ORISSA CEMENT LTD AND ORS. ETC. ETC. v. STATE OF ORISSA AND ORS. ETC. ETC.

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". D Applying the above tests to the case before it, the Court reached the conclusion that, in substance the impugned levy was a levy in respect of despatches of tea and not in respect of tea estates. It was then pointed out that the question of legislative competence also turned on this issue: E "If the impugned legislation were to be regarded as a levy in respect of the estates, it would be referable to entry 49 in List II of the Seventh Schedule of the Constitution which speaks "taxes on lands and buildings". But if the legislation 'j·· is in substance legislation in respect of despatches of tea, legislative authority must be found for it with reference to some other entry"

Pointing out that no such entry in List II or III had been brought to its notice and further that, under S. 2 of the Tea Act, 1953, control over the tea industry had been assumed by Parliament within the meaning of Entry 54 of List I, the Court upheld the challenge to the competence of the State legislature to levy the impugned cess. It is submitted that, likewise, here the levy is one in substance on royalties and not one on land.

There is force in the contention urged by Sri T.S.K. Iyer that there is a difference in principle between a tax on royalties derived

OR!SSA CEMENT"· STATE OF ORISSA [RANGANATHAN, J.l 149

from land and a tax on land measured by reference to the income derived therefrom. That a tax on buildings does not cease to be such merely because it is quantified on the basis of the income it fetches is nowhere better illustrated than by the form of the levy upheld in Rafla Ram, [1948] F.C.R. 207 followed by Bhagwan Dass Jain, [1981] 2 SCR 808 which illustrates the converse situation. Mukherjea (supra) also supports this line of reasoning. But here the levy is not measured by B ~ the income derived by the assessee from the land, as is the case with lands other than mineral lands. The measure of the levy is the royalty _, paid, in respect of the land, by the assessec to his lessor which is quite .• a different thing. Moreover, interesting as the argument is, we are constrained to observe that it is only a reiteration of the ratio i<1 Murthy which has been upset in India Cement. We may point out that this is of significance because, unlike in India Cement, the statute c considered in Murthy, as the one here, only purported to levy a cess on .; the annual value of all land. India Cement draws a "clear distinction between tax on land and tax on income arising from land". The former must be one directly imposed on land, levied on land as a unit and bearing a direct relationship to it. In para 23 of the judgment, the D Court has categorically stated that a tax on royalty cannot be said to be a tax directly on land as a unit.

Sri Iyer contended that all the observations and propositions in India Cement stem from the basic conclusion of the Court that the cess levied there was a cess on royalty in view of the Explanation to S. 115. E He also submitted that the statute under consideration in India Cement --· did not provide for any cess in the case of land which did not yield any royalty; in other words, the Act did not use dead rent as a basis on which land was to be valued. He drew attention to the observations of Oza, J. In para 42 of India Cement that if the Explanation to S. 115 had used the words 'surface rent' in place of 'royalty' the position would have been different and that, if a cess on such 'surface rent' or 'dead rent' is charged, it could be justified as a tax on land falling within the purview of Entry 49. Here, however, the position is different and so, he urged, the nature of the levy is also different. We may have considered these points as furnishing some ground to distinguish the '* present levy from that in India Cement but for the Court's specific disapproval of Murthy. We are unable to accept the plea of Sri Iyer that, in spite of Murthy, he can support the validity of the levy, as the statuti: considered in Murthy contained exactiy the sa1ne features as \~ ··i__ are here emphasised by Shri Iyer and the validity of such levy cannot --~ be upheld after India Cement. As to the second contention based on the observations in the judgment of Oza J., we may point out here the H J ~

150 SUPREME COURT REPORTS [1991] 2 S.C.R.

levy is not one confined to dead rent or surface rent as suggested by A Oza J. but one on royalty which even according to Oza J. cannot be described as a tax on land.

ORISSA CEMENT v. STATE OF ORISSA (RANGANATHAN, J.] 151

"The fact that one of the components of the impugned tax, .A namely, the component of 'circumstances' is referable to other entries in addition to Entry 60, shall not be construed as conferring an unlimited charter on the local authorities to impose disproportionately excessive levies on the assessees who are subject to their jurisdiction. An excessive levy on circumstances will tend to blur the dis- B tinction between a tax on income and a tax on circums- tances. Income will then cease to be a mere measure or yardstick of the tax and will become the very subject matter of the tax. Restraint in this behalf will be a prudent pre- scription for the local authorities to follow".

While Sri Iyer sought to use this decision in support of his contention c that a tax on property can be legitimately measured on the basis of the income therefrom, we think the observations extracted above are very apposite here, The manner in which the levy, initially introduced a uniform cess on all land, was slowly converted, qua mining lands, into a levy computed at multiples of the royalty amounts paid by the lessees D thereof seem to bear out the contention that it is being availed of as a tax on the royalties rather than one on the annual value of the land containing the minerals. In the words of Chandrachud J. (as he then was) one can legitimately conclude that royalty has ceased to be a mere measure or yardstick of the tax and has become the very subject matter thereof. E

For the reasons discussed above, we repel the contention of the State seeking to justify the levy under Entry 45, 49 and 50 of List II of the Seventh Schedule. /" There has been considerable discussion before us as to whether F 'royalty' itself is a tax or not. The controversy before us centres round the discussion contained in paras 31 to 34 of the India Cement judg- ment. Counsel for the assessees-respondents invite attention to the opening sentence of para 34 which runs: "In the aforesaid view of the 4 matter, we are of the opinion that royalty is a tax" and argue that this clinches the issue. On the. other hand, Sri Iyer submits that this G purported conclusion does not follow from the earlier discussion and is also inconsistent with what follows. He points out that though there is a reference in para 27 to the conclusion of Venkataramiah J. in a judgment of the Mysore High Court that royalty under S.9 of the MMRD Act is really a tax, and a reference in para 31 to the Rajasthan, Punjab, Gujarat and Orissa decisions to the effect that royalty is not a H

152 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A tax, there is no discussion, criticism or approval of any of the decisions on this point and that, therefore, the first sentence of para 34, relied upon for the respondents, is non-sequitir. He submits that, perhaps, there is a typographical error in the first sentence of para 34 and that the sentence should really read thus:

B ''In the aforesaid view of the nlatter, we are of opinion that cess is a tax, and as such a ccss on royalty being a tax on royalty, is beyond the competence of the State Legislature " .,._

He also points out that the last sentence of para 34 reads thus: c "Royalty on mineral rights is not a tax 011 land but a pay- ment for the use of land".

He submits, therefore, that this issue has not been decided in India Cement. He submits that, before we express any opinion on this issue, D we should consider the matter afresh and places before us extracts '- from various lexicons and dictionaries to show that a royalty is nothing more than the.rent or lease amount paid to a lessor in consideration for the grant of a lease to exploit minerals. Reference may also be made to the discussion in this respect in paras 3:i-40 of Trivedi & Sons v. State of Gujarat, [ 1986] Supp. S.C.C. 20. It is therefore, neither a fee nor a E tax but merely a price paid for the use of mineral-bearing land.

We do not think that it is necessary for us to express an opinion ,_ either way on this controversy for, it seems to us, it is immaterial for the purposes of the present case. If royalty itself were to be regarded as a tax, it can perhaps be described properly as a tax on mineral rights F and has to conform to the requirements of S. 50 which are discussed later. We are, however, here concerned with the validity of the levy of not royalty but of cess. If the cess is taken as a lax, then, unless it can be described as land revenue or a tax oil land or a tax on mining rights, it. cannot be upheld under Entry 45, 49 or 50. On the contrary, if it is treated as a fee, the State's competence to levy the same has to be "' G traced to Entry 23, a proposition the effect of which will be considered later. The question whether royalty is a tax or not does not assist us much in furnishing an answer to the two questions posed in the present case and set out earlier. We shall, therefore, leave this question to rest here.

H This takes us to the second question posed by us initially and this

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN,. J.] 153

turns on the effect of M.M.R.D. Act, 1957 and the declaration con- tained in S. 2 thereof which has been extracted earlier. This will arise if ' A we treat the levy as a tax falling under Entry 50 of List II or, al tern a· lively, as a fee though it may not affect the State's competence if it tan be attributed to Entry 49 of List II. ·

To take up Entry 50 first, a perusal of Entry 50would show that B the competence of the State Legislature with respect thereto is circumscribed by "any limitations imposed by Parliament by law relat- ing to mineral development". The M,M.R.D. Act,° 1957; is-there can be no doubt about this-a law of Parliament relating to mineral development. S. 9 of the said Act empowers the Central Governmerit to fix, alter, enhance or reduce the rates of royalty payable in respect of minerals removed from the land or consumed by the lessee. Sub- c section (3) of Section 9 in terms states that the royalties payable under the Second Schedule to that Act shall not be enhanced more than once during a period of three years. India Cement has held that this is a clear bar on the State legislature taxing royalty so as, in effect, to amend -· the Second Schedule to the Central Act and that if the cess is taken as a D tax falling under Entry SO it will be ultra vires in view of the provisions of the Central Act. · · ·

IS it possible, then, to treat the levy as a fee which the State legislature is competent to legislate for under Entry 66 of the State List?' · Sri Iyer contends for this position particularly on the strength of S. 10 E of the Orissa Cess Act, 1962. There is one great difficulty in accepting this solution to the State's problem. S. 10 as it stands now earmarks the purposes of utilisation of only fifty percent of the proceeds of the ·cess and that, too, is limited to the cess collected in respect of "lands other than lands held for carrying on mining operations". In other words, the levy cannot be correlated to any services rendered or to be F rendered by the State to the class of persons from whom the levy is collected. Whether royalty is a tax or not, the cess is only a tax a·nd cannot be pr9perly described as a fee.

This consideration apart, even assuming it is a tee; the State legislature can impose a fee only in respect of any of the matters in the G State List. The entry in the State List that is· relied upon for this purpose is Entry 23. But Entry 23, it will be seen; is "subject to the provisions of List I with respect to regulation and development" of · mines and minerals _under the control of the Union. Under Entry 54 of List I, regulation of mines and mineral developtnent is in the field of Parliamentary legislation "to the extent to which such regulation and H · I

154 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

A development under the control of the Union is declared by Parliament by law to be expedient in the public interest". Such a declaration is contained in S. 2 of the M.M.R.D. Act, 1957, which has been set out ,_. earlier. It, therefore, follows that any State legislation to the extent it encroaches on the field covered by the M.M.R.D. Act, 1957, will be ultra Vires. The assessees contend, in this case, that the legislation in question is beyond the purview of the State legislature by reason of the enactment of the M.M.R.D. Act. It would appear,primafacie that the contention has to be upheld on the basis of the trilogy of decisions referred to at the outset viz. Hingir-Rampur, Tulloch and India Cement. They seem to provide a complete answer to this question. The argument is, however, dis.cussed at some length, because it has been put forward, mutatis mutandis, in support of the levy of cess by the other States as well.

Before dealing with the contentions of the counsel for the State in this behalf, a reference may be made to a difference in wording between Entry 52 and Entry 54 of List I. The language of Entry 52 D read with Entry 24 would suggest that, once it is declared by Parlia- ment by law that the control of a particular industry by the Union is expedient in the public interest, the State legislatures completely lose all competence to legislate with respect to such an industry in any respect whatever, Indian Tobacco Co. Ltd. v. Union, [1985) Supp. 1 S.C.R. 145. But, even here, there are judicial decisions holding that E such declaration does not divest the State legislature of the compe- tence to make laws the pith and substance of which fall within the entries in List II, (see for e.g. Kannan Dewan Hills Co. v. State of Kera/a, [1973) 1 S.C.R. 856 and Ishwari Khetan Sugar Mills Ltd. v. State of U.P., [1980) 3 S.C.R. 331 to which reference will also be made later, merely on the ground that it has some effect on such industry. F Compared to that of Entry 52, the language of Entry 54 is very guarded. It deprives the States of legislative competence only to the extent to which the law of Parliament considers the control of Union to be expedient in the matter of regulation of mines and mineral develop- ment. Emphasising this difference, learned counsel for the State of Orissa submits that the intent, purpose and scope of the M.M.R.D. G Act is totally different and does not cross the field covered by the impugned Act. It is a law to provide for the proper exploitation and development of minerals and regulates the persons to whom, the manner in which and procedure according to which licences for prospecting or leases for minerals should be granted. That enactment is concerned with the need for a proper exploitation of minerals from H lands. The impugned Act, on the other hand, concentrates on the need

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.l 155

for development of mineral areas as such and provides for the collec- A tion of cess to cater to these needs. The scope of the subject matter of legislation under the two Acts are entirely different and the M.M.R.D. Act cannot be considered to exclude State legislation of the nature presently under consideration.

Before considering the above contention, it will be useful to refer B to certain earlier decisions of this Court which have a bearing on this issue. State of West Bengal v. Union, [1964] 1 S.C.R. 371 concerned the validity of an Act of Parliament proposing to acquire certain coal bearing areas in the State qua certain areas vested in the State itself. While upholding the general right of Parliament to legislate for the acquisition of even property vested in a State, the Court pointed out that this could be done only if there is some provision in the Central c Act, expressly or necessarily implying that the property of the State is to be acquired by the Union. However, the Court held, when the requisite declaration under Entry 54 is made, the power to legislate for regulation and development of mines and minerals under the control of the Union, would, by necessary implication, include the power to acquire n1ines and minerals.

Baijnath Kedia v. State of Bihar, [1970] 2 S.C.R. 100 was a case arising out of a 1964 amendment to the Bihar Land Reforms Act,

1950. By section 10 of the 1950 Act, all the rights of former landlords or lessors under mining leases granted by them in their "estates" came to be vested in the State; but the terms and conditions of those leases were made binding upon the State Government. Under a second pro- viso to this provision and a sub-rule added by virtue of the. 1964 amendment, additional demands were made on the lessees, the vali- dity of which was challenged successfully before this Court. The Court, applying Hingir-Rampur and Tulloch held that the whole of the legislative field in respect of minor minerals was covered by Parliamentary legislation and Entry 23 of List II was to that extent cut down by Entry 54 of List I. The old leases could not be modified except .. by a legislative enactment by Parliament on the lines of S. 16 of the M.M.R.D. Act, 1957. G In State of Haryana v. Chanan Mal, [ 1976] 3 S.C.R. 688 the State Government had declared saltpetre as a minor mineral and auctioned saltpetre mines in the State under the M.M.R.D. Act, 1957 read with the Punjab Minor Minerals Concession Rules, 1964. In a writ petition filed by one of the owners, the High Court held, unless the mineral deposits were specifically mentioned in the wajib-ul-arz of the village H

156 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A as having vested in the State, their ownership would continue to remain vested in the former proprietors according to the record of rights. To meet this difficulty and the difficulties that had been created by haphazard leases created by the erstwhile proprietors, the State legislature passed the Haryana Minerals (Vesting of Rights) Act, 1973 and issued notifications thereunder again acquiring the rights to the B saltpetre in the lands putting up certain saltpetre-bearing lands to auction. The High Court upheld the challenge to the validity of the notifications holding that, in view of the declaration contained in S. 2 of the M.M.R.D. Act, the field covered by the impugned Act was already fully occupied by Central legislation and that, therefore, the State Act was void and imperative on grounds of repugnancy. This , Court, however, reversed the High Court's decision. It held that c though the stated objects and reasons of the State Act showed that the acquisition was to be made to protect the mineral potentialities of the land and to ensure their proper development and exploitation on scientific lines-and this did not materially differ from that which could be said to lie behind the Central Act-the character of the State Act D had to be judged by the substance and effect of its provisions and not merely by the purpose given in the Statement of Objects and Reasons. Analysing the provisions of the Central Act, the Court pointed out that, subject to the overall supervision of the Central Government, the State Government had a sphere of its own powers and could take legally specified actions under the Central Act and rules. In particular,

. E S. 16(l)(b) of the Central Act showed that Parliament itself contemp- lated State legislation for vesting of lands containing mineral deposits in the State Government, a feature that could be explained only on the assumption that Parliament did not intend to touch upon the power of State legislatures under Entry 18 of List II read with Entry 42 of List III. S. 17 also showed that there was no intention to interfere with F vesting of lands in the States by the provisions of the Central Act. The decision in Hingir-Rampur, Tulloch and Baijnath Kedia were disting- uished. In Chanan Mal (supra), the respondents relied upon certain observations in Hingir-Rampur and State of West Bengal v. Union, (supra). The Court, however, distinguished them saying:

G "In the two cases discussed above no provision of the Cent- ral Act 67 of 1957 was under consideration by this Court. Moreover, power to acquire for purposes of development and regulation has not been exercised by Act 67 of 1957. The existence of power of Parliament to legislate on this topic as an incident of exercise of legislative power on another subject is one thing. Its actual exercise is another.

ORISSA CEMENT v. STATE OF ORISSA iRANGANATHAN, J.l 157

It is difficult to see how the field of acquisition could become occupied by a Central Act in the same way as it had been in the West Bengal's case (supra) even before Parlia- ment legislates to acquire land in a State. Atleast until Parliament has so legislated as it was shown to have done by the statute considered by this Court in the case from West Bengal, the field is free for State legislation falling under the express provisions of entry 42 of List III".

Tulloch and Baijnath Kedia were also considered no longer applicable ' as Ss.16 and 17 of the M.M.R.D. Act, 1957 had been amended to get over the need for a parliamentary legislation pointed out in Baijnath Kedia. c A similar question whether the State legislature was competent to acquire certain sugar undertakings, when the sugar industry had become a "declared" industry under the provisions of Entry 52 of List I read with S.2 of the I.D.R. Act, arose for consideration in Ishwari -· Khetan Sugar Mills (P) Ltd. v. State of U.P., [1980) 3 S.C.R. 331. D Answering this question in the affirmative, the Court observed:

"The argument that the State legislature lacked com- petence to enact the impugned legislation is without force. Legislative power of the State under Entry 24, List II is eroded only to the extent control is assumed by the Union E pursuant to a declaration made by the Parliament in. respect of a declared industry as spelt out by the legislative enactment and the field occupied by such enactment is the measure of erosion. Subject to such erosion, on the remainder the State legislature will have power to legislate in respect of a declared industry without in any way trench- F ing upon the occupied field. State legislature, which is otherwise competent to deal with industry under Entry 24, List II, can deal with that industry in exercise of other powers enabling it to legislate under different heads set out in Lists II and III and this power cannot be denied to the State. G

The contention that the impugned Act is in violation of section 20 of the Central Act has no merit. The impugned legislation was not enacted for taking over the management or control of any industrial undertaking by the State under- takings. If an attempt was made to take over the manage- H

158 SUPREME COURT REPORTS [1991] 2 S.C.R.

ment or control of any industrial undertaking in a declared industry the bar of section 20 would inhibit exercise of such executive power. The inhibition of section 20 is on the executive power but if as a sequel to an acquisition of an industrial undertaking the management or control of the industrial undertaking stands transferred to the acquiring authority section 20 is not attracted. It does not preclude or forbid a State legislature exercising legislative power under an entry other than Entry 24 of List II and if in exercise of that legislative power the consequential transfer of management or control over the industry or undertaking follows as an incident of acquisition such taking over of management or control pursuant to an exercise of legisla- c tive power is not within the inhibition of section 20".

The decisions in the above two cases were, again, applied in Western Coalfields Ltd. v. Special Area Development Authority, [1982] 2 S.C.R. 1. Here the question was whether the enactment of the Coal D Mines Nationalisation Act, 1973 and the M.M.R.D. Act. 1957 pre- cluded the State legislature from providing for the levy of a property tax by the Special Area Development Authority, constituted under a 1973 Act of the State legislature, in respect of lands and buildings used for the purposes of and covered by coal mines. The plea on behalf of the appellant-coalfields was that the State Act was invalid (a) as it E encroached on the field vested in the Centre by reason of the declara- tion in S. 2 of the M.M.R.D. Act and (b) as it impeded the powers and functions of the Union under the Coal Mines Nationalisation Act, 1973 "-· which had been enacted by Parliament "for acquisition of coal mines with a view to reorganising and restructuring such coal mines so to ensure the rational, coordinated and scientific development and utili- F sation of coal resources as best to subserve the common good". Rejecting this contention the Court held:

"Apart from the fact that there is no data before us show- ing that the property tax constitutes an impediment in the achievement of the goals of the Coal Mines Nationalisation G Act, the provisions of the M.P. Act of 1973, under which Special Areas and Special Area Development Authorities are constituted afford an effective answer to the Attorney General's contention. Entry 23 of List II relates to "Regu- lation of mines and mineral development subject to the provisions of List I with respect to regulation and develop- H ment under the control of the Union". Entry 54 of List I

ORlSSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 159

relates to "Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest". It is true that on account of declaration contained in S. 2 of the Mines and Minerals (Development & Regulation) Act. 1957, the legislative field covered by Entry 23 of List II will pass on to Parliament by virtue of Entry 54, List I. But in order to judge whether, on that account, the State legislature loses its competence to pass the Act of 1973, it is necessary to have regard to the object and purpose of that Act and to the relevant provisions thereof, under which Special Area development Authorities are given the power to tax lands and buildings within their jurisdiction. We have set out the c objects of the Act at the commencement of this judgment, one of which is to provide for the development and administration of Special Areas through Special Area Development Authorities. Section 64 of the Act of 1973, which provides for the constitution of the special areas, lays down by sub-section (4). that: Notwithstanding anything contained in the Madhya Pradesh Municipal Corporation Act, 1956, the Madhya Pradesh Municipalities Act, 1961 or the Madhya Pradesh Panchayats Act, 1962, the Municipal Corporation, Municipal Council. Notified Area Committee or a Panchayat, as the case may be, shall, in relation to the special area and as from the date the Special Area Development Authority undertakes the functions under clause (v) or clause (vi) of Section 68 ceases to exercise the powers and perform the function and duties which the Special Area Development Authority is competent to exer- cise and perform under the Act of 1973. Section 68 defines the functions of the Special Area Development Authority, on~ of which as prescribed by clause (v), is to provide the municipal services as specified in sections 123 and 124 of the Madhya Pradesh Municipalities Act, 1961. Section 69, which defines the powers of the Authority, shows that those powers are conferred, inter a/ia for the purpose of municipal administration. Surely, the functions, powers and duties of Municipalities do not become an occupied field by reason of the declaration contained in section 2 of. the Mines and Minerals (Development & Regulation) Act,

1957. Though, therefore, on account of that declaration, the legislative field covered by entry 23, List II may pass H

160 SUPREME COURT REPORTS l 1991] 2 S.C.R.

on to the Parliament by virtue of Entry 54, List I, the competence of the State Government to enact laws for municipal administration will remain unaffected by our • declaration.

Entry 5 of List lI relates to ''Local Government, that is to say, the constitution and powers of municipal corporations and other local authorities for tile purpose of local self- Government". It is in pursuance of this power that the State legislature enacted the Act of 1973. The power to impose tax on lands and buildings is derived by the State Legislature from Entry 49 of List II: "Taxes on lands and buildings". The p()wer of the municipalities to levy tax on c lands and buildings has been conferred by the State Legis- lature on the Special Area Development Authorities. Those authorities have the power to levy that tax in order effectively to discharge the muqicipal functions which are passed on them. Entry 54 of List I does not contemplate the D taking over of municipal functions".

The Court pointed out that Murthy provided a complete answer to the above contention. Chanan Mal and lshwari Khetan, were referred to and Baijnath Kedia distinguished. The decision of the Madhya Pradesh High Court in Central Coalfieids v. State of M.P., A.LR. 1986 M.P. 33 E also arose out of similar facts: The question for consideration was whether the functions, powers and duties of Municipalities and Special Area Development Authority (SADA) become an occupied field by ~. -~-

virtue of S.2 of the MMRD Act, 1957 and the powers vested in them to regulate construction activities relating to mining areas was ultra vires. It was found that SADA had become the local authority to discharge F the functions of a municipal administration under a State Act and that the regulation of construction activities was one of the aspects of municipal administration and management. In this situation, the ques- tion posed was answered in the negative following lshwari Khetan, Western Coalfields and Chanan Mal.

G Placing considerable reliance on the decisions in Chanan Mal, lshwari Khetan and Western Coalfields, Sri Iyer contended that the State legislation in the present case is not vitiated by reason of the M.M.R.D. Act, 1957. He also pointed out that lndia Cement also does not consider in detail the reasonings in llingir-Rampur and Tulloch but only refers to certain observations in the dissenting judgrncnt of H Wanchoo J. (as His Lm'tlship then was) in the former case and urged

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.J 161

that the entire matter requires careful consideration. He submitted that Tulloch and Western Coalfields represent two lines of cases which . A ·-. need reconciliation and that this task has not been attemped at all in India Cement,

On the other hand, learned counsel for the respondents submit- ted that the authority of the Constituiion Bench in Western Coal- B fields-which endorsed Mutthy-should be considered weak after India Cement-which has overruled Murthy. the present case, it is > submitted, is closer to Baijnaih Kedia. It is submitted that the princi- ples of Tulloch have beeri referred to with approval in a number of cases [Karunanidhi, 1979-3 SCR 254 at 277] Hind Stone, [1981] 2 SCR 742 at 746, I. T. C., [1985} Suppl. SCR 145 at 168 and are too well settled to need any reconsideration. c It is cleat from a perusal of the decisions referred to above that the answer to the question before us depends on a proper.understand- ing of the scope of M.M.R.D. Act, 1957, and an assessment of the encroachment made by the impugned State legislation into the field D - covered by it. Each of the cases referred to above turned on such an appreciation of the respective spheres of the two legislations. As pointed out in lshwari Khetan, the mere declaration of a law of Parlia- ment that it is expedient for an industry or the regulation and develop- ment of mines and minerals to be under the control of the Union under Entry 52 or entry 54 does not denude the State legislatures of their legislative powers with respect to the fields covered by the several entries in List II or List ill. Particularly, in the case of a declaration under Entry 54, this legislative power is eroded only to the extent conirol is assumed by the Union pursuant to such declaration as spelt out by the legislative enactment which makes the declaration. The measure of erosion turns upon the field of the enactment framed in pursuance of the declaration. While the legislation in Hingir-Rampur and TU/loch was found to fall within the pale of the prohibition, those in Chanan Mai, Ishwari Khetan and Western Coalfields were general in nature and traceable to specific entries in the State List and did not encroach on the field of the Central enactment except by way of inci- dental impact. The Central Act, considered in Chanan Mal, seemed to envisage and indeed permit State legislation of the nature in question.

To turn to the respective spheres of the two legislations we are here concerned with, the Central Act (M.M.R.D. Act, 1957) demar- cates the sphere of Union .control in the matter of mines and mineral development. While concerning itself generally with the requirements H

162 SUPREME COURT REPORTS [1991] 2 S.C.R.

A regarding grant)! of licences and leases for prospecting and exploitation of minerals, it Cbntains certain provisions which are of direct relevance to the issue before us. S.9, which deals with the topic of royalties and • specifies not only the quantum but also the limitations on the enhance- ment thereof, has already been noticed. S.9A enacts a like provision in respect of dead rent. Reference may also be made to S.13 and S.18, B which to the extent relevant, are extracted here.

13 Power of Central Government to make rules in respect of minerals-

(I) The Central Government may, by notification in the Official Gazette, make rules for regulating the grant of c prospecting licences and mining leases in respect of mine- rals and for purposes connected therewith.

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

(i) the fixing and collection of fees for prospecting licences or mining leases. surface rent, security deposit, fines, other fees or charges and the time within which and the manner in which the dead rent or royalty shall be payable;' E xxx xxx xxx xxx xxx (m) the construction, maintenance and use of roads, ,, __.. power transmission lines, tramways, railways, aerial rope ways, pipe lines and the making of passages for water for mining purposes on any land comprised in a mining lease; F xxx xxx xxx xxx (qq) The manner in which rehabilitation of flora and other vegetation such as trees and the like destroyed by reason of any pmspecting a mining operations shall be made in the G ' Substituted by Act .l7 of 1986 for the original clause (i) which read: (i) the fixing and collection of dead rent, fines, fees or other charges and their collection of royalties in respect of- 1 i I prospecting licences, (ii) mining leases, H (iii) minerals, mines, quarried, excavated or collected".

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.[ 163

same area or in any other area selected by the Central A Government (whether by way of reimbursement of the cost of rehabilitation or otherwise) by the person holding the prospecting licence or mining lease···•·.

S. 18, which originally laid a duty on the Central Government to take all such steps as may be necessary "for the conservation and develop- B ment of minerals in India·· has been amended by Act 37 of 1986 to cover steps "for the conservation and systematic development of minerals in India and for the protection of environment by preventing or controlling any pollution which may be caused by prospecting or mining operations" and the scope of the rule-making power under S. 18(2) has likewise been enlarged. S. 25(1) reads thus: c "25(1) Any 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 prospecting licence or mining lease may, on a certificate of such effect as may be specified by the State Government in this behalf D by general or special order, be recovered in the same manner as an arrear of land revenue".

and sub-section (2) provides, further, that all such "rent, royalty, tax, fee" etc. shall be a first charge on the assets of the holder of the prospecting licence or mining lease as the case may be. E If one looks at the above provisions and bears in mind that, in assessing the field covered by the Act of Parliament in question, one should be guided (as laid down in Hingir-Rampur and Tulloch) not merely by the actual provisions of the Central Act or the rules made thereunder but should also take into account matters and aspects F which can legitimately be brought within the scope of the said statute, the conclusion seems irresistible, particularly in view of Hingir- Rampur and Tulloch, that the State Act has trespassed into the field covered by the Central Act. The nature of the incursion made into the fields of the Central Act in the other cases were different. The present legislation, traceable to the legislative power under Entry 23 or Entry 50 of the State List which stands impaired by the Parliamentary decla- G ration under Entry 54, can hardly be equated to the law for land acquisition or municipal administration- which were considered in the cases cited and which are traceable to different specific entries in List II or List 11 l. *Newly inserted by Act 37 of 1986. H

164 SUPREME COURT REPORTS I 1991] 2 S.C.R. Sri Iyer contended that the object and purposes of the Orissa A Act and its provisions were quite distinct and different from the objects and purposes of the Central Act with the result that the two enactments could validly coexist since they do not cover the same field. It was argued that the impugned Act was concerned with the raising of funds to enable panchayats and samithis to discharge their B responsibilities of local administration and take steps for proper development of the areas (including mining areas) under their jurisdic- tion whereas the Central Act was concerned not with any social purpose but merely with the development of the mineral resources of the country and as such the State legislation in this regard may also be treated as referable to Entry No.5 of the State List as the statute in Western Coalfields (supra). c As to the reliance on Entry 5 of List II, it is plainly too tenuous. As pointed out by Sri Bobde, there is a difference between the 'object' of the Act and its 'subject'. The object of the levy of the fees may be to strengthen the finances of local bodies but the Act has nothing to do with municipal or local administration. In this context, it may be pointed out that while S. 10 of the Orissa Act, as origi11ally enacted, provided for a distribution of the cess collected among local bodies, an amendment of 1970 restricted the utilisation of the cess partlv for primary education and partly for the above purpose. Even this was amended in 1976 whereafter there has been no restriction regarding the cess collected in respect of mining areas which form part of the consolidated fund of the State. The levy has, therefore, ceased to be capable of being described as a fee. Even if its purpose is only to levy a fee, the fee can be described only as one with respect to 'land' (Entry 18) if considered generally or with respect to mines and mineral development (Entry 23) if restricted to the nature of the issue before us. We shall discuss the relevance of Entry 18 later but, so far as Entry 23 is concerned, the State's legislative competence is subject to the field covered by the Central Act. Turning therefore to the distinction sought to be made between the respective areas of operation of the two Acts the answer to this contention is provided by Hingir Rampur. The Constitution Bench first set out the scheme of the impugned Act G thus:

"The scheme of this Act thus clearly shows that it has been passed for the purpose of the development of mining areas in the State. The basis for the operation of the Act is the constitution of a mining area, and it is in regard to mining H areas thus constituted that the provisions of the Act come

ORiSSA CEMENT v. STATE OF ORISSA [RANGANATliAN. J.] 165

into play. It is not difficult to appreciate the intention of the A State Legislature evidenced by this Act. Orissa is ari under- developed State in the Union of India though it has a lot of mineral wealth of great potential value. Unfortunately its mineral wealth is located generally in areas sparsely populated with bad communcatiohs. Inevitably the exploi- tation of the minerals is handicapped by lack of communi- g cations, and the difficulty experienced in keeping tlJX labour force sufficiently healthy and in congenial surround· ings. The mineral development of the State, therefore, requites that provision should be made for improving the communications by constructing good roads and by provid- ing means of transport such as tramways, supply of water and electricity would also help, It would also be necessary c to provide for amenities of sanitation and education to the labour force in order to attract workmen to the area. Before the Act was passed it aj>peats that the mihe owners ttied to put up small length roads and tramways for their own individual purpose, but that obviously could not be as b effective as roads constructed by the State and tramway service provided by it. It is on a consideration of these factors that the State Legislature decided to take an active part in a systematic development of its mineral areas which would help the mine owners in moving their minerals quickly through the shortest route and would attract labour E to assist the excavation of the minerals. Thus there can be no doul:it that the primary and the principal object of the Act is to develop the mineral areas in the State and to assist more efficient and extended exploitation of its mineral wealth". F A little iater, at page 559; the provisions of Central Act Lill of 1948 which were less far reaching than .those of the 1957 Act-as can be seen from the observations at page 476 of Tulloch-were analysed and the Court concluded:

"Amongst the matters covered by S. 6(2) is the levy and G ' · collection of royalties, fees or taxes in respect of minerals mined, quarried, excavated or collected. It is ttue that no rules have in fact been framed by the Central Goverhment in regard to the levy and collection of any fees; but, in out opinion, that would not make any difference. If it is heid that this Act contains the declaration referred to in Entry H'

166 SUPREME COURT REPORTS I1991] 2 S.C.R.

23 there would be no difficulty in holding that the declara- A tion covers the field of conservation and development of minerals, and the said field is indistinguishable from the field covered by the impugned Act. What Entry 23 provides is that the legislative competence of the State Legislature is subject to the provisions of List I with respect B of regulation and development under the control of the Union, the Entry 54 in List I requires a declaration by Parliament by law that regulation and development of mines should be under the control of the Union in public interest. Therefore, if a Central Act has been passed for the purpose of providing for the conservation and develop· ment of minerals, and if it contains the requisite declara- c tion, then it would not be competent to the State Legisla- . lure to pass an Act in respect of the subject matter covered by the said declaration. In order that the declaration should be effective it is not necessary that rules should be made or enforced; all that this required is a declaration by Parlia- D ment that it is expedient in the public interest to take the regulation and development of mines under the control of the Union. In such a case the test must be whether the legislative declaration covers the field or not. Judged by this test there can be no doubt that the field covered by the impugned Act is covered by the Central Act LIII of 1948". E The following observsations in Tulloch are also apposite in this context:

"On the other hand, Mr Setalvad-learned counsel for the respondent-urged that the Central Act covered the entire field of mineral development, that being the "extent" to which Parliament had declared bylaw that it was expedient that the Union. should assume control. In this connection he relied most strongly on the terms of s. 18( !) which laid a duty upon the Central Government "to take all such steps as may be necessary for the conservation and development of minerals in India and "for that purpose the Central • Government may, by notification, make such rules as it deems fit". If the entire field of mineral development was taken over, that would include the provision of amenities to workmen employed in the mines which was necessary in order to stimulate or maintain the working of mines. The H test which he suggested was whether, if under the power

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.} 167

conferred by s. 18(1) of the Central Act, the Central A Government has made rules providing for the amenities for which provision was made by the Orissa Act and if the Central Government had imposed a fee to defray the expenses of the provision of these amenities, would such rules be held to be ultra vires of the Central Government, and this particularly when taken in conjunction with the B matters for which rules could be made under s. 13 to which reference has already been made. We consider there is considerable force in this submission of learned counsel for the respondent, and thus would require very detailed and careful scrutiny. We are, however, relieved from this task of detailed examination and discussion of this matter because we consider that it is concluded by a decision of the c Court in the Hingir-Rampur Coal Co. Ltd & Ors. v. The State of Orissa & Ors., I1961] 2 S.C.R. 537

The above argument was accepted by the Court, vide page 476. Refe- rence may also be made here to the recent decision of this Court in D Bharat Coking Coal v. State of Bihar, I 1990] 2 Scale 256. The question whether the State of Bihar had the authority to grant a lease for lifting coal slurry coming out of the appellants' washeries and getting deposited on the river bed or other lands was answered in the nega- tive. The Court came to the conclusion that the 'slurry' was a 'mineral' and that its regulation was within the exclusive jurisdiction of Parlia- E ment. The Court, in coming to the conclusion, held that no rules had been framed under S. 18( 1) or 18(2)(k)-disposal or discharge of waste, slime or tailing arising from any mining or metallurgical opera- tions carried out but held that this was immaterial in view of the principles laid down in Hingir Rampur, Tulloch and Baijnath Kedia. These observations establish on the one hand that the distinction sought to be made between mineral development and mineral area development is not a real one as the two types of development are inextricably and integrally interconnected and, on the other, that, fees of the nature we are concerned with squarely fall within the scope of .i the provisions of the Central Act. The object of S. 9 of the Central Act cannot be ignored. The terms of S. 13 of the Central Act extracted earlier empower the Union to frame rules in regard to matters con- cerning roads and environment. S. 18(1) empowers the Central Government' to take all such steps as may be necessary for the conser- vation and development of 1ninerals in India ahd for protection of environment. These, in the very nature of things, cannot mean such amenities only in the mines but take in also the areas leading to and all H

168 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

A around the mines. The development of mineral areas is implicit in them. S. 25 implicitly authorises the levy of rent, royalty, taxes and fees under the Act and the rules. The scope of the powers thus confer- red is very wide. Read as a whole, the purpose of the Union control .. envisaged by Entry 54 and the M.M.R.D. 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 prices . Sri Bobde, who appears for certain Central Government undertakings, points out that the prices of their exports are fixed and ~- cannot be escalated with the enhancement of the royalties and that, if different royalties were to be charged in different States, their working would become impossible. There appears to be force in this submis- sion. As pointed out in India Cement, the Central Act bars an enhancement of the royalty directly or indirectly, except by the Union and in the manner specified by the 1957 Act, and this is exactly what the impugned Act does. We have, therefore, come to the conclusion that the validity of the impugned Act cannot be upheld by reference to Entry 23 or Entry 50 of List II.

An attempt was made to rest the legislation on Entry 18 of List II viz. 'land'. This attempt cannot succeed for the reasons which we have set out to negative the plea that it falls under Entry 49. A similar plea in Baijnath was rejected by Hidayatullah C.J. in the following words: E "Mr. L.N. Sinha argued that the topic of legislation con- cerns land and therefore falls under entry 18 of the State List and he drew our attention to other provisions on the subject of mines in the Land Reforms Act as originally passed. The abolition of the rights of intermediaries in the F mines and vesting these rights as lessors in the State Government was a topic connected with land and land tenures. But after the mining leases stood between the State Government and the lessees, any attempt to regulate those mining leases will fall not in entry 18 but in entry 23 G even though the regulation incidentally touches land. The .. pith and substance of the amendment to s. 10 of the Reforms Act falls within entry 23 although it incidentally touches land and not vice versa. Therefore this amendment was subject to the overriding power of Parliament as declared in Act 67 of 1957 in S. 15. Entry 18 of the State List, therefore, is no help". H

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.l 169

It will be seen that, if the levy in question cannot be described as a tax A on land, it cannot be described as fee with regard to land either.

For the reasons above mentioned, we hold that the levy of cess under S. 5 to 7 of the Orissa Cess Act, 1962 is beyond the competence of the State Legislature. B Bihar:

+ The relevant provisions of the Bihar statutes have been set out earlier. While S. 5 only lays down that all immovable property shall be liable to a local cess and S. 6 provides fat the levy to be based on the annual value of lands and sale value of other immovable properties, C · the latter section specifically enacts that the cess will be on royalty from mines and quarries and on the annual net profit of railways and tramways. The further amendments to S. 6 have not changed this basic position. Though the section refers also to the value of the mineral- bearing land, that furnishes only the maximum upto which the cess, based on royalty, could go. In other words, the cess is levied directly on royalties fro1n mines and quarries. 'fhe case is, therefore, indisting- uishable from India Cement. The notifications place the matter beyond all doubt. The levy is a percentage or multiple of the royalty depending upon the kind of mineral and-in the case of iron ore-the method of extraction and nature of the process employed. There are no clear indications in the statute that the amounts are collected by way of fee and not tax. The provisions of S.9 extracted earlier would indicate that only a small percentage goes to the district fund and the remaining forms part of the consolidated fund of the State "for the construction and maintenance of other works of public utility". How- , ever, the proviso does require at least ten per cent to be spent for purposes relating to mineral development. We shall, therefore, f assume that the levy can be treated, in part, as a fee and, in part, as a tax. But even this does not advance the case of the respondents for the reasons already discussed.

Sri Chidambaram submits that, in the original counter affidavit filed on behalf of the State, no case was sought to be made out that it G was a tax on land; the case was that it was a "tax on mineral rights''. He urged that, this being out of question because of India Cement (paras 23 and 30) a belated attempt is made to bring it under Entry 49. We do not need to discuss the contentions here in detail because tl],is is a clearer case of levy on royalty than in Orissa; and, for the reasons we have outlined in our discussion in regard to the Orissa Acts, this levy H

170 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

A has also to be declared invalid.

Sri Chidambaram also contended that the State cannot seek sustain the levy by relying on Art. 277 of the Constitution, in view of the fact that the cess is being levied since 1880. Article 277 is in these 8 terms: "Any taxes, duties, cesses or fees which, immediately before the commencement of this Constitution, were being lawfully levied by the Government of any State or by any municipality or other local authority or body for the purposes of the State, municipality, district or other local c area may, notwithstanding that those taxes, duties, cesses or fees are mentioned in the Union List, continue to be levied and to be applied to the same purposes until provi- sion to the contrary is made by Parliament by Jaw".

0 We think, as rightly contended by Sri Chidambaram that a reliance on Art. 277 will be misplaced for three reasons:

(a) The levy that is challenged is under S. 6, as amended in 1975, i.e. a post-constitution levy;

{b) S. 6, on its own language, is operative only "until provision • E to the contrary is made by the Parliament" and, as we have held that the field is covered by the M.M.R.D. Act, it supersedes the effect of S. 6 re: mineral lands; and

{1) The tax must be one which was lawfully levied by a H local authority for the purpose of a local area,

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 171

(2) the identity of the body that collects the tax, the area A for whose benefit the tax is to be utilised and the purposes for which the utilization is to take place continue to be the same, and

(3) the rate of the tax is not enhanced nor its incidence in 8 any manner altered, so that it continues to be the same tax".

4 It is obvious that if these tests were applied the attempt to sustain the tax on the basis of Art. 277 cannot succeed. Indeed, no such attempt was made before us. c We; therefore, hold that the levy of cess has to be struck down. It has also been brought to our notice that a Bench of two Judges of this Court has already allowed an appeal by an assessee from a judgment of the Patna High Court to the contrary viz. CA No. 1521of1990. It has been brought to our notice also that the Patna High Court has recently 0 invalidated the levy of the cess in Central Coalfields Ltd. v. State, (CWJC 2085/89 and connected cases) in a judgment dated 6.11.90, following India Cement.

Madhya Pradesh: E We now turn to the provisions of Madhya Pradesh Act 15 of

1982. We are concerned only with Part IV which levies a cess not on land in general which could be referred to Entry 18 or Entry 49 but only on land held in connection with mineral rights which, in the State, are principally in regard to coal and limestone. Under S. 9 the pro- ceeds are to be utilised only towards the general development of mineral-bearing areas. Although there is no provision for the constitu- tion of a separate fund for this purpose as is found in relation to the cesses levied under Part II or Part III of the Act this considerations alone does not preclude the levy from being considered as a fee: vide, . Srinivasa Traders v. State, [1983] 3 S.C.R. 843 at 873. The clear ear-marking of the levy for purposes connected with development of mineral areas was considered by the High Court, in our view rightly, sufficient to treat it as a fee. However, the High Court pointed out, such fee would be referable to item 23 and, hence, out of bounds for the State Legislature, after the enactment of the M.M.R.D. Act, 1957. For the reasons which have already been discussed in relation to the Orissa Statute, we uphold this conclusion. H

172 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A , The other statute viz. the Madhya Pradesh Upkar Adhiniyam (Act 1 of 1982) came up for the consideration of a Full Bench of the Madhya Pradesh High Court in M.P. Lime Manufacturers' Association ~, v. State, (and connected cases) in AIR 1989 M.P. 264. The Full Bench held that, in view of s. 12 of the Act having been deleted by the 1989 amendment, the levy under s. 11 of the Act ceased to be a fee and B become a tax. It held further that the levy was not covered by Entry 49 or Entry 50 of List II and was, therefore, ultra vires. It observed:

"It is significant to note that cess is not imposed on all land and that it is not dependent either on the extent of the land held in connection with mineral rights or on the value thereof. The subject-matter of tax, therefore, is major c mineral raised from the land held in connection with mineral right. If no minerals are raised, tax is not leviable. The tax is not dependant on the extent of the land held in connection with mineral rights. It is not a case where al] land is liable to paymel)t of cess, that t]le liability is asses- D sed on the basis of the value of the land and that the measure of the tax in so far as land held under a mining lease is concerned, is the value of the minerals produced. Under the impugned Act, value of the land or of the mine- rals produced does not play any part in the levy of cess. The quantity of major minerals produced from the land E determines the liability to pay tax. In these circumstances, the impugned levy cannot be held to be a tax on land which is covered by Entry 49 of the State List.

After distinguishing Ajay Kumar Mukherjea v. Local Board, AIR 1965 SC 1561 and referring to Union v. Bombay International Ltd., F AIR 1984 SC 420 the Court concluded:

"The character of impost in the instant case is that though in form it appears to be a tax on \and, in substance, it is a tax on minerals produced therefrom. The subject-matter of tax is, therefore, not covered by Entry 49 of the State .. G List."

As for Entry 50, after referring Hingir Rampur, the Court observed:

"Now from a perusal of S. 11 of the Act, it would be clear that in the instant case by the charging section, tax is not imposed on the mineral rights of every holder of mining

ORJSSA CEMENT v. STATE OF ORJSSA !RANGANATHAN, J.l 173

lease. The tax is levied on minerals produced in land held under mining lease. In these circumstances, the tax levied by the Act cannot be held to be a tax covered by Entry 50 of List II of the Seventh Schedule to the Constitution. In our opinion, therefore, it has not been shown that the State Legislature is competent to levy the impugned cess." B This conclusion is obviously correct in the light of our earlier discus- sion. The court, however, expressed an opinion, in paras 10 to 12 of the judgment, that in case the levy could be treated as a tax imposable under Entry 49 or 50 of List II in the Second Schedule to the Constitu- tion, such power "has not been taken away by the provisions of the MMRD Act". We think, as already pointed out by us that though the c MMRD Act, 1957, unlike s. 6(2) of the 1948 Act, does not contain a specific provision for the levy of taxes, s. 25 of the former does indicate the existence of such power. The above observations of the High Court, therefore, in our view, do not attach sufficient importance to s. 25 of the MMRD Act and the field covered thereby. This aspect, however, is not of significance in view of the conclusion that the tax is not referable to Entry 49 or Entry 50.

We may add that a Bench of this Court has already dismissed the State's petition for leave to appeal from the judgment of the Full Bench (S.L.P. 10052/89, 12696/84 etc. disposed of on 5.2.90) in limine as squarely covered by India Cement. It is brought to our notice that the Madhya Pradesh High Court, after India Cement, has reaffirment its conclusions in Hirata/ and M.P. Lime Manufacturers' Association in Ankur Textiles and Another v. South Eastern Coalfields, (M.P. No. 1547 of 1990) in the light of India Cement.

THE REFUND ISSUE F

Having thus concluded that the levy of cess under the Orissa, Bihar and Madhya Pradesh enactments is invalid, it becomes necessary to consider the logical consequences of such a conclusion. Prima facia it would seem that the levy should be considered bad since its incep- tion and that all cess levied under the impugned provisions should be G directed to be refunded to the assessees, particularly in view of Article 265 of the Constitution. For the States, however, reliance is placed on the following observations in para 35 of the judgment in India Cement to contend to the contrary. Towards the conclusion of his judgment, Sabyasachi Mukherjee, C. J. dealt with this issue thus: H

174 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

"Mr. Krishnamurthy Iyer, however, submitted that, in any A event, the decision in H.R.S. Murthy case was the decision of the Constitution Bench of this Court. Cess has been realised on that basis for the organisation of village and town panchayats and comprehensive programme of measures had been framed under the National Extension.of B Service Scheme to which our attention was drawn. Mr. Krishnamurthy tyer further submitted that the Directive Principles of State Policy embodied in the Constitution enjoined that the State should take steps to organise village panchayats and endow them with power and authority as may be necessary to enable them to function as units of self-government and as the amounts have been realised on c that basis, it at all, we should declare the said cess on royalty to be ultra vires prospectively. In other words, the amounts that have been collected by virtue of the said pro- visions, should not be declared to be illegal retrospectively and the State made liable to refund the same. We see good D deal of substance in this submission. After all, there was a decision of this Court in H.R.S. Murthy case and amounts have been collected on the basis that the said decision was the correct position. We are, therefore, of the opinion that we will be justified in declaring the levy of the said cess to be ultra vires the power of the State Legislature prospec- E tively only".

Relying on the above observations, it is submitted for the States that they should not be directed to refund a cess which they have been levying for several years in the past on the basis of the law declared by the Supreme Court in Murthy. Certain other circumstances have also F been brought to our notice in this connection:

(i) Several States have proceeded on the basis that they are entitled to levy a cess of the nature in question. In addition to the States referred to earlier in the judgment, Ra jasthan and Andhra Pradesh have also similar statutes. " G (ii) The levy accounts for a substantial part of the St~tes' finances particularly in States which are rich in minerals. Fore .g. State of Madhya Pradesh accounts for a good percentage of this country's mineral resource. It produces 26.53% of the country's production in limestone, 36% in dolomite, 28. 14% in coal, H 21.5% in iron ore, 13% in bauxite, 21.38% in Manganese ore,

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.] 175

14.43% in rock phosphate, 33% in copper ore and so on. The A amounts of cess run to several crores. A direction to refund the >- cess collected thus far will result in crying halt to all developmen- tal activities initiated and put through and cause irreparable loss to the State.

The above request was vehemently opposed by the assessees' D counsel. Presenting their case on this issue, Sri Nariman (appearing for the appellants in C.A. 4353-4 of 1983 and C.A. 2053-80 of 1980) con- tended that we should ignore the dicta in para 35 of India Cement as per incuriam. He submitted, first, that the Court there has acted on the assumption that a doctrine of prospective overruling had been enun- ciated in Golaknath, [1967] 2 SCR 762. Analysing the various judg- E ments delivered in that case, he submitted that, while Subba Rao C.J. . --"' and four other judges (pp. 805-813) approved of the applicability of this doctrine in India, five other judges spoke against it (pp. 890, 897, 899-922, 921 and 952) and the eleventh judge was neutral (p. 948). He, therefore, submitted that the judges who decided Golaknath were equally divided on the issue and so there is no ratio decidendi of the F Court binding on us: Second, he submitted that the doctrine of prospective overruling was evolved by the Supreme Court of the United States in the absence of any constitutional provision militating against it, vide: Sunburst 77 L.Ed. 310 (at page 366) and Linkletter, 14 L.Ed. (2d) 601 (at page 604-8). In India, however, the application of the doctrine, particularly in the context of an issue regarding the vali- G dity of a tax levy, would run counter to specific provisions contained in Articles 246 and 265 of the Constitution. Where the Court finds that a legislation is beyond the competence of the concerned legislature, it stands uprooted altogether because Articles 246 and 265 say so. There is no scope for, and no room for the exercise of any discretion by, the Court to say that, these articles of the Constitution notwithstanding, they H

176 'SUPREME COURT REPORTS [1991] 2 S.CR.

iA would treat the legislation to be valid for a certain period or for certain purposes. Third, he submitted that the above objection cannot be "circumvented" by a resort to Article 142. Sri Nariman referred us in .~.

this context to the observations in the following decisions of this Court:

B Re: Article 246

Pesikaka 1955-1SCR613 at pp. 652, 654, 656 Chamarbaugwala 1957 SCR 930 at p. 940 Sundararamier & Co. 1958 SCR 1422 at pp. 1468-1474 c WestRamnad 1963-2 SCR 747 at p. 764 M.L. Jain 1963 Supp. I SCR 912 at pp. 530-41

Re: Article 265

D Moopil Nayar 1961-3 SCR 77 at p. 89 Balaji 1962-2 SCR 983 at p. 996 Ghottachan · 1962 Supp. 2 SCR I at pp. 29-30 Bakshi Singh 1963-1 SCR 220 at p. 233 E Re: Article 142

Garg 1963 Suppl. I SCR at pp. 896-8 I -

It is submitted, relying on Mahabir KL,hore & Ors. v. State of Madhya Pradesh, (1989] 4 SCC 1 that a refund is the automatic and inevitable consequence of the declaration of invalidity rmd should be granted ,--~

provided a suit within the period of limitation or a writ for declaration and consequential relief is filed.

Supplementing the above arguments, Sri G. Ramaswamy, ~ appearing for some of the assessees, contended that there can be no question of the Court exercising any discretion under Article 142 so as to destroy a fundamental right of the assessees. Learned counsel also submitied that considerations of hardship of the States, in case they are called upon to refund hu_ge amounts, can be no relevant considera- tion at all. He urged, that in some at least of the cases here, there is no averment, much less evidence, of any irreparable hardship that is likely to result if a refund is orJer•od. He also pointed out that, in the

ORISSA CEMENT v. STATE OF ORISSA IRANGANATHAN, J.] 177

converse situation where a retrospective levy is held to be valid, asses- A sees have been held entitled to no relief from payment of back duty on grounds of hardship: vide, Chhotabhai Jethabhai Patel & Co. v. Union of India, [ 1962] 2 Supp. SCR 1 at Pp 12, 13 and urged that there cannot be a different rule for the State. Sri B. Sen submitted that the ruling in Murthy could not be invoked to seek prospective invalidation as, at least so far as Orissa was concerned, as the decision in Tulloch had B clearly defined the limitations on the State's power to make such levies. -J In addition to the above general arguments, reliance had also been placed by the assessees on ·certain specific interim orders passed [<"~ in these cases and it has been contended that these orders should be given effect to, or at least taken into account, in deciding the issue of c the final relief to be granted. It is, therefore, necessary to refer to these orders:

(i) In C.A. Nos. 4353-4 of 1983, there is no interim order staying recovery of the cess at all except of the arrears for the period from D J .1. 1983 to 31.3. 1983 and even this was made subject to the furnishing of a bank guarantee by the assessee.

(ii) In C.A. 2053-80 of 1980 there was initially (on 2.2.1981) an order of stay oi recovery of cess on the furnishing of bank guarantees. But this was later substituted by an order of 25.3.1983 by which the E amounts of cess were to be deposited in the High Court every quarter -·· and then withdrawn by the State but this was on the undertakin•g by the State's Advocate General to refund the amo.unt "if deposited, in the event the appeal succeeds". This continued till 30.1.90 when the Counsel for the State of Orissa undertook, in view of the decision in India Cement, Jhat the levy of the cess for the quarter ending F December 1989 onwards will not be enforced until further orders. Presumably, therefore, there has been no collection of cess in Orissa since that period . ., . (iii) The position in the Orissa case of Orient Paper & Industries Ltd. .• , is somewhat different. It is pointed out that when the levy of cess first G .c came into force w.e.f. 1.4.1977, the Western Coalfields Ltd. who sup- plied coal to the assessees had challenged the levy of cess by a writ petition and obtained an interim injunction order but eventually with- drew the writ petition. But, simultaneously, the said company wrote to the assessee that the amounts of cess (which were coliected from the ~ assessee) would be kept in a suspense account and that, after a deci- H

178 SUPREME COURT REPORTS [1991] 2 S.C.R.

A sion is rendered by a court of law, it will be decided whether they should be deposited with the State against cess or should be refunded to the assessees. It was made clear that, in case the levy of cess is held invalid, "there will be no hitch in refunding the amount". This arrangement went on between 1977 and 1982.

B On 21.9.1982, the assessee filed a writ petition challenging the levy as it was enahanced from 25% to 100% from 1.4.1980. An interim stay was granted by the High Court restricted to the enhanced demand but even this was vacated by the High Court on 13.5.1983 in view of the decision in Lakshmi Narain Agarwala v. State, AIR 1983 Orissa 210 that the levy was valid. Finally, the High Court by its judgment dated C 22.12.1989 followed India Cement and allowed the writ but directed that the collections so far made shall be allowed to be retained by the State as was directed by the Supreme Court in the case of India Cement (supra). This judgment is the subject matter of SLP 1479 of 1990 by the State.

D The assessee thereupon filed a review petition in regard to the above direction contending; (a) that a High Court had no jurisdiction to declare provision to be unconstitutional only "prospectively"; (b) that the cess in the case had been collected only by Western Coalfields Ltd. and had not been deposited in the State coffers; and (c) that the principle of 'unjust enrichment' should equally apply to the State E which should not be permitted to enrich itself by the levy of an illegal exaction. The application for review was dismissed by the High Court on 13.7.90. Thereupon the assessee has preferred the unnumbered SLP o( 1990 and SLP 11939 of 1990 respectively against the original judgment dated 22.12.1989 and the order on the review petition dated · 13.7.1990. F It is contended that the High Court, having regard to the :ir- cumstances set out earlier, sbould have directed a refund of the 1.ess collected. It is stated that, subsequently, Western Coalfields have ~·aid over the amounts of cess to the Government [vide, orders of this Cc urt referred to in sub para (v) below]. It is also submitted that the m er- ,. G ments by the State now made that the amounts collected have b·,en utilised by the S.tate on objects enumerated in Part IV of the Const tu- tion are the result of an afterthought and are being put forward to defeat the rightful entitlement of the assessee to the refund.

(iv) In the Bihar case, there was an interim order on 10.2.1986 to ·he following effect:

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, l.l 179

"On the stay application there will be no stay of recovery of cess but in case appellants succeed in appeal in this Court, • the excess amount so recovered will be paid to the appel- !ants with interest at the rate of 12% from the date of recovery''

This was modified on 30.1.90 in view of the judgment in lndia Cement B which had been delivered by this time, and it was directed that the State of Bihar should not also enforce any demand for cess for the 7 quarters ending December, 1989 and thereafter until further orders. Presumably, therefore, there has been no levy of cess in Bihar from the last qua.rter of 1989 onwards. Counsel for the assessees from Bihar-Sri Chidambaram and Sri Shanti Bhushan stated that they seek compliance with the order dated 10.2.86 and would not insist on c refund of cess collected earlier to that date.

(v) Turning to the Madhya Pradesh matters, the position is this. The High Court, by its judgment dated 28.3. 1986 held the levy to be ~ invalid. In C.A. 1640 to 1662 of 1986, the initial order passed on D .., 2.5.1986 was this: r •· "There will be stay of refund of the cess already collected pending disposal of the appeals. Learned counsel for the State states that, in the event of the appeals being dismis- sed the State is prepared to pay interest at 12% per annum. E There will, however, be no stay of operation of the ~-' judgment."

As a result of the order, there should have been no collection of cess by the State subsequent to the date of the judgment and the only issue could have been regarding the refund of the cess already collected from 1982 to 28.3.1986.

However, the Western Coalfield Ltd. approached the Court with an application in one of the appeals (viz. C.A. 1649/86) prayin_g that, "l pending disposal of the appeals, it should be permitted to collect the amount of cess and deposit the same in a separate account in the Bank G vis-a-vis each of its customers. This application was ordered on 1.8.86. When this order was passed, the State Government moved an applica- tion praying that, instead of the monies being kept in deposit in bank account by Western Coalfields Ltd., it will be conducive to public interest if the State is permitted to utilise the moneys "in mineral areas development programmes" and that the State would abide by such H

180 SUPREME COURT REPORTS [ 1991] 2 S.C .R.

A terms as the Court may impose at the time of final decision. It 1as, therefore, prayed that the Western Coalfields should be directe l to deposit the amounts collected by it to the State Government. fhe ' Court found this request reasonable and passed the following ord< r on 15.10.86:

B "The order dated 1.8.86 passed in the above appe 11 is modified as follows:

The amount deposited by the Western Coal! ields Ltd. in a separate account in the Bank in accordance with the directions issued by this Court on 1.8.1986 shall be paid to the State Government of Madhya Pradesh. In the ·:vent c of the State Government failing in this appeal, the an ount received by the Madhya Pradesh Government unde · this order shall be refunded by that Government within :hree months from the date of the judgment to the W1 stern Coalfields Ltd. with inters! at 12 % per annum to disb1 rse it in favour of those who had paid it, subject to such tirec- tions which this Court may give in its judgment. 'Ihe amount received by the Madhya Pradesh State Govern- ment shall be spent in accordance with the provsions con- tained in the impugned Act."

E, Fresh applications were filed by the State in a number of the other appeals seeking similar directions as in C.A. 1649/86 but the record does not show that any such orders were passed in appeals other than r-, C.A. 1649/86. However, it seems that, in the case of coal, the cess is being collected by Western Coalfields Ltd. and other like public sector organisations (which are subsidiaries of Coal India Ltd.) from all their f customers and passed on to the State not only in Madhya Pradesh but also in Orissa (as indicated in sub-para [iii) above), apparently on the understanding that it should be refunded by the concerned State Government with interest in case the levy is ultimately held invalid. Sri Bobde, appearing for the Western Coalfields, made it clear that this company would abide by the directions of this Court, in so far as the amounts of cess collected by it remain with it or are directed to be ' refunded by the State Government to it.

We have given our earnest consideration to these contentions and we are of opinion that the ruling in India Cement concludes the issue. There the Court was specifically called upon to consider an argument that, even if the statutory levy should be found invalid, the

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.[ 181

Court may not give directions to refund amounts already collected and the argument found favour with the bench of seven Judges. We are bound by their decision in this regard. It is difficult to accept the plea that, in giving these directions, the Court overlooked the provisions of Articles 246 and 265 of the Constitution. The Court was fully aware of the position that the effect of the legislation in question being found beyond the competence of the State legislature was to render it void ah il initio and the collections made thereunder without the authority of law. Yet the Court considered that a direction to refund all the cesses collected since 1964 would work hardship and injustice. The direc- tions, now impugned, were given in the interests of equity and justice after due consideration and we cannot take a contrary view.

In our view, we need not enter into a discussion on the principles c of prospective validation enunciated by at least some of the Judges in Golaknath (supra) as the direction in' India Cement can be supported on another well settled principle applicable in the area of the writ jurisdiction of Courts. We are inclined to accept the view urged on behalf of the State that a finding regarding the invalidity of a levy need not automatically result in a direction for a refund of all collections thereof made earlier. The declaration regarding the invalidity of a provision and the determination of the relief that should be granted in conseqence thereof are two different things and, in the latter sphere, the Court has, and must be held to have, a certain amount of discre- tion. It is a well-settled proposition that it is open to the Court to grant, mould or restrict the relief in a manner most appropriate to the situation before it in such a way as to advance the interests of justice. It will be appreciated that it is not always possible in all situations to give a logical and complete effect to a finding. Many situations of this type arise in actual practice. For instance, there are cases where a Court comes to the conclusion that the termination of the services or an employee is invalid, yet it refrains from giving him benefit of "rein- statement" (i.e. continuity in service) on "back wages''. Jn such cases, the direction of the Court does result in a person being denied the benefits that should flow to him as a logical consequence of a declara- tion in his favour. It may be said that, in such a case, the Court's direction does not violate any fundamental right as happens in a case like this where an "illegal" exaction is sought to be retained by the State. But even in the latter type of cases relief has not been con- sidered automatic. One of the commonest issues that arose in the context of the situation we are concerned with is where a person affected by an illegal exaction files an application for refund under the provisions of the relevant statute or files a suit to recover the taxes as H

182 SUPREME COURT REPORTS I 1991] 2 S.C.R.

A paid under a mistake of law. In such a case, the Court can grant relief only to the extent permissible under the relevant rules of limitation. Even if he files an application for refund or a suit for recovery of the taxes paid for several years, the relief will be limited only to the period in regard to which the application or suit is not barred by limitation. If even this instance is sought to be distinguished as a case where the B Court's hands are tied by !imitations inherent in the form or forum in which the relief is sought, let us consider the very case where a petitioner seeks relief against an illegal exaction in a writ petition filed under Article 226. In this situation, the question has often arisen whether a petitioner's prayer for refund of taxes collected over an indefinite period of years should be granted once the levy is found to be illegal. To answer the question in the affirmative would result in ' c discrimination between persons based on their choice of the forum for relief, a classification which, prima facie is too fragile to be considered a relevant criterion for the resulting discrimination. This is one of the reasons why there has been an understandable hesitation on the part of Courts in answering the above question in the affirmative, D The above aspect of the matter has been considered in several decisions of this Court. In State of Madhya Pradesh v. Bhai/al Bhai & Ors., [ 1964] 6 SCR 261 the respondents who were dealers in tobacco in the State of Madhya Bharat filed a writ petition under Article 226 of the Constitution for the issue of writ of mandamus directing the refund of sales tax collected from them on the ground that the impugned tax was violative of Article 30l(a) of the Constitution and that they had paid the same under a mistake of law. It was contended on behalf of ). the State that even if the provision violated the fundamental rights, the High Court should not exercise its discretionary power of issuing a writ of mandamus directing refund since there was unreasonable delay in filing the petition. This contention of the State was rejected by the High Court but on further appeal this Court took a different view. While agreeing that the Courts have the power, for the purposes of enforcement of fundamental rights and statutory rights, to give a con- scq uential relief by ordering repayment of any money realised by the Government without authority of law, the Court said: G "At the same time we cannot lose sight of the fact that the special remedy provided under Article 226 is not intended to supersede completely the modes of obtaining relief by an action in a civil court or to deny defences ligitimately open in such actions. It has been made clear more than once that the power to give relief under Article 226 is a discretionary

ORISSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.J 183

power. This is specially true in the case of power to issue writs in the nature of mandamus. Among the several. matters which the High Courts rightly take into considera- tio!l in the exercise of that discretion is the delay made by the aggrieved party in seeking the special remedy and what excuse there is for it. Another matter which can be rightly taken into copsideration is ths nature of the facts and law that may have to be decided as regards the availability of consequential relief. Thus, where, as in these cases, a person comes to the Court for relief under Article 226 on the allegations that he has been assessed to tax under a void •' legislation ani:f having paid it under a mistake is entitled to get it bac!<, if it the Court, finds that the assessment was void, being made under a void provision of law, and the payment was made by mistake, it is still not bound to exer- cise its discretaio11 directing repayment. Whether repay- ment snou\d be ordered in the exercise of this discretion will depend in each case on its 9wn facts and circumstances. It is not easy nor is it desirable to lay down any rule of universal application. It may however be stated as a general rule tna! if there )Jas been unreasonable delay, the Court ought not oqlinarily to lend its aid to a party by this extraordinary remedy of mandamus".

1953. A writ petition \"as filed by the petitioners contending that S, 21(4) infringed Artic\es 19[10(f)l and 265 of the Constitution and, hence, they were not liable to repay the amount. This was dismissed on the ground that they had defrauded their customers and, therefore, -------·-- not entitled to any relief even if there was a violation of fundamental rlg)Jts. A!l appeal to a Division Bench was also dismissed. Sub- sequently, when coercive proceedings were taken for recovering the amounts as arrears of land revenue, the petitioners paid the amoupts H

184 SUPREME COURT REPORTS I 1991] 2 S.C.R.

in 1959-60. Much later, there was a decision of this Court striking down the correspondng provision of the Bombay Sales Tax Act 1946 as ultra vires. The petitioners thereupon filed a writ petition under Arti- cle 32 of the Constitution claiming a refund of the amounts paid by them in consequence of the recovery proceedings. It was held by four of the five learned J u<lges of this Court that the writ petition should be dismissed on the ground of !aches. Chief Justice Hidayatullah held that though Article 32 gives the right to move the Court by appropriate proceedings for enforcement of fundamental rights and the State can- not place any hindrance in the way of an aggrieved person, once the matter reached this Court, the extent or manner of interference was for the Court to decide. The learned Chief Justice pointed out that this C Court had put itself in restraint in the matter of petitions under Article

32. For example, if a party had already moved High Court under Article 226, this Court would refuse to interfere. Similarly, in inquring into belated and stale claims, this Court should take note of evidence of neglect of the petitioner's own rights for a long time or of the rights of innocent parties which might have emerged by reason of the delay. D It was not possible for this Court to lay down any specific period as the ultimate limit of action and that each case will have to be considered -· J.-. on its own facts. On the facts of the case before it, the majority found that the petitioner had by his own conduct abandoned his litigation years ago and could not be permitted to resume it several years later merely because some other person had got the statute declared uncon- E stitutional. While Hidayatullah C.J. was of the view that the Court should not, on the facts of the case, apply the analogy of the article in the Limitation Act in cases of mistake of law give relief, Bachawat and Mitter JJ. felt that even for a writ petition the limitation period fixed for a suit would be a reasonable standard for measuring delay. Sikri J. and Hegde J. dissented. Sikri J. was of the view that on the facts of the case there was no delay but that the period under the Limitation Act )! should not be applied to such cases and that a period of one year should be taken as the period beyond which the claim would be con- sidered a stale claim unless the delay is explained. "Such a practice", the learned Judge observed, "would not destroy the guarantee under Article 32 because the article nowhere lays down that a petition however late, should be entertained. Only Hegde J. was emphatic that !aches or limitation should be no ground to deny relief. The learned Judge observed (for brevity, we quote from head note):

"Since the right given to the petitioners under Article 32 is itself a fundamental right and does not depend on the dis- H cretionary powers of this Court, as in the case of Article

OR!SSA CEMENT v. STATE OF ORISSA [RANGANATHAN, J.I 185

226, it is inappropriate to equate the duty imposed on this A Court to the powers of Chancery Court in England or the equitable jurisdiction of Courts in the United States. The ·fact that the petitioners have no equity in their favour is an irrelevant circumstance in deciding the nature of the right available to an aggrieved party under Article 32. This Court is charged by the Constitution with the special B responsibility of protecting and enforcing the fundamental rights, and hence ]aches on the part of an aggrieved party cannot deprive him of his right to get relief under Article

32. In fact, law reports do not show a single instance of this Court refusing to grant relief on the ground of delay. If this Court could refuse relief on the ground of delay, the power of the Court under Article 32 would be a discretionary c power and the right would cease to be a fundamental right. The provisions contained in the Limitation Act do not apply to proceedings under Articles 226 and 32 and il' these provisions of the Limitation Act are brought in indirectly to control the remedies conferred by the Constitution. it would be a case of Parliament indirectly abridging the • fundamental rights which this Court, in Golaknath's case. [1967] 2 S.C.R. 752 held that Parliament cannot do. The fear that forgotten claims and discarded right against Government may \Je sought to be enforced after the lapse of a number of years if fundamental rights are held to be enforceable without any time limit, is an exaggerated one, for, after all, a petitioner can only enforce an existing right."

The above principles have been applied in several subsequent cases: Ramchandra Shankar Deodhar v. Staie of Maharashtra, [1974] 2 SCR F 216; Shri Vallabh Glass works Ltd. v. Union of India, [1984] 3 SCR 180; State of M.P. v. Nandlal Jaiswal, [ 198\i] 4 SCC 566; D. Cawasji & Co. v. State of Mysore, [1975] 2 SCR 511 and Salonah Tea Co. Ltd. v. Superintendent of Taxes;[ 1988] I SCC 40 I.

The above cases no doubt only list situations where directions for G refund have been refused, or considered to be liable to be refused, on grounds of unreasonable delay or !aches on the part of the petitioners in approaching the Court in the interests of justice and equity. The importance of these cases, however, lies not in the grounds on which refund has been held declinable but because they lay down unequivoc- ally that the grant of refund is not an automatic consequence of a H

186 SUPREME COURT REPORTS [1991] 2 S.C.R.

A declaration of illegality. Once the principle that the" Court has a discre- tion to grant or decline refund is recognised, the ground on which such discretion should be exercised is a matter of consideration for the (. Court having regard to all the circumstances of the case. It is possible that a direction for refund may be opposed by the State on grounds other than !aches or limitation. To give an instance; in recent years, B the question has often arisen whether a refurtd could be refused on the ground that the person who seeks the refund has already passed on the burden of the "illegal" tax to others and that to grant a refund to him would result in his "unjust enrichment". Some decisions have sug- gested a solution of neither granting a refund nor permitting the State to retain the illegal exaction. This issue has been referred to a larger Bench of this Court and it is not necessary for us to enter into that c question here. So far as the present cases are concerned, it is sufficient to point out that all the decided cases unmistakably show that, even where the levy of taxes is found to be unconstitutional, the Court is not obliged to grant an order of refund. 1t is entitled to refuse the prayer for good and valid reasons. Laches or undue delay or intervention of third party rights would clearly be one of those reasons. Unjust enrich- ment of the refundee may or may not be another. But we see no reasoh why the vital interests of the State, taken note of by the learned judges in India Cement should not be a relevant criterion for deciding that a refund should not be granted. We are, therefore, unable to agree with the learned counsel for the petitioners that any different criterion should be adopted and that the direction in paragraph 35 of India Cement should not be followed in these cases

For the reasons discussed above, we are of opinion that, though the levy of the cess was unconstitutional, there shall be 110 direCtion to refund to the assessees of any amounts of cess collected until the date on which the levy in question has been declared unconstitutional. This, in regard to the Bihar cases, will be the date of this judgment. In respect of Orissa, the relevant date will be 22.12.1989 on which date; the High Court, following India Cei:nent declared the levy by the State Legislature unconstitutional. In respect of Madhya Pradesh, the relevant date will be the date of the judgment in Hirata/ Ramswarup G and connected cases (viz. M.P. 410/83 decided on 28.3.1986) in respect of the levy under State Act 15 of 1982. Though there are the dates of the Judgment of the appropriate High Court, which may not consti- tute a declaration of law within the scope of Article 141 of the consti, tution, it cannot be gainsaid that the State cannot, on any grounds of equity, be permitted to retain the cess collected on and after the date of the High Court's judgment.

ORJSSA CEMENT v. STATE OF OR!SSA IRANGANATHAN, J.) 187 ,, Another point that was raised, was that in many of these cases the Si!iie or the Ccialfiled Companies had given an undertaking that in case the levy is held to be invalid by this Court, they would refund the amcitint colleC!ed with interest. It is submitted thai the condition imposed; or imderiakings given, to this effect and recorded at the time of passing interim orders in the various cases should be given implemented. The interim underiakings or directions cannot be under- B stood in such a manner as to conflict with our final decision on the writ petitions set out above. But we agree that, to ihe extent refunds of amounts of cess collected aftet the relevant dates are permissible on the basis indicated by us, the State should refund those amounts to the assessees directly or to the Coalfields from whom they were collected, with interest at the rate directed by this Court or mentioned in the c undertaking from the date of the relevant judgment to the actual date of repayment. The Coalfields, when they get the refunds, should pass on the same to their customers; the assessees.