1953, however, stands absolutely on a different footing vis-a-
~
STATE v. KESORAM INDUSTRIES LTD. [S.13. SINHA, J.] 729
vis Tobacco Act. Duties and functions of Tea Board is of wider amplitude A
than Tobacco Board. Its control covers from selection of seeds-to cultivation-
to production-to green tea leaves-the processing of tea-to marketing both
domestic and international. No legislative field has been left untouched which
can be entrenched upon by the State Legislature. It is in the aforementioned
backdrop the right of the State in terms of Entry 49 List II must be held to
have been denuded. B

Section 25 of the Act provides for imposition of cess on production of
... tea. Production has a direct nexus with the activities of the Tea Board as
enumerated under the Tea Act. Imposition of levy c,f cess on production of
tea in terms of Section 25 of the Act is over and above the power to impose
excise duty under the Central Excise and Salt Act, 1944. Thus, to impose
c
: cess on production of tea is the field occupied by the Parliament. We have
no manner of doubt that Section 25 has been enacted specifically for the
purpose of controlling the price of 'tea' both for the purpose of its consumption
within and outside the country. The State, therefore, must be held to be
denuded of its power to impose any tax on production of tea. D

It is furthermore well-settled that for the purpose of determining the
extent of the field occupied by a Parliamentary legislation, it is not necessary
~
to find out as to whether any rule has been framed in terms of the provisions
of the Act or not. [See Bharat Coking Coal Ltd (supra) Indian Aluminium
Company (supra).
E

The Parliament in enacting Tea Act has exercised its superior power in
the matter in terms of Article 253 of the Constitution of India. Such superior
power in certain situation can also be exercised in terms of Entry 33, List III
as also overriding powers of the Parliament during National emergency F
including those under Articles 249, 250, 251 and 252 of the Constitution of
~
India. (See 1. TC. Ltd. (supra)).

Once it is held that the Parliament has exercised its superior power
which is conferred on it in terms of Article 248 of the Constitution of India,
the question of levy of any tax on the product by a State would not arise. G

It is not a case where tax is imposed by the State in exercise of its
' .). power which has no direct nexus with Entry 52 of List I.

It is furthermore trite that the purport and object of the Act must be
taken into consideration while construing competing entries. H
730 SUPREME COURT REPORTS f2004] I S.C.R.

A It is trite that a broad meaning to a word may be given having regard
to the purport and object of the Statute.

In Amrendra Pratap Singh v. Te) Bahadur Prajapali and Ors., JT
(2003) 9 SC 201, Lahoti, J. speaking for a Division Bench assigned an
extended meaning of the expression "transfer of immovable property".
B
In State of A.P. etc. v. National Thermal Power Corpn. Ltd. and Ors
etc., [2002) 5 SCC 203, Lahoti, J. speaking for the Constitution Bench has
also given an extended meaning of the word "sale" by holding that the same
would mean "use or consumption". It was held :

c " ...... In C.P. Motor. Spirit Act, Re (Central Provinces and Berar Sales
of Motor Spirit and Lubricants Taxation Act, 1938, Re, AIR (1939)
FC I) it was held that two entries in the lists may overlap and
sometimes may also appear to be in direct conflict with each other.
It is then the duty of this Court to reconcile the entries and bring
about harmony between them. The court should strive at searching
D
for reasonable and practical construction to seek reconciliation and
give effect to all of them. If reconciliation proves impossible, the
overriding power of the Union Legislature operates and prevails."

Even if no extended meaning is given to the word "tea" both for the
E purpose of Tea Act and the impugned Acts, as green tea leaves would
admittedly come within the purview thereof, having regard to the object and
purport the Tea Act seeks to achieve, in my opinion, no tax can be imposed
thereupon.

Keeping in view the constitutional scheme, the Entries 52 and 54 must
F be given liberal meaning vis-a-vis Entries 49 and 50 of List II having regard
to importance of coal and tea which have an immediate and direct bearing on ••
the economic development of the country.

What is required to be kept in mind in a situation of this nature is the
G object underlying the provisions of the 1953 Act and 1957 Act. Once it is
found that the object of the 1957 Act is to denude the State from enacting
a statute and it will have a direct impact on regulation of mines and minerals
development as also control of Tea industry, the Central Acts would be
construed liberally vis-a-vis the State Acts.

H The discussions on the subject must revolve round keeping the
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, .I.] 731

aforementioned facto'r in mind. A
The importance as regard fixation of price of coal and tea has a direct
bearing with the regulation of mines and minerals development as also the
Tea Industry. The Central Government has also reduced the custom duty on
coal taking into the aforementioned consideration in view as would appear B
from a notification issued by the Central Government on 8.1.2004 under the
provisions of the Customs Act.

The importance of fixation of value of coal will also be noticed from
the Statement of Objects and Reasons of the 1957 Act cs the State even did
not intend to increase the rate of royalty, which would have an adverse effect C
on production of coal. The impact of value of coal by reason of imposition
of royalties and taxes had, therefore, all along been kept in mind by the
Parliament.

If a restricted meaning is given to Entries 52, 54 and 97 of List I and
a broad meaning is given to Entries 5, 23, 24, 49 and 50 of List II of the D
Seventh Schedule of the Constitution of India, the same may result in
incongruity inasmuch as thereby the goal and object of the Constitution makers
would not be achieved. By enacting the 1953 Act and the 1957 Act, the
Parliament intended that nothing should come in the way of mineral
development or tea industry. The Courts while interpreting the statutes should
avoid such construction whereby the State Legislature would be encroaching E
upon the areas covered by the Parliamentary Act indirectly which they could
not do directly.

It must also be borne· in mind that Entries 54 and 52 of List I stand on
different footings .. In terms of Entry 54 List I, if a declaration is made by the F
Parliament to regulate mines and minerals development the power of the
State Legislature to make any legislation in relation thereto is denuded whereas
in terms of Entry 52 List I of Seventh Schedule the Parliament by law declares
the control of industries to be expedient in public interest. The power to
make law by the State Legislature in respect of such industries, thus, upon
such declaration shall stand denuded. Cultivation of tea would also come G
within the purview of tea industry having regard to the provisions of the Tea
Act is beyond any cavil.

Interpretation of General Entry vis-a-vis Tax Entries :

Principles of interpretation on the conflicting entries cannot be placed H
i
I

732 SUPREME COURT REPORTS [2004] 1 S.C.R.

A in a strait jacket formula. Rule of interpretation will vary, depending upon
the subject matter of legislation. A view that power of taxation may not be
found in a general entry would be too simplistic to bear the test of constitutional
interpretation. Regulating statute may contain taxing provisions. A statute,
yet again, may contain both general provisions as also the taxing ones.
B The decisions of the Privy Council in Gov.-Gen. in Council v. Madras,
(1945) FCR 179 on the question of interpretation as regard conflicting
legislative entries in general and tax entries in particular may not be apposite
in the instant case inasmuch herein we are concerned with only one question, ).
namely, whether the field of taxation of min es and minerals which are extracted
C and ceases to be a part of the surface is wholly covered or not. One of the
principles for reconciling conflicting tax entries is to ascertain as to whether
a person, thing or activity is the subject matter of tax and the amount of the
tax to be levied. The question which has to be answered on the basis of the
aforementioned principle is, is it a tax on land or tax on mineral. If having
regard to the nature of tax and keeping in view the history of the legislation
D to the effect that the State of West Bengal has all along been trying to impose
tax on minerals as opposed to tax on land, is taken into consideration, it will
be noticed that endeavours have been made to continue to impose 'cess' on
mineral and mineral rights in the garb of 'land tax'.

E The decisions of this Court as referred to hereinbefore including India
Cement (supra) must be judged from this angle and not in vacuum. It may
be true that taxation is regarded as a distinct matter and has separately set out
in List I or List II of the Seventh Schedule of the Constitution of India but
the what should be borne in mind is that the same by itself is not determinative
of the nature of the statute. There are statutes and statutes; one statute may
F cover general entry as also a taxation entry whereas another may be enacted
only in terms of the general entry and third in terms of a tax entry.

In MP. Sundararamier and Co. v. State of Andhra Pradesh and Anr.,
[1958] SCR 1422, this Court was concerned with the validity of imposition
of tax on inter··State sales under the Madras General Sales Tax Act and was
G not dealing with a matter of this nature.

The fact that under the constitutional scheme taxation is regarded as a
distinct matter and is separately set out is not decisive for the purpose of
determining the validity thereof. There exist a large number of statues and
H indeed the constitutional scheme permits imposition of tax to regulate a
STATE v. KESORAM INDUSTRIES LTD. (S.B. SINHA, J.) 733

particular trade. A
The observation in Synthetics and Chemicals v. Slate of V.P., [1991)
SCC 109 that the tax may not be levied under a general entry although may
be correct but the same would not mean that a regulatory fee which is in the
nature of a tax cannot also be imposed. No hard and fast rule can, therefore, B
be laid down and each case has to be considered on its own merit.

Can it, therefore, be said that a regulating statute being a general statute,
no tax thereunder could be imposed. It may not be necessary for us to delve
..... deep into the matter as to whether power of regulation and control is separate
and distinct from the power of taxation. Generally speaking, it may be true C
that power to regulate would not carry with it the power to impose tax but
the same does not have an universal application. The question which would
arise for consideration is whether constitutional scheme expressly permits
such a legislation but the question which should be posed is as to whether the
constitutional scheme prohibits enactment of such a statute. Such prohibition
d'.les not exist and in that view of the matter, it is permissible for the Parliament D
to enact a statute both in terms of a general entry as also a taxing entry. No
·~
decision has been brought to our notice to suggest that the same is
impem1issible in our constitutional scheme.

As regard Entry 97 of List I, this Court in Union of India v. Shri E
Harbhajan Singh Dhillon, (1971] 2 SCC 779 held:

"47. The last sentence applied much more to the Constitution of a
sovereign democratic republic. It is true that there are some limitations
in Part II! of the Constitution on the Legislatures in India but they are
of a different character. They have nothing to do with legislative F
competence. If this is the true scope of residuary powers of Parliament,
then we are unable to see why we should not, when dealing with a
Central Act, enquire whether it is legislation in respect of any matter
in List II for this is the only field regarding which there is a prohibition
against Parliament. If a Central Act does not enter or invade these
prohibited fields there is no point in trying to decide as to under G
which entry or entries of List I or List Ill a Central Act would rightly
fit in."

(See also Satpal and Co., [I 979) 3 SCR I061.

The Parliament can impose excise duty on coal in tenns of Entry 86 of H
734 SUPREME COURT REPORTS (2004) I S.C.R.

A List I. A regulatory fee which would also be in the nature of tax can also be
imposed under Entry 54 read with Entry 97. There is no limitation on the
power of the Parliament to make an Act under several entries, one of which
may be a tax entry.

This Court must also not forget that there exists a difference in
B interpretation between an entry relating to fee and entry relating to tax. Once
it is held that the matters in the State List is to the extent of declaration stand
substracted from the scope and ambit of Entry 23 of the State List, even no
fee can be levied which will come in the way of Central Government's power
of regulation of mines.
c Assuming royalty, deed rent and surface rent would not come within
the purview of definition of tax, this Court is merely required to consider as
to whether such a power exists in the Parliament or not.

The validity of the Mines and Minerals (Regulations and Development)
D Act is not in question. Section 25 of the 1957 Act in no uncertain terms states
that any rent, royalty, tax, fee or other impost under the said Act or the rules
made thereunder can be recovered as arrears of land revenue.

The very fact that the expression 'tax, fee or other sum due to the "'
Government' which could be imposed under the Act and the recovery thereof
E is the subject matter of Section 25 of the Act, this Court, as noticed
herein before, in a large number of decisions held that such a power to impose
tax exists under the Act. Question of recovery of tax would arise only when
it is imposed under the Act or the rules framed thereunder.

Section 25 of the M.M.R.D. Act, 1957 by necessary implication refers
F
to the taxing power of the Parliament. Imposition of taxes on minerals rights
would affect the development of mines and minerals. The Parliament's
authority to regulate and control mineral development would be seriously
impaired and affected if it is held that the matter relating to imposition of tax
on mineral is also vested in the State. The vires of Sections 9 and 9A of the
G 1957 Act has not been questioned~ In fact, they have been held to be intra-
vires in State of M.P. v. Mahalaxmi Fabric Mills ltd., [1995) Supp. I SCC
642, Saurashtra Cement and Chemical Industries ltd v. Union of India,
(2001) l SCC 91 and South Eastern Coalfields Lid, (supra). Unless power
to levy compulsory impost is held to be ultra vires the Constitution, it cannot
H be held th.at the Parliament has encroache d upon the States' power of taxation.
1
~

STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA. J.] 735
Furthermore, Entry 36 of List I of the Government of India Act, 1935 A
was the corresponding provision of Entry 54 of List I of the Constitution.
Similarly, Entries 23 and 44 were the corresponding provisions in the List II .
in the Government of India Act containing identical provisions as in Entries
23 and 50 of List II of the Constitution. Min es and Minerals (Regulation and
Development) Act, 1948 was enacted which was referable to Entry 36 of List
I of the 1935 Act. The said 1948 Act inter alia. contains provisions for levy
B
of taxes. [See Section 6(2) of the 1948 Act]

.... The history of legislation as regard regulation of mine and development
of mineral is a pointer to the fact that Section 6(2) of the 1948 Act not only
provided for prohibition of the mining, quarrying or digging or the excavating c
or collecting of minerals from any mine or in any area, but also provided for
imposition of tax.

Nobody says that by reason of rule making power, a tax can be levied
under Section I3(2)(i) but what has been held by this Court is that the field
of imposition of tax, fee or any other sum has been conferred on the Par Iiament D
under the Mines and Mineral (Regulation and Development) Act itself by
necessary implication or otherwise as otherwise there would not have been
"!"
any reason for the Parliament to say that such tax, fee or any other sum due
to the Government 'under this Act' meaning thereby '1957 Act' or the rules
framed thereunder would be recoverable. E
It may also be true that by reason of rule making power as contained
in Section 13(2) and Section 15(1A) the Parliament has not delegated the
power to impose tax. upon the Central Government or the State Government,
as the case may be. This might have been done considering the fact that the
F

-
Parliament would make use of it, as and when occasion arises therefor. The
....., Parliament by enacting Sections 25 both in the 1957 Act and the 1953 Act
reserved the authority unto itself to impose any other tax falling in List I. The
Parliament may also impose a tax which otherwise would not fall in any one
of the taxing entries but may fall under the residuary entry being Entry 97.
Only because in Section 13(2) or Section 15(1A) of the Act power to Impose G
tax has not been delegated, the same would not mean that the field in relation
..,, thereto is not covered as the said expression specifically finds place in Section
,...... 25 of the Act.

The expressions 'under this Act or the rules made thereunder' are
H
736 SUPREME COURT REPORTS (2004) I S.C.R.

A significant.

In Hingir Rampur Coal Co. Ltd v. The State of Orissa and Ors., AIR
(1961) SC 459 and State of Orissa v. M.A. Tulloch, (1964) 4 SCR 461, the
interpretation of Section 25 under Act No.67 of 1957 Act did not fall for
consideration.
B
Recovery of tax is an incident of imposition of tax. Tax has three
elements (i) tax.ing event; (ii) assessment; and (iii) recovery.

Recovery of a tax is a part of the taxing statute. The provision of
C another Parliamentary Act cannot be resorted to for realisation of tax imposed
by the State or vice versa.

The power to impose tax, therefore, cannot be traced to Section 13
alone but must also be traced to Section 25. If that view is taken, it would
not be necessary to apply the principle of ejusdem generis for the purpose of
D interpretation of Section 2((1) and 13(2)(i) of the Act. Those taxes, fees and
charges which would come in the way of regulation of mine and mineral
development should be held to have been forbidden. So read Sections 13(2)
and 25 can be given an appropriate meaning. It will, therefore, not be correct
to say that Section 25 can be construed to be containing only a recovery
E provision. The question, it will bear repetition to state, would be not that as
to whether any tax, fee or any other charges of whatever nature have been
levied under the 1957 Act but the question would be whether the field in
respect thereof is covered or not. In that view of the matter, the question of
inference as regard the power to tax by necessary implication or otherwise
would not arise. For the aforementioned purpose what would be required to
F be considered is to read Sections 13, 18 and 25 together harmoniously.
It may be true that in Section 25 the Parliament has not explicitly stated ..
as to tax would be due to whom; but that would not mean the provision is
vague. That would simply mean that whosoever would be entitled to the
impost can take recourse thereto. Under the 1957 Act, it is the State
G Governments who are the beneficiaries but that is of not much consequence.
M.A. Tulloch (supra) must be read in the aforementioned context and
so read the logical corollary would be that the field for levy of tax, fee or
other charges must be held to have been covered under the 1957 Act. Entry
H 97, List I of the Seventh Schedule of the Constitution of India indisputably
~' .

STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.) 737
should be taken recourse to as a last resort but once it is held that the A
Parliament has expressed its intention to cover the field of taxation also under
the 1957 Act, source of such power must be traced to the appropriate entries
in List I including Entry 97, whence if no other source is traceable.

The matter may be considered from another angle. The States on their
own showing are entitled to levy tax upon exercising the power which are B
said to be in terms of Entries 49 and 50 of List II and in that view of the
matter Section 25 of the Act can be taken recourse to for the purpose of
> recovery of tax imposed in terms of the statute enacted by the State. To put
~
it differently, the provisions of the Central Act which is said to be meant for
recovery of the tax, fee and other charges imposed in terms of provisions c
thereof or the rules made thereunder cannot be resorted for recovery of any
tax made by the State in terms of its taxing power under any of the entries
contained in List II of the Seventh Schedule of the constitution of India.
Section 25 of the 1957 Act could have been taken recourse to for the purpose
of recovery of dues to the State provided the State Act was inter linked with
D
the Parliamentary Act or the same was otherwise permissible in terms of the
constitutional scheme.

It is ·now a well settled principle of law that words in a statute should
'.:{'
be so construed so as not to be considered as surplages or superfluous. Each
would, as is well-known must be given its proper meaning. If the E
aforementioned principle of interpretation of statute is applied, it must be
held that the Parliament made its intention clear so as to cover the entire field
including the field of taxation; as otherwise there is absolutely no reason as
to why consciously the words 'tax, fee or any other charges' have been used
in Section 25 of the Act.
F
,, .., The decision in Union of India v. Shri Harbbhajan Singh Dhillon,
[ 1971] 2 SCC 779 is also relevant in this context. In the said decision, this
Court was concerned with the provision of Section 24 of the Finance Act,
1969 whereby the definition "net wealth" in the Wealth Tax Act was amended
including the agricultural land in assets for the purpose of calculating tax on G
the capital value of the net wealth. The High Court held the said provision
as unconstitutional.

.> The majority speaking through Sikri, CJ, gave effect to Article 248 of
the Constitution of India stating :
H
' /
?'

738 SUPREME COURT REPORTS (2004] I S.C.R.

A "We must also mention that no material has been placed before us
to show that it was ever in the mind of anybody, who had to deal with
the making of the Constitution, that it was the intention to prohibit all
the Legislatures in this country from legislating on a particular topic."

In the said decision, therefore, it was held that the Parliament in certain
B situation has the legislative competence to impose tax touching agricultural
activities although 'agriculture' comes within the legislative domain of the
State legislature. Such a finding was arrived at having regard to the fact that
the Parliament was aware that specific provision may not be found in the
three Lists for the purpose of imposition of all types of taxes and in that :»- '
c situation Entry 97 of List I could be taken recourse to.

But the question as to why the Parliament did not confer any power to
tax the capital value of land as an asset either on the Central Government or
the State Government does not fall for our consideration in this case. If an
occasion arises, such a question has to be considered on its own merits, but
D the fact remains that so far as mines and minerals are concerned, levy of tax
thereupon in any manner whatsoever is not within the power of the State. The
State cannot assume such power indirectly by seeking to impose tax on land
which it cannot do directly. So far as 'tea' is concerned, power to impose
....,.
excess duty on 'tea' is expressly conferred on the Central Government in
E terms of Section 25 of the Tea Act.
The decision in Harbhajan Singh Dhillon (supra) was followed in Union
of India and Anr. v. Delhi High Court Bar Assn. and Ors., (2002] 4 SCC
275.

F The decision in His Holiness Kesavananda Bharati Sripadagalbvaru
etc. v. State of Kera/a and Anr., [1973) 4 SCC 225 cannot be read to mean
\.
that Entry 97 is 11011 est in the eye of law. ·~

It will bear repetition to state that it is not a case where we are concerned
G with the validity of the tax imposed by the Parliament but we are only
concerned with the interpretation of a statute in terms of the constitutional
scheme of distribution of legislative fields for the purpose of ascertaining as
to whether the entire field is covered by the parliament Act or not.
J...
Once it is held that the entire field of mines and minerals as also tea,
H including the power to impose any tax is covered by the 1953 and 1957 Acts,
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA. J.) 739
the impugned tax by way of levy of cess on coal and tea must be held to be . A
11/tra vires.

The question as to whether the power to ·impose. tax must be express or
not is of no moment inasmuch it does not arise for our consideration. Levy
of excise duty on minerals is permissible in terms of Entry 86 of List I, so
is power to impose income tax on profits and gains from business of mining. -B
The question as to whether the power to tax must be express or not could
) have been gone into; had the vires of taxing statute fallen for our consideration
and not otherwise.

The doctrine of enforcement of police power is not applicable in India. C
Power to regulate the trade and for the said purpose imposition of tax is well-
'known in India. Mines and Minerals (Regulation and Devt!lopment) Act is
also a regulatory statute.

In the State of Punjab and Anr. v. Mis. Devans Modern Brewaries ltd.
and Anr.. (2003) I 0 SCALE 202, majority of three Judges of a Constitution D
Bench of this Court upheld the levy of import tax on liquor which apparently
t. was made by the State in terms of Entry 51, List II of the Seventh Schedule
of the Constitution of India as a valid piece of legislation as if the same was
enacted in exercise of the State's regulatory power under Entry 8. In that
case, taxing statute has been upheld having been imposed by way of regulatory·
measure stating : E
"The High Court of Punjab proceeded to decide the case on a. total
wrong assumption that the import fee levied is in the nature of duty
which cannot be imposed under the Excise Act, 1984 when, in fact,
the import fee levied is the price for parting with the privilege given F
to the licensee to import beer into the State and, therefore, the same
is within the competence of the State to impose import fee. I am of
the view that the licensee besides the payment of duty etc. is to
comply with such conditions as the State Government may impose
while formulating the excise policy for the concerned year. The State,
in my view, is competent and entitled to impose excise duty or G
countervailing duty. Besides there is no bar on the State to charge
any other fees on account of consideration for the privilege provided
to the licensee to trade in liquor which pri~ilege he did not otherwise
have. Therefore, the licensee is liable to comply with the other
conditions imposed by the State Government from time to time. As H
/

740 SUPREME COURT REPORTS (2004) I S.C.R.

A held in many cases referred to supra the levy in dispute under challenge
is an import levy ... "

Imposition of tax by way of regulatory measures, therefore, is permissible
while enacting a regulatory staute.

B Regulatory licence fee also has been held to be tax. The decision of a
Seven-Judge Bench of this Court in Synthetics and Chemicals ltd. and Ors.
v. State of U. P. and Ors., [ 1990] I SCC I09 is also an authority for the
proposition that such regulatory measures by imposing tax is permissible in
~
law. It is also for that purpose reference to Entry 97 of List I of the Seventh
Schedule of the Constitution of India assumes relevance.
c
In these matters, this Court is not concerned with an imposition of tax
as a result whereof the trade or commerce in the commodity in question is
affected. In this case, the court is concerned with interpretation of statutes
whereby the power of taxation on fixation of price thereof is vested in the
D Central Government under the Parliamentary Act, viz. the 1957 Act and the
Tea Act, 1953; and in that view of the matter the contention that the State
has a plenary power of taxation loses significance. Brother Lahoti, J. has
referred from Cooley on Constitutional Law and G.P. Singh's Principles of
'-,
Statutory Interpretation so as to emphasize the necessity of strict interpretation
of a taxing statute. Once a strict construction of a taxing statute is applied it
E is possible to hold that the exercise of the State's jurisdiction is really an act
of fraud on the constitution inasmuch while imposing tax on land it seeks to
levy tax on mines and minerals or tea in relation whereto it has even no
regulatory power.

Furthermore, we have noticed hereinbefore that the cess imposed by
F the State of West Bengal is not reasonable as the same will have a great
4'
repercussion on the activities on coal bearing land.

It may not be proper for the Court to venture into an enquiry as to
whether the impugned tax would hamper mineral development or not but
G once it is found that it tinkers with the subject, having regard to the
constitutional scheme the State would be denuded of its power. If despite the
same, a State chooses to exercise such power, its action will be fraudulent ~

and cannot be supported for any purpose whatsoever, even if thereby a J...
reasonable tax or fee has been levied.

H With utmost respect, I may observe that this Court may be setting a
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, .I.] 741

wro'ng precedent to ignore larger Bench decisions of this Court relying on or A
on the basis of the comments made by an author, however, eminent he may
be, as judicial discipline mandates that we follow binding precedents. An
author is entitled to criticize a judgment but such criticism cannot be the
basis for ignoring binding decisions of larger benches.

The principles of reading a judgment is well-known. What is binding B
in terms of Article 141 of the Constitution of India is the ratio of the judgment.
The ratio decidendi of a judgment is the reason assigned in support of the
l( conclusion. If the reasons contained in a judgment do not appeal to a
subsequent Bench, the matter may be referred to a larger Bench but so long
the same is not done, the ratio can neither be watered down nor brushed C
aside. India Cement (supra), Orissa Cement (supra) and others judgments of
Coordinate Benches are binding on us. Correctness or otherwise of the said
judgments has not been questioned. It would, therefore, not be proper for th is
Court to read something in the judgment which does not appear therefrom or
to exclude from our consideration reasonings on the basis whereof, the
conclusions of the judgment had been reached. D
If imposition of a regulatory fee is permissible on mineral or tea then
the power therefor must be held to be in the Central Government having
regard to the 1957 Act and the 1953 Act. If the subject matter of tax is land,
the power is with the State Government unless its power is denuded or E
otherwise limited. However, anything which entrenches upon the field of
Regulation of Mines and Minerals Development or industrial activities whether
by reason of levy of any tax or impost, would necessarily be forbidden.

ENTRY 49 list II-Interpretation of
F
General

Entry 49 of List II confers legislative competence upon the State to
impose tax on 'Land' and 'Building'. Coal bearing land or mineral bearing
land for the purpose of Entry 49, however, may not be equated with the land
as ordinarily understood. Land in its ordinary meaning may be an agricultural G
land or a non-agricultural land. It may also be a mineral bearing land. Mineral
bearing lands, however, are governed by the provisions of the 1957 Act and
the rules framed thereunder, so far as the same is covered by the declaration
contained in the statute. In terms of the provisions of the said Act, cess, dead
rent, as well as surface rent are payable. Tea Industry is governed by 1953 H
742 SUPREME COURT REPORTS [2004] I S.C.R.

A Act.

The effect of the Union Legislation vis-a-vis the State Legislation on
the same subject recently came up for consideration before a Bench of this
Court. Despite holding that the State has the power to levy market fee, this
Court observed that 'seeds' which would otherwise come within the purview
B of the definition of 'wheat' would not be subject to such levy having regard
to the provisions of Parliamentrary Act known as the Seeds Act 1966.(See
Krishi Utpadan Mandi Samiti and Ors. v. Pilibhit Pantnagar Bee) ltd and
Anr., (2003) 10 SCALE 432 When, thus, the field is covered by Parliamentary ~
Legislations, an effort has to be made that a conflict with a State Legislation
C is avoided.

ENTRY 49, LIST 11 VIS-A-VIS 1957 ACT:

In assessing the field covered by an Act of Parliament, one has to be
guided not merely by the actual provisions of the Act or the Rules made
D thereunder, but should also take into account matters and aspects which can
be legitimately brought within the scope of the statute.

In this case, we are concerned with the interpretation of two entries in
List I and List II of the Seventh Schedule of the Constitution of India. The
legislative competence in terms of Entry 49 List II is to be considered in the
E light of Entry 54 List I. In a case of this nature, the court cannot raise a
presumption of constitutionality of the State Act as the ultimate answer to the
question will have to be ascertained as to which extent the field is covered.
If the tax on mines and minerals is a subject matter which is covered under
the 1957 Act, the power of the State must be held to be denuded.

F Entry 49 of List II, however, should be read in such a manner so that
the surface land must have a direct nexus with the sub-soil right which is an ,..._
inchoate right. Indisputably, sub-soil right would include mineral right. Mining
lease for winning of coal may be granted for huge area but depending on the
nature of mining activities to be carried on, necessarily the mining lessee
G would not require the entire surface thereof except where mineral is being
extracted by adopting quarrying method.

A mineral can be extracted from beneath a town, village, national
highway, railway track etc., in any manner, without disturbing the surface
itself, subject of course upon carrying out the activities in such a scientific
H manner so that proper and adequate support to the surface is provided. Mineral
STATE v. KESORAM INDUSTRIES LTD. [S.13. SINHA, J l 743
right may extend to more than one town or village. Thus, there can be A
_separate owners for the surface and the underground. The right of the owner
of the surface would necessarily cast a statutory or a contractual liability
upon the mining lessee to provide the requisite support to the surface so as
not to cause subsidence thereof.

If a wide definition of coal bearing land is given so as to hold that the B
State is entitled to levy tax on extracted mineral which is severed from land,
the same would lead to an incongruous result as thereby value of part of the
land itself would be a subject matter of measure of tax although they do not
remain 'land' as such. In any event, coal severed from land cannot be said
to be yield on coal bearing land. so as to hold that the value thereof can be C
determined only for the purpose of measure of tax vis-a-vis the nature and
character thereof.

A tax on land can be imposed so long a land exists. Where, however,
for the purpose of extraction of a mineral, the land was dug and the restoration
was sought to be made by imposition of a tax by reason of Bihar Forest D
Restoration and Improvement of Degraded Forest Land Taxation Act, 1992,
this Court in State of Bihar and Ors. v. Indian Aluminium Company and Ors.,
[1997) 8 SCC 360 distinguishing Goodricke Group Lid., (supra) and following
State o/Orissa V. MahaY1adi Coalfields ltd., [1995) Supp. 2 sec 686, Orissa
Cement (supra), India Cement (supra) and other cases observed:
E
"14 ... While upholding the validity of the Act this Court held that
Entry 49 of List II of the Seventh Schedule contemplates the levy of
tax on lands and buildings or both as units. Tax on lands and buildings
is directly imposed on lands and buildings and bears a definite relation
to it.. .. " F
,., 15 ... Therefore, in order that a tax can be levied under Entry 49 of List
II it is essential that 'land' as a unit must exist on which the tax is
imposed ... "

16 ... Therefore, in pith and substance it is a tax on activity on land G
and not on land itself

(Emphasis supplied)

It was further held:

"17. Mr. Sibal placed strong reliance on the decision in the case of H
744 SUPREME COURT REPORTS [2004] I S.C.R.

A Goodricke Group Ltd v. State of W.B., (1995] Supp. I SCC 707 in
support of his contention that the levy was on land itself and that the
Act would be covered by Entry 49. Goodricke case is clearly
distinguishable. There education cess and rural employment cess were
levied on certain lands and buildings in the State of West Bengal. The
estates were carved out as a separate category and a different rate was
B
prescribed therefor. The cess on tea estates was calculated on the
basis of yield of tea whereas cess on other lands was determined
having regard to the development value of the same. It was held that
the tax was upon land though the cess was quantified on the basis of 'j
produce of the tea estate. In the present case, however, we do not find
C that the tax is on land. In fact what is sought to be taxed is in the
absence of land.

It was opined:

"18. One of the facets of tax being levied on land is that the primary
D responsibility of the payment of tax is on the owner of the land. In
the instant case the levy is not on the general ownership of the land
but is on the person who uses it and who may or may not be the
owner. The primary liability is on the use by the occupier and if the
occupier and the owner are two different persons the liability would
be that of the occupier alone and not of the owner."
E
It was funher held:

"20. From the aforesaid discussion it is obvious that the present tax
is one on the excavation and use of forest land and not on the forest
land as such. Taxing of the undertaking of a non-forest activity in a
F forest land cannot be regarded as being covered by Entry 49 of the
State List because what is sought to be taxed is not land but the tax
is on absence of land or forest by reason of the activity of excavation
and/o'r mining or use of forest land for a non-forest purpose. The
High Court was, therefore, right in allowing the writ petitions tiled by
G the respondents."

(Underlining is mine for .emphasis)

It is, therefore, not correct to contend that while purporting to impose
tax on land and buildings a State has the legislative competence in terms of
H Entry 49 of List ll of the Constitution while in effect and substance it will
ST ATE v. KE SO RAM INDUSTRIES LTD. [S.B. SINHA, J.] 745
entrench upon Entry 52 or Entry 54 of List l therec f. A
An impost on lands and buildings must be a tax directly imposed on
lands and buildings and must have a definite relation thereto. (See Sudhir
Chandra Nawn v. Wealth Tax Officer, (1969] I SCR 108 at 111.

In Orissa Cement Ltd. v. S(ate of Orissa and Ors., (1991] Suppl. I SCC B
430 it is stated:

"30 ... The former must be one directly imposed on land, levied on
land as a unit and bearing a direct relationship to it...."

The tax on land must be a direct impost. Before making an endeavour C
to deal with the validity of tax in question, certain general principles may be
noticed. Indisputably in all jurisdictions real estate which would include land
or building is subject to taxation unless the same is exempt or by reason of
any constitutional scheme or statutory provision no tax can be imposed.

In Central Coalfield.i Ltd. v. The State of Bihar, AIR (1991) Patna 27
D
Cess on coal in terms of Section 6 of the Bengal Cess Act, 1880 was to be
measured on the basis of pit mouth value of coal. The Division Bench noticed
that the Cess Act by reason of amendments carried out lay special emphasis
on mines and quarries including mineral development thereof irrespective of
the fact as to whether they are situate within the Municipal area or not, held: E

"59. Whenever a tax is based upon the mineral rights, the same would
come within the purview of Entry 50 of List II. In India Cement, AIR
(I 990) SC 85 (supra), as indicated hereinbefore it has clearly been
held by the Supreme Court that it is not permissible to read the
Constitution in such a manner so as to make one Entry in any list F
redundant. The effect of the contention of the learned Advocate
General that although a tax is imposed on the produce of mine, that
is, in terms of Annexure 10 to C.W.J.C. No. 368of1990 (r), 40% of
its pit head value, the same would still retain the character of a tax
on land in terms of Entry 49, List II, wou Id render Entry 50 thereof G
otiose and/ or surplusage. This is ::gain st the decision of the Supreme
Court in India Cement, AIR (1990) SC 85 (supra). Makers of the
Constitution in their wisdom have classified the fields of the legislation
and conferred power upon the State to impose tax on mineral rights
but the same is subject to the limitation imposed by the Parliament
by law relating to regulation of mine and development of mineral. H
746 SUPREME COURT REPORTS [2004) 1 S.C.R.

A Further the Supreme Court clearly held that for the purpose of
upholding the validity of a tax on land or building it must be referable
as a tax on the land as a unit and not on the basis of the minerals
extracted from it. "

[Emphasis supplied)
B
Although entries in the Lists are designed to define the area of legislative
competence of the Union and State Legislation, the matter has to be considered
having regard to the decisions rendered by this Court as also other High
Courts. [See Mahabir Prasad Jalan and Anr., v. The State of Bihar and Ors.,
AIR (1991) Patna 40 at page 47 and State of Karna/aka v. Vishwabarathi
C House Building Coop. Society and Ors.. , JT (2003) 1 SC 344.

It has been held in Mahabir Prasad Jalan (supra) that the State is not
denuded of its power of acquisition. Therein only for that purpose Entry 14
and Entry I 8 of List II was held to have not taken away the legislative
D competence of the State. (See also Shri Krishna Gyanodya Sugar Ltd. v.
State of Bihar, [2003) 4 SCC 378.

The legislative competence of the State in relation to agricultural land
as also imposition of tax on land and buildings as contained in Entry 49 of '1<'
List II must be considered having regard to Entry 52 or Entry 54 of List I
E and Entry 33 of List III. The legislative competence of the State having
regard to Articles 246, 248 and 253 of the Constitution of India, it is trite,
would be subject to the legislative competence of the Parliament.

Whenever a tax on land is imposed, the levy must be on the land as a
unit. (See India Cement (supra) paras 22, 23)
F
The impugned levies, however, having regard to nature of impost cannot
be said to be a tax on land as:

(a) the impost is not directly on land,
(b) the levy does not concern itself with any aspects of land i.e.
G extent of land, nature, character, quality or location thereof. In
the case of mineral, it is already embedded in the earth and
there is no question of any yield in the sense that there would
be an annual yield or annual income. In case of tea, it is also not
concerned with the productive qualities of the land and
H (c) the levy is not based on the land as a unit.
I'

STA TE v. KESORAM INDUSTRIES LTD. [S. B. SINHA, J .] 747

It must be noticed that the definition of coal bearin~ land or the tea A
estate and/ or tea is the same in both the State Acts and the Central Acts. The
impugned levy is entirely dependent upon the production of mineral extracted
or production of tea leaves which vary from mine to mine or garden to
garden or location to location and from year to year.

In the case of coal, the levy varies with the production of mineral B
without any bearing on the surface land as such, An underground mining
lease in respect of l 00 acres can be granted with one acre of surface land,
When the tax on land is imposed, the question would be to what extent the
underground mining right can in the aforementioned context be subject matter
thereof, Tax on land can be imposed only in respect of one acre of land, Can C
the value of coal extracted from l 00 acres of land be charged when, in effect
and substance, only one acre of surface land is being used and 99 acres of
surface land remain untouched,

The aforementioned example is also a pointer to the fact that tax on
land is not being imposed as a unit. What would be the unit for the purpose D
of imposition of tax in the aforementioned context? On one acre of surface
land or one acre of surface land together with additional 99 acres of
underground mining right? Such impost, therefore, having regard to its nature
and character, in our opinion, cannot be sustained in law,

If the contention of the State of West Bengal is accepted the same E
would lead to an incongruous result.

Cess is imposed having regard to the valuation of coal bearing land but
then in a situation of this nature the question would be as to what would be
the unit of land for the purpose of computing the annual value of land; that p
is one acre of surface land or I 00 acres of underground mining right.
Furthermore, again the mode of valuation in respect of coal bearing land,
namely, one acre of land having the mineral right with surface right intact
and other 99 acres of land having mineral right only without any right to use
the surface should be different. Yet again a situation may arise where the
holder of a mining lease in relation to an underground mineral right has G
purchased or taken on lease the surface land for carrying out mining operations
for having offices or place, stock of coal or siding a railway or transport yard
wherefrom coal is transported. The inipugned statutes having not provided
for computing the annual value of land in such different situations and, thus,
the tax on land being not measurable as an independent unit of the land must H
748 SUPREME COURT REPORTS [2004] I S.C.R.

A be held to be not workable. No known method of valuation has been shown
to us which provides that although with the extraction of mineral the value
of the land would be going dowr., the value of the coal extracted therefrom
can be the method adopted for subject matter of calculating tax on the basis
of the land's purported annual value. Computation of annual value of land
B may be on the basis of actual income derived therefrom or the propensity
therefor. But when mineral is being taken out from the mineral bearing land,
the value thereof would be diminished and a stage may come where the
market value therefor would be zero or in fact the same may require further
investments for compliance of the terms and conditions of instrument granting -;.
mining lease or the requirement of statutes.
c Even a land may contain different minerals in different layers, i.e., at
the surface as well as in the bowel of the earth. There are lands consisting
of hills or hillocks where minerals like iron ore, manganese ore or where
other minor minerals like stone-chips can be found; Whereas the surface may
contain brick-earth or other minor minerals like sand etc. Furthermore, the
D different minerals may be contained in different layers of the underground;
major minerals or minor minerals or both. It is also permissible under the
1957 Act and the Rules framed thereunder to grant different mining leases
for different minerals adopting different procedures for grant of mining leases
having regard to the nature of the mineral, namely, major mineral or a minor
E mineral.

The impugned levies are, thus, taxes on coal or other minerals raised
in the mining areas and not a tax on land as contemplated under Entry 49 of
List II. Irrespective of imposition of tax on the land as a unit, the impugned
levies have only one consideration, i.e., production of coal which would, thus
F fall outside the purview of Entry 49 of List II.

In Krishna Mohan (P) ltd v. Municipal Corporation of Delhi and
Ors., (2003) 7 SCC 151 the Court while considering the provisions of the
Delhi Municipal Corporation Act, 1957 noticed the definition of 'building
G and land' contained therein which are as under:
"9. The expression "building" is defined in Section 2(3) as under:
"2(3) 'building' means a house, outhouse, stable, latrine, urinal, shed,
hut, wall (other than a boundary wall) or any other structure, whether
of masonry, bricks, wood, mud, metal or other material but does not
H include any portable shelter;"
STATE v. KESORAM INDUSTRIES LTD. [S.13. SINHA . .I.) 749

"Land" has been defined in Section 2(24) as follows: "2(24) 'land' A
includes benefits to arise out of land, things attached to the eaiih or
permanently fastened to anything attached to the earth and rights
created by law over any street;"

Noticing that the expressions 'land' and 'buildings' had separately
been defined and a distinction had been drawn by the Legislature, this Court B
held that the State could not levy a property tax on machinery in the guise
of levy of tax on lands and buildings.

~ The tax under the impugned acts has not been imposed on land as a
unit but on coal. The tax, therefore, is not directly upon the land but upon
a part of land, which is mineral and, thus, out of the legislative competence c
of the Stat~.

Applying the test laid down in several decisions of this Court, we are
of the opinion that the impugned cess is not a tax directly levied upon land
as a unit by reason of the general ownership of the lands and buildings.
D
Mineral Bearing Land vis-a-vis General Rights over Land:

)f
Land may consist of several rights. The surface of the land may be in
actual possession of an occupier who has no right or under-raiyat or raiyat
or a person having only a right to cultivate thereupon. However, holders of
such right ordinarily would not have any right over minerals. Even if a
E
mineral is found on the surface, they must collect the same and keep it at the
corner of the land so that the same may be taken away by the owner thereof,
which in a case of mining lease, would be mining lessee.

Mineral may be found in the mineral bearing land. Mineral bearing F
--? ..... land may, thus, contain mineral as the product of the nature. Mineral may,
however, also be deposited on the surface by reason of certain activities as,
for example, 'coal slurry' which has been held to be 'mineral' may come out
of the coal washing plants and deposited in the rivers, nalas or the agricultural
fields. Slurry has been held to be a mineral and, thus, governed by provisions
of the MMRD Act. (See Bharat Coking Coal Ltd. (supra)). G
Bheemagari Bhaskar and Ors. v. Revenue Divisional Officer, Bhongir
~
...!-. and Ors., (2002) I ALT 159 is another instance where a question arose as
regard sand deposited on the land of the Pattadars and claimed by them in
terms of the provisions of Andhra Pradesh Estates (Abolition and Conversion
H
750 SUPREME COURT REPORTS [2004] I S.C.R.

A into Ryotwari) Act, 1948. Such a claim was rejected by the Andhra Pradesh
High Court referring to .Jagadish Chandra v. Kanai Lal, AIR (1951) Patna
525, Kusum Kamini v. .Jagdish Chandra, AIR (1941) Patna 13 and Purnendu
Narain Singh v. Narendra Na1h. AIR (1943) Patna 31, holding sand being a
minor mineral, the agriculturists have no right thereover. It was further held
B that grant of lease in respect of the said minor mineral can be granted by the
State and in terms of the 1957 Act and the rules framed thereunder.

Some rights are capable of granted by holders of same or higher rights
and some only by the State. Even the State, having regard to ri.e doctrir.e of
'public trust', may not have any power to grant any right in relation to certain
C matters, e.g., deep underground water.

Deep underground water belongs to the State in the sense that doctrine
of public trust extends thereto. Holder of a land may have only ~right
,•
of user
and cannot take any action or do any deeds as a resu It whereof the right of
others is affected. Even the right of user is confined to the purpose for which
D the land is held by him and not for any other purpose. Even in relation to
such matters, no prescriptive right under Section 25 of the Limitation Act
would be attracted. Further, even by reason of Section 25 of the Limitation
Act, a person must exercise an easementary right without interruption for a
period of 30 years in relation to air, way or watercourse or the use of any
water or any other easement by enjoying it peaceably and openly as an
E easement and as of right. Then only such exercise of right to air, way,
watercourse, use of water or other easement becomes absolute and indefeasible.

A person who holds land for agricultural purpo;,e may, therefore, subject
to any reasonable restriction that may be made by the State may have the
F right to use water for irrigational purposes and for the said purpose he may
also excavate a tank. But under no circumstances, he can be permitted to
restrict flow of water to the neighbouring lands or discharge the effluents in
such a manner so as to affect the right of his neighbour to use water for his
own purposes. On the same analogy he does not have any right to contaminate
the water to cause damages to the holders of the neighbouring agricultural
G fields. Large scale defoulment in the quaiity of water so as to make it unusable
by others or as a result whereof the water is contaminated and becomes
unpotable would be violative of Article 21 of the Constitution. In M.C. Mehta
v. Kamal Nath, [ 1997] 1 SCC 388, this Court has quoted with approval an
article entitled 'Public Trust Doctrine in Natural Resource Law : Effective
H Judicial Intervention' of Joseph L. Sax, Professor of Law, University of
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.) 751
Michigan. A
The High Court ofKerala recently by a judgment dated 16th December,
2003 in Perumatty Gram Panchayat Perumatty Vandithavalam P.O., Chettur
Taluk represented by its President Sri A. Krishnan v. State of Kera/a and
Ors. W.P. (C) No. 34292/2003 (G) restrained Hindustan Coca Coal Beverages
Limited from using ground water for running its plant at Plachimada in B
Palakkad district stating that the ground water was a national wealth and it
belongs to the entire society. It was observed that water was nectar sustaining
~ life on earth and, thus, the State has a duty to protect ground water against
excessive exploitation and inaction on its part tantamounts to infringement of
the fundamental rights guaranteed under Article 21 of the Constitution.
c
The purpose of discussions aforementioned is that while imposing a tax
on land and in particular mineral bearing land the Legislature must exercise
its power consciously. It must be borne in mind that power to impose tax
should not be exercised in a casual or cave liar manner. The members of the
legislature must be informed as regard the exact subject matter of tax. It, D
while imposing a tax on the subject (A) cannot indirectly levy an impost on
subjects (B) and (C) and while the validity thereof is challenged, the State
>(
cannot be heard to say that subject (B) or subject (C) also come within the
legislative power having regard to other entries of List II of the Seventh
Schedule of the Constitution of India. Entry 50 authorises the State to tax
mineral rights which has no co-relation with the power to tax land. If both E
the entries are resorted simultaneously, the statutes bear out the same. From
the impugned acts, it cannot be inferred that the State intended to levy tax
both on land and mineral right. The entire gamut of argument, having regard
to India Cement (supra) and Orissa Cement (supra) was confined to Entry 49
but Entry 50 of List-I has been taken recourse to in a half-hearted manner. F
___,." ... If a mining operation is carried out through digging incline or pits, the
area of the underground may be more than the surface. In that view of the
matter, a tax on land cannot be levied having regard to different rights over
the same surface unless it is so done on a unit. Only because etymologically
the land may mean from the surface to the center of the earth, the holder of G
an agricultural right or non-agricultural right may not have any right over the
::::or- subterranean right. Such subterranean right may be used only for the purpose
-'(
..-II public interest granted to the holder of land under the relevant statute governing
the field. The holder of a limited tenancy right, thus, cannot construct a dam
or take out all water or mineral underneath. 1957 ACT VIS-A-VIS ENTRY
H
752 SUPREME COURT REPORTS [2004] 1 S.C.R.

A 50 OF LIST II
The contour of the 1957 Act would clearly show that the Union had
taken over the entire control of mining industry.

The 1957 Act is a comprehensive Act. It is a self-contained Code.
B Grant of mineral rights, undoubtedly, would come within the purview of
regulation of mine and mineral development in terms of the 1957 Act. The
entire field of legislation is covered by Parliamentary Act of 1957. When a
mining lease is granted, consideration for parting with the mineral right would
be a part of the terms and conditions thereof. The right to receive royalty is
C also a mineral right. State indisputably receives royalty as a consideration for
grant of mining lease in terms of the 1957 Act.

Brother Lahoti referring to Black's Law Dictionary, 7th Edition also
noticed that a mineral right vests in the owner of the land and is capable of
being parted with. As discussed hereinbefore, such a right has vested in the
D States exclusively and furthermore as grant of such right is governed by the
provisions of Parliamentary Acts, the same cannot be subject matter of levy
of tax imposed by a law made in terms of Entry 50 of List I.

The terms and conditions including the right to receive royalty, the
mode, manner and extent thereof; the limitations in relation thereto as well
E as enhancement in the quantum thereof are fixed by the statutory provisions,
and, thus, a State would be denuded of its power to impose any further levy,
impost or tax thereupon. Entry 50 of List II is unique in the sense that it is
the only Entry in all the Entries in the three Lists (List 1, II and Ill) (apart
from Entry 37) in the Seventh Schedule where the taxing power of State
Legislature has been subjected to "any limitation imposed by Parliament by
F law relating to mineral development". Therefore the moment Parliament makes
any law relating to mineral development, the State Legislatures are denuded
of their legislative competence to impose any tax or levy on minerals and/ or
minerals and/ or mineral rights. Entry 50 of List II of the Seventh Schedule
-
of the Constitution of India is subject to law enacted by Parliament in terms
G of Entry 54 List I of the Constitution of India, and, thus we have no doubt
in our mind that a power to levy of tax on mineral right or on despatch of
mineral does not exist in the State. ;

In Black's Law dictiona1y "mineral right" has been defined as "an
interest in minerals in land. A right to takes minerals or a righ1 to receive a
H royalty." Right to receive royalty is, thus, also a mineral right.
\
1<.

STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 753

-?. In the same dictionary, "mineral" has been defined as "any valuable A
inert or lifeless substance formed or deposited in its present position through
natural agencies alone, and which is found either in or upon the soil of the
earth or in the rocks beneath the soil".

The power to tax on mineral rights, therefore, would essentially be
different from a right to tax on mineral actually extracted. B
Wanchoo, J. in Hingir Rampur Coal Co. Ltd v. The Stale of Orissa and
,,. Ors., AIR (1961) SC 459 observed:
~
'Thus tax on mineral rights would be confined, for example, to taxes
on leases of mineral rights and on premium or royalty for that. Taxes c
on such premium and royalty would be taxes on mineral rights while
taxes on the minerals actually extracted would be duties of excise."

The learned Judge further observed:

"There would be no difficulty where an owner himself works the D
mine to value the mineral rights on the same principles on which
leases of mineral rights are made and then to tax the royalty which,
for example, the owner might have got if instead of working the mine
~ himself he had leased it out to somebody else. There can be no doubt
therefore that taxes on mineral rights are taxes of this nature and not
taxes on minerals actually produced." E
If the intention of the Constitution maker was to confer an absolute
power upon the State Legislature to levy tax whether on mineral rights or
minerals, the same could have been worded differently. There was absolutely
no necessity to restrict the power to levy tax on mineral rights in the State's
and not to permit the levy of tax on minerals, whether extracted or otherwise. F
. Mineral rights, therefore, cannot be construed as a mineral already extracted
""' as contradistinguished from being capable of extraction or otherwise in a
state or form when embedded in the earth. The State Legislature, therefore,
has no legislative competence to impose tax on minerals. In the present
context, in view of the 1957 Act, it has also no legislative competence to levy G
tax on mineral rights which will have a direct impact on mineral development.

. In Hingir Rampur (supra), as noticed hereinbefore, the 1948 Act was
held to have occupied the entire field of regulation of mine and mineral
development. The 1957 Act having regard to Entry 54 of List I contains
substantially similar provisions. Even in State of Orissa v. M.A. Tulloch. H
;
)r'

754 SUPREME COURT REPORTS [2004] I S.C.R.

A [1964] 4 SCR 461, the 1957 Act was held to have occupied the entire field
of mines and mineral development. This Court rejected the contention that
the 1957 Act does not contain any provision for levy of tax having regard to
Section 25 of the 1957 Act and held that the said provision, by implication,
provided for levy of tax. In India Cement (supra) also this Court held :

B "30. It seems, therefore, that attention of the court was not invited to
the provisions of Mines and Minerals (Development and Regulation)
Act, 1957 and Section 9 thereof Section 9 (3) of the Act in terms
states that royalties payable under the Second Schedule of the Act
shall not be enhanced more than once during a period of four years.
It is, therefore, a clear bar on the State legislature taxing royalty so
c as to in effect amend Section Schedule of the Central Act. In the
premises, it cannol be right to say that tax on royalty can be a tax
on land, and even if it is a tax, if it falls within Entry 50 will be ultra
vires the State legislative power in view of Section 9(3) of the Central
Act. In Hingir-Rampur Coal Co. Ltd. v. State of Orissa, [1961] 2
D SCR 537: AIR (1961) SC 459, Wanchoo, J. in his dissenting judgment
has stated that a tax on mineral rights being different from a duty of
excise pertains only to a tax that is leviable for the grant of the right
to extract minerals, and is not a tax on minerals as well. On that basis,
a tax on royalty would not be a tax on mineral rights and would
therefore in any event be outside the competence of the State
E legislature."

In Mahalaxmi Fabric Mills ltd. (supra), the power of the Central
Government to enhance new rates of royalty on various grades of coal was
in question.
F The arguments as regard lack of legislative competence was repelled
referring to India Cement in the following words: .
"11. In our considered opinion there is no substance in either of the
twin contentions for challenging vires of Section 9(3). So far as
competence to enact Section 9 is concerned, the question is no longer
G
res integra ....."

In India Cement (supra), a 7-Judge Bench of this Court held that the
1957 Act and the declaration contained therein being a legislation controlled »-
by Entry 54 of List I the whole field is occupied and Entry 50 of List II is
H totally excluded.
STATE v. KESORAM INDUSTRIES LTD. [S.13. SINHA. J.] 755
In India Cement (supra), thus, this Court has held that no tax can be A
imposed by the State which would have a direct impact on the quantum of
royalty.
Further, in laxminarayan Mining Co. v. Taluk Dev Board, AIR (1972)
MYS 299 which has been approved in India Cement, the Mysore High Court
observed that a combined reading of Entries 23 & 50 in List II and Entry 54 B
in List I establishes that as long as the Parliament does not make any law in
exercise of its power under Entry 54, the powers of the State Legislature in
Entries 23 and 50 would be exercisable by the State Legislature. But once the
Parliament makes a declaration by law that it is expedient in the public
interest to make regulation of mines and minerals development under the
control of the Union, to the extent to which such regulation and development C
is undertaken by law made by the Parliament, the field of the State Legislature
is undertaken by law made by the Parliament, the field of the State Legislature
under Entries 23 and 50 of List II are denuded. On this reasoning, in the
Mysore High Court Judgment, a Legislation by the State conferring power on
the Taluk Board as per impugned notification to levy tax on mining activities D
was held to be unauthorized.
It would not be correct to contend that this decisiQn cannot be read so
widely. The power to tax in terms of Entry 50 is subject to a Parliamentary
Act. If a Parliamentary Act operates in the field the right of the State to levy
tax or fee is completely taken out from their legislative competence. The E
I 957 Act deals with mineral rights and admittedly has occupied the entire
field relating to regulation of mine and mineral devdopment. Any tax on
mineral rights which would be counter productive to mineral development is
constitutionally impermissible.
Once it is held that the entire field of legislation is occupied by the F
Parliament in view of the 1957 Act and the declarations contained therein
evidently Entry 50 of List II would not be attracted. This has been held
uniformly by this Court and some High Courts in a series of decisions.
The matter may be considered from another angle. Under the Coking
Coal Mines (Nationalisation) Act, I 972 and Coal Mines (Nationalisation) G
Act, 1973, as noticed hereinbcfore, all coking coal mines mentioned in the
schedule appended to the 1972 Act and all coal mines vested in the Central
Government. In terms of Section 7 of the 1972 Act and Section 9 of the
I 973 Act,. the Central Government was empowered to transfer the said coking
coal mines and coal mines to any Goverr.ment company, as may be notified.
Pursuant to or in furtherance of the said enabling provision, the Central H
756 SUPREME COURT REPORTS [2004] I S.C.R.

A Government created various public sector undertakings and transferred the
Coking Coal Mines and the Coal Mines as the case may be, to one government
company or the other, as a result whereof all the public sector undertakings
have become mining lessees in relation thereto as if they had been granted
a mining lease in terms of the provisions of the Mines and Minerals
(Regulation and Development) Act and the rules framed thereunder for the
B remainder of the term. All coking coal mines and coal mines except a very
few, thus, have become subject matter of statutory mining leases by reason
of a legal fiction created under the 1972 and I973 Acts. In that view of the
matter too, Entry 50 of List II of the Seventh Schedule of the Constitution
of India may not have any application to such coking coal mines and coal
C mines, as they have been taken over and are being run by the Government
companies in terms of the provisions of the Parliamentary Acts.
The expression 'any limitations' in Entry 50 of List II should not be
given a restricted meaning as contended by the appellant. In fact, the rule
of interpretation that the language of the entries should be given widest
D scope, should equally apply to the interpretation of the said words. So read,
the limitations on 'taxes on mineral rights' could be in any form, including
occupying the entire field of legislation under Entry 50 of List II by a
Parliamentary legislation and providing for levy of taxes. The MMRD Act,
I 957 precisely achieves the said objectives by occupying the entire field of
legislation covered by both Entries 23 and 50 of List II. (See India Cement
E (supra))
In Orissa Cement (supra), this Court explained the scope of the MMRD
Act, 1957 thus:
" ..... Section 25 implicitly authorizes the levy of rent, royalty, taxes
and fees under the Act and the Rules. The scope of the powe1s thus
F
conferred is very wide. Read as a whole the purpose of the Union
control envisaged by Entry 54 and the MMRD Act, 1957 is to provide
for proper development of mines and mineral areas and also to bring
about a uniformity all over the country in regard to the minerals
specified in Schedule I in the matter of royalties and consequently
G prices."
This objective would be totally defeated by the impugned levy of cess
on coal that has resulted in coal produced in the State of West Bengal totally
unremunerative and incompetitive, the price of coal so produced being much
higher than the price of coal produced in the adjoining States of Bihar, U.P.,
H Orissa, M.P. and Maharashtra as shown in the comparative chart given below:
I

WEST BENGAL

Category/ Specifi- Size Base-. Royalty Stoving RE RE P.W. AMBH TOT. (A) (B) (CJ
Grade cation price per MT Excise Cess Ccss Road Cess Stat. Price CST/MT Price
per Te duty (35% (5% Cess per Mt. Levies Exel. @4% on incl.
p<r MT. on on per (Exel. CST A CST
< basic) basic) MT. St.) (A+B)
~
Long A 6200 STEAM 645.00 6.50 3.50 225.75 32.25 1.00 1.00 270.00 915.00 36.60 951.60 CT'l
(/J
0
Flame Kilo SLACK 638.00 6.50 3.50 223.30 31.90 1.00 1.00 267.20 905.20 36.21 941.41 ;:o
>
Non Calorics/ ROM 635.00 6.50 3.50 222.25 31.75 1.00 1.00 266.00 901.00 36.04 937.04 ~

!Cooking Kg.-UHV
z0
c:
...,
(/J

13 5600. STEAM 592.00 6.50 3.50 207.20 29.60 1.00 1.00 248.80 840.80 33.63 874.43 :::::
CT'l
(/J
6200Kilo SLACK 585.00 6.50 3.50 204.75 29.52 1.00 1.00 246.00 831.00 33.24 864.24
...,
r
Calories/ ROM 582.00 6.50 3.50 203.70 29.10 1.00 1.00 244.80 826.00 33.07 859.87 !='
Kg.

c 4940. STEAM 522.00 5.50 3.50 182.70 26.10 1.00 1.00 219.80 741.80 29.6"' 771.47

5600Kilo SLACK 515.00 5.50 3.50 180.25 25.75 1.00 1.00 217.00 732.00 29.2~ 761.28

Calories/ ROM 512.00 5.50 3.50 179.20 25.60 1.00 1.00 215.80 727.80 29.11 756.91

Kg.
758 SUPREME COURT REPORTS (2004] I S.C.R.

A M.P. BIHAR U.P. ORISSA AND MAHARASHTRA

Category/ Speci- Size Base Royalty Stoving (A) (8) (C)
Grade fication Price Per MT Excise Price CST/MTPrice \
Te. Duty per Exel. @4%on incl.
MT. CST. A CST
B (A+B)

Long A 6200 STEAM 645.00 120.00 3.50 768.50 30.74 799.24
Flame Kilo SLACK 638.00 120.00 3.50 761.50 30.46 791.96
Non Calories/ ROM 635.00 120.00 3.50 758.50 30.34 788.84
C Cooking Kg.-UHV
B 5600, STEAM 592.00 120.00 3.50 715.50 28.62 744.12

6200Kilo SLACK 585.00 120.00 3.50 708.50 28.34 736.84

Calories/ ROM 582.00 120.00 3.50 705.50 28.22 733.72

D Kg.

c 4940, STEAM 522.00 75.00 3.50 600.50 24.02 624.52

5600Kilo SLACK 515.00 75.00 3.50 593.50 23.74 617.24

Calories/ ROM 512.00 75.00 3.50 590.SO 23.62 614.12
E
Kg.

The difference in the ultimate price of coal in the State of West Bengal
and other States would, thus, be around 25% of the base price. The submission
F of Mr. Dwivedi to the effect that the cess imposed is not excessive, therefore,
does not appear to be correct. From the aforementioned chart, it is evident
that no substantial difference can be culled out so far as the price of coal on
despatch vis-a-vis at the pit head is concerned, inasmuch by reason of the
amendments made in the impugned Acts only the amount of royalty and
G otl1er taxes were be deducted, which would only be a sum of Rs. IOI~ whereas
in lieu thereof sums of Rs. 225.75, Rs. 32.25, Re. I and further sum of Re. I
would be levied on the base value of coal by way of rural employment cess,
education cess, road cess and other cesses amounting to Rs.270/- per M. T.
The Parliament, on the other hand, having regard to the decision in India
H Cement (supra) thought it expedient to increase the rate of royalty from
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, .I.] 759
Rs. 6.50 to Rs. 120 per M. T. The effect of imposition of cess on coal by the A
State of West Bengal would bring about a radical change in the price of coal
in the State of West Bengal vis-a-vis the other States, the effect whereof may
lead to crippling of several industries situate in the State of West Bengal or
the industries depending upon supply of coal produced therein. It is necessar)'
to consider the effect of the imposts on the price of coal in the context of the B
legislative competence of the State vis-a-vis the Parliament having regard to
the fact that the Parliament in terms of enactments made both under List I
and List III is entitled to fix the ultimate price of coal.

We do not intend to lay down any proposition of law that the effect of
impost on the price of a commodity which is the subject-matter of legislation C
will be determinative of the nature and character of the impost but what we
intend to say is that the same would be a relevant consideration not only for
the purpose of finding out as to whether the same is excessive but also for
determining the dispute as to whether the impost would fall within the purview
of one or the other entries contained in List I or List II of the Seventh
Schedule of the Constitution of India. D
It is not correct to contend, as has been done by Mr. Dwivedi that
taxing entries and general entries form two separate categories and the power
to tax cannot be claimed as power ancillary to general power.

It is not in dispute that grant of mining lease by the State is governed E
by the provisions of the 1957 Act. It is also not in dispute that payment of
royalty and interest thereupon is also governed by some principles which
have bearings on the price of coal.

Mahalaxmi Fabric Mills ltd. (supra) has recently been noticed in South F
Eastern Coalfields ltd. (supra) wherein Lahoti, J. speaking for the Division
Bench observed:

"Here it is clear from the several provisions of the Act and the rules
quoted hereinabove, no mining operation is pern1issible except in
accordance with the terms and conditions of a mining lease and the G
rules made under the Act. The rules clearly provide for payment of
interest."

Having regard to the provisions contained in Sections 2 and 18 of the
Mines and Minerals (Regulation and Development) Act, 1957 the Parliament
has taken over the entire control of regulation of mines and mineral H ·
760 SUPREME COURT REPORTS (2004] I S.C.R.

A development. Once such a right of extracting mineral is conferred, even if,
the mineral comes out of the mine, say while washing coal in a coal washery
or manufacturing coke in a Coke Plant ('coal washery' and 'coke washing
plant' are mines under several Parliamentary Acts as also orders and rules
governing the field) the State would have no right to deal with the same.
B "Mining lease" as defined in Section 3(c) of the Act means "a lease
granted for the purpose of undertaking mining operations, and includes a
sub-lease granted for such purpose." "Mining Operations" as defined in Section
3(d) means " any operations undertaken for the purpose of winning any
mineral" Section 5(1) imposes restriction on the grant of mining leases by a
C State Government. The essence of mining operation is that it must be an
activity connected with mineral whether under the surface or on the earth.

Once the right of winning mineral is conferred in terms of the 1957
Act, the State would be denuded of any power to impose any tax in respect
thereof in any form and at any place, even if the mineral is found outside the
D mineral bearing lands. [S.:~ Bharat Coking Coal Ltd v. State of Bihar and
Ors., (1990] 4 SCC 557.

Under the three impugned Acts, as would be discussed in details
hereinafter, taxes have been levied on minerals and not on mineral rights and,
thus, the State Legislations cannot be supported in tenns of Entry 50 of List
E II.

The levy even otherwise cannot be said to be referable to Entry 50
since:

(a) It is a levy only on minerals extracted or produced from the coal
F mines;
(b) It is on quantity of minerals produced from the mining lease;

The charging section is directly referable to production of coal. The
claim, thus, would amount to a colourable exercise of Power. (See K.C.G.
G Narayan Deo v. State of Orissa, [1954] SCR I and Central Coalfields Ltd
and Ors. v. The State of Bihar and Ors., AIR (1991) Patna 27.

'Mineral rights' and 'mineral' connote two different things. A mineral
may be embedded in earth or is extracted. When it is extracted, it may be a
culmination of the right to deal in mineral but the mineral rights would not
H include a right to despatch extracted minerals.
STA TE v. KESORAM INDUSTRIES LTD. [S. B. SINHA, J.] 761

In India Cement (supra), it is stated that: A
"In any event, royalty is directly relatable only to the minerals extracted
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 field is covered by Central power B
under Entry 23 or Entry 50 of List II, the impugned legislation cannot
be upheld"

In Ajit Singh v. Union of India and Ors., [1995] Supp. 4 SCC 224, the
question which arose was as to whether upon revocation of a mining lease,
the area becomes available for regrant and, therefore, whether it is permissible C
to issue an administrative order fixing a date therefor. It was held that such
an administrative order would not be inconsistent with the Rajasthan Minor
Mineral Concessions Rules, 1977.

In Inderjeet Singh Sia/ and Anr. v. Karam Chand Thapar and Ors.,
[1995] 6 sec 166, this Court was interpreting a deed of assignment. While D
noticing that royalty refers to 'Jura regalia' or 'Jura regia' i.e. royal rights
and prerogatives of a sovereign in the primary. sense, but it was held to
signify, as in mining leases, that part of the reddendum, variable though,
payable in cash or kind, for rights and privileges obtained. However, having
regard to the tenor of the covenants contained in the deed of assignment, it E
was held:

" ... The word 'royalty' thus, in the deed was used in a loose sense so
as to convey liability to make periodic payments to the assignor for
the period during which the lease would subsist; payments dependent
on the coal gotten and extracted in quantities or on despatch. We F
have therefore to construe document x. D-5 on its own terms and not
barely on the label or description given to the stipulated payments.
Conceivably this arrangement could well have been given a shape by
using another word. The word 'royalty' was perhaps more handy for
the authors to be employed for an arrangement like this, so as to G
ensure period;~ payments. In no event could the parties beput to
blame for using the word 'royalty' as if arrogating to themselves the
royal or sovereign right of the State and then make redundant the
rights and obligations created by the deed."

In Quarry Owners' Association v. State of Bihar, [2000] 8 SCC 655, H
I
y

762 SUPREME COURT REPORTS (2004] I S.C.R.

A it was submitted that royalty is a tax. While agreeing thereto, it was observed:

"In considering this submission we have to keep in mind, tax on
this royalty is distinct from other forms of taxes. This is not like a tax
on income, wealth, sale or production of goods (excise) etc. This
royalty includes the price for the consideration of parting with the
B right and privilege of the owner, namely, the State Govermrlent who
owns the mineral. In other words, the royalty/dead rent, which a
lessee or licensee pays, includes tlie price of minerals which are the
property of the State. Both royalty and dead rent are integral parts of
a lease. Thus, it does not constitute usual tax as commonly understood
c but includes return for the consideration for parting with its property.
In view of this special nature of the subject under consideration,
namely, the minerals, it would be too harsh to insist for a strict
interpretation with reference to minerals while considering the
guidelines to a delegatee who is also the owner of its minerals. In the
D present case, we are not considering any liability of tax on the assessee
but whether delegation to the State by Parliament with reference to
minor minerals is unbridled."

As by reason of a Parliamentary legislation in tenns of Entry 54 of List
I, (1957 Act) a provision has been made in terms whereof the State is
E compensated for parting with this mineral rights; by necessary implication, it
must be held that the powers to levy tax on such rights would also stand
denuded.

If a statutory impost would come within the purview of the definition
p of tax as contained in Clause 28 of Article 366 of the Constitution of India,
Entry 54 read with Entry 97 of List I by necessary implication must be held
to include the power of taxation also. So viewed, it cannot be said that Entry
54 is a general entry which does not deal with tax in that sense and particularly
having regard to the fact that there does not exist any provision that the State
can levy tax on extracted minerals, Parliament must, thus, also be held to
G have power to impose tax on extracted mineral, de 'hors the right to impose
tax on mineral right, in terms of Entry 97 of List I.

In Union and State Relations under the Indian Constitution by M.C.
Setalvad at page 54, the learned author states:
H
ST ATE v. KE SO RAM INDUSTRIES LTD. [S. Il. SINHA. J.] 763
"The exercise of this power has not only helped the Union to legislate A
for its own purposes, but enabled it to come to the rescue of the
States. We may point to the Gifts Tax Act, 1958, the tax on building
contracts even though no sale is involved in them; a collection of
annuity deposits under the Income-tax Act, 1961, Chapter XXII-A
inserted by section 44 of the Finance Act, NO. 5of1964; the Himachal B
Pradesh Legislative Assembly (Constitution and Proceedings)·
Validation Act, 1958, removing the disability of .members of a
Legislative Assembly of a Part C State, which have all been enacted
by the Union in the exercise of its residuary power."

Taking any view of the matter, it cannot be said that impugned "cess" C
under the State Acts is referable to Entry 50 of List II.

In Quarry Owners' Association v. State qf Bihar. (2000] 8 SCC 655,
imposition of royalty on mines and minerals by the State of Bihar in exercise
of its power conferred upon it under Section 15 of the 1957 Act was in
question; while considering as to whether the State has exceeded its delegated D
power in levying excess royalty. Interpreting the expression 'regulation of
mines and minerals development' occurring in Entry 54 List I and Entry 23
List II of the Seventh Schedule of the Constitution of India, it was observed

" ... The word "regulation" may have a different meaning in a different E
context but considering it in relation to the economic and social
activities including the development and excavation of mines,
ecological and environmental factors including States' contribution
in developing, manning and controlling such activities, including
parting with its wealth, viz., the minerals, the fixation of the rate of F
royalties would also be included within its meaning ..."

Referring to the decision of this Court in State of Tamil Nadu v. Hind
Stone, (1981] 2 SCC 205 that such regulation may amount to prohibition it
was observed that in regulating mineral de.velopment, the royalty/dead rent
is the inherent part of it. It was observed that provision of Section 18 of the G
1957 Act is not excluded from its application to the mines and minerals
development. Therein this Court in no uncertain terms observed:

"It is also significant to record that minor minerals are used in the
local areas for local purposes while major minerals are used for the
industrial development for the national purpose ... " H
764 SUPREME COURT REPORTS (2004) I S.C.R.

A The entry has been copied in verbatim from Entry 44 of List II of the
)I(
Seventh Schedule of the Government of India Act, 1935. Such an entry was
evidently necessary wken mineral rights remained vested in private persons
by reason of any grant or otherwise. Even now in certain situations, a mineral
right may be vested in an individual.

B The taxing power of the State in terms of Entry 50, List II of the
Seventh Schedule of the Constitution of India must also be viewed from the
context that all the mineral rights as also the right to receive royalty by
reason of the West Bengal Estates Acquisition Act, 1953 and U.P. Zamindary
Abolition Act vested in the State. Section 5(l)(a)(i) of the West Bengal
C Estates Acquisition Act reads thus:
"5.(1) Effect of notification - Upon the due publication of a notification
under section 4, on and from the date of vesting -

(a) the estates and the rights of intermediaries in the estates, to
which the declaration applies, shall vest in the State free from
D all incumbrances; in particular and without prejudice to the
generality of the provisions of this clause, every one of the
following rights which may be owned by an intermediary shall
vest in the State, namely:-
(i) rights in sub-soil, including rights in mines and minerals, ... "
E
The State is, thus, the owner of the mineral right. It is, thus, only for
the State which can grant mining lease. Its right to impose tax is exhausted
as soon as a mineral right is conferred. In certain circumstances the State may
impose tax if and when a mining lessee grant a sub-lease but the same also
would be subject to control in terms of 1957 Act and Rule 37 of the Mineral
F Concession Rules, 1960. Thus, a transfer of mineral right includes a regulation
or prohibition on creation of a subordinate interest in relation thereto.
Regulation of transfer of such mineral right is also therefore governed by
Parliamentary legislation. The State thus can not impose a tax on its own
right.
G
Indisputably, requisite declaration in terms of Entry 54 has been made
in Section 2 of the 1957 Act.

Any legislation by the State after such declaration entrenching upon the
field disclosed in the declaration must necessarily be held unconstitutional
H because that field is abstracted from the legislative competence of the State
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA. J.) 765

Legislature. (See Baijnath Kedia etc. v. The State of Bihar and Ors., AIR A
(1970) SC 1436).

The word 'control' has been defined in Black's Law Dictionary in the
following terms:

"Control-power or authority to manage, direct, superintend, restrict, B
regulate, govern, administer, oversee."

In Bank of New South Wales v. Common Wealth, 76 CLR I, Dixon, J.,
observed that the word 'control' is 'an unfortunate word of such wide and
ambiguous import that it has been taken to mean something weaker than
'restraint', something equivalent to 'regulation'. Having regard to the purport C
and object of the 1957 Act, the said expression must be held to be of wide
import.

Entry 50 of the Seventh Schedule of the Constitution of India provides
for tax on mineral rights. The question which arises for consideration in these
cases is as to whether the power to tax on 'mineral rights' and power to tax D
'mineral' is synonymous? It is not.

Entry 50 of List II of the Seventh Schedule of the Constitution of India
is as under:

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

Taxes on mineral rights must be different from taxes on minerals which
are goods produced. A tax on mineral would be in the nature of excise duty.
Thus, there exists a difference between taxes on mineral rights and duties of
excise imposable in terms of Entry 84 of List I. F
WHETHER ROYALTY IS A TAX?:

Such a question may not strictly arise for consideration in this case as
royalty is a statutory impost. Royalty striclo sensu and in common parlance
may not be a tax. G
Whether royalty is a tax or not is required to be deliberated upon only
for a limited purpose, namely, as to whether Section 25 of the 1957 Act
covers the field of taxation and not for any other purpose. We shall advert
to this aspect of the matter at some details a little later. H
766 SUPREME COURT REPORTS [2004] I S.C.R.

A But having regard to the definition of taxation contained in Clause 28
of Article 366 of the Constitution of India, there may not be any dispute that
royalty being a statutory impost would come within the purview thereof.

Criticisms had been made as regard finding in India Cement (supra)
that royalty is not a tax which in the fact situation obtaining therein to the
B effect that except for 5% of the land, royalty was to be paid to a private
owner and, thus, the impost was not a statutory one may be correct.

A royalty may not be a tax in its usual sense as has been held in Quariy
Owners' Association v. State of Bihar and Ors., [2000] 8 SCC 655 but the
C question as to whether it will come within the purview of clause 28 of Article
366 of the Constitution of India or not has not been considered in any of the
judgments.

The Second Schedule appended to the 1957 Act states that the royalty
would be payable at the rates specified on each tonne of coal. It is, therefore,
D a levy on the extraction or produce by weight. When the cess is levied on the
royalty, the levy, which remains on extraction by weight, is enhanced or
incremented. It is, thus, an incremental addition to the royalty. Its nature and
character is the same as that of royalty. The value of the coal or for that
matter of green tea has a direct nexus with the weight thereof. Thus, there
may not be any significant distinction in principle between the levy in India
E Cement's case and levy in the present one.

The rate of royalty etc. under the 1957 Act is fixed by the statute and
not by agreement between the parties. Rate of royalty may be revised subject
to the limitation contained in Sub-section (3) of Section 9 of the 1957 Act
in respect whereof the lessees have no say in the matter. Even the principles
F of natural justice are not required to be complied with. The lessee even
cannot surrender the leasehold. The amount of 'Royalty' received by the
State is expended as general revenue.

In D.K. Trivedi & Sons and Ors. v. State of Gujarat and Ors., [ 1986]
G (Supp.) sec 20, it is stated:
"39. In a mining lease the consideration usually moving from the
lessee to the lessor is the rent for the area leased (often called surface
rent), dead rent and royalty. Since the mining lease confers upon the
lessee the right not merely to enjoy the property as under an ordinary
H lease but also to extract minerals from the land and to appropriate
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, .1.) 767
them for his own use or benefit, in addition to the usual rent for the A
area demised, the lessee is required to pay a certain amount in respect
of the minerals extracted proportionate to the quantity so extracted.
Such payment is called "royalty". It may, however, be that the mine
is not worked properly so as not to yield enough return to the lessor
in the shape of royalty. In order to ensure for the lessor a regular
income, whether the mine is worked or not, a fixed amount is provided B
to be paid to him by the lessee. This is called "dead rent." "Dead
rent" is calculated on the basis of the area leased while royalty is
calculated on the quantity of minerals extracted or removed. Thus,
while dead rent is a fixed return to the lessor, royalty is a return
which varies with the quantity of minerals extracted or removed." C

But the power to fix surface rent, dead rent or royalty is conferred in
terms of the 1957 Act or the rules framed thereunder and not on the basis of
any State Act as the same would come within the term Mineral Development.
Royalty ordinarily, although conceptualizes a contract between parties, but as
by way of the 1957 Act a statutory mining lease is granted; and the terms and D
conditions thereof would be governed by statutes. Furthermore, a unilateral
statutory power has been conferred upon the Central Government which is
not the owner of the mineral right, to enhance royalty, subject of course to
~ the limitations provided for under Section 9 of the Act. Ordinarily, royalty
would not be a tax. But in a situation of this nature and particularly having E
regard to the fact that the Central Government has the requisite power to fix
royalty and not the owner of the mineral right, - it would be an impost within
the meaning of Clause 28 of Article 366 of the Constitution of India which
reads as under:

"Article 366 ...
F
... ,.,,._ (28) "taxation" includes the imposition of any tax or impost,
whether general or local or special, and "tax" shall be construed
accordingly."

The impost by reason of the impugned orders may come within the G
purview of the aforesaid definition being a special impost on a class of
citizens who are the mining lessees. The amount collected by way of royalty
is also expended like ordinary revenue. (See Corporation of Ca/cul/a v.
Liberty Cinema, AIR (1965) SC 1107, Gasket Radiators (P) ltd v. E.S.I.
Corporation, [1985] 2 SCC 68 and Hindustan Times and Ors. v. State of
U.P. and Anr., JT (2002) 9 SC 317 H
/
'fl('

768 SUPREME COURT REPORTS (2004] I S.C.R.

A BRICK EARTH MATTERS
Brick earth although is a minor mineral, the same under certain tenancy
laws can be used by the raiyats for building their own houses.

By way of example, we may notice sub-Section (2) of Section 2 I of the
B Chota Nagpur Tenancy Act, 1908 which reads thus:

"(2) Notwithstanding anything contained in any entries in the record
of rights or any local custom or usage to the contrary, the following
shall not be deemed to impair the value of the land materially or to
render it unfit for purposes of the tenancy, namely:-
c (a) The manufacture of bricks and tiles for the domestic or
agricultural purposes of the raiyat and his family;
(b) the excavation of tanks or the digging of wells or the construction
of bandhs and ahars intended to provide a supply of water for
drinking, domestic, agricultural or piscicultural purposes of the
D
raiyat and his family; and
(c) the erection of buildings for the domestic or agricultural purposes
or for the purposes of trade or cottage industries of the raiyat
and his family." 'I'

E The State of West Bengal has issued notices for submission of return
on despatches of brick earth for the previous three years. The very fact that
royalty on minor mineral is required to be paid on despatches, any imposition
of tax at the point of despatch must be held to be bad in law particularly
having regard to the decisions of this Court in Buxa Dooars Tea Co. ltd. v.
F S/a/e of Wes/ Bengal, [ 1989] 3 sec 211. Despatches of Brick earth from the
Raiyati field for manufacture of brick having regard to the process of brick
manufacturing as stated in the writ petition would be clearly 11//ra vires as
what is being despatched is not brick earth but bricks manufactured on the
raiyati lands. Bricks so manufactured cannot be the subject matter of land
tax. A tax imposed on the finished product would be excise duty. Furthermore,
G the 1957 Act having covered the entire field, the minor minerals also would
come within the purview thereof. Once the quantification of tax is made by
reference to quantity of brick-earth or brick despatched, measure of tax would
be based on total value of the mineral despathed or the material despatched.
It is not correct to contend that expression 'despatched' and 'removed' are
H synonymous. The place or point of despatch in a particular case may be
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 769
different. from the place wherefrom the mineral is raised. The mineral may A
have to be carried to a distant place where a railway siding is situate or to
a place having motorable road. The cost of transport in such cases would be
added to the pit head value of the mineral. Jn case of despatch of mineral
from the despatch point as contra-distinguished from the pit head \\'.here from
the mineral is removed, that is the land itself. It may be noticed that in B
determining the value of the mineral for the purpose of calculating the amount
of cess, the cost of transport is not excluded.

For the purpose of upholding the validity of a statute,_ it is well-known,
the doctrine of reading down thereof may not always be taken recour5e to.
[See Delhi Transport Corporation v.. D. T.C. Mazdoor Congress and Ors., C
AIR (1991) SC JOI]. Furthennore, the very fact that the methodology of
royalty or cess is the same is also a relevant factor for the purpose of
ascertaining the nature of tax. Tax is, thus, being imposed on the activities
on the land and not on the land itself.

The measure of cess on brick earth on the despatches of bricks which D
is a finished product would not be on despatches of minerals but on the
materials produced from minor mineral and, thus, must be held to be bad in
law being beyond the purview of Entry 49 of List II of the Seventh Schedule
of the Constitution. Brick earth and other minor minerals also being subject
to Parliamentary control and regulation in terms of the I 957 Act, the State
is denuded of its power to impose any tax thereupon or a product therefrom. E

MINOR MINERAL MAITERS:

Section 3 of the U.P. Act in no uncertain terms provides for imposition
of cess on mineral rights. Such a cess has been imposed subject to limitations
imposed by Parliament by law relating to mineral development. F
It is not in dispute lhat in tem1s of the provisions of Zamindary Abolition
Act, the mineral right has vested in the State. Mineral right, therefore, cannot
be subject matter of taxation as the State cannot impose a tax on itself. Once
the 1957 Act has been made, the power of the State to grant lease on the G
terms and conditions which being provided under the statutes; the State, over
and above the amount by way of royalty, surface rent, dead rent, fees etc.
,,.. cannot realize any other sum. Such an impost would directly come in the way
of mineral development. Rule 3 of the Special Area Development Authority
(Cess on Mineral Rights) Rules, 1997 clearly states that whereas c~ss on coal
would be Rs. 5 to 10 per ton, cess on stone, coarse sand etc. would be H
~I

770 SUPREME COURT REPORTS (2004] I S.C.R.

A Rs. 2 to 5 per cubit metre. The imposition of cess on mineral right, as noticed A
hereinbefore, has been held to be bad in law in several decisions of this Court
and several High Courts. By reason of the said Rule, even no pretence is
made that cess which is a tax has been levied on the mineral and the same
has got nothing to do with the land. It may be true that the authority has been
B conferred with the power of State in relation to a municipality to levy tax but
even on that ground tax cannot be imposed unless and until the State
Government is held to have the requisite legislative competence therefor. In
terms of Entry 5 of the State List, the State cannot be held to have the
legislative competence to levy tax on major mineral or minor mineral, as the
case may be, as the field is covered by the 1957 Act and the rules framed
C thereunder and, thus, it cannot delegate the said power in favour of the
statutory authority.

The object underlying the legislative enactment is relevant for the
purpose of upholding the validity of a statute; but before doing so what is
required to be taken into consideration is the legislative competence. The
D court must at the outset address itself if and when such a question is raised
as to whether the State legislature had the requisite competence having regard
to the Parliamentary law. Once it is held that the field sought to be legislated
upon by the State stands covered by a Parliamentary legislation, no further
question ought to be asked. Once a liberal and wide interpretation is given
E to Entry 54, List I, the extent of regulation of mines and minerals development
under the control of the Union must be considered keeping in view the same
vis-a-vis the impact thereupon by reason of the State legislation. The State
Act refers to mineral development which indisputably is the subject-matter of
the 1957 Act. Section 15 of the 1957 Act confers power on the State for
making rules thereunder. The State while doing so acts as a delgatee and not
F in its independent right of making a legislative enactment. Both power of the
State are not akin to each other. They are completely different. The authority ~-'

under the SADA Act might have been constituted for a laudable object but
the same by itself would not be a relevant factor for coming to the conclusion
that it may impose a tax on mine and mineral or a mineral right. A local
G authority has no right over the mineral or the mineral right. The power to
impose tax upon the said authority by delegation of power or otherwise on
mineral right or mine and mineral cannot be bestowed by the State. The
power to tax on mineral right cannot be delegated by the State to any other
authority. The said power per se does not fall within the purview of Entry 5.
The statutory authorities having regard to the provisions contained in Entry
H 5 may be delegated with the power to impose tax on land and buildings etc.
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, .I.) 771
). which would have a direct nexus for which such authority has been constituted A
but not on 'mineral right' which is vested in the State. Nobody questions or
has any reason to question the validity of constitution of the authority but
what is being questioned is its power to impose tax on mineral right or mines
and 111 inerals.

Apart from what has been said hereinabove, even the State is denuded B
of its power to impose any tax on mineral right or mines and minerals having
regard to the provisions of the 1957 Act. If it is held otherwise, the same
would render India Cement (supra), Central Coalfields ltd (supra) and a
large number of decisions following the same wholly nugatory.

No material has been brought on record to justify the levy of fee or c
compensatory tax. In any view of the matter, if the State is denuded of its
power to levy any tax the validity of the impost cannot be upheld on the
ground that thereby a fee or a compensatory tax has been levied. The impost
is termed as a cess on mineral right and once the validity thereof cannot be
upheld under Entry 50, List II, the invalidated statute would not be validated D
by changing the subject-matter of the tax i.e. from mineral right to land.

Conceptually fee and tCix stand on different footings; whereas the element
of tax is based on the principle of compulsory exaction; the concept of fee
relates to the principle of quid pro quo. The validity of tax cannot, therefore,
be upheld on the ground that the same would be a fee. In any event, for the E
said purpose requisite pleadings in that behalf ought to have been made by
the State. The impugned cess, therefore, cannot be upheld by reference to
Entry 66 read with Entry 5, List II of the Seventh Schedule of the Constitution
of India.

It is beyond any cavil that the cess levied under SADA Act will have F
,. ...)..-
a direct effect on royalty and ultimately the value of the mineral.

It is beyond anybody's comprehension that SADA Act can be held to
have been validly enacted in terms of Entry 50, List II keeping in view a
large number of decisions of this Court, beginning from Hingir Rampur Coal
G
Co. ltd (supra) as also several High Courts. (Sec for example Central
Coalfields ltd. (supra)) In that view of the matter once levy on mineral right
.~
contravenes the limits imposed by the Parliament, the question of upholding
its validity in terms of Entry 50 or for that matter in terms of Entry 49, would
not arise.
H
772 SUPREME COURT REPORTS [2004] 1 S.C.R.

A No argument has been advanced before us 011 behalf of the State of
U.P. that the activities carried out by the authorities have any direct nexus
with the levy of cess on coal. The High Court also did not advert to the said
question. Whether there exists any given relation between amount realized
and amount spent has not been demonstrated. How and in what manner the
doctrine of 'quid pro quo' has beer, applied had neither been adverted to
B before us nor the State has shown that substantial amount of the fees realized
are spent for special benefits of its payers which was imperative. Furthermore,
the decision of the Western Coalfields limited v. Special Area Developme/1/
Authority, Korba and Anr., [1982] I sec 125 cannot be said to be a good
law in view of the subsequent decisions of the larger bench of this Court in
C India Cement (supra).
The validity of a provision imposing tax on a mineral cannot be upheld
in terms of Entry 5, List II of the Seventh Schedule of the Constitution of
India at the instance of a statutory authority. No material having been brought
on record that any services invoking the principles of quid pro quo are
D rendered to the owners of the mine, the impose cannot also be upheld on the
ground that the same is a fee within the meaning of Entry 66, List II of the
Seventh Schedule of the Constitution.

It may be noticed that a Division Bench of this Court in Jindal Stripe
E lid. and Anr. v. State of Haryana and Ors., [2003] 8 SCC 60 referred the
question of concept of compensatory tax which had been evolved as an
exception to the provisions of Article 30 I of the Constitution doubting the
propositions of law enunciated in Bhagatram Rajeev Kumar v. CST, [1995]
Supp I SCC 673 and State of Bihar v. Bihar Chamber of Commerce., [1996]
9 sec 136.
F
The levy of cess in terms of SADA Act cannot be justified as a fee
keeping in view the fact that the tax is sought to be imposed in terms of Entry
50 of List II of the Seventh Schedule of the Constitution of India.

Section 35 of the SADA Act clearly states in no uncertain terms that
G imposition of tax is subject to the regulation of mines and minerals
development. It is, therefore, clearly purported to be a tax in terms of Entry
50 and not a fee; nor can it be said to be a tax under Entry 49 List I, in the
aforementioned situation. The rules even make no pretence that the tax is
imposed on a mineral having regard to the fact that even mineral right has
been defined under the Act.
H
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, .1.) 773
The discussions made herein would clearly show that keeping in view A
the enactments made by the State legislature the rights of the zamindars,
tenure-holders and intermediaries in mines and minerals had vested in the
State, the impugned levy, cannot be upheld.

ENTRY 49 vis-a-vis TEA ACT, 1953
B
Sections I0 and 30 of the Tea Act clearly go to show that not only the
production of tea by way of manufacture in a factory but also cultivation
thereof is under the Union control. The fields of legislature relating to
agriculture and imposition of tax on land which, as noticed hereinbefore,
belong to the State legislature, have been taken away by Entry 52 List I of
the Seventh Schedule of the Constitution of India read with Article 253 of the C
Constitution. The very fact that the preamble refers to an International Treaty
itself is a pointer to the fact that the 1953 Act was enacted by the Parliament
not only in exercise of its powers conferred on it under List III of the Seventh
Schedule but also in terms of List II thereof.
D
It is, thus, not correct to contend, as has been submitted by Mr. Reddy,
that by reason by Article 253 of the Constitution of India, the State's power
is not denuded. Article 253 of the Constitution of India begins with a non-
obstante clause and by reason of the said provision the legislative power of
the State is taken over by the Parliament and once the field of legislation is
taken over; (unless the Act is repealed or suitably amended by a Parliamentary E
Act itself), the State will have no jurisdiction to legislate in relation thereto.

Tea industry is probably the only industry which is not only a controlled
industry but also a declared one. It being a controlled and declared industry
and the Tea Act being a law referable to Article 253 of the Constitution of
India, the State's power to make any law dealing with tea including levy of F
•.>-- any tax on any types of tea which would include green tea leaves would
completely be denuded as a tax either in terms of Entries 14, 18 or 49 of list
II would affect the said commodity.

In Maganbhai Jshwarbhai Patel v. Union of India and Anr., AIR (1969) G
SC 783, this Court held:

"The effect of Article 253 is that if a treaty, agreement or
convention with a foreign State deals with a subject within the
competence of the State Legislature, the Parliament alone has,
notwithstanding Article 246(3), the power to make laws to implement H
./

~

774 SUPREME COURT REPORTS (2004] I S.C.R,

A the treaty, agreement or convention or any decision made at any
international conference, association or other body. In terms, the Article
deals with legislative power: thereby power is conferred upon the
Parliament which it may not otherwise possess."

In State of Bihar and Ors. v. Bihar Chamber of Commerce and Ors.,
B [I 996] 9 sec 136, this Court held :
" ... The impugned Act is also not relatable to any of the Articles 249
to 253 which are in the nature of exceptions to the normal rule that
Parliament can make no law with respect to the entries in List II. If
so, it follows that the State Legislatures are not denuded or deprived
c of their power to make a law either with reference to Entry 52 or with
reference to Entry 54 in List II. That power remains untouched and
unaffected. All that Parliament has said by enacting the ADE Act is
that it will levy additional duties of excise and distribute a part of the
proceeds among the States provided the States do not levy taxes on
D sale or purchase of the scheduled commodities.

It is useful to refer at this juncture to Articles 249 and 252 of the
Constitution of India. Once the Parliament in exercise of its aforementioned
jurisdiction takes upon itself the field of legislation which is otherwise
exclusively within the domain of the State, the latter is completely denuded
E of its legislative power. The effect of such Parliamentary legislation would be
the same as if the legislation had been enacted by the State Legislature.

For the purposes of the Cess Act 'owner' was with reference to a Tea
Estate, the possession of which has been transferred by lease or mortgage or
otherwise mean the transferee so long as his right to possession subsists. It
F will, therefore, appear that the cess is levied not on land as a unit by reason
of general ownership of land which may belong to a legal owner but the cess ~-·
may be levied even upon a person who is in possession of a Tea Estate by
lease or mortgage or even by a licence or permission. If, for exi:mplc, the
legal owner allows somebody else to be in possession of the Tea Estate
G temporarily for the purpose of plucking the green tea leaves, the cess is levied
upon such person not by reason of the general ownership of the land but
because he is in temporary possession by a permission or licence.

It would be noticed that whereas any house or other buildings do not
come with in the purview of the definition of immovable properties under the
•
H Cess Act, I 880; factories or workshops or housing for the persons employed
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 775
in the Tea estate had been brought under the impugned Acts'. As cess is not A
payable under the Cess Act, 1880 in respect of land on which building and/
or factory stands; in terms of the charging Section under the impugned Acts,
the same would be payable which being self-contradictory cannot be sustained.
Similarly, tea bushes or standing crops, green tea leaves, would also not
come within the purview of the definition of "immovable property" or land B
as contained in the Cess Act, 1880. It is also doubtful as to whether the Cess
Act, 1880 and consequently the impugned levies would be applicable
throughout the State as the levy would be attracted at the places where "road
and public work cess" is payable.

The definition of land, immovable property as contain~d in the Cess C
Act, 1880 play an important role insofar as in terms of Section 78 of the West
Bengal Primary Education Act and Section 4 of the West Bengal Rural
Employment and Production Act, 1976, cess would be levied on an immovable
properties on which road and public work cesses are asses~1ed. Section S of
the Cess Act, 1880 provides that all immovable properties to he liable to road
cess and public works cess. The immovable property which is, therefore, not D
liable to a road cess and public works cess, afortiorari, cannot be subjected
to education cess or rural employment cess.

In Bwca Dooars (supra) primary education cess and rural employment
cess levied on tea had been held to be ultra vires Article 301 of the Constitution E
of India. The said decision applies in all fours in the pres1:nt case. In Bm:a
Dooars (supra) it was not necessary for this Court to advert to a detailed
discussion on Entry 49, List II of the Seventh Schedule of the Constitution
of India having regard to the fact that its finding that in effect and substance
the legislation impugned therein related to despatches of tea and, thus, the
legislative source was required to be found therefor with reference to some F
other entry but the State had not been able to show any. Entry 49 of List II
was not held applicable as it was found that under the Tea Act the entire
legislative field was covered.

GOODRICK£ GROUP:
G
Whether the green tea leaves is marketable as such or not does not
appear to be of much relevance. Such a contention has also no factual basis.
It is conceded at the Bar that some tea estates may not have factories attached
thereto and some factories may be functioning independent of any tea estate.
Thus, those factories which process green tea leaves into tea would purchase H
/
---{

776 SUPREME COURT REPORTS (2004] 1 S_CR.

A green tea leaves, It' is difficult to assume, as has been done by the Bench
deciding "Goodricke Group" (supra) that green tea leaves are not marketable.
It proceeded on the basis that 'green tea leaves' has no nexus with the control
. over production of tea, If it is held that 'green tea leaves' is a raw material
for production of tea or use thereof is necessary for processing it, the same
B would be a marketable commodity. It appears that the Tea Board had made
a scheme for grant of price subsidy to the smal I owners which would also be
a pointer to the fact that the Tea Board exercised its control over green tea
leaves,

In Goodricke Group (supra) it has, thus, wrongly been recorded that
C generally speaking no tea estate market green tea leaves, The writ petitioners
have stated that there are about 50 Bought leaf factories in West Bengal,
Bought Leaf Factories function within a statutory scheme, viz, Tea (Marketing)
Control Order, 2003,

Furthermore, once it is found that the definition of 'tea' both in the Tea
D Act and the impugned Acts is the same, the court cannot keep the effect of
Sections 25 and 30 of the Act out of its consideration for the purpose of
ascertaining the true scope and purport thereof. ,

It is relevant to note that in Goodricke Group (supra), no opinion was ).-
E expressed on Section 25 of the Act or the notification dated 30. I0.1986
issued thereunder. Once it is conceded that green tea leaves would come
within the purview of definition of 'tea', it is inconceivable as to how impost
of excise duty on tea in terms of sub-section (2) of Section 25 of the Act will
have no bearing on the subject, By reason of sub-section (2) of Section 25,
additional excise duty is levied, Excise duty in terms of the Central Excise
F Act, ir is trite, can not only be levied on finished products but also the
products at intermediary stages,

Unfm1unately, in Goodricke 's case (supra), the learned Judges did not
consider the matter from this angle,

G 'Goodricke, also runs counter to India Cement as also Kannadasan,
Effect of the expression "immovable property'' in Cess Act, 1880 was also
not brought to its notice and had the same been done, there would not have
been a conclusion that tea estate would be treated as an unit as therefrom the
standing crops and structures were required to be excluded, Goodricke Group ••
H of case dos not, therefore. lay down a good law and should be overruled.
~-.

STATE v. KESORAM INDIJSTRIES LTD. [S.B. SINHA. J.] 777

INTERPRETATION IN THE LIGHT OF /NTERNATIONA:.. TREATIES: A
It is true that the doctrine of 'Monism' as prevailing in the European
countries does not prevail in India. The doctrine of 'Dualism' is applicable.
But, where the municipal law does not limit the extent of the statute, even if
India is not a signatory to the relevant International Treaty or Covenant, the
Supri:me Court in a large number of cases interpreted the statutes keeping in B
view the same.

A treaty entered into by India cannot become law of the land and it
cannot be implemented unless Parliament passes a law as required under Art.
253.
c
The executive in India can enter into any Treaty be it bilateral or
multilateral with any other country or countries.

As regard Article 253 vis-a-vis Article 51 of the Constitution, we may
notice that in the case of Kesavananda Bharati v. State of Kera/a., [1973] 4 D
SCC 225. Sikri CJ referred to A11. 51 in the following words:

"It seems to me that, in view of Art. 51 of the Directive Principles,
this Cou11111ust interpret language of the Constitution, if not intractable,
which is after all a Municipal Law, in the light of the United Nations
Charter and solemn declarations subscribed to by India."
E
The learned Chief Justice also relied on the observation made by Lord
Denning in Corocraji v. Ram American Airways, (1969] All ER 82, that it is
the duty of the courts to construe our legislation so as to be conformity with
International Law and not in conflict with it. It is one thing to say that
legislation may be interpreted in conformity with international principles but p
,.;.., is entirely a different thing to give effect to a treaty provision in the absence
of Municipal Laws.

In Reference by President of India, AIR (1960) SC 845, it has been
held that cession of national territory involve a foreign state which can be
done by the Central Government in exercise of its treaty making power. (See G
Union of India v Azadi Bachao Ando/an, (2003) 8 SCALE 287)

:~ In Vishaka and Ors. v. State ofRajasthan and Ors., (1997] 6 SCC 241
it has been he Id :

14. The meaning and content of the fundamental rights guaranteed in H
778 SUPREME COURT REPORTS [2004] I S.C.R.

A the Constitution of India are of sufficient amplitude to encompass all
the facets of gender equality including prevention of sexual harassment
or abuse. Independence of judiciary forms a part of our constitutional
scheme. The international conventions and norms are to be read into
them in the absence of enacted domestic law occupying the field
when there is no inconsistency between them. It is now an accepted
B rule of judicial construction that regard must be had to international
conventions and norms for construing domestic law when there is no
inconsistency between them and there is a void in the domestic law. '
The High Court of Australia in Minister for Immigration and Ethnic
Affairs v. Teoh, 128 Aus LR 353 has recognised the concept of
c legitimate expectation of its observance in the absence of a contrary
legislative provision, even in the absence of a Bill of Rights in the
Constitution of Australia."

(See also Liverpool & London S. P. Assn. Ltd (supra)

D In Salomon v. Commissioner of Customs and Excise, [1966] 3 All E.R.
871, it was held that when the statute is in compliance with international
conventions then it must be interpreted in conformity therewith

MEASURE OF TAX:

It is no longer in dispute that for the purpose of determining the nature
E of tax, the measure with reference to which a tax is calculated is a relevant
factor although not conclusive. (See R.R. Engineering Co. v. Zilla Parishad
Bareilly, (1983] SCC 330, Hingir Rampur Coal Co. Ltd v. State of Orissa.
(1961] 2 SCR 537, Bombay Tyre l111ernatio11a/ Ltd. v. Union of India, [1984]
I SCC 467 at 483 para 14, Buxa Doors Tea Co. Ltd. (supra) at 218-219 para
F 10 and 11)

In Byramjea Jejibhoy v. Province of Bombay, reported in [1.L.R. (1940)
F.C.) it is stated :

"In determining the nature of the tax, consideration may be given to
G the standard on which tax is levied but that is not the determining
fact. The measure of tax is not the sole test."

Various decisions cited before us including the 7-Judge Bench judgment
in India Cement's case lead only to one conclusion that the power of the ""'
State to impose tax on land in terms of Entry 49 List II can be exercised
H when the land is taken as a unit. For the purpose of ascertaining the true
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA. J.] 779
nature as also the scope and' extent of legislation what is required to be seen A
is the substance thereof.

In Buxa Dooars Tea Co. Ltd v. State of West Bengal, (1989] 3 SCC
211 this Court struck down the cess levied under the earlier Acts on each
kilogram of tea on the despatches from the tea estate of tea grown therein.
This Court held that the standards laid down for measuring the liability under B
the levy must bear the relationship to the nature of the levy.

This Court observed :

"If the levy is regarded as one In respect of tea estates and the measure
of the liability is defined in terms of the weight of tea dispatched C
from the tea estate there must be a nexus between the two indicating
a relationship between the levy on the tea estate and the criteria for
determining the measure of liability. If there is no nexus at all it can
conceivably be inferred that the levy is not what is purpo11s to be."

The tea estate comprises of any land used for cultivation of tea or D
intended to be used for growing plant Camelia Sinensis (L) 0. Kuntze and
producing green tea leaves from such plant, and shall include land comprising
a factory or workshop for producing any variety of the product known as
'tea' made from the leaves of such plant and for housing the persons in the
tea estate and other lands which are required for ancillary purposes. E
In that case, this Court pointed out that the nexus with the tea estate is
lost altogether by the provision for exemption or reduction of the levy and
that throughout the nexus is confined to despatches of tea rather than related
to tea estates. In that case also it was sought to be argued that the cess is a
· tax on land which is measured by the tea grown in the tea estate and despatched F
therefrom. This argument was repelled by this Court. According to this Court,
there was no relationship or nexus between the tea estate and the varied
treatment accorded in respect of despatches of different kinds of tea. In the
present case also cess has no nexus with tea estate which comprises not only
the lands on which the green tea are grown but also the factory or the
workshop where the green tea leaves are manufactured into black tea, the G
houses of the employees where the employees reside, other construction and
also on lands which are ancillary to the tea estate.

In S.C. Nawn v. W. T.O., Calcutta, [1969] SCR 108 this Court was
considering the validity of the Wealth Tax Act of 1957 on the ground that H
780 SUPREME COURT REPORTS [2004] I S.C.R.

A as if it fell within Entry 49 of List II. It was held that Entry 49 of List II
contemplated a levy on land as a unit and the levy must be directly imposed
on land and must bear a definite relationship thereto. As the Wealth Tax Act
fell under Entry 86 of List I, it was held to be a valid piece of legislation.
The said decision has been referred to with approval in India Cement (supra).

B This Court also referred to the case of Second Gift Tax Officer,
Mangalore etc. v. D.H. Nazareth etc., [1971] I SCR 200. In that case this
Court held that the tax on gift of land is not a tax imposed directly on land
as a unit but only on a particular use, namely the transfer of land by way of
gift.
c In Bhagwan Das Jain v. Union of India, [ 1981] 2 SCR 808 at 816, this
Court made a distinction between levy on income from house property which
would be an income tax and the levy on the house property itself which
would be referable to Entry 49 of List II.

D Land taxes are imposed in different countries. In the sovereign countries
or the countries following the unitary system. the question of conflict in the
legislative competence of the Parliament and the State Legislature would not
arise. The dispute, however, as to whether the impost in effect and substance
is an income tax or tax on land has been the subject matter of various
decisions. The said decisions are pointers to the fact that in different countries
E in different situations levy calculated on the annual value of the land or
annual rental value received different considerations at the hands of the courts.

In Cooley Taxation Vol.2 Fourth Edition, P.558 & 564, it is stated:

"558. In general- in all jurisdictions real estate situated within the
F territorial limits of the taxing district is subject to taxation unless
exempted either expressely or by implication; and by implication is
meant the exemption of federal property from state taxation and the
exemption of state property from state taxation, etc. Furthermore, the
separate estates which different persons may own in the same land,
such as where one owns the surface, another the timber growing on
G it, and still another the mineral underground, may each be subject to
taxation."

But al Section 564, the learned author states that minerals severed and
brought to the surface are taxable as personal property. (Palmer v. Corwith,
H 3 Chand.(Wis.) 297.). although real estate. (Emphasis supplied)
STATE v. KESORAM INDUSTRIES LTD: [S.B. SINHA, J.) 781

It is, therefore, evident that minerals extracted.and brought to the surface A
would be treated as personal property and, thus, cannot be the subject-matter
of tax on land.

In The London County Council and Ors. v. The Attorney General,
[1901] Law Report, Appeal Cases 26],(which is a converse case) the House
of Lords while considering the provisions of income-tax payable while B
repelling a contention that the fundamental distinction between the other
schedules and Schedule D, in that the words annual value are introduced into
the statute not as the subject of taxation but only as the measure of the
taxation to which the property shall be subjected, observed:

"In my opinion, this construction of the section is entirely wrong. C
Grammatically I think it wrong. I think that the words "charged with
income tax under Sched.D" mean "charged under Sched.D with income
tax," and the words "such tax" mean the tax which is called in the
Act "income tax." It is said that the tax imposed on property within
Sched.A is not strictly an income tax, because it is levied on the D
annual value of property and not on the profits received by the owner.
That, no doubt, is so, and if one were writing a treatise on taxation
it would be proper to refer to this distinction. 13ut the question is,
What do the words "income tax" mean in the language of the
Legislature, and in this Act?" (P.44)
E
The learned Law Davey observed:

"Again, it is said (if I understood Mr. Danckwerts rightly) that the
expression "profits and gains" has a technical, or almost technical,
meaning as descriptive only of the taxable subjects comprised in
Sched.D. No doubt from the nature of the case the words "gains" is F
more frequently, though not exclusively, used in Sched.D. But,
unluckily for the argument, the word "profits" is the word selected by
the Legislature for describing generally the subjects of taxation under
the Income Tax Acts. The title to as well the Act of 1842 as that of
1853 is "An Act for granting to Her Majesty duties on profits arising G
from property, professions, trades, and offices." I have already drawn
attention to the language of S. l 02, and to the use of the words "profits
or gains arising from lands, tenements, hered itaments, and heritages"
in S. I04 of the Act of 1842. The truth is that the income tax is
intended to be a tax upon a person's income or annual profits, and
although (for conceivable and no doubt good reasons) it is imposed H
/

782 SUPREME COURT REPORTS [2004] I S.C.R.

A in respect of the annual value of land. that arrnngement is but the
means or machinery devised by the Legislature for getting at the
profits." (P.45)

The aforementioned decision is, therefore, an authority for the
proposition that tax calculated on the basis of annual value of land may in
B a given situation be held to be 'income tax'.

Griffith, CJ in Solomon v. New South Wales Sports Club ltd., 19 Co.
L. Rep. 698 held:
~
"I am unable to see any reason for thinking that the term "land tax"
c has ever been used in New South Wales ... in any other sense then a
tax on land directly imposed by the State."

The Supreme Court of United States in Hylton. Plaintiff in Error v. The
United States, US SCR I Law. Ed. Dallas 169 while considering a question
as to whether a tax upon carriages is a direct tax observed:
D
"It was. however. obviously the intention of the framers of the
constitution, that Congress should possess full power over every
species of taxable property, except exports. The term taxes, is generical,
and was made use of to vest in Congress plenary authority in all cases
of taxation. The general division of taxes is into direct and indirect.
E Although the latter term is not to be found in the constitution, yet the
former necessarily implies it. Indirect stands opposed to direct. There
may, perhaps, be an indirect tax on a particular article, that cannot be
comprehended within the description of duties, or imposts, or excises.
in such case it will be comprised under the general denomination of
F taxes. For the term tax is the genus, and includes,

I. Direct taxes. -...;...
,.
2. Duties, imposts, and excises.

3. All other classes of an indirect kind, and not within any of the
G classifications enumerated under the preceding heads.

The question occurs, how is such tax to be laid, uniformly or
apportionately? The rule of uniformity will apply, because it is an
indirect tax. and direct taxes only are to be apportioned. What are
..,..
direct taxes within the meaning of the constitution? The constitution
H
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.) 783
declares that a capitation tax is a direct tax; and, both in theory and A
practice, a tax on land is deemed to be a direct tax. In this way, the
terms direct taxes, and capitation and other direct tax 177 are satisfied.
It is not necessary to determine, whether a tax on the product of land
be a direct or indirect tax." [P.174-175].

Tax on land must be direct tax, but a tax on mineral severed from land B
would not be a direct tax. The question has to be considered having regard
to the legislative competence as well as the nature of the product.

Normally, a tax which is measured in terms of the profit arising out
lands being in nature of a tax on income would be a direct tax. A tax,
however, which is levied on the product would be an indirect tax. c
Excise duty is considered to be an indirect tax. When a legislation
having regard to the entries in List I provides for imposition of excise duty
or additional duty, the same must necessarily be held to be a 'manufactured
a processed product' which by necessary implication would be deemed to be D
not a product of land whereupon a tax by the State can be imposed.

In State of Orissa v. Mahanadi Coalfields ltd., [1995] Supp 2 SCC
686, this Court held:

"19. The above aspect can be looked at from a different angle also. E
The Orissa Rural Employment, Education and Production Act, 1992
(Orissa 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 held for carrying on mining operations
would be taken in by the said definition. It is patently clear that F
'minerals', which are benefits arising out of land, will be roped in
within the purview of the levy under Section 3( I) 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 levy on land or
surface characteristic of the land. Yet another aspect that is self-
evident is that for all lands, other than mineral-bearing land, the tax G
is levied as 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 in accordance with
Section 3(4)(i) of the Act based on "average annual income". As
• stated in para 3 (supra), by adding Schedule C as per notification H
/

-(

784 SUPREME COURT REPORTS [2004) I S.C.R.

A dated 26-9-1994 (Annexure B, p. 270 of the Paper-Book), the rates
of tax are fixed for different kinds of minerals per acre, obviously
based on "average annual income". With regard to coal-bearing land,
as per Section 3(2)(c), the statute itself has specified the rate of tax
in the Schedule at Rs. 32,000 per acre. We have already seen that
lands other than mineral-bearing lands and coal-bearing lands will
B fall outside the purview of the impugned Act since they are dealt with
under the Orissa Cess Act, 1962. It is only the "coal-bearing land"
and "mineral-bearing land", as defined in Section 2(a· I) and Section
2(d), which have to bear the brunt of taxation. In the light of the
above, we have no doubt in our mind that the substance of the levy
c under the Orissa Rural Employment, Education and Production Act,
1992 is really on "mineral-bearing land" and "coal-bearing land".

20 ... 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 the
D matter, the levy of tax, on mineral-bearing lands and coal-bearing
lands, under Section 3 read with Section 2(a)( I) and Section 2(d) of
the Act is beyond the competence of the State Legislature and is ultra
vires."

The State of West Bengal had carried out amendments in the impugned
E Acts after the India Ceme11t (supra) by inserting coal bearing lands instead
and in place of coal mines but the definitions of mines within the meaning
of several Parliamentary Acts including Mines Act, 1952 and the coal bearing
lands are in pari materia. Even the definition of despatch under the impugned
Acts and the Parliamentary Acts make no significant difference. We may
F notice that even in relation to mines and minerals, a cess @ 0.50 paise per
tonne is levied on minerals or materials despatched from the land. These
provisions go to show that the materials which are produced on the land, as
for example bricks, which can be said to be a material and which has no
bearing with the minerals extracted therefrom became the subject-matter of
tax. The impugned Acts do not show that as to how bricks manufactured
G from the agricultural land by extracting brick-earth have a rational connection
with the annual value of the land.

Measure of tax is an indicia for determining the character and nature
of tax.

H Furthermore whether an impost would be tax on 'income' or 'gross •
STATE v. KESOR/\M INDUSTRIES LTD. [S.B. SINHA . .l.] 785

). receipts' fell for consideration before the Bomb'ay High Cou1i in Unit Trnst A
of India and Anr. v. P.K. Unny and Ors., (2001) 249 ITR 612. The High
Court, inter alia, framed the following question :

"(A) Whether the interest-tax under the Interest-tax Act, 1974, is a
tax on income and, if so, whether interest accruing to the UTI from
loans advanced by it stands exempted in view of section 32 of the B
UTI Act, 1963.

Kapadia, J.(as the learned Judge then was) speaking for the Division
Bench noticed that the tax on interest under the Interest-tax Act is payable
even if there is no income and that it is a tax on gross receipts of irterest. C

The contention raised therein which was negatived by the High Court,
inter alia, was that Interest-tax Act like Income-tax Act also seeks to levy tax
on gross receipts and the provisions of the Income-tax Act are in pari materia
with the provisions of the Interest-tax Act. Such a contention was raised
having regard to the fact that in terms of the Interest-tax Act read with the D
circular issued by the l{eserve Bank of India, the burden of such tax would
be passed on to the borrowers but CBDT issued a circular disabling UTI from
recovering interest tax from the borrowers.

It will, therefore, be noticed that measure of tax was considered to be
an indicia for determining the nature and character thereof. namely, as to E
whether such tax is an income or gross receipts of interest.

In Hoechst Pharmaceuticals ltd. v. Slale of Bihar and Ors., [1983] 4
SCC 45, a question arose whether the tax on gross turnover would amount
to a tax on income? Gross turnover and gross receipts are relevant for the
purpose of determining the income of a person but despite the same, the F
measure of tax on gross receipts or gross turnover was held to be not an
income so as to attract tax on income. These decision, amongst others, is
indicative of the fact that the Court had considered the measure of tax for
detennining the nature thereof.
G
If a tea estate is taken to be a unit and green tea leaves are taken as the
measure of tax on land comprising the Tea Estate, as contended, the levy of
cess can never be uniform and will have no nexus with the land as the land
used for factory, workshop and the houses for persons employed in the tea
estate have no contribution to the production of tea leaves which have nexus
only with the land where tea plants are grown and which produce green tea H
/

-(

786 SUPREME COURT REPORTS [2004] I S.C.R.

A leaves. Apart from this, in a tea estate, there are fallow land, nursery and
other areas apart from the factory, workshop. house where cultivation of tea
bushes or plant are not possible. By use of the so called measure of production
of tea leaves, such lands would remain outside the levy of cess.

A distinction exists between a capital value as a measure of tax and
B capital value as assets. The validity of levy can be upheld where taxes on
buildings are levied having regard to a percentage of capital value provided
the same is not unreasonable or confiscatory in nature. Municipalities which
ordinarily provide for compensatory tax may also be delegated with the power
of levying tax on buildings the measure whereof may be on the annual value
C of the building. However. what is converted into income can reasonably be
regarded as income. Save and except tax on profession or callings etc. as
contained in Article 276 of the Constitution, the State has no legislative
competence to impose tax on income.

Subject of a tax and the measure of a tax have some relationship to
D determine the question as regard character of legislation.
It is also well-settled that for the aforementioned purpose only
permissible methods of valuation can be adopted. Even in D.G. Gose & Co.
v. State of Kera/a, [1980) 2 SCC 410, primafacie, it appears, such permissible
E method had not been adopted. The method of valuation for imposition of tax
on land or building, furthermore, must be a known one. A mode to calculate
tax on the basis of value of a part of land which is itself being taken away
or .on the basis of annual yield having regard to the definition of tea estate
may not be held to be a permissible or known method of valuation.

F Ta>. sought to be assessed on the floorage of the building and whence
the amount of it is vJried according to the number of buildings owned by the
person charged has been held to be ultra vires. (See Bhuvaneslnvariah v.
State, AIR (1965) Mys. 170)

The impost having regard to the definition of tea estate may be held to
G be irrational as the same tea estate may contain a large number of factories,
houses and other structures with little open land for tea plantations whereas
a tea estate comprising the same area may have tea plantation only with no
factory or houses situate thereupon.

It is thus evident that the impugned levy has no nexus with land as such
H
.
STATE v. KESORAM INDUSTRIES LTD. [S. B. SINHA, .I.] 787
but is a tax only on production· of tea leaf and hence beyond the competence A
of the State.

There are, thus, several reasons why the nexus between the levy and
the measure of the levy is lost in the present case.

(a) "Green tea leaves" which is adopted as the measure of the levy B
is defined to mean the plucked and unprocessed green leaves of
the tea plant. In defining "tea estate" several categories of land
have been clubbed together. Firstly, there is the land used for
producing green tea leaves. Secondly, there is the land intended
to be used for growing tea plants (but which is not being so
used).' Thirdly, there is land comprised in a factory or workshop c
for producing commercial tea. Fourthly, there is the land
comprised in housing estates within the tea estate; and fifthly,
~,
there are lands used for ancillary purposes (not production of
green tea leaves).
(b) It is thus seen that the measure of tax is related to the produce D
of only one portion of the land purported to be defined as the
unit of taxation.
(c) Additionally, the land comprised in a factory or workshop for
producing commercial tea has no nexus whatsoever with the
growing of tea plants because by definition, green tea !eaves for E
the purpose of the levy means unprocessed green leaves of the
tea plant. The factory and workshop land therefore has no
connection whatsoever with the production of green tea leaves.
Similarly, the levy on the land used for housing estates and
those used for ancillary purposes also have no rational connection
F
. ~->-
with the production of gree.n tea leaves .
(d) In any event the productivity or yield value of all the areas of
a tea estate other than that portion which is currently being used
for cultivation of the tea plants has been totally ignored for the
purpose of fixing the alleged measure of tax.
G
Whether the measure of tax provided in the Act bears a rational nexus
with the levy itself, has been considered in the case of Buxa Dooars Tea Co.
.~ Ltd. (supra). In paras 10 & 11 of the said judgment the following propositions
have been elucidated:
(a) The statutory provisions for measuring the liability on account H
788 SUPREME COURT REPORTS (2004) I S.C.R.

A of the levy throws light on the general cliaracter of tax.
(b) The method of determining the rate of levy would be
relevant in considering the character of the levy.
(c) The standard on which the tax is levied is a relevant
consideration for determining the nature of tax although
B it could not be regarded as the conclusive in the matter.
(d) Any standard which maintain a nexus with the essential
character of the levy can be regarded as a valid basis of
the assessing the measure of the levy.

c It was observed:

"It is apparent that the standards laid down for measuring the
liability under the levy must bear a relationship to the nature
of the levy. Jn the case bdore us, however, we find that the
nexus with the tea estate is lost altogether ..."
D Measure of tax by way of levy of cess must also have a direct
nexus \Vith the point of taxation. In the instant case, tax is levied on
green tea !eave's which is produced out of an activity on land and
which has no bearing with the tax on land as a unit. Thus, the point
at which such tax is levied may also provide for a relevant factor for
E the purpose of judging the legislative competence of the State. [See
Diamond Sugar Mills Lid., and Anr. v. The State of U11ar Pradesh and
Anr.. [ 196 l) 3 SCR 242].

The definition of tea is "for the purpose of the Act'' which
would mean for all the purposes of the Act.
F
In fl. L. Sud, Income Tax O/Jicer, Companies Circle I(/}, Bombay -(.., '\
v. Tata Engineering and Locomotive Co. Ltd., AIR ( 1969) SC 319 at
319, this Court held:

"The expression ''for all purposes", used in S. 43 only indicates
G that when an appointment is made for a particular Jssessment
year it is stood for all purposes as far as that assessment is
concerned i.e., for all purposes for imposing tax liability,
determining the quantum of the liability and for recovering it.
The expression docs not extend the liability to any other
assessment excepting the liability for the assessment year for
H
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, .I.] 789
whicli the appointment is made." A
In M.K. Kochu Devassy v. State of Kera/a etc., [1979] 2 SCC 117, it
is stated:

"13. We find ourselves wholly unable to accept any of the
contentions. The terms of Section 2 of the 1947 Act as substituted B
by Section 3 of the Kerala Act are absolutely clear and
unambiguous and when they lay down that the expression "public
servant" shall have a particular meaning for the purposes of the
Act, that meaning must be given to the expression wherever it
occurs in the Act. "For the purposes of the Act" surely means
for the purposes of all and not only some of the provisions of C
the Act. If the intention was to limit the applicability of the
definition of the expression "public servant" as contended, the
language sed would not have been "for the purposes of the Act"
but something like "for the purposes of the Act insofar as they
relate to the offences under Sections 161 to 165A of the Indian
Penal Code".
n·
[See also Ashok Ley/ands v. State of Tamil Nadu, (C.A. Nos.976-979
-l of 200 I disposed of on 7.1.2004]

In Central Coalfields ltd. (supra), it was held:
E
"45. In this case, it is clear that so far as imposition of cess on
mines and minerals is concerned, the same has not been levied
taking the land as a unit or the annual value thereof, but on the
basis of royalty payable on the minerals raised therefrom or on
the price of the value of coal raised from the mines which have
no direct bearing with the imposition of cess on land as a unit." F
It was further noticed therein:
"47. In Commissioner of Income-tax, Bangalore v. B.C. Srinivasa
Selly, AIR (1981) SC 972, the Supreme Court held as follows
(at page 975): G
"The character of the computation provisions in each case bears
a relationship to the nature of the charge. Thus the charging
section and the computation provisions together constitute an
integrated code. When there is a case to which the computation
provisions cannot apply at all, it is evident that such a case was H
790 SUPREME COURT REPORTS [2004] I S.C. R.

A not intended to fall witliin the charging section."
Proceeded further, the Supreme Court observed (at page 975):
"It must be borne in mind that the legislative intent is presumed
to run uniformly through the entire conspectus of provisions
pertaining to each head of income. No doubt there is a qualitative
B difference between the charging provision and a computation
provision. And ordinarily the operation of the charging provision
. cannot be affected by a construction of a particular computation
provision. Bui the queslion here is whether it is possible to
apply the computation provision al all if a certain interpretation
.c is pressed on the charging provision. That pertains to the
fundamental integrality of the statutory scheme provided for
each head."
[Emphasis supplied]

Furthermore, when a provision is laid down in a statute, the same
D should be construed having regard to the decisions which had been rendered
by th is Court.

In Goodyear India ltd v. State of Haryana, AIR (1990) SC 78 I :
(1990) 2 sec 71, it was held that taxing statute has to be construed strictly.
E It was opined that a tax imposed by the State Legislature on despatch on
manufactured goods outside its territory is ultra vires.

It was further held that:

"It is well settled that while determining the nature of a tax, though
the standard or the measure on which the tax is levied may be a
F relevant consideration, it is not the conclusive consideration. One
must have regard to such other matters as decided by the Privy Council . ~.
in Governor Genera/in Council v. Province of Madras, AIR (1956)
PC 98 (supra), not by the name of tax but to its real nature, its pith
and substance which must determine into what category it falls."
G In Cenlral Coalfields ltd (supra), it was observed:

"52. From the conspectus of the aforementioned decisions it is,
therefore, clear that the measure of the tax throws light on the nature
of the tax and it may be considered for the purpose of finding out as
to whether the impost has any nexus with the tax or not. It is evident
H
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 791
that the true character of the levy in Cess Act is thaf alt~ough it A
appears to be· tax on land, in effect, and substance, it is a tax on
minerals extracted therefrom."

In Krishi Utpadan Mandi Samiti and Ors., (supra), it was held:

" ... It is trite that fiscal statute 111ust not only be construed literally, but B
also strictly. It is further well known that if in terms of the provisions
of a penal statute a person becomes liable to follow the provisions
thereof it should be clear and unambiguous so as to let him know his
legal obligations and liabilities thereunder.

The matter may be considered from another angle, "Expressio C
unius (persone vel reijest exclusio alterius", is a well known maxim
which means the express intention of one person or thing is the
exclusion of another. The said maxim is applicable in the instant
case. [See Mis. Khemka & Co. (Agencies) Pvt. Ltd. etc. v. State of
Maharashtra etc., (1975] 2 SCC 22 paras 47 and 48
D
Having regard to the fact that in the event it is held that buying
of seeds which is a commodity governed by a Parliamentary Act
would attract payment of market fee in terms of the said Act, a
conflict would arise. In ordinary parlance at particular stages in which
seeds are grown from breeder seeds may take the form of wheat but
the said production which is bought by the respondents is also E
governed by the provisions of the Seeds Act and the Rules framed
thereunder. The definition of 'seed' as noticed hereinbefore is of
wide amplitude ..lt includes seedling of food crops. It is, thus, necessary
to construe both the statutes harmoniously. Both, the Statutes must be
given proper effect and allowed to work in their respective fields. F
Even if there is some over-lappings, the same should be ignored."

An endeavour, it is trite, shall be made to avoid such a conflict,
particularly when one of the two possible constructions shall be in consonance
with the purport and object of a Parliamentary Act.
G
In District Council ofthe.Jowai Autonomous Distt. v. Dwet Singh Rymbi,
[ 1986] 4 sec 38], royalty imposed on timber removed from private forests
·~ was held to be a tax not on land on the ground that the royalty payable? has
no reference to the extent of land and the nature of land and its potentialities
and, thus, a tax on timber which is brought from private forests. It was held:
H
792 SUPREME COURT REPORTS (2004) I S.C.R.

A "18 ... The notification in unambiguous terms says that the royalty
shall be on the squared log pines. It has no reference to the land on
which those trees have grown. In pith and substance it is a tax on
forest produce grown on private lands. The District Council has no
power to levy such a tax on forest produce under paragraph 8 of the
Sixth Schedule to the Constitution. Reliance wa5, however, placed on
B
the minority judgment of Justice Sarkar in K. T. Moopil Nair v. State
of Kera/a in support of the plea that lands on which forests grew
could be taxed under entry 'tax on lands and buildings'. The impugned
levy being not a tax levied on land as we have pointed out above, the
said observation in the above decision is not useful to the appellants.
c We may add that the very same learned Judge has observed at page
I 06 that no tax could be levied by a State Legislature on forests as
such while tax may be levied on the land on which forests grew. But
we are convinced that the levy in question is not a levy on land ... "

A distinction must be borne in mind as regard the approved method of
D valuation for the purpose of imposition of tax on land and building. We
should not be under any elusion or suffer any confusion in this behalf. Methods
of determining annual value of a land or building is distinct from the value
of the mineral bearing land. Annual value ofa land or building is determined
by applying one or the other approved or known method of valuation, but the
E same cannot have any application for determination of the total value of the
mineral bearing land, The valuation of mineral bearing land would be
dependent upon so many factors which would include the geographical
condition, quality and quantity of the mineral which can be removed, the
capital required to be invested and various other factors. Once the mineral is
removed from the mineral bearing land, the surface may not either remain in
F existence and, thus, the value of the land would gradually come down. The
value of a land with minerals and without minerals would be different. As
and when mineral is taken out of the land, the val~e is diminished. The
method of imposing tax witli reference to the minerals produced from the
land, thus, cannot be a criterion for determining the value of the land and,
G thus, the said method of valuation should not made to apply which is applicable
for the purpose of determining the annual value of land or building. This
aspect of the matter has again not been considered in Goodricke Group
(supra).

In Goodricke Group (supra) this Court noticed Ajay Kumar Mukherjee
H (supra) and Kunnathat Thathunni Moopil Nair v. State of Kera/a, [1961] 3
}

'"' '- /
STATE v. KESORAM INDUSTRIES LTD. [S.B. SIN'1A, J.]

SCR 77. It was held:
793

A
"It is thus clear from the aforesaid decisions that merely because a
tax on land or building is imposed with reference to its income or
yield, it does cease to be a tax on land or building. The income or
yield of the land/building is taken merely as a measure of the tax; it
does not alter the nature or character of the levy. It still remains a tax B
on land or building. There is no set pattern of levy of tax on lands
and buildings - indeed there can be no such standardization. No one
can say that_ a tax under a.particular entry must be levied only in a
particular manner, which niay have been adopted hitherto. The
. legislature is free to adopt such method of levy as it chooses and so C
long as the character of levy remains the same, i.e., within the four
comers of the particular entry, no objection can be taken to the method
adopted. In the eases before us, the cess is no doubt is calculated on
the basis of the yield - for every kilogram of tea leaves produced in
a tea estate, a particular cess is levied. But that is a well-accepted
mode of levy of tax on land. The tax is upon the land - upon the "tea D
estate" which is classified as a separate category, as a separate unit,
for the purpose of levy and assessment of the said cess quantified on
the basis or the quantum of produce of the tea estate. It cannot be
characterized as a tax on production for that reason. As pointed out
in Moopil Nair - "a tax on land is assessed on the actual or potential E
productivity of the land sought to be taxed". There cannot be uniform
levy unrelated to the quality, character or income/yield of the land.
Any such levy has been held to be arbitrary and discriminatory."

With utmost respect, the approach in the legal situations obtaining herein
inay 11ot be correct. The said opinion stares on the face of India Cement F
(supra), Orissa Cement (supra) and P. Kannadasan (supra). India Cement
(supra) came to be interpreted correctly in Kannadasan but the same learned
· Judge appears to have taken a different view in Goodricke Group (supra).

The Court therein did not consider the Moopil Nair's case in its proper
perspective where a flat rate of tax imposed on lands was held ultra vires G
Article 14 of the Constitution of India.

Jn Moopi/ Nair (Supra), this Court held:

" ........ Ordinarily, a tax on land or land revenue is assessed on the
actual or the potential productivity of the land sought to be taxed. In H
794 SUPREME COURT REPORTS [2004] I S.C.R.

A other words, the tax has reference to the income actually made, or .i.:
which could have been made, with due diligence, and, therefore, is
levied with due regard to the incidence of the taxation. Under the Act
in question we shall take a hypothetical case of a number of persons·
•
owning and possessing the same area of land. One makes nothing o~t
of the land, because it is arid desert. The second one does not make
B
any income, but could raise some crop after a disproportionately
large investment of labour and capital. A third one, in due course of
husbandry, is making the land yield just enough to pay for the
incidental expenses and labour charges besides land tax or revenue. ~
The fourth is making large profits, because the land is very fertile and
c capable of yielding good crops. Under the Act, it is manifest that the
fourth category, in our illustration, would easily be able to bear the
burden of the tax. The third one may be able to bear the tax. The first
and the second one will have to pay from their own pockets, if they
could afford the tax. If they cannot afford the tax, the property is
liable to be sold, in due process of law, for realisation of the public
D demand. It is clear, therefore, that inequality is writ large on the Act
and is inherent in the very provisions of the taxing sections.

Moopi/ Nair (supra), therefore, states about the productivity as a basis
for taxation and not the actual production or yield by weight. Yield from year
E to year would depend on a large number of factors including the expertise
and financial health of the company managing the estate, costs incurred in
development and maintenance of the garden and many other factors. It would
not, therefore, be correct to deduce relying on or on the basis of Moopil Nair
(supra) as has been sought to be done in Goodricke Group (supra) that tax
on land can be measured by the "yield" of land and then translate it to the
F weight of the tea produced.

The yield of tea from old tea estates may be qualitatively and quantatively "'!' '

less than the new tea estates Quality and quantity of the yield of tea may not
only depend upon the age of the tea plants but also the quality of the land
and thus, the yield both quality or quantitywise would depend upon several
G factors, namely, quality of the soil, geographical as well as climate conditions
and several other factors.

As cess has not been imposed on the leasehold in respect of sub-soil
mineral right vis-a-vis surface land as a unit, the impugned tax must be held
H to be beyond the legislative competence of the State in terms of Entry 49 of
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 795
List II of the Constitution of fod ia. So far as tea is c.1ncerned as even A
agricultural activities thereof had been taken over and as in terms of Section
30 of the Tea Act the value of tea is to be determined by the Central
Government, no tax can be imposed on tea which will have a direct impact
on the value thereof.

As coal is also an essential commodity in tenns of Essential Commodities B
Act, 1955, its distribution, marketing as also price is regulated and controlled
by Colliery Control Order 1945 made under the Essential Commodities Act.
As the price of coa_I is to be determined by the Central Government or the
· Coal Controller under the Colliery ContrQI Order 1945 which was continued
under Essential Commodities Act, 1955 and thus being covered by Entry 33 C
List III of the Seventh Schedule of the Constitution of India, no tax on coal
can be imposed which will have a direct nexus on the value thereof. The
impugned Acts must be construed having regard to the other statutes operating
in the field.

A statute will not be valid unless the defects pointed out are removed. D
Such removal of the defects must be done keeping in view the principle of
'legislative competence'. Even the Parliament could not validate an Act which
was enacted without proper legislative competence. As the measure of tax
levied led to the declaration of the law invalid being in truth and substance
to be beyond the competence of the State Legislature by reason of the E
impugned Acts, the levy cannot be said to have been revalidated. They were
required to be reenacted but such reenactment must also be in tune with any
or other entries made in List II of Seventh Schedule to the Constitution of
India.

The definition of mineral is wide. A coal washing plants or coke-oven F
plants are collieries or coal mines and 'washed coal', 'slurry', sludges and
... ~ cokes of different grades would also come within the definition of 'coal' .
. Thus, the owners of the industries like coke-oven plants or coal washeries
which may be set-up either within the precincts of a coal mine or outside the
same, would be subject to pa)ment of tax on their products although carrying
out such operations is controlled and governed by Parliamentary regulatory G
statutes. Having regard to the definition ofa mine vis-a-vis that of"immovable
property" and "land" contained in Cess Act, 1880, reconciliation of imposition
of tax on 'coal' and 'tea' is not possible. By way of example we may notice
that coke produced from a coke-oven plant has specifically been included as
a subject matter of tax and the weight thereof is measured on the basis that H
796 SUPREME COURT REPORTS [2004] I S.C.R.

A one tonne of coke would be equivalent to 1Yi tonne of coal. Coke is an
industrial product, manufactured in coke-oven plants, some of which are
highly sophisticated ones but even such a material has not been exempted
from the purview of the statutory imposts.

As any building, factory or standing crops would not come within the
B purview of definition of "immovable property" under the Bengal Cess Act,
1880; "tea estate" as such having regard to its definition cannot be treated to
be one unit so as to capable of being levied any land tax. Tax on land is
leviable only upon the owner of the and not upon those who have no right
thereover. Tea estate as such cannot be treated as a unit under the Bengal
C Cess Act and consequently under the impugned statutes.
I, therefore, am of the opinion that the in the instant case tax has been
imposed not on the tea estate as a unit but on the activities of land inasmuch
as growing of tea would be such activity which having regard to the provisions
of the Tea Act squarely falls within the purview of Entry 52, List I.
D
AN OVERVIEW OF SOME OF THE DECISIONS OPERATING IN THE
FIELD:

We may now briefly consider amongst others the decisions relied upon
by the learned counsel appearing on behalf of different States.
E
In The Anam Mills Co. ltd. etc. etc. v. Stale of Gujarat, AIR (1975)
SC 1234 this Court was considering the validity of the provisions of the
conservancy charges levied by Municipal Corporation wherefor classification
of property had been made for the purpose of computation of conservancy
charges at higher rates on certain special classes of properties like factories,
F textile mills etc. vis-a-vis other properties. The questions which have been
raised herein were not raised in that case. The core question which was posed -1'-.
therein was as to whether having regard to the affidavit filed on behalfof the
respondent Corporation the classification could be upheld on the basis that
total expenses to be incurred for conservancy service is required to be found
F out first whereafter, different rates of conservancy tax fixed for a particular
class of property must be related to the cost involved in supply of conservancy
service to that class. The Court held that a broad and general estimate of the
cost of conservancy service and the tax receipts after taking into account the
relevant factors would satisfy the requirement of law. If a broad meaning of
land for the purpose of imposition of conservancy tax is required to be given,
G the same would include mineral which would, empower the State to levy tax
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA. J.) 797
on mineral. Such a finding would lead to an absurd result and make Entry A
54 of List I otiose.

Therein the fact situation was absolutely different insofar as the definition
of land contained in Clause 30 of Section 2 of the Corporation Act was wide
enough. The Cess Act defines land and immovable property differently.
Keeping in view the activities carried on the land itself although the same B
was beneath the surface, this Court held that the mains buried in the soil
being in the possession of the company would come within the purview of
the definition of land stating:

"These mains are fixed capital vested in land. The company is in
possession of the mains buried in the soil, and so is de facto in C
possession of that space in the soil which the mains fill, for a purpose
beneficial to itself. The decisions are uniform in holding gas companies
to be rateable in respect of their mains, although the occupation of
such mains may be de facto merely, and without any legal or equitable
estate in the land where the mains lie, by force of some statue." D
In State of Karna/aka v. Drive-In Enterprises, [200 I) 4 SCC 60. it is
observed:

"Whereas in the present case, the vires of an enactment is impugned
on the ground that the State Legislature lacks power to enact such an E
enactment, what the court is required to ascertain is the true nature
and character of such an enactment with reference to the power of the
State Legislature to enact such a law. While adjudging the vires of
such an enactment.the court must examine the whole enact11ient, its
object, scope and effect of its provision. If on such adjudication it is
found that the enactment falls substantially on a matter assigned to F
the State Legislature, in that event such an enactment must be held
to be valid even though nomenclature of such an enactment shows
that it is beyond the competence of the State Legislature. In other
words, when a ievy is challenged, its validity has to be adjudged with
reference to the competency of the State Legislature to enact such a G
law, and while adjudging the matter what is required to be found out
is the real ·character and nature of levy."

[Emphasis supplied)

Imposition of cess calculated on value of coal, tea etc. for the reasons
H
798 SUPREME COURT REPORTS [2004] I S.C.R.

A stated hereinbefore has been found to be beyond the legislative competence
of the State.

Furthermore, it is one thing to say that a land is being used as a hat as
was in the case of Ajay Mukherjee (supra) or forest as was the case of Moopil
Nair (supra) but it is another thing to say that a tax is imposed on activities
B of land confined to extraction of mineral which is clearly beyond the power
of the State Legislature. On the same analogy levy of house tax is permissible
having regard to the nature and object thereof wherefor there can be a valid
classification. The annual valuation of the house on the basis of income must
be considered for the purpose of quantifying the tax. But the said principle
C would not apply in the case of tax on production of minerals.
We, having regard to the decisions of this Court in Buxa Dooars and
India Cement which are directly on the point, do not think that the approach
to the questions involved in the instant case should be different. In imposing
tax, having regard to political or economical consideration it may be
D permissible to allow some concession to the small owners or income arising
from the land may be taken into consideration but as would be noticed from
the decisions the validity of such taxes have been upheld in relation to the
land or the structures standing thereupon or a tax on circumstances and
properties.

E We may notice that in Dislrict Board of Farrukhabad v. Prag Dull and
Ors., AIR (1948) Allahabad 382 a distinction was made between a tax on
circumstances and properties and tax on incomes saying that the fundamental
difference being that income tax can be levied for their own income and if
there is no income no tax is payable. But in the case of circumstances and
F property tax, where a man's status has to be determined his total business
turnover may be considered for purposes of taxation, though he may not have
earned any taxable income. The question posed therein was considered from
the angle that the business turnover may be a relevant factor for determination
of man's status.

G Similarly, in Assistant Commissioner of Urban land Tax Madras and
Ors. etc. v. Buckingham and Carnatic Co. ltd. etc., AIR (1970) SC 169, it
has been held that tax directly imposed on land and buildings must have
definite relation thereto.

[Emphasis supplied]
H
-
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA. J.) 799
Herein there does not exist any such relation. A
In Union Carbide India Ltd. v. Union of India, [1986] 2 SCC 547, the
question which arose for consideration was as to whether the Aluminium
Cans which are used only for the purpose of manufacturing flashlights, would
attract excise duty. The marketability of Aluminium cans came up for
consideration for determination of the question as to whether any excise duty B
can be levied on such aluminium cans and not for any other purpose. We
have noticed that green tea laves are marketable.

In D.G. Gose & Co. v. State of Ke~a/a, [1980] 2 SCC 410, while
upholding the validity of the Kera la Building Tax Act, this Court considered C
the nature thereof, namely, it was on recurring tax, observing that the method
of fixing annual value on the basis of the figures mentioned in the assessment
books of local authorities is valid as adequate procedure for determination
thereof had been laid down. The opinion expressed by Singhal, J. with utmost
respect is doubtful.
D
Herein, the amount of cess required to be determined on coal and tea
will have a direct nexus with the productivity thereof which has got nothing
to do with annual valuation of the land as no procedure therefor can be or
has been laid down. The mineral is a part of the land and thus price of a
mineral, having regard to the decisions of this Court, cannot be said to be a
valid method for determination of the annual value of the cost being levied. E
Under Section 30 of the Tea Act, the Central Government has the
power to fix the market price. Fixation of an uniform market price by the
Central Government would not be possible if it is held that a different rate
of cess can be levied, by different States which will have a direct impact on F
the sale price thereof.

In State of Rajasthan v. Vatan Medical & General Store, [200 I] 4 SCC
642, this Court upheld the power of the State to make a law with respect to
manufacture of intoxicating liquor, which power evidently exists in the State
under Entries 8, I, 6 and 51 List II of Seventh Schedule of Constitution of G
India read with Article 47 thereof. Having recorded that finding, it was
observed that once the act come within the four comers of the State entries,
no Central Law made further in tem1s of List I or List Ill can be held to be
valid. The said decision has no application in instant case.

In Ra/la Ram v. Province of East Punjab, (1948) FCR 207, annual H
800 SUPREME COURT REPORTS [2004] 1 S.C.R.

A value of the buildings anil lands was to be asce1tained by estimating the gross
annual rent at which such land or building with its appurtenances and any
furniture that may be left for use or enjoyment with such building might
reasonably be expected to let from year to year. In that case; therefore, gross
annual rent so fixed or expected reason~ble rent was made the criteria, wherefor
B a procedure had been laid down. It may be noticed that in Ra/la Ram (supra),
also the Federal Court stated that measure of tax throw light on the general
character Of the tax. The levy was upheld observing that the encroachment
into 1he federal field is not so greal as to characterize it as a colourable piece
of legislation. In the instant case, however, as we have noticed hereinbefore
that the encroachment of the State Legislation into the Parliamentary
C Legislation is grave in nature.
By reason of the impugned legislations, only the mode of collection of
tax has been altered to the effect that instead and place of price of tea and
on despatches of coal and tea; the same is to be levied on value thereof,
excluding the elements of royalty, tax etc. Pit-head value of the coal wherefor
D expenses were required to be incurred which would include the income from
the coal mine, whereas value of coal at the points of despatch from coal mine
would also include the amount of royalty or other taxes paid thereupon. Thus,
the value of coal is to be determined when the same was at the pit-head or
dispatch would not make any detenninative changes in the nature and character
E of the tax. Nor as indicated herein before, makes any substantial difference in
the value of coal.

In Rafla Ram (supra) citing Lord Atkin in Gallahagar v. Lynn, it
was held:

"It is well established that you are to look at the true nature and
F
character of the legislation", Russell v. The Queen, the pith and
substance of the legislation. If 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 authorized field. The legislation must not under
G 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
H
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 801

they are passed 'in respect of' the forbidden subject." A
In Ajay Kumar Mukherjee v. local Board of Barpeta, AIR (1965) SC
1561, imposition of tax on land used as a markei was upheld on the ground
that the use to which the land is put, can be taken into account. In the instant
case, the use of land is extraction of coal or production of tea. Having regard
to ttie Parliamentary Acts, any tax on the activities of land is forbidden. In B
the case of Ajay Kumar Mukhe1jee (Supra), the State even could impose tax
in terms of Entry 26 of·List II as was observed in /. T.C. ltd. (supra).

In Goodricke Group (Supra), Jeevan Reddy, J., in no uncertain terms
held that overlapping of two fields may be permissible but the conflict has C
to be determined having regard to the fact whether it is slight as well as the
basis as to whether such overlapping is on fact or is on law. Despite slight
overlapping which is permissible, distinctiveness of the nature of levy under
the State Act vis-a-vis the Parliamentary Act must exist. However, once an
overlapping takes place in law, the State Legislation in view of the declaration
made in the Parliamentary Legislations would be unsustainable. Reasoning D
adopted in Goodricke Group (supra) is contrary to those assigned in
Kannada.1·m1 (supra).

In If. R.S. Murthy (Supra), the argument that the expression "Royalty"
does not signify royalty as commonly understood but was confined to the
rent payable for the beneficial use of the surface of the land was repelled E
stating:-

"It is therefore obvious that "royalty which follows the expression
"lease amount" is something other than the return to the lessor or
licensor for the use of the land swface and represents as it normally
connotes the payment made for the materials or minerals won from F
the land."

In India Cement (supra), Murthy was overruled holding that therein
this Court' did not notice Section 9(2) of I957 Act. It was held that there is
a clear distinction between tax levied directly on land and tax on income
arising from land. G

In New Manek Chowk Spinning & Weaving Mills Co. ltd. v. Municipal
Corporation of the City of Allahabad, [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 pennitted levy of tax on land and building. It did not H
802 SUPREME COURT REPORTS (2004] I S.C.R.

A pennit tiie levy of tax on machinery contents (sic for contained) in or situated
on the building even though the machinery was there for the use of the
building for a par\icular purpose. Similar view has been taken recently in
Krishna Mohan (P) ltd (supra).

Referring to a large number of decisions, some of which have been
B noticed herein in before, this Court in India Cement (supra) held that as no
tax was leviable under the Act impugned therein, if no mining activities were
carried on; hence, it was manifest that the same was not related to land as a
unit which was the only method of valuation of land under Entry 49, the tax
being related to minerals extracted and thus was held to be bad in law. It was
C held "royalty is payable on a proportionate basis 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." Royalty may not be the produce of the land or the yield
of the land, but it is directly linked with the income of the land or the value
of th.e minerals extracted.

D In Orissa Cement (Supra), Section 5(2) of the Orissa Cess Act, 1962
read as follows :

"(2) The rate per year at which such cess shall be levied shall be (a)
in case of lands held for carrying on mining operations in relation to
any mineral, on such per centum of the annual value of the said lands
E as specified against that mineral in Schedule ll;

In Orissa Cement (Supra), therefore, annual value was to be determined
not only on the basis of royalty but also on the basis of the dead rent. Even
then, Section 5(2) of the said Act was declared ultra vires. [See also Federation
of Mining Association (supra)]
F
Only because cess is levied on annual rental value, the same by itself
would not be determinative of the character of the levy. Royalty levied on the
mineral under Section 9 of the 1957 Act must be held to have a direct
relation with the income derived from the mineral bearing land. Royalty is
G measured in terms of the amount of coal extracted. The value of the coal will,
thus, have a direct nexus on the royalty being the lessor's share on the
demised land. Thus, any tax imposed on extracted minerals would be prohibited
as the same will have an adverse effect/impact on the mineral development.
For levying any tax on land in tenns of Entry 49 of List ll, it must have a
direct bearing on the land as a unit.
H
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA. J.] 803
·• Any attempt on the part of the State to impose tax on mineral or tea A
indirectly may not be construed to be a simple overlapping on the subject but
overlapping in law having a direct bearing on the competing entries contained
in different lists in the Seventh Schedule of the Constitution of India. India
Cemem has approved Buckingham and Carnatic Co. Ltd. (Supra) which is an
authority for the afore-mentioned proposition but the same was sought to be
distinguished in Goodricke's case, only on the premise that therein the levy B
was on the tea estate. In Goodricke Group (Supra), the Court did not take
into consideration the question that the power to levy any cess on 'tea' has
been taken away in view of the Parliamentary Legislation having regard to
Article 253 of the Constitution of India.

Guodricke Group ltd. (supra), thus, with utmost respect, cannot be said
c
to have laid down the correct law.

The state is denuded of its power to levy any tax on 'Tea' whether
processed or unprocessed as tax imposed thereupon will have a direct impact
on the power of the Union Government to fix the value thereof. However, the D
same does not mean the State cannot impose any tax on the land. It can but
the same must conform to its iegislative competence vis-a-vis relevant entries
of List I.

CONCLUSION:
E
Under the Nationalization Acts, except some collieries which belong to
the companies engaged in the business of manufacture of steel, all other
mines for all intent and purport belong to the public sector companies which
are subsidiaries of Coal India Limited. It will be a matter of great concern if
the price of coal becomes higher in the State of West Bengal than in other
States. F
Despite India Cement (supra) and Orissa Cement (supra) as also various
decisions of this Court, tax has not been imposed taking the land as a unit.
An endeavour has been made to levy cess only by changing the measures
thereof. The State has not taken recourse to measures for removing the G
deficiencies in the Acts pointed out by this Court. By reason of the impugned
amendment, the State could not have ignored various decisions of this Court,
t ~ as has been pointed out in The Workmen of Mis. Firestone Tyre & Rubber
Co. of India P. ltd. and Ors. v. The Management and Ors., AIR 1973 SC
1227 wherein it was held that despite insertion of the proviso appended to
Section 11-A of Industrial Disputes Act the right of the employer to adduce H
804 SUPREME COURT REPORTS [2004] I S.C.R.

A evidence justifying his action for the first time in such a case is not taken "
away by the proviso to Section I I·A. It was held that legal position as
existing prior thereto and changes thereby shall continue stating:

"Another aspect to be borne in mind will be that there has been a
long chain of decisions of this Court, referred to exhaustively earlier,
B laying down various principles in relation to adjudication of disputes
by industrial courts arising out of orders of discharge or dismissal.
Therefore, it will have to be found from the words of the section
whether it has altered the entire law, as laid down by the decisions,
and, if so, whether there is a clear expression of that intention in the
C language of the section."

A Bench of this Court in Dharam Dutt and Ors. v. Union of India and
Ors., (2003) 10 SCALE 141 observed:

"65. Welfare Association A.R.P., Maharashtra and Anr. v. Ranjit P.
. Gohil and Ors., JT (2003) 2 SC 335, is a decision to which both of
D
us are parties. Therein we have held that it is permissible for the
legislature, subject to its legislative competence otherwise, to enact a
law which will withdraw or fundamentally alter the very basis on
which a judicial pronouncement has proceeded and create a situation
which,. if it had existed earlier, the Court would not have made the
E pronouncement. Very recently in People's Union .for Civil liberties
(PUCL) and Anr. v. Union of India and Anr., [2003) 4 SCC 399, in
the leading opinion recorded by M.B. Shah, J. (the other two learned
Judges having also recorded their separate but concurring opinions),
the legal position has been summarized thus:-

F "the Legislature can change the basis on which a decision is
rendered by this Court and change the law in general. However,
this power can be exercised subject to constitutional provisions,
particularly legislative competence and if it is violative of
fundamental rights enshrined in Part Ill of the Constitution, such
law would be void as provided under Article 13 of the
G Constitution. The legislature also cannot declare any decision of
a court of law to be void or of no effect."

Keeping in view that the State has no legislative competence to impose
cess on mineral, the ratio of the said decision shall apply in the instant case
H also.
STATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.) 805
This Court while interpreting binding judgments cannot in effect and A
substance overrule the same or read down the principles of law enunciated
therein.

SUMMARY OF OUR FINDINGS:

(i) The federalism under the Indian context points out to the B
supremacy of the Parliament and the legislative entries contained
in different Lists of the Seventh Schedule must be construed
accordingly.
(ii) The interpretation of the legislation will depend upon the
legislative entries to which it relates and intent and purport of C
the makers of the Constitution and no principle of interpretation
can be introduced to the effect that the Court should lean towards
a State.
(iii) Tea and coal being subjects of great importance, the Parliament
have taken over the complete control of the entire field in respect D
thereof and other minerals in terms of the Tea Act, 1953 and
Mines and Minerals (Regulations and Development) Act
respectively.
(iv) Having regard to the purport and object of the said Parliamentary
Acts and the declarations contained in Section 2ofthe·1957 Act E
and the 1952 Act, the State must be held to be denuded of its
power to levy any tax on coal or tea, particularly, having regard
to the provisions of Sections 9, 9A, 13, 18 and 25 of the 1957
Act and Sections I 0, 13, 15, 25 and 30 of the Tea Act. Field of
taxation on mineral is also covered by Section 25 of the 1957
Act. The field of taxation under the Tea Act is specifically F
covered by Section 25 thereof.
(v) The Siate being owner of the minerals and grant of mineral
right being controlled by the Parliamentary statute, the State is
denuded of its power to impose any tax on mineral right in
terms of Entry 50 of List II of the Seventh Schedule of G
Constitution of India.
(vi) Having regard to the underlying object of the 1953 Act and the
1957 Act, even if the doctrine of pith and substance is applied,
it may not be possible to hold that the State legislature has only
incidentally encroached upon the legislative field occupied by H
806 SUPREME COURT REPORTS (2004) I S.C.R.

A the Parliament.
(vii) Levy of tax on coal bearing lands and mineral bearing lands
where mining operations are being carried out through the process
of incline or digging pits is illegal, inasmuch as the underground
mining right would be larger in area than the surface right and,
B thus, it is not possible to uphold the validity of such statute with
reference to the extent of the surface right as mineral is being
extracted from a larger underground area. Different rights may
belong to different persons over the same surface land and
similarly different rights may belong to different persons in
respect of or over underground rights and the impugned statutes
c having not made any provision of different method of levy, the
impugned statutes are ultra vires.
The impugned provisions do not specify who would be liable to
pay in relation to different rights and who would be considered
to be the owner of the land and to what extent. If the extent of
D surface land is treated to be the unit, the same having regard to
different mining rights granted to different persons over different
minerals would all be liable to pay cess although they may not
have any right over the surface at all or exercise such right
thereover only over a part thereof.
E As minerals bearing lands cannot be treated as an independent
unit in respect of which tax can be invoked, the impugned Acts
must be held to be unconstitutional.
(viii) Tax on lands and buildings in terms of Entry 49 of List II of the
Seventh Schedule of the Constitution of India can be levied on
F land as a unit and not otherwise.
(ix) As green tea leaves is marketable, the decision in Goodricke ~..,
group (supra) having mainly been rendered on the premise that
green tea leaves is not marketable must be held to have passed
sub-silentio and, thus, does not lay down correct legal position.
G
(x) In view of the definitions of' land' and 'immmovable property'
contained in the Bengal Cess Act, 1880, as no road cess or
public works cess can be imposed on standing crops or any kind
of structures, houses, shops or other buildings which would
include factories and workshops for processing tea, no levy by
H way of cess can be imposed by reason of the impugned Acts
ST ATE v. KESORAM INDUSTRIES LTD. [S.B. SINHA, J.] 807·
either on the mining leasehold or the tea estate containing A
standing crops as also houses and buildings.
(xi) Measure of a tax although may not be determinative of the
nature thereof, the same will play an important role in
determining the character thereof particularly keeping in view
the purpose and object the Parliamentary Acts seek to achieve. B
In determining the legislative competence the taxing event also
plays an important role.
(xii) The Tea Act having been enacted in terms of Entries I 0 and 14
of List I as also Article 253 of the Constitution, the State is
completely denuded of its legislative power in relation thereto. C
The expression 'Tea' should be given a broad meaning and
Entry 52 of List I of the Seventh Schedule of the Constitution
should be interpreted in relation to tea having regard to the
purport and object it seeks to achieve.

For the aforementioned reasons, I respectfully dissent with the opinion D
of Brother Lahoti, J.

I would dismiss the appeals of the State of West Bengal and allow the
writ petitions as also the appeals including C.A. No. 5027 of 2000. No costs.

ORDER E
Leave granted in the Special Leave Petitions.

In view of the majority opinion delivered by Hon'ble Mr. Justice R.C.
Lahoti, on behalf of himself, Hon'ble the Chief Justice Hon'ble Mr. Justice
B.N. Agrawal and Hon'ble Dr. Justice AR. Lakshmanan, the Civil Appeals, F
except Civil Appeal Nos. 1532-33 of 1993, and Writ Petitions are dismissed.
Civil Appeal Nos. 1532-33 of 1993 are allowed.

R.P. Matters disposed of.