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empowers the Central Government to prescribe different rates of cess for different varieties or grades of tea. The issue was whether the levy under Section 25 (which is measured on the basis of the quantum of tea produced) denuded the State legislature of the competence to impose a cess on land adopting the same measure.

310Copy pinpoint310. The Court observed that both the levies are different – while excise duty is on the produce of the land, land cess is a tax on land. Section 25 of the Tea Act enacted by Parliament was held not to deprive the State legislature of its power to levy a tax on lands comprised in a tea estate. The declaration in Section 2 of the Tea Act was held not to affect the legislative competence of the State legislature to levy land cess since it did not seek to control the cultivation of tea but sought to tax tea estates. The land cess was construed not to be on the tea industry, but a cess on land comprised in tea estates.

311Copy pinpoint311. The decision indicates that the field reserved to the States under Entry 49 of List II is to impose a tax on land as a unit, without seeking to control the activity or use taking place on the land which is taxed. Similarly, a tax on mineral-bearing land is a tax on the land as a unit; it does not seek to control the mining activity which takes place on the land. Therefore, there is no conflict between the taxing field of the States under Entry 49 of List II to levy a on tax mineral-bearing land and the power of Union to regulate mines and mineral development under the legislative head of Entry 54 of List I. iv. Measure of tax on mineral-bearing land a. Decoupling of minerals from land

312Copy pinpoint312. The respondents contend that the value of minerals cannot be used as a measure of tax on land because minerals are effectively decoupled from mineral-bearing lands by land reform legislation enacted by the States. It was submitted that the decoupling occurred when the minerals were legally vested in the State. Consequently, it was submitted that since the right to minerals vests with the State, the value of minerals cannot be used as a measure to tax land. Another interesting point of submission on behalf of the respondents

(3) The provisions of the Central Excises and Salt Act, 1944 (1 of 1944), and the rules made thereunder, including those relating to refund and exemption from duty, shall, so far so may be, apply in relation to the levy and collection of the duty of excise under this section as they apply in relation to the levy and collection of the duty of excise on tea under the said Act.”]

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was that when the State transfers the mineral rights to the lessee under a mining lease, the lessee acquires the right to the minerals only upon their extraction and payment of royalty.

313Copy pinpoint313. The petitioners rebut the above submissions of the respondents by arguing that there is no provision under the MMDR Act providing for notional segregation of minerals from land. It was contended that the land and minerals remain legally and naturally intertwined until the minerals are extracted from the land in exercise of mineral rights. The decoupling occurs only when a lessee exercises their mining rights to work the mines and win the sub-soil minerals. Moreover, it was submitted that under a mining lease, the lessee is granted a lease of the demised area along with the mineral rights. The logical corollary to the petitioners’ argument is that the lessee acquires the rights to the minerals at the signing of the mining lease and therefore, the value of minerals can be validly used as a measure for taxing mineral bearing land.

314Copy pinpoint314. In view of the above submissions, the first issue that we need to address is whether a mining lease also comprises a lease of land along with the mineral rights. Section 3(ac) of the MMDR Act defines “leased area” to mean the area specified in the mining lease within which the mining operations can be undertaken and includes the non-mineralised area required and approved for activities falling under the definition of “mine”. There are other provisions under the MMDR Act which also deal with mineral bearing land. Section 6 prescribes the maximum area with respect to which a mineral concession may be granted. Thus, determination and ascertainment of land area is the first step towards the grant of a mineral concession.383 Section 9 fixes the rate of royalty in respect of any mineral removed or consumed by the lessee or their agent from the leased area. Section 9-A envisages the payment of dead rent “for all the areas included in the instrument of lease.” Thus, dead rent is relatable to the area specified in the mining lease. Section 11(10) requires the holder of a composite licence to submit a report to the State Government specifying the area required for mining lease and the State Government shall grant mining lease for such area. The above

383 See Kaviraj Basudevanand v. Mahant Harihar Gir, (1974) 2 SCC 514 [9]. [This Court held that the mining lease will have to conform to the provisions of Section 6 of the MMDR Act regarding the maximum area for which the mining leave will have effect.]

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provisions indicate that the leased area forms an integral part of a mining lease. However, the position becomes clearer when we look at the provisions of the Mineral Concession Rules.

315Copy pinpoint315. Rule 31 of the Mineral Concession Rules requires a mining lease to be executed in terms of Form K or in a form as near thereto as circumstances of each case may require. The preamble to Form K grants and demises unto the lessee all “those the mines beds/veins seams” with respect to the specified mineral situated lying and being in or under the lands referred to in Part I. Part I details the area of the lease and its description. The mining lease makes it evident that the demise is for the minerals and not the area of land in which the minerals are found. There may arise situations where the lands may be owned by private individuals, but the minerals are vested in the State. To remedy such situations, Rule 72 of the Mineral Concession Rules mandates the holder of a mining lease to pay annual compensation to the occupier of the surface rights. The provision states that in case of agricultural land, the amount of annual compensation shall be worked out on the basis of the average annual net income from the cultivation of similar land for the previous three years. In case of non-agricultural land, the amount of annual compensation shall be worked out on the basis of the average annual letting value.

316Copy pinpoint316. Under the scheme of the MMDR Act, the mining lease holder is required to obtain the surface rights where the land is not owned by them. For instance, Rule 22 of the Mineral Concession Rules deals with the applications for grant of mining leases. Rule 22(3)(h) requires the applicant for grant of mineral rights to submit a statement in writing stating that they have obtained surface rights over the area or have obtained the consent of the owner for starting mining operations in case the lessee is not the owner.384 A similar pre-condition has been laid down with respect to the grant of a prospecting licence.385 Further,

384 Rule 22(3)(h), Mineral Concession Rules 1960. It reads: “(h) a statement in writing that the applicant has, where the land is not owned by him, obtained surface rights over the area or has obtained the consent of the owner for starting mining operation. Provided further that the consent of the owner for starting mining operations in the area or part thereof may be furnished after the execution of the lease deed but before entry into the said area; Provided also that no further consent would be required in the case of renewal where consent has already been obtained during grant of the lease.” 385 Rule 9(2)(g), Mineral Concession Rules 1960.

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Rule 27(1)(t) requires the mining lessee to pay to the occupier of the surface of the land such compensation as may become payable under the Mineral Concession Rules. Importantly, Rule 36 states that the boundaries of the area covered by a mining lease shall run vertically downwards below the surface towards the centre of the earth. Thus, the sub-soil activities are spatially restricted by the surface area.

317Copy pinpoint317. The government can acquire surface rights for public purposes, including mining, and lease it to the lessee. The acquisition of surface rights by the Government takes place in accordance with the land acquisition legislations. For example, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013 empowers the Government to acquire land in any area for any public purpose.386 In case the owner is a private person, the surface right could be granted to the mining lessee by virtue of a separate lease deed. The rights to the surface will generally be concomitant with the rights to the minerals.

318Copy pinpoint318. The issue of severance between surface rights and mineral rights came up before a Constitution Bench of this Court in Burrakur Coal Co. Ltd. v. Union of India387 in the context of the Coal Bearing Areas (Acquisition and Development) Act 1957.388 The Coal Bearing Areas Act was enacted by Parliament to establish public control over the coal mining industry and its development by providing for the acquisition by the State of unworked land containing or likely to contain coal deposits or of rights in or over such land. Section 4 allows the Central Government to issue a preliminary notification giving notice of its intention to prospect for coal with respect to a particular land in any locality. Once the notification is issued under Section 4, any prospecting licence or mining lease with respect to that land ceases to have effect. Sections 7 and 9 empower the Central Government to acquire whole or part of any lands in which coal is obtainable. On the publication of the declaration of acquisition under Section 9, the land or the rights in or over the land vest absolutely in the Central Government free from all encumbrances.389 Section 13 pertains to

386 See Sections 11 and 12, Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act 2013. 387 [1962] 1 SCR 44 : AIR 1961 SC 954 388 “Coal Bearing Areas Act” 389 Section 10, Coal Bearing Areas (Acquisition and Development) Act 1957

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the grant of compensation for cessation of prospecting licenses and acquisition of mining leases by the Central Government under Section

4. Thus, under the Coal Bearing Areas Act, the Central Government acquires the surface rights to the coal bearing lands.

319Copy pinpoint319. In Burrakur Coal (supra), the petitioners challenged a notification issued by the Central Government under Section 4 of the Coal Bearing Area Act for violation of fundamental rights. The main thrust of the petitioner’s submissions was that a notification under Section 4 cannot be issued with respect to mines which have been ‘worked’ by the lessees. The petitioners also contended that since Section 13 does not provide for compensation for minerals lying underground, Parliament could not have enacted the law for acquiring the mines which are being worked or already worked in the past. Speaking for the Bench, Justice J R Mudholkar addressed the petitioner’s contentions as follows: “17. […] According to Mr. Das if we have understood him right, when a person has acquired land either as an owner or as a lessee carrying with it the right to win minerals and has opened in that land mines which he worked for sometime, there takes place a severance between the right to the surface and right to the minerals and that consequently such person will thereafter be holding the minerals as a separate tenement, that is, something apart from the land demised and this separate tenement cannot be acquired under the terms of the present Act or, if it can be so acquired, it has to be specifically compensated for. Reference to the several provisions of the Act and in particular to those of Section 13 indicates, according to the learned counsel, the limited scope of the Act. It is difficult to appreciate the contention that merely because the owner or lessee of a land had opened mines on that land, a severance is effected between the surface and the underground minerals. It may be that a trespasser by adverse possession for the statutory period can acquire rights to underground minerals. It may also be that if that happens the surface rights would become severed from the mineral rights as a result of which the minerals underground would form a separate tenements. It is, however, difficult to see how the owner

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or the lessee of land who has right to win minerals can effect such severance between the mineral rights and surface rights by opening and operating the mines of that land. For, even while he is carrying on mining operations he continues to enjoy the surface rights also. We cannot, therefore, accept the contention that there was any severance of the mineral rights and surface rights in either of these two cases.” (emphasis added)

320Copy pinpoint320. A mining lease contemplated under the MMDR Act relates to the mining rights and mineral rights. It does not grant surface rights to the mining lessee. However, surface rights are essential to begin any mining operations. In fact, obtaining of the surface rights by a mining lessee over the area where mining operations will be conducted is a prerequisite condition for grant of both a prospecting licence as well as a mining lease. The lessee requires access to the surface rights to effectively exercise their mining rights and privileges enumerated under Part II of Form K. Moreover, as held in Burrakur Coal (supra), the mining lessee requires enjoyment of surface rights to effectively carry out the mining operations. There cannot be any severance between the two during the continuance of the mining operations.

321Copy pinpoint321. The more important question is when do the mineral rights transfer to the lessee? Since Independence, State legislatures have enacted a spate of land reform laws vesting the right to mines and minerals in the State Government.390 Through the instrument of a mining lease, the State Government transfers its rights in the sub-soil minerals to the lessee for the period of the lease. The nature of the leasehold rights accruing to the lessee can be determined on the basis of the Transfer of Property Act. A right to carry on mining operations in land to extract a specified mineral and to remove and appropriate that mineral is a “right to enjoy immoveable property” within the meaning of Section 105 of the Transfer of Property Act.391 In case of a mining

390 Gujarat Land Revenue Code 1879, Section 69A; Madhya Pradesh Land Revenue Code 1959, Section 247; Chhattisgarh Land Revenue Code 1959, Section 247, Goa, Daman and Diu Land Revenue Code 1968, Section 36. 391 Sri Tarkeshwar Sio Thakur Jiu (supra) [37]

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lease, the property can be enjoyed by working the mine as indicated in Section 108 of the Transfer of Property Act.

322Copy pinpoint322. Section 110 of the Transfer of Property of Act deals with the exclusion of the day on which the term of the lease commences. It provides that where the time limited by a lease of immoveable property is expressed as commencing from a particular day, in computing that time such day shall be excluded. It further provides that in situations where the lease does not mention the day of commencement, the time limited by the lease commences from the day of the making of the lease. The model mining lease under Form K specifies the day from which the mineral rights are granted and demised unto the lessee. Thus, the transfer of right to enjoy the property under a mining lease commences from the specified day of commencement. Resultantly, the rights and interests in the minerals specified in the mining lease are transferred from the State Government to the lessee on the specified day of the commencement of the lease deed.

323Copy pinpoint323. Once the interest in the minerals is transferred under a mining lease, the lessee acquires the right to work the mine and win the minerals. It is through this process of working the mine and winning of minerals that minerals are extracted or obtained from the earth irrespective of whether such activity is carried out on the surface or in the bowels of the earth.392 Although the title to minerals vests in the State Government, the mining lease transfers the interest in the mineral from the State Government to the mining lessee. During the whole process, the minerals continue to remain embedded in the earth, either over or above. Thus, there is no decoupling of minerals from land. It is well established that tax on land can also be imposed on an occupier. When a mining lease is granted, the lease holder necessarily has to occupy the surface rights of the area specified in the lease. Resultantly, the leaseholder has rights to both the minerals and surface during the subsistence of the mining lease.

324Copy pinpoint324. We do not agree with the respondent’s submission that the mineral rights are transferred from the State to the mining lessee only upon the extraction of minerals. Once the lease deed is signed, the interest in the minerals is transferred from the State Government (in case the

392 Sri Tarkeshwar Sio Thakur Jiu (supra) [15]

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minerals vest in the State Government) to the lessee. The interest of the lessee in the minerals continues until the determination of the lease deed. It is only upon the exercise of mineral rights by the lessee, that is removal or consumption of minerals, that the lessee is required to pay royalty. Thus, the transfer of interest in the minerals is distinct from the exercise of the mineral rights. In view of the above discussion, it is clear that minerals are “decoupled” from land only upon the exercise of mineral rights by the lessee. b. Minerals as measure of tax on land

325Copy pinpoint325. Entry 49 of List II enumerates taxes on lands and buildings in the legislative field of the State legislatures. As mentioned in the above segments, the word “lands” is a comprehensive term which includes mineral bearing land. If the State can tax mineral bearing land, the concomitant issue pertains to the measure of the tax. One of the arguments which directly or indirectly flows from the respondents is that since royalty is measured on the basis of the quantity of minerals produced or mineral value, the State cannot be allowed to use minerals produced as the measure to tax mineral-bearing land.

326Copy pinpoint326. To understand the practice of valuation of mineral-bearing land, a reference to the English law is useful. In England, a rate has been historically assessed on the occupier of lands for beneficial occupation. Rating is a tax on the occupation of lands and is levied on the basis of the value of the occupation of the hereditament (the single unit of rateable property).393 The standard or the measure is the means of finding out the value of the occupation for the purposes of assessment.394 The rateable value of hereditaments is statutorily determined as the amount equal to the rent at which it is estimated that the hereditament might reasonably be expected to let from year to year. The object is to ascertain the rent which might reasonably be expected for the hereditament on a statutory basis.395 In case of mineral hereditaments, royalty payment constitutes evidence of rental value for rating purposes.396 Mineral royalties are regarded as rents for the purpose of assessing mineral hereditaments.

393 Peter Brown and Patrick Bond, ‘Rating Valuation: Principles and Practice) (3rd edn, Elsevier) 13. 394 Assessment Committee of the Metropolitan Borough of Poplar v. Roberts [1922] 2 AC 93 395 Peter Brown and Patrick Bond (supra n 393) 284. 396 Section 5, Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989.

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327Copy pinpoint327. Royalty is not a tax but a statutory consideration payable by the lessee to the lessor for the exercise of mineral rights. The specification of rates of royalty with respect to major minerals under the MMDR Act limits the powers of the State Government in terms of Entry 54 of List I read with Entry 23 of List II. However, Entry 49 of List II is not restricted or subjected in its operation by any other entry – the State legislature can tax any lands including mineral bearing lands. If the Constitution does not impose any express limitations on the taxing powers of the State to tax mineral bearing lands, it would not be constitutionally permissible for the Court to read in an implied restriction. The power of taxation is plenary and exclusive. The division of legislative powers between the Union and States represents the essence of fiscal federalism. Reading any implied limitation or restriction on the legislative power of the State legislature to tax mineral bearing land under Entry 49 of List II will be against the grain of the Constitution.

328Copy pinpoint328. After the decision in Goodricke (supra) in particular, it is now well established that the income or yield of land can be adopted as a measure of tax. The assessment of tax on land depends upon the actual or potential productivity of the land sought to be taxed. In case of tea estates, the productivity is measured on the basis of the quantity of tea leaves produced. As a corollary, the productivity of mineral bearing land can be measured on the basis of the minerals produced.397 In Goodricke (supra), this Court observed that royalty is a matter of agreement between the lessor and the lessee or determined by a statutory provision. Further, it was observed that “royalty is not the produce of the land; royalty is not the income of the land nor is the royalty yield of the land.” In this segment, we analyze whether royalty could be used as a measure to tax mineral-bearing land.

329Copy pinpoint329. The rates of royalty are generally calculated on per tonnage basis or ad valorem basis on the basis of the laid down formula. In case of the former, royalty is determined on the basis of the following formula –

Royalty = quantity of mineral removed or dispatched * specified rate of royalty in rupees

397 Union of India v. Pramod Gupta (2005) 12 SCC 1 [75]. [In this case, Justice S B Sinha, writing for a two- Judge Bench, observed that “[m]ineral bearing land, thus, contain mineral as the product of nature.”]

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The formula for calculation of royalty on minerals on ad valorem basis is as follows:

Royalty = sale price of mineral (grade wise and State-wise) published by the Indian Bureau of Mines * Rate of royalty (in percentage) * total quantity of mineral grade produced or dispatched

330Copy pinpoint330. The above formula shows that royalty is calculated on the basis of the quantity of minerals extracted or removed.398 The yield from mineral bearing land is nothing but the quantity of mineral produced. Royalty is per se not the yield from a mineral bearing land, but the yield (mineral produced) is the important factor in determination of the rate of royalty. Moreover, royalty can be considered as an income if it is paid to a private landowner.399 In case the minerals are vested in the State, the royalty is paid to the State Government, and hence assumes the form of non-tax revenues. Therefore, royalty is relatable to the yield of the mineral-bearing land as well as the income in case the minerals vest in a private person. To this extent, we clarify the reasoning of this Court in Goodricke (supra).

331Copy pinpoint331. In India Cement (supra), it was held that royalty cannot be a measure for tax on land because it is indirectly connected with land.400 In our opinion, this holding is not correct in view of the fact that royalty is directly relatable to the yield of the mineral bearing land. Royalty is calculated on the basis of the output of the mineral produced. Since the yield of the land is directly connected to the land, a rate fixed on the basis of the yield cannot be said to be indirectly connected to the land. Similarly, Orissa Cement (supra) held that since royalty is not an income derived from land, it cannot be used to measure the tax on land.401 Royalty may not be an income in all aspects, but it is directly relatable to the yield of the land. The yield can be adopted as the basis for levy of tax on land. The decision in Orissa Cement (supra) has followed a narrow approach to the concept of royalty. Therefore, we hold that the yield of a mineral bearing land, either in terms of the quantity of mineral produced, or in terms of the rates of

398 Indian Bureau of Mines, ‘Mineral Royalties’ (2011) 4. 399 H M Seervai, Constitutional Law of India, Volume 3 (4th edn.) 2468. 400 India Cement (supra) [23] 401 Orissa Cement (supra) [30]

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royalty, can be used as a measure to tax the mineral bearing land under Entry 49 of List II.

332Copy pinpoint332. The next submission of the respondents is that a tax measured on the basis of the minerals produced or mineral value is covered by Entry 50 of List II and not under Entry 49 of List II. It is a settled principle of law that Entry 49 of List II contemplates a levy of tax on lands and buildings as units. Once the legislature classifies a particular category of land as a separate unit for the purposes of the levy of tax on land, the yield comprised in such unit can validly constitute the basis for the levy and assessment.402 Resultantly, if the State legislature has classified mineral bearing land as a separate unit for the purposes of levy of tax on land, the minerals produced or any other measure directly connected to the minerals produced can be used as a measure to quantify the tax.

333Copy pinpoint333. In Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd,403 the Madras Urban Land Tax Act 1966 levied a tax on urban land on the basis of the market value of the land. One of the contentions of the assesses was that the legislation was in substance a tax on the capital value of the assets under Entry 86 of List I and hence beyond the legislative competence of the State legislature. The Court held that Entry 86 of List I does not prohibit the State legislature from taxing capital value of lands and buildings under Entry 49 of List II. It was further held that: (i) the tax under Entry 86 of List I proceeds on the principle of aggregation of assets and is imposed on the totality of the value of all assets bearing no definable relationship to lands and buildings which may or may not form a component of the total assets of the assessee; and (ii) Entry 49 of List II contemplates a levy which is a tax directly on lands and buildings as units. The Court held: “4. […] For the purpose of levying tax under Entry 49, List II the State Legislature may adopt for determining the incidence of tax the annual or the capital value of the lands and buildings. But the adoption of the annual or capital value of lands and buildings for determining tax liability will not make the fields of legislation under two

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entries overlapping. The two taxes are entirely different in their basic concept and fall on different subject-matters.” Thus, a measure which is relatable to another taxing entry in List I or List II can also be used as a measure to tax lands under Entry 49 of List II, provided there is a reasonable nexus between the measure and the levy. The mere fact that the legislature uses mineral rights or mineral produced as a measure of taxation under Entry 49 of List II does not give such tax the color of taxes on mineral rights or mineral produced. It still continues to remain a tax on mineral- bearing land as a unit.

334Copy pinpoint334. It is true that the rate of royalties will vary with the output of minerals. In such a situation, it might be argued, there is a possibility that if royalty is a measure of tax on land, no tax can be levied if no mining activities is carried on. As discussed in the above segments, royalty is directly related to the mineral output and is an indicator of the actual productivity of a mineral bearing land. It is ordinarily expected that a prudent holder of a mining lease will exercise their mineral rights to the fullest extend in accordance with the terms and conditions of the mining lease. The machinery selected by the legislature to assess the tax cannot determine the true nature of the tax. The issue of selecting the appropriate measure of tax is a matter of fiscal policy.404 Sometimes, the method selected by the legislature to measure a tax may be imperfect, but that does not imply unconstitutionality.

335Copy pinpoint335. It was further contended that since Entry 50 of List II is a special entry, the use of minerals produced or mineral value as a measure of tax under Entry 49 of List II will lead to overlap between the two entries. The issue for consideration is whether the limitations imposed by Parliament in a law relating to mineral development, which bears on the legislative field under Entry 50 of List II would also impact the field reserved to the State legislature under Entry 49 of List II.

336Copy pinpoint336. The respondents have relied on a three-Judge Bench decision in State of Bihar v. Indian Aluminium Company,405 to strongly contend that a tax on lands cannot include tax on removal or excavation of land. In that case, the State Government levied a tax called the

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Bihar Restoration and Improvement of Degraded Forest Land Tax on excavational activities. The amount of tax was relatable to the extent to which the land was ‘voided’. The impugned legislation defined “void” to mean any area of leftover forest land from where soil, mineral or rock or anything being fastened with the earth has been removed for non-forest purpose, transported or dumped at a place other than the place from where the same was taken. This Court relied on Orissa Cement (supra) and Mahanadi Coalfields (supra) to hold that the tax was outside the ambit of Entry 49 of List II. It was held: “15. Applying the ratio of the aforesaid decisions to the facts of the present case we find that the position is no different. Entry 49 of List II has been interpreted to mean the levy of tax directly on land as a unit. The land has been regarded as meaning the land on surface and also below the surface. Therefore, in order that a tax can be levied under Entry 49 of List II it is essential that ‘land’ as a unit must exist on which the tax is imposed. In the instant case the tax is, in effect, being levied not on land but on the absence of land. The levy is on the void which has been created. The forest land which is being used is not subjected to tax. The Schedule to the Act itself shows that the assessment of tax is on excavation and use of forest land for non-forest purpose. The Schedule further says that the rate of tax to be levied, in the case of mining or excavation varies with the extent of the land voided. In case the land has been rehabilitated no tax is to be levied. The tax is levied in effect on the activity of the removal or excavation of land. In other words the tax is squarely on the activity of mining because it is under the mining lease that mechanized and non-mechanized excavation as well as underground excavation takes place and this is what is referred to in column 1 of the Schedule to the Act while determining the amount of tax leviable. Levy in other words is on the activity of removal of earth and not on the land itself and is, therefore, outside the ambit of Entry 49 of List II.” (emphasis added)

337Copy pinpoint337. The tax in Indian Aluminium Company (supra), was held not to be a tax on land, but a tax on the absence of land. It was further

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observed that since the levy was not a tax on land, Goodricke (supra) had no application because in that case the levy was on tea estates as a unit.

338Copy pinpoint338. The true nature of a tax has to be gathered from the charging section. In Indian Aluminium Company (supra), the charging section provided that the tax was levied “for mechanical and biological reclamation of forest land and for rehabilitation so that the land is reclaimed as far as possible.” Importantly, the provision further provided that “every occupier responsible for creating void/ voids by indulging in any developmental activities including mining” shall be liable to pay the tax. The charging section clearly indicates that the object of the levy was to tax the activity by the occupier of “creating void/voids”. The measure of the tax, therefore, was based on the area of the land voided. It was not a tax on lands as a unit. Thus, this Court held that the levy was not a tax on land under Entry 49 of List II, but rather on the activity of extraction. However, this decision is not relevant for our purposes because the true nature of the levy in that case did not pertain to taxes on lands.

339Copy pinpoint339. Both the entries 49 and 50 of List II deal with distinct subject matters. Both the entries operate in different fields without any overlap. The fact that mineral value or mineral produced is used as a measure under Entry 50 of List II does not preclude the legislature from using the same measure for taxing mineral bearing land under Entry 49 of List II. As Justice Ayyangar observed in H R S Murthy (supra), using royalty as a measure of tax on lands “does not stamp it as a tax on either the extraction of the mineral or on the mineral right.” The doctrine of generalia specialibus non derogant has no application in the instant case because Entries 49 and 50 of List II operate in different fields. Though Parliament can limit the taxing field entrusted to the State under Entry 50 of List II through a law relating to mineral development, the limitation operates on the field of taxing mineral rights. Such a limitation cannot operate on Entry 49 of List II because there is no specific stipulation under the Constitution to that effect. The nature of taxes under both the entries, that is Entries 49 and 50 of List II, are distinct. The Constitution envisages the imposition of limitations by Parliament on the legislative field of the state of taxes on mineral rights, and not taxes on lands.

340Copy pinpoint340. There may arise situations where two taxes levied under different legislative entries may be based on the same measure. In Federation

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of Hotel & Restaurant Association of India v. Union of India,406 it was held that the fact that two different taxes use the same measure does not make them identical.

341Copy pinpoint341. In view of the above discussion, we conclude that mineral value or mineral produce could be used as a measure of the tax on land under Entry 49 of List II. The fact that Entry 50 of List II pertains to taxes on mineral rights would not preclude the State legislature to use the measure of mineral value or mineral produce under Entry 49 of List II. The State legislature has legislative discretion to determine the appropriate measure for the purposes of quantifying taxes, so long as there is a reasonable nexus between the measure and the nature of the tax. The measure does not determine the nature of the tax. The words “lands” under Entry 49 of List II includes mineral bearing land. The mineral produce is the yield from a mineral bearing land. Since royalty is determined on the basis of the mineral produce, royalty can also be used as a measure to determine the tax on royalty. The fact that the State legislature uses mineral produce or royalty as a measure does not overlap with Entry 50 of List II. J. Conclusions

342Copy pinpoint342. In view of the above discussion, we answer the questions formulated in the reference in terms of the following conclusions: a. Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights. The liability to pay royalty arises out of the contractual conditions of the mining lease. The payments made to the Government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears; b. Entry 50 of List II does not constitute an exception to the position of law laid down in M P V Sundararamier (supra). The legislative power to tax mineral rights vests with the State legislatures. Parliament does not have legislative competence to tax mineral rights under Entry 54 of List I, it being a general entry. Since the power to tax mineral rights is enumerated in Entry 50 of List II, Parliament cannot use its residuary powers with respect to that subject-matter;

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c. Entry 50 of List II envisages that Parliament can impose “any limitations” on the legislative field created by that entry under a law relating to mineral development. The MMDR Act as it stands has not imposed any limitations as envisaged in Entry 50 of List II; d. The scope of the expression “any limitations” under Entry 50 of List II is wide enough to include the imposition of restrictions, conditions, principles, as well as a prohibition; e. The State legislatures have legislative competence under Article 246 read with Entry 49 of List II to tax lands which comprise of mines and quarries. Mineral-bearing land falls within the description of “lands” under Entry 49 of List II; f. The yield of mineral bearing land, in terms of the quantity of mineral produced or the royalty, can be used as a measure to tax the land under Entry 49 of List II. The decision in Goodricke (supra) is clarified to this extent; g. Entries 49 and 50 of List II deal with distinct subject matters and operate in different fields. Mineral value or mineral produce can be used as a measure to impose a tax on lands under Entry 49 of List II; h. The “limitations” imposed by Parliament in a law relating to mineral development with respect to Entry 50 of List II do not operate on Entry 49 of List II because there is no specific stipulation under the Constitution to that effect; and i. The decisions in India Cement (supra), Orissa Cement (supra), Federation of Mining Associations of Rajasthan (supra), Mahalaxmi Fabric Mills (supra), Saurashtra Cement (supra), Mahanadi Coalfields (supra), and P Kannadasan (supra) are overruled to the extent of the observations made in the present case.

343Copy pinpoint343. The Registry is directed to take administrative directions from Hon’ble Chief Justice of India for placing the matters before an appropriate Bench.

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Nagarathna, J. Table of Contents*

01. Constitutional Framework ................................................. 14

02. Interpretation of Legislative Entries ................................... 19

03. Scheme of The MMDR Act, 1957 ...................................... 29

04. Hingir-Rampur .................................................................. 53

05. M.A. Tulloch ...................................................................... 59

06. Baijnath Kedia .................................................................. 63

07. HRS Murthy ...................................................................... 66

08. India Cement .................................................................... 69

09. Laddu Mal ......................................................................... 83

10. Laxminarayana Mining Co. ............................................... 88

11. Orissa Cement .................................................................. 95

12. Mahalaxmi Fabric Mills ..................................................... 97

13. Mahanadi Coalfields ......................................................... 100

14. Saurashtra Cement .......................................................... 101

15. Goodricke ......................................................................... 101

16. Kesoram ........................................................................... 107

17. Kannadasan ..................................................................... 124

18. Entries 49 And 50 – List II .................................................. 151

19. Effect of Overruling India Cement ..................................... 165

20. Federalism in India ........................................................... 170

21. Sarkaria Commission Report on Centre-State Relations .... 173

22. Conclusions ...................................................................... 181

I have perused the comprehensive opinion authored by Hon’ble the Chief Justice of India Dr Dhananjaya Y Chandrachud on the questions referred to this nine-judge Bench. I respectfully dissent with the said opinion and express my reasons therefor. 1.1 The sum and substance of all the questions referred to this Bench could be crystallised to the short point for consideration,

* Ed. Note: Pagination as per the original Judgment.

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2. The genesis of this controversy insofar as the reference to the nine-judge Bench is concerned, emanates from the judgment of the seven-judge Bench of this Court in India Cement. The said judgment authored by Sabyasachi Mukharji, J. (as His Lordship then was) held that royalty is a tax and therefore, any levy of a tax/cess on royalty is impermissible in law, having regard to the constitutional framework, particularly the relevant Entries of List I and II of the Seventh Schedule to the Constitution of India. The said dictum of the seven-judge Bench was doubted in Kesoram, by a majority of the five-judge Bench (Sinha, J. dissenting). The majority judgment was penned by Lahoti, J. (as His Lordship then was). Consequently, the judgment of a two-judge Bench in State of Madhya Pradesh vs. Mahalaxmi Fabric Mills Ltd., 1995 Supp (1) SCC 642 (“Mahalaxmi Fabric Mills”) following India Cement was overruled and it was observed that the matter required consideration by a larger Bench.

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3. A similar view was expressed by a three-judge Bench in Mineral Area Development Authority vs. Steel Authority of India, (2011) 4 SCC 450, (“Mineral Area Development Authority”) wherein this Court was of the view that the matter has to be considered by a Bench of nine Judges and hence, the following questions of law were raised: "1. Whether “royalty” determined under Sections 9/15(3) of the Mines and Minerals (Development and Regulation) Act, 1957 (67 of 1957, as amended) is in the nature of tax?

2. Can the State Legislature while levying a tax on land under List II Entry 49 of the Seventh Schedule of the Constitution adopt a measure of tax based on the value of the produce of land? If yes, then would the constitutional position be any different insofar as the tax on land is imposed on mining land on account of List II Entry 50 and its interrelation with List I Entry 54?

3. What is the meaning of the expression “Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development” within the meaning of Schedule VII List II Entry 50 of the Constitution of India? Does the Mines and Minerals (Development and Regulation) Act, 1957 contain any provision which operates as a limitation on the field of legislation prescribed in List II Entry 50 of the Seventh Schedule of the Constitution of India? In particular, whether Section 9 of the aforementioned Act denudes or limits the scope of List II Entry 50?

4. What is the true nature of royalty/dead rent payable on minerals produced/mined/extracted from mines?

5. Whether the majority decision in State of W.B. v. Kesoram Industries Ltd. [(2004) 10 SCC 201] could be read as departing from the law laid down in the seven-Judge Bench decision in India Cement Ltd. v. State of T.N. [(1990) 1 SCC 12]?

6. Whether “taxes on lands and buildings” in List II Entry 49 of the Seventh Schedule to the Constitution

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contemplate a tax levied directly on the land as a unit having definite relationship with the land?

7. What is the scope of the expression “taxes on mineral rights” in List II Entry 50 of the Seventh Schedule to the Constitution?

8. Whether the expression “subject to any limitations imposed by Parliament by law relating to mineral development” in List II Entry 50 refers to the subject- matter in List I Entry 54 of the Seventh Schedule to the Constitution?

9. Whether List II Entry 50 read with List I Entry 54 of the Seventh Schedule to the Constitution constitute an exception to the general scheme of entries relating to taxation being distinct from other entries in all the three Lists of the Seventh Schedule to the Constitution as enunciated in M.P.V. Sundararamier & Co. v. State of A.P. [AIR 1958 SC 468 : 1958 SCR 1422] [AIR p. 494 : SCR at p. 1481 (bottom)]?

10. Whether in view of the declaration under Section 2 of the Mines and Minerals (Development and Regulation) Act, 1957 made in terms of List I Entry 54 of the Seventh Schedule to the Constitution and the provisions of the said Act, the State Legislature is denuded of its power under List II Entry 23 and/ or List II Entry 50?

11. What is the effect of the expression “… subject to any limitations imposed by Parliament by law relating to mineral development” on the taxing power of the State Legislature in List II Entry 50, particularly in view of its uniqueness in the sense that it is the only entry in all the entries in the three Lists (Lists I, II and III) where the taxing power of the State Legislature has been subjected to “any limitations imposed by Parliament by law relating to mineral development”?.” That is how the questions have been placed for consideration of this nine-judge Bench.

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4. His Lordship, the Chief Justice of India, while holding that royalty is not a tax, has overruled the following dicta of this Court: (i) India Cement; (ii) Orissa Cement Limited vs. State of Orissa, 1991 Supp (1) SCC 430 (“Orissa Cement”); (iii) Mahalaxmi Fabric Mills; (iv) Saurashtra Cement & Chemicals Industries Ltd. vs. Union of India, (2001) 1 SCC 91, (“Saurashtra Cement”), and (v) State of Orissa vs. Mahanadi Coalfields Ltd., 1995 Supp. (2) SCC 686 (“Mahanadi Coalfields”). While coming to the aforesaid conclusion, three significant judgments of this Court in Hingir- Rampur Coal Co. Ltd. vs. State of Orissa, (1961) 2 SCR 537 (“Hingir-Rampur”); State of Orissa vs. M.A. Tulloch, (1964) 4 SCR 461 (“M.A. Tulloch”) and Baijnath Kedia vs. State of Bihar, (1969) 3 SCC 838 (“Baijnath Kedia”) have been discussed.

5. Since the Entries under discussion are in their respective Lists of the Seventh Schedule of the Constitution, it would be unnecessary to refer to them as being part of “the Seventh Schedule of the Constitution” in the following discussion.

6. On enumerating the questions for opinion of this nine-judge Bench, five issues have been encapsulated in paragraph 5 of the judgment of the learned Chief Justice of India which read as under: "5. During the course of the hearing, counsel for the petitioners and respondents agreed that the main questions that fall for determination by this Court could be reframed in the following terms: a. What is the true nature of royalty determined under Section 9 read with Section 15(1) of the MMDR Act? Whether royalty is in the nature of tax. b. What is the scope of Entry 50 of List II of the Seventh Schedule? What is the ambit of the limitations imposable by Parliament in exercise of its legislative powers under Entry 54 of List I? Does Section 9, or any other provision of the MMDR Act, contain any limitation with respect to the field in Entry 50 of List II? c. Whether the expression “subject to any limitations imposed by Parliament by law relating to mineral development” in Entry 50 of List II pro tanto subjects the entry to Entry 54 List I, which is a non-taxing general

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entry? Consequently, is there any departure from the general scheme of distribution of legislative powers as enunciated in M.P.V. Sundararamier (supra)? d. What is the scope of Entry 49 of List II and whether it covers a tax which involves a measure based on the value of the produce of land? Would the constitutional position be any different qua mining land on account of Entry 50 of List II read with Entry 54 of List I? e. Whether Entry 50 of List II is a specific entry in relation to Entry 49 of List II, and would consequently subtract mining land from the scope of Entry 49 of List II?”

7. As the learned Chief Justice has recorded the submissions of the respective parties in detail, I need not be repetitive except highlighting the fact that the learned senior counsel and counsel for the appellants have contended that “royalty is not a tax” while the learned senior counsel and counsel for the respondents including the Attorney General and Solicitor General for the Union of India have submitted that “royalty is a tax or an exaction” and therefore, the States are denuded of their power to levy any other levy, impost, tax or cess on royalty. Therefore, the question which arises is, whether, payment made for exercise of mineral rights being royalty, is a tax or an exaction. Constitutional Framework:

8. Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. Article 366 is a definition clause and it states that in the Constitution, unless the context otherwise requires, the expressions mentioned therein have the meanings thereby respectively assigned to them. For the purpose of this case, Article 366(28) is relevant and the same reads as under: “(28) “taxation” includes the imposition of any tax or impost, whether general or local or special and “tax” shall be construed accordingly.” The aforesaid definition of ‘taxation’ is not exhaustive but inclusive in nature to include not only any tax in the usual understanding of the said expression or tax stricto senso but also any levy akin to a tax. There can be no cavil to the proposition that before any tax

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or impost could be levied or collected, it must have the authority of law vide Article 265. 8.1 Article 246 of the Constitution deals with distribution of legislative powers between the Parliament and State Legislatures. It reads as under: “246. Subject-matter of laws made by Parliament and by the Legislatures of States.— (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List 1 in the Seventh Schedule (in this Constitution referred to as the “Union List”). (2) Notwithstanding anything in clause (3), Parliament and subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the “Concurrent List”). (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the ‘State List’). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List.” With regard to the allocation of subjects under the three Lists, it may be useful to refer to the Devolution rules drawn under the Government of India Act, 1919 and thereafter, to the Government of India Act, 1935 which are the precursors to the distribution of legislative powers between the Union and the States as per the three Lists of the Seventh Schedule. Some of the salient aspects concerning the distribution of the legislative powers between Parliament and State Legislature as per the three Lists in the backdrop of provisions could be alluded to. Article 246 of the Constitution deals with the distribution of

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legislative powers between the Union and the States. The said Article has to be read along with the three Lists, namely, the Union List, the State List and the Concurrent List. The taxing powers of the Union as well as the States are also demarcated as separate Entries in the Union List as well as the State List i.e. List I and List II respectively. The Entries in the Lists are fields of legislative powers conferred under Article 246 of the Constitution. In other words, the Entries define the areas of legislative competence of the Union and the State Legislature. (vide: State of Karnataka vs. State of Meghalaya, (2023) 4 SCC 416 para 56), (“State of Karnataka”). 8.2 The legislative power to impose a tax or impost can be traced to either List I - Union List or List II - State List. List III - Concurrent List which gives powers to both Union as well as the States to legislate does not contain any taxation Entry. Entry 47 - List III states that fees in respect of any of the matters in that List but not including fees taken in any Court could be levied and collected by an authority of law either by the Union or the State Legislature. Similarly, Entry 66 - List II states that fees in respect of any of the matters in List II but not including fees taken in any Court could be collected by the State Legislature. In a similar vein, Entry 96 - List I gives power to levy fee in respect of subjects enumerated in List I but not including fees taken in any Court. It is nobody’s case that royalty is a fee and therefore no further discussion on that aspect is necessary. However, the conundrum to be unravelled by this nine-judge Bench is, whether royalty is a tax or a levy akin to a tax or an exaction in the context of exercise of mineral rights. 8.3 In order to understand the foundation of this controversy, it is necessary to consider Article 246 of the Constitution and the relevant Entries of the two Lists vis-à-vis regulation of mines and mineral development, as the controversy has arisen in this particular context, which can be usefully extracted as under: “List I – Union List Entry 54 : Regulation of mines and mineral development to the extent to which such regulation and development under the control

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of the Union is declared by Parliament by law to be expedient in the public interest. List II – State List Entry 23 : Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union. xxx xxx xxx Entry 49 : Taxes on lands and buildings. Entry 50 : Taxes on mineral rights subject to any limitation imposed by Parliament by law relating to mineral development.” Interpretation of Legislative Entries: 8.4 On the aspect of interpretation of legislative Entries in the three Lists, the following principles are apposite as discussed in State of Karnataka. 8.4.1 The power to legislate which is dealt with under Article 246 has to be read in conjunction with the Entries in the three Lists which define the respective areas of legislative competence of the Union and State Legislatures. While interpreting these Entries, they should not be viewed in a narrow or myopic manner but by giving the widest scope to their meaning, particularly, when the vires of a provision of a statue is assailed. In such circumstances, a liberal construction must be given to the Entry by looking at the substance of the legislation and not its mere form. However, while interpreting the Entries in the case of an apparent conflict, every attempt must be made by the Court to harmonise or reconcile them. Where there is an apparent overlapping between two Entries, the doctrine of pith and substance is applied to find out the true character of the enactment and the Entry within which it would fall. The doctrine of pith and substance, in short, means, if an enactment substantially falls within the powers expressly conferred by the Constitution upon the legislature which enacted it, the same cannot be held to be invalid merely because it incidentally encroaches on matters assigned to another legislature. Also,

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in a situation where there is overlapping, the doctrine has to be applied to determine to which Entry, a piece of legislation could be related. In order to examine the true character of enactment or a provision thereof, due regard must be had to the enactment as a whole and to its scope and objects. It is said that the question of invasion into another legislative territory has to be determined by substance and not by degree. 8.4.2 In case of any conflict between Entries in List I and List II, the power of Parliament to legislate under List I will supersede when, on an interpretation, the two powers cannot be reconciled. But if a legislation in pith and substance falls within any of the Entries of List II, the State Legislature’s competence cannot be questioned on the ground that the field is covered by Union list or the Concurrent list vide Prafulla Kumar Mukherjee vs. Bank of Commerce, Khulna, AIR 1947 P.C. 60 (“Prafulla Kumar Mukherjee”). According to the pith and substance rule, if a law is in its pith and substance within the competence of the Legislature which has made it, it will not be invalid because it incidentally touches upon the subject lying within the competence of another Legislature vide State of Bombay vs. FN Balsara, AIR 1951 SC 318 (“FN Balsara”). 8.4.3 Once the legislation is found to be ‘with respect to’ the legislative Entry in question, unless there are other constitutional prohibitions, the power would be unfettered. It would also extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in that topic or category of legislation (vide United Provinces vs. Atiqa Begum, AIR 1941 FC 16 (“Atiqa Begum”)). 8.4.4 Another important aspect while construing the Entries in the respective Lists is that every attempt should be made to harmonise the contents of the Entries so that interpretation of one Entry should not render the entire content of another Entry nugatory (vide Calcutta Gas Company vs. State of West Bengal, AIR 1962 SC 1044 (“Calcutta Gas Company”)). This is especially so when some of the Entries in a different List or in the same List may overlap or may appear to be in direct conflict with each other. In such a situation, a duty is cast on

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the Court to reconcile the Entries and bring about a harmonious construction. Thus, an effort must be made to give effect to both Entries and thereby arrive at a reconciliation or harmonious construction of the same. In other words, a construction which would reduce one of the Entries nugatory or a dead letter, is not to be followed. 8.4.5 The sequitur to the aforesaid discussion is that if the Legislature passes a law which is beyond its legislative competence, it is a nullity ab-initio. The Legislation is rendered null and void for want of jurisdiction or legislative competence vide RMDC vs Union of India, AIR 1957 SC 628 (“RMDC”). 8.4.6 In short, the Entries in the different Lists should be read together without giving a narrow meaning to any of them. The powers of the Union and the State Legislatures are expressed in precise and definite terms. Hence, there can be no broader interpretation given to one Entry than to the other. Even where an Entry is worded in wide terms, it cannot be so interpreted as to negate or override another Entry or make another Entry meaningless. In case of an apparent conflict between different Entries, it is the duty of the Court to reconcile them in the first instance. In case of an apparent overlapping between two Entries, the doctrine of pith and substance has to be applied to find out the true nature of a legislation and the Entry within which it would fall. Where one Entry is made “subject to” another Entry, all that it means is that out of the scope of the former Entry, a field of legislation covered by the latter Entry has been reserved to be specially dealt with by the appropriate legislature. When one item is general and another specific, the latter will exclude the former on a subject of legislation. If, however, they cannot be fairly reconciled, the power enumerated in List II must give way to List I. 8.4.7 On a close perusal of the Entries in the three Lists, it is discerned that the Constitution has divided the topics of legislation into the following three broad categories: (i) Entries enabling laws to be made; (ii) Entries enabling taxes to be imposed; and (iii) Entries enabling fees and stamp duties to be collected.

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Thus, the Entries on levy of taxes are specifically mentioned. Therefore, as such, there cannot be a conflict of taxation power of the Union and the State. Thus, in substance the taxing power can be derived only from a specific taxing Entry in an appropriate List. Such a power has to be determined by the nature of the tax and not the measure or machinery set up by the statute. 8.5 Entry 54 - List I read with Entry 23 - List II deals with regulation of mines and mineral development. Since both the Entries deal with regulation of mines and mineral development and they are in List I and List II, Entry 23 - List II expressly states that any regulation of mines and mineral development is subject to the provisions of List I with respect to regulation and development under the control of the Union (i.e. Entry 54 - List I). 8.6 However, what is pertinent to be considered in this case is, Entry 50 - List II in juxtaposition with Entry 54 - List I. As already noted, Entry 50 - List II is a taxation Entry which empowers a State Legislature to impose tax on mineral rights. However, this power of the State Government is not an absolute power inasmuch as Entry 50 - List II itself states that the power of the State Legislature to impose tax on mineral right is “subject to any limitations imposed by Parliament by law relating to mineral development”. In other words, if there is any limitation imposed by the Parliament by law relating to mineral development then that would have an impact on the legislative competence of the State Legislature to impose a tax on mineral rights. The key expressions of Entry 50 - List II are “taxes on mineral rights” and “subject to any limitations imposed by the Parliament by any law on mineral development”. Thus, the Parliament can impose any limitation on the State’s right to impose a tax on mineral rights by way of a law relating to mineral development. Thus, while Entry 50 - List II speaks of taxes on mineral rights and is a taxation Entry empowering States to impose taxes on mineral rights, the same is not unbridled or absolute but is subject to any limitation to be imposed by Parliament by law relating to mineral development. In other words, if Parliament intends to regulate mineral development in the country, it can do so by a law made as per Entry 54 - List I and to that extent the taxation Entry in Entry 50 - List II could be limited and

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the State’s right to impose a tax on mineral rights by a law would be affected. Thus, a taxation Entry in Entry 50 - List II can be affected by Entry 54 - List I in the interest of mineral development by Parliament imposing a limitation on the State’s right to tax mineral rights. In other words, if the Union has by a law taken control of, inter alia, mineral development with the Parliament passing a law, then the State’s power to impose any tax on mineral rights would, to that extent, be denuded, if the Parliamentary or Central law creates a limitation to impose such a tax, if it relates to mineral development. It is in the above backdrop that the controversy must be considered. 8.7 Exercise of mineral rights have to be consistent with mineral development in the country, which would embrace, inter alia, uniformity in mineral development throughout the country having regard to several factors which would otherwise come in the way of such development. Hence, the framers of the Constitution introduced Entry 50 - List I enabling a limitation being imposed on Entry 50 - List II although that is a taxation Entry giving powers to the States to impose taxes on mineral rights. It is subject to any limitation imposed by Parliament under Entry 54 - List I. 8.8 The golden thread which runs through Entry 54 - List I and Entry 23 - List II is that the Entries deal with regulation of mines and mineral development. Thus, any aspect of regulation of mines and mineral development taken under the control of the Union by a declaration made by the Parliament by a law, denudes the State Legislature of its legislative competence to pass any law to that extent. If a Parliamentary law such as MMDR Act, 1957 is enacted and deals with certain aspects of mineral development, to that extent the State Legislature would be denuded of its competence to pass any law on the said aspect. The legislative competence vested with the State Legislature is, therefore, not an absolute one but is subject to a Parliamentary law enacted as per Entry 54 - List I dealing with mineral development.

9. The precise question before this Court being, whether, imposition of royalty envisaged under Section 9 of the MMDR Act 1957, which is a parliamentary legislation passed by virtue of Entry 54 - List I,

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acts as a limitation imposed by Parliament by law relating to mineral development and therefore, the State Legislature is denuded of its powers to impose any other tax or impost on mineral rights. Whether royalty, which is paid by a lessee to a lessor i.e. the State while exercising mineral rights is a limitation imposed on State’s power to impose any other impost, cess or tax on exercise of mineral rights while undertaking a mining operation and extracting minerals by a lessee, is the precise question to be answered in the context of the constitutional framework, the parliamentary law, namely, the MMDR Act, 1957 and the judgments of this Court. Scheme of the MMDR Act, 1957:

10. Having analysed the relevant constitutional Entries which have a bearing on the controversy, it is necessary to refer to the scheme of and salient provisions of the MMDR Act, 1957 which has been enacted by Parliament pursuant to Entry 54 - List I. This is apparent on a reading of Section 2 of the said Act which reads as under: “2. Declaration as to the expediency of Union control,— It is hereby declared that it is expedient in the public interest that the Union should take under its control the regulation of mines and the development of minerals to the extent hereinafter provided.” The expression in Entry 54 - List I “to the extent to which” is also significant inasmuch as Section 2 of the MMDR Act, 1957 also uses the expression “to the extent hereinafter provided”. The two expressions have the same content and are consistent with each other. 10.1 The MMDR Act, 1957 which is a successor to MMRD Act, 1948, can be briefly considered by referring to various provisions of the Act. The Preamble of the MMDR Act, 1957 states that the Act is to provide “for the development and regulation of mines and minerals under the control of the Union”. Earlier, it read as “for regulation of mines and the development of minerals” but by Section 2 (Act 38 of 1999), the above amendment was made. 10.2 The relevant provisions of the MMDR Act, 1957 could be adverted to at this stage. The expression ‘minerals’ in Section 3(a)(d) includes all minerals except mineral oils. Section 3(e) defines ‘minor minerals’ to mean building stones, gravel,

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ordinary clay, ordinary sand other than sand used for prescribed purposes, and any other mineral which the Central Government may, by notification in the official gazette, declare to be a minor mineral. ‘Notified minerals’ is defined under Section 3(ea) to mean any mineral specified in the Fourth Schedule, such as, bauxite, iron ore, limestone, manganese ore. Further, ‘mineral concession’ is defined in Section 3(ae) of the said Act to mean either a reconnaissance permit, prospecting licence, mining lease, composite licence or a combination of any of these and the expression “concession” shall be construed accordingly. Section 3(c) defines “mining lease” to mean a lease granted for the purpose of undertaking mining operations and includes a sub-lease granted for such purpose. Section 3(d) defines “mining operations” to mean any operation undertaken for the purpose of winning any mineral. Section 3(h) defines “prospecting operations” to mean any operations undertaken for the purpose of exploring, locating or proving mineral deposits. Section 3(ha) defines “reconnaissance operations” to mean any operation undertaken for preliminary prospecting of a mineral through regional, aerial, geophysical or geochemical surveys and geological mapping, but does not include pitting, trenching, drilling (except drilling of boreholes on a grid specified from time to time by the Central Government) or sub-surface excavation. 10.3 It is observed that the MMDR Act, 1957 specifies the twin purposes of the Act, namely, (1) the regulation of mines, and (2) the development of minerals, both under the control of the Union. Sections 4 to 10 of the Central Act form a group headed ‘General Restrictions on Undertaking Prospecting and Mining Operations’ and relate to the rules and regulations under which prospecting licences and mining leases might be granted; the period for which they may be granted or renewed; the royalties and fees that would be payable on them etc. The next group of Sections, namely, Sections 10 to 12 deal with the procedure for obtaining prospecting licences or mining leases in respect of land in which minerals vest in the Government. Sections 13 to 17 are grouped under a caption which reads - “Rules for regulating the grant of Prospecting Licences and Mining Leases”. Section 13 empowers the Central Government, by notification,

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to make rules for regulating the grant of prospecting licences and mining leases in respect of minerals and for purposes connected therewith. Sub-section (2) specifies in particular the matters for which such rules may provide and among them is (i) the fixing and collection of fees for mineral concession, surface rent, security deposit, fines, other fees or charges and (ii) the time within which and the manner in which the dead rent or royalty shall be payable, and rules regarding prospecting licences and mining leases. 10.4 Section 18 deals with the mineral development. Section 18(1) states that it shall be the duty of 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 in the Official Gazette, make such rules as it thinks fit. Section 18(2) talks of rules providing for the development of mineral resources in any area. Section 25 provides for the recovery of any rent, royalty, tax or other sum due to the Government under this Act or the rules made thereunder and that they are to be recovered in the same manner as arrears of land revenue. 10.5 Section 9 of the MMDR Act, 1957 with which we are concerned deals with royalty while Section 9A deals with dead rent. The said provisions can be usefully extracted as under: “9. Royalties in respect of mining leases.―(1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement, pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area after such commencement, at the rate for the time being specified in the Second Schedule in respect of that mineral. (2) The holder of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the

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leased area at the rate for the time being specified in the Second Schedule in respect of that mineral. (2A) The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972 shall not be liable to pay any royalty in respect of any coal consumed by a workman engaged in a colliery provided that such consumption by the workman does not exceed one-third of a tonne per month. (3) The Central Government may, by notification in the Official Gazette, amend the Second Schedule so as to enhance or reduce the rate at which royalty shall be payable in respect of any mineral with effect from such date as may be specified in the notification: Provided that the Central Government shall not enhance the rate of royalty in respect of any mineral more than once during any period of three years. 9A. Dead rent to be paid by the lessee.―(1) The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, shall notwithstanding anything contained in the instrument of lease or in any other law for the lime being in force, pay to the State Government, every year, dead rent at such rate, as may be specified, for the time being, in the Third Schedule, for all the areas included in the instrument of lease: Provided that where the holder of such mining lease becomes liable, under section 9, to pay royalty for any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area, he shall be liable to pay either such royalty, or the dead rent in respect of that area, whichever is greater. (2) The Central Government may, by notification in the Official Gazette, amend the Third Schedule so as to enhance or reduce the rate at which the dead rent shall be payable in respect of any area covered by a mining

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lease and such enhancement or reduction shall take effect from such date as may be specified in the notification: Provided that the Central Government shall not enhance the rate of the dead rent in respect of any such area more than once during any period of three years.” Section 9 speaks of royalty to be paid by a holder of a mining lease while Section 9A deals with dead rent to be paid by a lessee. Dead rent is payable by a lessee, when the lessee - a holder of a mining lease, becomes liable to pay under Section 9 royalty of any mineral removed or consumed by him. The holder of a mining lease conducts mining operations for the purpose of winning any mineral. Thus, a mining operation is an exercise of a mineral right and therefore, is covered under the provisions of the MMDR Act, 1957 and particularly having regard to Section 2 thereof, as a declaration has been made by the Union to take under its control the regulation of the mines and minerals development, which is expedient in public interest. Reconnaissance, prospecting operations or mining operations are all aspects which are taken under the control of the Union, in view of the declaration under Section 2 of the MMDR Act, 1957. 10.5.1 For the exercise of mineral rights, royalty has to be paid by the holder of the mining lease in terms of Section 9 or dead rent in terms of Section 9A of the said Act, as per the conditions mentioned therein. Royalty is paid in exercise of a mineral right as a consideration for conducting a mining operation, which is undertaken for the purpose of winning any mineral. A mining lease is granted only for the purpose of undertaking a mining operation. Therefore, royalty has to be paid by the holder of a mining lease to the lessor who executes the lease deed i.e. the State Government. For this reason, Section 25 states that any rent, royalty, tax, fee or other sum due to the Government under the Act or the Rules made thereunder or under the terms and conditions of any mineral concession shall be recovered in the same manner as arrears of land revenue.

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10.6 By way of abundant caution, Section 25 of the said Act uses the expression “rent, royalty, tax, fee or other sum” due to the Government under the provisions of the said Act. Section 25 of the said Act reads as under: “25. Recovery of certain sums as arrears of land revenue.― (1) Any rent, royally, 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 mineral concession may, on a certificate of such officer as may be specified by the State Government in this behalf by general or special order, be recovered in the same manner as an arrear of land revenue. (2) Any rent, royalty, tax, fee or other sum due to the Government either under this Act or any rule made thereunder or under the terms and conditions of any mineral concession may, on a certificate of such officer as may be specified by the State Government in this behalf by general or special order, be recovered in the same manner as if it were an arrear of land revenue and every such sum which becomes due to the Government after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, together with the interest due thereon shall be a first charge on the assets of the holder of the mineral concession, as the case may be.” 10.7 Under the scheme of the Act, royalty shall be payable in respect of mining leases. The statutory basis for the same may be found in Section 9 of the Act, which prescribes that royalty shall be payable by holders of mining lease, whether such lease be granted before or after commencement of the Act. The event that triggers payment of royalty is the removal and/or consumption of mineral. The rates of royalty are prescribed under the second schedule to the Act and are generally expressed as a percentage of the average sale price of the respective mineral, and the same is to be paid on ad valorem basis. It is clarified at this juncture that the payment of royalty in respect of mining leases, shall be notwithstanding any stipulation contained under

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the instrument of lease or any other law in force at the time of execution of the lease. 10.8 Section 9A of the Act provides that the holder of a mining lease shall pay dead rent to the State Government, annually, at such rate specified in the third schedule to the Act. Dead rent is to be paid for such area included in the instrument of lease. However, since the holder of a mining lease is also liable to pay royalty under Section 9 of the Act, it is clarified under Section 9A that the liability shall be limited to either dead rent or royalty, whichever is greater. Since royalty is payable on ad valorem basis, the holder of a mining lease would be liable to pay the same only depending on the value of the mineral won/removed/consumed. That is, when mining activity is not conducted, liability of royalty would be nil. However, dead rent is payable for such area covered under the instrument of lease, on an annual basis, regardless of whether any mining activity is undertaken on such land. The Third Schedule to the Act prescribes the dead rent payable per hectare, per annum. The amount of dead rent payable also depends upon the nature of the minerals available on the land in question - medium value minerals, high value minerals or precious metals and stones. The Act also prescribes the manner in which rent and royalty payable, may be recovered. Section 25 of the Act provides that any sum due to the Government under the provisions of the Act, including rent and royalty, may, on a certificate of such officer as may be specified by the State Government in this behalf by general or special order, be recovered in the same manner as arrears of land revenue. 10.8.1 Section 13(1) of the Act enables the Central Government to make rules for regulating the grant of mineral concession in respect of minerals and for purposes connected therewith. Without prejudice to the generality of the power prescribed under Section 13(1), Section 13(2) lists the specific subjects that may be regulated by framing Rules. Section 13(2)(e) enables the Central Government to make rules to prescribe the authority by which mineral concession in respect of land in which the minerals vest in the Government may be granted. Section 13(2)(f) on the other hand, relates to the rule making power to

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prescribe the procedure for obtaining a mineral concession in respect of any land in which the minerals vest in a person other than the Government, and the terms on which and conditions subject to which such a permit, license or lease may be granted or renewed. 10.8.2 In exercise of the rule-making power under Section 13 of the Act, the Central Government has enacted the Mineral Concession Rules, 1960, to provide, inter-alia, for the procedure for obtaining mineral concessions in respect of various categories of lands, the terms on which and conditions subject to which such a permit, license or lease may be granted or renewed. 10.8.3 Chapter IV of the Rules governs all matters connected with grant of mining leases in respect of land in which minerals vest in the Government. Applications for mining lease is to be made to the State Government in the manner prescribed under Rule 22. Rule 22(4) prescribes the manner in which the State Government is to act upon receipt of an application for grant of mining license. First, the State Government is required to take a decision as to the precise area for the said purpose and communicate such decision to the applicant. On receipt of communication from the State Government of the precise area to be granted, the applicant shall submit a mining plan within a period of six months or such other period as may be allowed by the State Government, to the Central Government for its approval. Thereafter, the applicant shall submit the mining plan, duly approved by the Central Government or by an officer duly authorised by the Central Government, to the State Government to grant mining lease over that area. The procedure for approval of mining plans, by the Central or State Government, as the case may be, has been detailed under Rule 22BB. 10.8.4 Rule 31 provides that where, on an application for the grant of a mining lease, an order has been made for the grant of such lease, a lease deed in Form K is required to be executed by the State Government within six months of the order granting lease. The State Government may, after giving an opportunity of being heard and for reasons to be recorded

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in writing and communicated to the applicant, also refuse, in the manner specified under Rule 26, to grant a mining lease over whole or part of the area applied for. 10.8.5 Rule 27 prescribes the general conditions to which mining leases, in respect of land in which minerals vest in the Government, shall be subject to. The relevant portion of said Rule is extracted hereinunder for easy reference: “27. Conditions :- (1) Every mining lease shall be subject to the following conditions :- xxx xxx xxx (c) the lessee shall pay, for every year, except the first year of the lease, such yearly dead rent at the rates specified in the Third Schedule of the Act and if the lease permits the working of more than one mineral in the same area the State Government shall not charge separate dead rent in respect of each mineral: Provided that the lessee shall be liable to pay the dead rent or royalty in respect of each mineral whichever be higher in amount but not both; (d) the lessee shall also pay, for the surface area used by him for the purposes of mining operations, surface rent and water rate at such rate, not exceeding the land revenue, water and cesses assessable on the land, as may be specified by the state Government in the lease; xxx xxx xxx (t) the lessee shall pay to the occupier of the surface of the land such compensation as may become payable under these rules; (u) the lessee shall comply with the Mineral Conservation and Development Rules framed under section 18;” 10.8.6 While the aforesaid provisions contained in Chapter IV relate to mining leases in respect of land in which minerals vest in the Government, Chapter V prescribes the procedure for obtaining a mining lease in respect of land in which minerals vest exclusively in a person other than the

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Government. Rule 45 pronounces the conditions of a mining lease. It is pertinent to note that the said provision adopts the conditions prescribed under clauses (b) to (l) and (p) to (u) of sub-rule (1) of Rule 27 which relate to mining leases in respect of land in which minerals vest in the Government, and makes the said conditions applicable to mining leases in respect of land in which minerals vest exclusively in a person other than the Government, with the modification that in clauses (c) and (d) for the words “State Government” the word “lessor” shall be substituted. Further, in addition to the aforesaid conditions that are statutorily prescribed, Rule 45 (iii) permits the parties to set down and mutually agree upon such other conditions in the instrument of lease, so long as such additional conditions are not inconsistent with the provisions of the Act and the Rules. Rule 45 (iv) enjoins upon the lessor, the duty to give notice to the lessee requiring him to pay royalty due under Section 9 of the Act, on failure of the lessee to remit the same as required. Should the lessee not act upon such notice and duly make the payment of royalty within sixty days from the date of receipt of notice, the lessor shall be bound to determine the lease. 10.8.7 Chapter VI pertains to grant of mining leases in respect of land in which the minerals vest partly in the Government and partly in private persons. Rule 53 provides that the provisions of Chapter IV shall apply to mining leases in respect of minerals which vest partly in the Government and partly in a private person as they apply in relation to the grant of prospecting licences and mining leases in respect of minerals which vest exclusively in the Government. The proviso to Rule 53 clarifies that the dead rent and royalty payable in respect of mineral which partly vest in the Government and partly in a private person shall be shared by the Government and by that person in proportion to the shares they have in the minerals. 10.8.8 The pertinent provisions prescribing the liability of a lessee to pay royalty and dead rent in respect of mining leases over different categories of lands as described under Chapters IV, V and VI of the Rules, have been summarised and presented in the following tabular statement:

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Sl. No. Category of Procedure for Liability to pay land over grant of lease Royalty and Dead which mining and Conditions Rent prescribed lease is of mining lease under: granted: prescribed under:

1. Mining lease Chapter IV of the Royalty: in respect of Rules: Section 9 of the Act, land in which Rule 27 - r/w Second Schedule minerals vest in Conditions to the Act which the Government prescribes the rate of royalty; Rule 27 (1) (c) and the proviso thereto; Part V of Form K of the Rules; Dead Rent: Section 9A of the Act, r/w Third Schedule to the Act which prescribes the amount of dead rent payable per hectare of land; Rule 27 (1) (c) and the proviso thereto; Part V of Form K of the Rules. Surface rent: Payable in terms of Rule 27(1)(d), at the rate specified by the State Government in the lease.

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Sl. No. Category of Procedure for Liability to pay land over grant of lease Royalty and Dead which mining and Conditions Rent prescribed lease is of mining lease under: granted: prescribed under:

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Sl. No. Category of Procedure for Liability to pay land over grant of lease Royalty and Dead which mining and Conditions Rent prescribed lease is of mining lease under: granted: prescribed under:

10.9 Section 9 of the MMDR Act, 1957 categorically deals with royalty. It has to be read with the Second Schedule which deals with rates of royalty in respect of minerals listed therein. Therefore, there can be no cavil that royalty is an aspect within the scope and ambit of the Parliamentary law which is intended to take under the control of the Union by a declaration (vide Section 2 of the said Act) vis-à-vis regulation of the mines and mineral development which is declared to be expedient in the public interest. When the imposition of royalty on a mining lease in terms of lease-deed as envisaged in Form-K of the MMDR Act, 1957 is considered in light of Entry 54 - List I read with Section 2 of the MMDR Act, 1957, it is clear that royalty is a matter coming under the control of the Union. If payment of royalty, which is a consideration for exercise of mineral rights is expressly covered under Section 9 of the MMDR Act, 1957, can the same be a basis for any other exaction by a State either by imposing another tax/cess based on royalty or by imposing any other tax on mineral bearing land? This is the question which has fallen for consideration in several cases before this Court as well as before several High Courts. As noted above, royalty is a consideration imposed by a lessor on a lessee of a mining lease for the grant of the mining lease, which in sum and substance is a requisite consideration for exercise of a

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mineral right. Royalty and dead rent as envisaged under the scheme of Sections 9 and 9A of the MMDR Act, 1957 have been imposed by the Parliament in the interest of mineral development in the country. The fact that under Sections 9 as well as 9A, payment of royalty and dead rent as respectively envisaged as per the conditions stated in the said Sections, would clearly indicate that having regard to development of any particular mineral, the rate of royalty has been fixed under the Second Schedule to the MMDR Act, 1957. Therefore, it is in the interest of mineral development that a lessor is bound to collect royalty and dead rent from a lessee in terms of what is envisaged in Sections 9 and 9A read with Second Schedule to the Act. The payment of royalty is to the lessor which is the State which executes the lease deed in terms of the Form K of Mineral Concession Rules, 1960. Thus, having regard to the statutory scheme envisaged under Sections 9 and 9A of the Act read with the Second Schedule to the MMDR Act, 1957, any exercise of mineral right by a lessee is subject to the payment of royalty to the State Government. The exaction of royalty is, therefore, statutory in nature. 10.10 In Govind Saran Ganga Saran vs. Commissioner of Sales Tax, (1985) Supp SCC 205 (“Govind Saran Ganga Saran”), the components which enter into the concept of tax were discussed by this Court in paragraph 6 which reads as under: “6. The components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity.”

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The four components could be understood as: (i) the character of the tax which is determined by its nature which prescribes the taxable event attracting the levy; (ii) a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax; (iii) rate at which the tax is imposed; and (iv) the measure or value to which the tax will be applied for computing the taxing liability. If the aforesaid components are applied to the present case, it is clear that – (i) Section 9 of the MMDR Act, 1957 deals with payment of royalty in respect of any mineral removed or consumed; (ii) by a holder of mining lease who is obliged to pay the royalty; (iii) at the rate specified in the Second Schedule to MMDR Act, 1957; and (iv) a percentage of the average sale price on ad valorem basis. For instance, in respect of Iron Ore : (CLO, lumps, fines and concentrates all grades) fifteen per cent of average sale price on ad valorem basis. Although, Section 9 of the MMDR Act, 1957 is not worded in the manner a charging section in a taxation statute is normally worded, nevertheless, its import must be understood in the sense of it being a taxation provision. For the aforesaid reasons, I hold that royalty is the nature of a tax or an exaction. I now move on to the judgments of this Court as well as High Courts on the nature of exaction in the form of royalty under the provisions of the MMDR Act, 1957 as the controversy centres around various decisions of this Court and certain High Courts. Hingir-Rampur:

11. In Hingir-Rampur, a Constitution Bench of this Court presided over by P.B. Gajendragadkar, J. was considering the validity of the Orissa Mining Areas Development Fund Act, 1952 (hereinafter referred to as, “Act of 1952”). In December, 1952, the State of Orissa passed

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