Full Judgement
The State of West Bengal Vs. Kesoram Industries Ltd. & Ors [2004] Insc 28 (15 January 2004)
Cji, R.C. Lahoti, B.N. Agrawal & Dr. Ar. Lakshmanan.
C.A. Nos. 1532-1533 OF 1993 (With C.A. Nos.3518-3519 of 1992, 5149-54 of 1992, C.A. No.2350 of 1993, C.A.No.7614 of 1994, C.A. Nos......................................................of 2004 (Arising out of SLP (C) Nos.3986 of 1993, 11596 and 17549 of 1994).
W.P.(C) Nos. 262 of 1997 The Terai Indian Planters' Association & Anr. ...Appellants Versus The State of West Bengal & Ors. ...Respondents (With W.P.(C) Nos.515, 641,642 of 1997, W.P.(C) Nos.347,360 of 1999, W.P.(C) Nos.50, 553 of 2000, W.P.(C) Nos.207,288,389 of 2001 and W.P.(C) No.81 of 2003) W.P.(C) No.247/1995 Bengal Brickfield Owners' Assn. & Anr. ... Appellants Versus State of West Bengal & Ors. ....Respondents (With W.P.(C) No.412/1995) Civil Appeal No.5027/2000 Anil Kumar Singh ... Appellant Versus Collector, Sonbhadra District & Ors. ....Respondents (With C.A.Nos.6643 to 6650 of 2000, 6894 of 2000 and C.A.No.1077 of 2001) R.C. Lahoti, J.
This batch of matters, some appeals by special leave under Article 136 of the Constitution and some writ petitions filed in this Court, raise a few questions of constitutional significance centering around Entries 52, 54 and 97 in List I and Entries 23, 49, 50 and 66 in List II of the Seventh Schedule to the Constitution of India as also the extent and purport of the residuary power of legislation vested in the Union of India.
Cesses on coal bearing land, levied in exercise of the power conferred by State Legislation, have been struck down by a Division Bench of the Calcutta High Court. In exercise of the same power conferred by State legislation whereunder cesses were levied on coal bearing land, cesses have also been levied on tea plantation land which are the subject-matter of writ petitions filed in this Court. The Bengal Brickfield Owners' Association have also come up to this Court by filing a writ petition under Article 32 of the Constitution, laying challenge to the same cesses levied on the removal of brick earth. These three sets of matters arise from West Bengal. The High Court of Allahabad has upheld the constitutional validity of cess levied in the State of U.P. on minor minerals which decisions are the subject-matter of civil appeals filed under Article 136 of the Constitution. For the sake of convenience, we would call these matters, respectively as
(A) 'Coal Matters',
(B) 'Tea Matters',
(C) 'Brick Earth Matters', and
(D) 'Minor Mineral Matters'.
In as much as the basic constitutional questions arising for decision in all these matters are the same, all the matters have been heard analogously.
We would first set out the facts in brief and so far as relevant for appreciating the issues arising for decision and thereafter deal with the same.
(A) Coal Matters A Division Bench of the Calcutta High Court has, vide its judgment dated 25.11.92 reported as Kesoram Industries Ltd. struck down certain levies by way of cess on coal as unconstitutional for want of legislative competence in the State Legislature. Feeling aggrieved, the State of West Bengal has come up in appeal by special leave.
The levies which are the subject matter of challenge are as under:
The Cess Act, 1980 "S.5 All immovable property to be liable to a road cess and public works cess. From and after the commencement of this Act in any district or part of a district, all immovable property situate therein except as otherwise in (Section 2) provided, shall be liable to the payment of a road cess and a public works cess." "S.6 Cesses how to be assessed.
The road cess and the public works cess [shall be assessed___
(a) in respect of lands on the annual value thereof,
(b) in respect of all mines and quarries, on the annual dispatches therefrom, and,
(c) in respect of tramways, railways and other immovable property, on the annual net profit thereof, ascertained respectively as in this Act prescribed] and the rates at which such cesses respectively shall be levied for each year shall be determined for such year in the manner in this Act prescribed:
Provided that___
(1) the rates of such road cess and public works cess shall not exceed six paise and twenty-five paise respectively on each rupee of such annual value,
(2) the rates of each of such road cess and public works cess shall not exceed___
(i) fifty paise on each tonne of coal, minerals or sand of such annual dispatches, and
(ii) six paise on each rupee of such annual net profits,
Explanation. ___ For the purposes of this proviso, one tonne of coke shall be counted as one and a quarter tonne of coal."
2. West Bengal Primary Education Act, 1973
"78. Education cess. ___
(1) All immovable properties on which road and public works cesses are assessed, [or all such properties which are liable to such assessment] according to the provisions of the Cess Act, 1880, shall be liable to the payment of education cess.
(2) The rate of the education cess shall be determined by the state Government by notification and shall not exceed___
(a)[in respect of lands, other than a tea estate] ten paise on each rupee of the annual value thereof;
(aa) xxx xxx xxx
(b) in respect of coal mines [five per centum of the value of coal] on the dispatches therefrom;
(c) in respect of quarries and mines other than coal mines, [one rupee on each tonne of materials or minerals other than coal on the annual dispatches therefrom]
Explanation. ___ For the purpose of clause (b) the expression 'value of coal' shall mean___
(i) in the case of dispatches of coal as a result of sale thereof, the prices charged by the owner of a coal mine for such coal, but excluding any sum separately charged as tax, cess, duty, fee or royalty for payment of such sum to Government to a local body, or any other sum as may be prescribed or
(ii) in the case of dispatches other than those referred to in item(i), the prices chargeable by the owner of a coal mine for such coal if they were dispatched as a result of sale thereof, but excluding any sum separately chargeable as tax, cess, duty, fee or ___ royalty for payment of such sum to Government or a local body or any other sum as may be prescribed:
Provided that if more than one price is chargeable for the same variety of coal, the maximum price chargeable for that variety of coal shall be taken as the basis of valuation for the purpose of this item."
3. West Bengal Rural Employment and Production Act, 1976.
"S.4. Rural employment cess. ___
(1) On and from the commencement of this Act, all immovable properties on which road and public work cesses [are assessed or liable to be assessed] according to the provisions of the Cess Act, 1880, shall be liable to the payment of rural employment cess;
Provided that on raiyat who is exempted from paying revenue in respect of his holding under clause (a) of sub-sec.(1) of S.23B of the West Bengal Land Reforms Act, 1955 shall be liable to pay rural employment cess.
(2) The rural employment cess shall be levied annually___
(a) [in respect of lands, other than a tea estate,] at the rate of six paise on each rupee of development value thereof;
(aa) xxx xxx xxx
(b) in respect of coal mines, at the rate of [thirty-five paise per centum] on each tonne of coal on the xxx dispatches therefrom;
(c) in respect of mines other than coal mines and quarries, [at the rate of fifty paise on each tonne of materials other than coal on the annual dispatches therefrom]
Explanation. ___ For the purpose of clause (b) the expression 'value of coal' shall mean___
(i) in the case of dispatches of coal as a result of sale thereof, the prices charged by the owner of a coal mine for such coal but excluding any sum separately charged as tax, cess, duty, fee or royalty for payment of such sum to Government or a local body, or any other sum as may be prescribed, or
(ii) in the case of dispatches, other than those referred to in item (i), the prices chargeable by the owner of a coal mine for such coal if they were dispatched as a result of sale thereof, but excluding any sum separately chargeable as tax, cess, duty, fee or royalty for payment of such sum to Government or a local body, or any other sum as may be prescribed:
Provided that if more than one price is chargeable for the same variety of coal, the maximum price chargeable for that variety of coal shall be taken as the basis of valuation for the purpose of this item." All the three legislations above-referred to are State enactments. The provisions of the West Bengal Primary Education Act, 1973 and the West Bengal Rural Employment and Production Act, 1976, which levied cess were amended by the West Bengal Taxation Laws (Amendment) Act, 1992 with effect from 1-4-1992. The text of the said Amendment Act is as follows:
"West Bengal Act II of 1992 THE WEST BENGAL TAXATION LAWS (AMENDMENT) ACT, 1992.
[Passed by the West Bengal Legislature] [Assent of the Governor was first published in the Calcutta Gazette, Extraordinary, of the 27th March, 1992.] An Act to amend the West Bengal Primary Education Act, 1973 and the West Bengal Rural Employment and Production Act, 1976.
WHERAS it is expedient to amend the West Bengal Primary Education Act, 1973 and the West Bengal Rural Employment and Production Act, 1976, for the purposes and in the manner hereinafter appearing:
It is hereby enacted in the Forty-third Year of the Republic of India, by the Legislature of West Bengal, as follows:-
1. (1) This Act may be called the West Bengal Taxation Laws (Amendment) Act, 1992.
(2) It shall come into force on the 1st day of April, 1992.
(Section 2.)
2. In the West Bengal Primary Education Act, 1973,___
(1) in section 78 for sub-section
(2), the following sub-section shall be substituted:___ '(2) The education cess shall be levied annually___
(a) in respect of land, except when a cess is leviable and payable under clause (b) or clause (c) of sub-section (2A), at the rate of ten paise on each rupee of annual value thereof as assessed under the Cess Act, 1880;
(b) in respect of a coal-bearing land, at the rate of five per centum of the annual value of the coal-bearing land as defined in clause (1) of Section 2 of the West Bengal Rural Employment and Production Act, 1976;
(c) in respect of a mineral-bearing land (other than coal-bearing land) or quarry, at the rate of one rupee on each tonne of minerals (other than coal) or materials despatched within the meaning of clause (1b) of Section 2 of the West Bengal Rural Employment and Production Act, 1976, from such mineral bearing land or quarry;
Provided that when in the coal- bearing land referred to in clause (b) there is no production of coal for more than two consecutive years, such land shall be liable for levy of cess in respect of any year immediately succeeding the said two consecutive years in accordance with clause (a):
Provided further that where no despatch of minerals or materials is made during a period of more than two consecutive years from the mineral- bearing land or quarry as referred to in clause (c), such land or quarry shall be liable for levy of cess in respect of any year immediately succeeding the said two consecutive years in accordance with clause (a).
Explanation. ___ For the purposes of this chapter, 'coal-bearing land' shall have the same meaning as in clause (1a) of Section 2 of the West Bengal Rural Employment and Production Act, 1976.'.
(2) in section 78A,___
(a) for clause (a), the following clause shall be substituted:-
"(a) the education cess payable for a year under sub-section (1) of section 78 in respect of coal-bearing land referred to in clause (b) of sub-section (2) of that section shall be paid by the owner of such coal-bearing land in such manner, at such intervals and by such dates as may be prescribed;";
(b) for clause (b), the following clause shall be substituted:- "(b) every owner of a coal-bearing land shall furnish a declaration relating to a year showing the amount of education cess payable by him under clause (a) in such form and by such date as may be prescribed and to such authority as may be notified by the State Government in this behalf in the Official Gazette (hereinafter referred to as the notified authority);";
(c) in clause (c),__
(i) for the words "coal mine", wherever they occur, the words "coal-bearing land" shall be substituted;
(ii) for the word "return", wherever it occurs, the word "declaration" shall be substituted;
(iii)for the word "period", wherever it occurs, the word "year" shall be substituted;
(d) for clause (d), the following clause shall be substituted:-
"(d) the education cess under clause (b) of sub-section (2) of section 78 shall be assessed by the notified authority in the manner prescribed, and if the declaration under clause (b) is not accepted, the owner of the coal-bearing land shall be given a reasonable opportunity of being heard before making such assessment;";
(e) in clause (g), for the words "coal mine" in the two places where they occur, the words "coal-bearing land" shall be substituted;
(f) for clause (ga), the following clause shall be substituted:- "(ga) where an owner of a coal-bearing land furnishes a declaration referred to in clause (b) in respect of any year by the prescribed date or thereafter, but fails to make full payment of education cess payable in respect of such period by such date, as may be prescribed under clause (a), he shall pay a simple interest at the rate of two per centum for each English calendar month of default in payment under clause (a) from the first day of such month next following the prescribed date up to the month preceding the month of full payment of such cess or up to the month prior to the month of assessment under clause (d) in respect of such period, whichever is earlier, upon so much of the amount of education cess payable by him according to clause (a) as remains unpaid at the end of each such month of default;" (g) for clause (gb), the following clause shall be substituted:- "(gb) where an owner of a coal-bearing land fails to furnish a declaration referred to in clause (b) in respect of any year by the prescribed date or thereafter before the assessment under clause (d) in respect of such year and, on such assessment, full amount of education cess payable for such year is found not to have been paid in the manner and by the date prescribed under clause (a), he shall pay a simple interest at the rate of two per centum for each English calendar month of default in payment under clause (a) from the first day of the month next following the prescribed date for such payment up to the month preceding the month of full payment of education cess under clause (a) or up to the month prior to the month of such assessment under clause (d), whichever is earlier, upon so much of the amount of education cess payable by him according to clause (a) as remains unpaid at the end of each such month of default:
Provided that where the education cess payable under clause (a) is not paid in the manner prescribed under that clause by the owner of a coal-bearing land, the notified authority shall, while making the assessment under clause (d) in respect of a year, apportion on the basis of such assessment the education cess payable in accordance with clause (a);";
(h) in clause (gc), for the words "coal mine", the words "coal-bearing land" shall be substituted;
(i) in clause (ge), for the words "coal mine", the words "coal-bearing land" shall be substituted;
(j) for clause (gf), the following clause shall be substituted:- "(gf) interest under clause (ga) or clause (gb) shall be payable in respect of payment of education cess which falls due on any day after the 30th day of April, 1992, and interest under clause (gc) shall be payable in respect of assessment for which notices of demand of education cess under clause (d) are issued on or after the date of commencement of the West Bengal Taxation Laws (Amendment) Act, 1992:
Provided that interest under clause (ga) or clause (gb) in respect of any period ended on or before the 31st day of March, 1992, or interest under clause (gc) in respect of assessment, for which notices of demand of education cess under clause (d) are issued before the date of commencement of the West Bengal Taxation Laws (Amendment) Act, 1992, shall continue to be payable in accordance with the provisions of this Act as they stood immediately before the coming into force of the aforesaid Act as if the aforesaid Act had not come into force;";
(k) in clause (gh), for the words "coal mine", the words "coal-bearing land" shall be substituted;
(l) in clause (gi), for the words "coal mine", the words "coal-bearing land" shall be substituted;
(m) in clause (gj), for the words "coal mine", the words "coal-bearing land" shall be substituted;
"3. In the West Bengal Rural Employment and Production Act, 1976, ___ (1) in Section 2, ___ (a) for clause (1), the following clauses shall be substituted___ (1) "annual value of coal-bearing land", in relation to a financial year, means one-half of the value of coal, produced from such coal-bearing land during the two years immediately preceding that financial year, the value of coal being that as could have been fetched by the entire production of coal during the said two immediately preceding years, had the owner of such coal-bearing land sold such coal at the price or prices excluding the amount of tax, cess, fee, duty, royalty, crushing charge, washing charge, transport charge or any other amount as may be prescribed, that prevailed on the date immediately preceding the first day of that financial year.
Explanation. ___ Where different prices are prevailing on the date immediately preceding the first date of that financial year for different grades or qualities of coal, the value of coal of each grade or quality produced during the two years immediately preceding that financial year shall be determined accordingly;
(1a) "coal-bearing land" means holding or holdings of land having one or more seams of coal comprising the area of a coal mine;
(1b) 'despatched', for a financial year, shall, in relation to a mineral-bearing land (other than coal-bearing land) or a quarry, mean one-half the quantity of minerals, or minerals, despatched during two years immediately preceding that financial year from such mineral-bearing land or quarry;
(1c) 'development value' means a sum equivalent to five times the annual value of land as assessed under the Cess Act, 1880;';
(b) after clause (3), the following clause shall be added and shall be deemed always to have been added:- '(4) 'year' means a financial year as defined in clause (15) of Section 3 of the Bengal General Clauses Act, 1899;';
(2) in section 4, for sub-section (2), the following sub-section shall be substituted:- "(2) The rural employment cess shall be levied annually___
(a) in respect of land, except when a cess is leviable and payable under clause (b) or clause (c) or sub-section (2A), at the rate of six paise on each rupee of development value thereof;
(b) in respect of a coal-bearing land, at the rate of thirty-five per centum of the annual value of coal-bearing land as defined in clause (1) of Section 2;
(c) in respect of a mineral-bearing land (other than coal-bearing land) or quarry, at the rate of fifty paise on each tonne of minerals (other than coal) or materials despatched therefrom:
(g) for clause (gb), the following clause shall be substituted:- "(gb) where an owner of a coal-bearing land fails to furnish a declaration referred to in clause (b) in respect of any year by the prescribed date or thereafter before the assessment under clause (d) in respect of such year and, on such assessment, full amount of rural employment cess payable for such year is found not to have been paid in the manner and by the date prescribed under clause (a), he shall pay a simple interest at the rate of two per centum for each English calendar month of default in payment under clause (a) from the first day of the month next following the prescribed date for such payment up to the month preceding the month of full payment of rural employment cess under clause (a) or up to the month prior to the month of such assessment under clause (d), whichever is earlier, upon so much of the amount of rural employment cess payable by him according to clause (a) as remains unpaid at the end of each such month of default:
Provided that where the rural employment cess payable under clause (a) is not paid in the manner prescribed under that clause by the owner of a coal- bearing land, the notified authority shall, while making the assessment under clause (d) in respect of a year, apportion on the basis of such assessment the rural employment cess payable in accordance with clause (a);";
(h) in clause (gc), for the words "coal mine", the words "coal-bearing land" shall be substituted;
(i) in clause (ge), for the words "coal mine", the words "coal-bearing land" shall be substituted;
(j) for clause (gf), the following clause shall be substituted:- "(gf) interest under clause (ga) or clause (gb) shall be payable in respect of payment of rural employment cess which falls due on any day after the 30th day of April, 1992, and interest under clause (gc) shall be payable in respect of assessments for which notices of demand of rural employment cess under clause (d) are issued on or after the date of commencement of the West Bengal Taxation Laws (Amendment) Act, 1992:
Provided that interest under clause (ga) or clause (gb) in respect of any period ended on or before the 31st day of March, 1992, or interest under clause (gc) in respect of assessments for which notices of demand of rural employment cess under clause (d) are issued before the date of commencement of the West Bengal Taxation Laws (Amendment) Act, 1992, shall continue to be payable in accordance with the provisions of this Act as they stood before the coming into force of the said Act as if the said Act had not come into force;";
(k) in clause (gh), for the words "coal mine", the words "coal-bearing land" shall be substituted;
(l) in clause (gi), for the words "coal mine", the words "coal-bearing land" shall be substituted;
(m) in clause (gj), for the words "coal mine", the words "coal-bearing land" shall be substituted;
_____ By order of the Governor R. BHATTACHARYYA, Secy. to the Govt. of West Bengal." It is the constitutional validity of the amendment in the two legislations, given effect to from 1.4.92, which was successfully impugned in the High Court and is sought to be restored in these appeals.
The High Court has placed reliance mainly on two decisions Tamil Nadu & Ors., (1990) 1 SCC 12 (Seven-Judges Bench 1991 Supp.(1) SCC 430 (Three-Judges Bench decision). In both these decisions the levy of cess impugned therein was struck down as unconstitutional. The High Court of Calcutta has held that the levy impugned herein is similar to the one held ultra vires the legislative competence of the State twice by the Supreme Court, and hence the same was liable to be struck down.
In the opinion of the High Court, the cess is assessed and computed on the basis of value of coal produced from the coal bearing land, and coal bearing land has been defined to mean land having one or more seams of coal comprising the area of a coal mine. Therefore, it is the production of coal from a coal mine which is the basic event for the levies and the cess is to be levied at 35 per centum of the 'annual value of the coal bearing land', which, as per definition, is directly related to the value of coal produced from the coal mines. The value of the coal has been related to the price.
Explanation to Clause (1) of sub- Section (2) of the 1922 Act, as amended by the 1976 Act, makes the real nature of the levy clearer by providing that where different prices are prevailing on the relevant date for different grades or qualities of coal, the value of coal of each grade or quality shall be relevant. The High Court has concluded that the cess cannot be said to be on land so as to be covered by Entry 49 in Schedule II. On behalf of the writ petitioner__ respondents, the judgment of the High Court has been supported on similar grounds as were successfully urged before the High Court and which we shall presently deal with. On the other hand, the learned counsel for the appellant-State of West Bengal has submitted that having regard to the real nature of the levy, it clearly falls within the legislative field of Entry 49 in List II.
(B) Tea matters The writ petitions in which the validity of the levy of cesses relatable to tea estates is involved has an interesting legislative history behind it. By virtue of the West Bengal Taxation Laws (Amendment) Act, 1981, amendments were effected in the provisions of the West Bengal Primary Education Act, 1973, and the West Bengal Rural Employment And Production Act, 1976.
Cesses were sought to be levied upon certain lands and buildings in the State for raising funds for the purpose of providing primary education throughout the State and to provide for employment in rural areas. Different rates in respect of lands, coal mines and other mines on annual basis were provided. Tea estates were carved out as a separate category and a separate rate was prescribed therefor as under.
"Section 4(2) : The rural employment cess shall be levied annually - (a) in respect of lands, other than a tea estate, at the rate of six paise on each rupee of development value thereof;
(aa) in respect of a tea estate at such rate, not exceeding ruppes six on each kilogram of tea on the despatches from such tea estate of tea grown therein, as the State Government may, by notification in the Official Gazette, fix in this behalf :
Provided that in calculating the despatches of tea for the purpose of levy of rural employment cess, such despatches for sale made at such tea auction centers as may be recognized by the State Government by notification in the Official Gazette shall be excluded:
Provided further that the State Government, may fix different rates on despatches of different classes of tea.
Explanation. - For the purpose of this section, 'tea' means the plant Camelia Sinensis (L) O. Kuntze as well as all varities of the product known commercially as tea made from the leaves of the plant Camelia Sinensis (L) O. Kuntze, including green tea and green tea leaves, processed or unprocessed." Sub-section (4) was introduced in Section 4 which empowered the State Government to exempt "such categories of dispatches or such percentage of dispatches from the liability to pay the whole or any part of the rural employment cess or reduce the rate..." . By another amendment effected in 1982, the first proviso to clause (aa) in Section 4(2) was omitted. Several notifications were issued by the Government from time to time as contemplated by Section 4(2).
The constitutional validity of the abovesaid amendment was challenged successfully in Buxa Dooars Tea Company SCC 211. The decision is by a Bench of two learned Judges.
The levy of cess having been struck down, the State became liable to refund the cess already collected and the relevant schemes which were financed by the cessess so collected came under jeopardy. The West Bengal Taxation Laws (Second Amendment) Act, 1989 was enacted, which is under challenge herein.
Section 2 of the impugned Act contains amendments to West Bengal Primary Education Act while Section 3 sets out the amendments to West Bengal Rural Employment and Production Act, 1976. As mentioned hereinbefore, it would be enough to notice the gist of the amendments made in one of the two Acts of 1976 since the amendments in both are identical.
Clause (aa) in sub-section (2) of Section 4 was omitted with effect from 1.4.1981. After sub-section (2), sub-section (2-A) was introduced with retrospective effect from 1.4.1981. Sub- section (2-A) reads :
(2-A) The rural employment cess shall be levied annually on a tea estate at the rate of twelve paise for each kilogram of green tea leaves produced in such estate.
Explanation. - For the purposes of this sub-section, sub-section (3) and Section 4-B-
(i) 'green tea leaves' shall mean the plucked and unprocessed green leaves of the plant Camelia Sinensis (L) O. Kuntze;
(ii) 'tea estate' shall mean any land used or intended to be used for growing plant Camelia Sinensis (L) O.Kuntze and producing green tea leaves from such plant, and shall include land comprised in a factory or workshop for producing any variety of the product known commercially as 'tea' made from the leaves of such plant and for housing the persons employed in the tea estate and other lands for purposes ancillary to the growing of such plant and producing green tea leaves from such plant." Clause (a) in sub-section (3) was also substituted which had the effect of making the owner of the tea estate liable for the said cess. The other provisions require the owner of the tea estate to maintain a true and correct account of green tea leaves produced in the tea estate. Sub-section (4) was also substituted. The substituted sub-section (4) empowered the State Government to exempt from the cess such categories of tea estates producing green tea leaves not exceeding two lakh fifty thousand kilograms and located in such area as may be specified in such notification. Section 4-B contains the validation clause. It says that any cess collected for the period prior to the said Amendment Act shall be deemed to have been validly levied by it and collected under the Amended Act. Any assessment made or other proceedings taken in that behalf for assessing and collecting the said tax were also to be deemed to have been taken under the Amended Act.
Goodricke Group Ltd. & ors. filed a writ petition under Article 32 of the Constitution of India in this Court. The levy of cesses under both the State enactments as amended by the West Bengal Taxation Laws (Second Amendment) Act, 1989 was impugned. A few matters raising a similar challenge and pending in various High Courts were also withdrawn to this Court. All the matters were heard and decided by a three- Judges Bench of this Court, vide judgment dated November 25, of West Bengal and Ors. - (1995) Supp. 1 SCC 707. The State of Tamil Nadu & Ors. (1990) 1 SCC 12 (seven-judges Ors. (1991) Suppl.1 SCC 430 (three-judges Bench) were cited before the three-judges Bench in Goodricke. Both the decisions were distinguished and the constitutional validity of the 1989 amendments was upheld. The writ petitions were dismissed.
It appears that a similar cess was levied by a pari materia provision enacted by the State Legislature of Orissa as the Orissa Rural Employment, Education and Production Act, 1982.
The cess was on land bearing coal and minerals. Challenge to the constitutional validity of such cess was successfully laid before this Court, and the Orissa Legislation was struck down as unconstitutional and ultra vires the competence of the State Limited (1995) Suppl.2 SCC 686 decided on April 21, 1995.
On 30.3.1996 a writ petition under Article 32 of the Constitution of India has been filed in this Court laying challenge to the constitutional validity of the very same amendments which were unsuccessfully impugned in the Goodricke's case.
The writ petitioners in the Tea Matters have in their petition stated a few grounds in support of the relief sought for.
However, a perusal of the grounds reveals that in substance the challenges is only one, i.e., the decision in Goodricke runs counter to the view of the law taken by Seven-Judges Bench in India Cement and three-Judges Bench in Orissa Cement;
Goodricke was rightly not followed in Mahanadi Coal Fields; rather Mahanadi Coal Fields has whittled down the authority of Goodricke and that being the position of law the impugned cess is ultra vires the power of the State Legislature and deserves to be pronounced so. In short, the same challenge as was laid and turned down in Goodricke, is reiterated drawing support from the decisions of this Court previous and subsequent to Goodricke, and seeks the overruling of Goodricke.
(C) Brick-Earth Matters The Bengal Brickfield Owners' Association, being a representative body of the persons engaged in the activity of brick manufacturing and owning brickfields as also one of the brickfield owners, have joined in filing a writ petition before this Court wherein the constitutional validity of the very same provisions as contained in the Cess Act, 1880, the West Bengal Primary Education Act, 1973 and the West Bengal Rural Employment and Production Act, 1976 ( both as amended by the Bengal Taxation Laws Amendment Act, 1992) has been put in issue, as has been subjected to challenge by the coal mine owners and the tea estate owners disputing the levy of cess allegedly on coal and tea. The grounds of challenge, briefly stated, are three in number: firstly, that brick-earth is a minor mineral to which the Mines and Minerals Development and Regulation Act, 1957, applies and by virtue of the declaration made by Section 2 of the Act by reference to Entry 54 in Schedule I of the Constitution, the field relating to such minor minerals is entirely covered by the Central Legislation and hence the State Legislations are not competent to levy the impugned cess; secondly, that the levy is on the dispatch of minor minerals for sale while the process of manufacturing bricks does not involve any dispatch of the brick-earth inasmuch as the brick- earth is consumed then and there, on the brickfield itself, in the process of manufacturing of bricks, and there being no dispatch of brick-earth, the cess is not leviable; and thirdly, that the State Government is not empowered to levy any cess on either the extraction of brick-earth or on the dispatch of brick-earth. In support of these three grounds, it is further submitted that the same quantity of brick-earth is subjected by Central Legislation to payment of royalty which is a tax, and the same quantity of brick-earth is sought to be levied with cess which is incompetent so far as the State Legislature is concerned. The writ petition places reliance on the decisions of this Court in India Cement Ltd. & Ors (supra), Orissa Cement Ltd. (supra) and Buxa Dooars Tea Company Ltd. and Ors.(supra). Some of the members of the petitioner association were served with demand notices. The relief sought for in the petition is striking down of the relevant provisions of the three State Legislations as ultra vires the Constitution and quashing of the demand notices. The reason for filing the petition in this Court, as stated in the writ petition, is that the provisions sought to be impugned herein have already been declared ultra vires by the High Court of Calcutta in relation to 'tea', an appeal against which decision has been filed in this Court and by an interim order the operation of the judgment of the High Court was stayed.
According to the respondents, the cess sought to be levied by the impugned State Legislation is in the nature of fee and not tax. The purpose of levying fee, as stated in the Preamble to the relevant legislation, is rendering different services to the society and for public benefit. The cesses have been levied by the State Government for securing of welfare to the people by the State as is enshrined in Part IV of the Constitution of India by providing communication facilities, removal of illiteracy and rural employment to the poor living below the poverty line. The impugned legislations levying the cess, do not encroach upon the field covered by the Central legislation. The brick-klin owners extract the brick-earth as an item of trade. From every 100 cft of brick-earth which weighs 5 metric tones, 1382 bricks are manufactured. The dispatch of 1382 bricks means the dispatch of 100 cft or 5 metric tones of brick-earth. A brickfield owner performs dual functions: firstly, he extracts a quantum of brick- earth from the quarry, and secondly, he dispatches the same for manufacture of bricks in the same quarry-field. The brickfield owner is an extractor of brick-earth and also a manufacturer of bricks. The element of dispatch is kept hidden. That is why the cess is now assessed on annual dispatches. Dispatch, in the context of brick-earth, means removal of brick-earth from one place to another which may be within the same complex and for domestic or captive use or consumption. In any case, the removal of brick-earth involved in the process cannot escape assessment.
(D) Minor Mineral Matters This batch of appeals puts in issue the judgment dated 1.3.2000 delivered by a Division Bench of the Allahabad High Sonbhadra and Ors. - AIR 2001 Allahabad 5), upholding the constitutional validity of a cess on mineral rights levied under Section 35 of the U.P. Special Area Development Authorities Act, 1986, read with Rule 3 of the Shakti Nagar Special Area Development Authority (Cess on Mineral Rights) Rules, 1997 (herein referred to briefly as 'SADA Act' and 'SADA Cess Rules' respectively). There was a bunch of 73 writ petitions filed in the High Court which have all been dismissed. The challenge is being pursued in this Court by ten writ petitioners through these appeals by special leave.
The Governor of Uttar Pradesh promulgated U.P. Ordinance No.15 of 1985, which was repealed by U.P. Special Area Development Authorities Act, 1986 (U.P. Act No.9 of 1986), containing identical provisions as were contained in the preceding Ordinance. The said Act received the assent of the President of India on 19.3.1986 and was published in U.P.
Gazette of that day. Section 35 of the Act provides as under :
"35. Cess on mineral rights.-
(1) Subject to any limitations imposed by Parliament by law relating to mineral development, the Authority may impose a cess on mineral rights at such rate as may be prescribed.
(2) Any Cess imposed under this section shall be subject to confirmation by the State Government and shall be leviable with effect from such date as may be appointed by the State Government in this behalf." On 24.2.1997, in exercise of the power conferred by Section 35 of the Act, the Governor made the Shakti Nagar Special Area Development Authority (Cess on Mineral Rights) Rules, 1997, which were published on the same day in the U.P.
Gazette and came into force. Rule 2(b) and Rule 3(1) and (2), relevant for our purpose, are extracted and reproduced hereunder :
"2. In these rules, unless there is anything repugnant in the subject or context__ (a) xxx xxx xxx (b) "Mineral Rights" means rights conferred on a lessee under a mining lease granted or renewed for mining operations in relation to Minerals (providing operation for raising, winning or extracting coal) as defined in the Mines and Minerals (Regulation and Development) Act, 1957 (Act No.67 of 1957" "3.(1) The Authority may, subject to sub-rules (2) and (3) impose a cess on mineral rights on such minerals and minor minerals and at such rates are specified below :
MINERAL/MINOR MINERAL MINIMUM RATE MAXIMUM RATE
(1) Cess on Coal Rs.5.00 (per ton) Rs.10.00 (per ton) (2) Cess on Stone, Coarse Sind/Sand Rs.2.00 (Per Cubic metre) Rs.5.00 (Per Cubic metre) (2) The rates shall not be less than the minimum rates or more than the maximum rates specified in sub-rule (1) and shall be determined by the Authority by a special resolution which shall be subject to confirmation by the State Government." In exercise of the power conferred by the Act and the Rules, the State Government proceeded to levy cess and take steps for recovery thereof by serving notices and issuing citations on the several stone crushers (which the appellants are), who extract stone as mineral and convert the same into metal by a process of crushing. They filed the writ petitions disputing the levy and the demand by the State Government.
On behalf of the writ-petitioners, the SADA Cess Rules as also the legislative competence of the State Legislature to enact Section 35 of the SADA Act were challenged on the ground that the MMDR Act, 1957, having been enacted containing a declaration under Section 2 as contemplated by Entry 54 of List- I and the Act being applicable to Sonbhadra falling within the State of U.P. as well, the State Legislature was denuded of its power to enact the impugned law and levy the impugned cess.
It was also submitted that the impugned cess would have the effect of adding to the royalty already being paid and thereby increasing the same, which was ultra vires the power of the State Government as that power was exercisable only by the Central Government.
The High Court has held the SADA Act, the SADA Cess Rules and the levy of cess thereunder within the competence of State Legislature by reference to Entry 5 in List II.
Reference to Constitution Bench Since the appeals referable to coal matters and the writ petition referable to tea matters raised common issues, the cases were taken up for hearing together. On 12.10.1999, the conflict amongst several decisions of this Court was brought to the notice of the three-judges Bench hearing the matter which passed the following order :
"Great emphasis has been placed by learned counsel for the State of West Bengal upon the judgment of a Bench of three learned State of West Bengal & Ors. [1995 Suppl. (1) SCC 707]. Quite apart from the fact that there are pending proceedings in this Court seeking to reconcile the judgment in Goodricke with that in State of Orissa & Ors. V. Mahanadi Coalfields Ltd. & Ors. [1995 Suppl.(2) SCC 686], we find some difficulty in accepting as correct the view taken by Goodricke, particularly having regard to the earlier decision (of a Bench of two learned Judges) in Bengal [(1989) 3 SCC 211]. We think, therefore, that these matters should be heard by a Constitution bench.
The papers and proceedings may, accordingly, be placed before the Hon'ble Chief Justice for appropriate directions." The brick-earth matters were also clubbed with the abovesaid matters for hearing.
The impugned judgment of the High Court of Allahabad in Minor Mineral Matters has placed reliance on the decision of this Bengal and Ors. - (1995) Supp. 1 SCC 707. The correctness of the said decision was in issue in Civil Appeal Nos.1532-33 of 1993 and batch matters and hence these appeals were also directed to be placed before the Constitution Bench for hearing.
This is how the four sets of matters have been listed before and heard by the Constitution Bench.
Relevant Entries and principles of interpretation Before we proceed to examine the merits of the submissions and counter submissions made on behalf the parties, it will be useful to recapitulate and summarise a few principles relevant for interpreting entries classified and grouped into the three Lists of the Seventh Schedule of the Constitution.
The law is legion on the point and the principles which are being briefly stated hereinafter are more than settled. These principles are referred to in the several decisions which we shall be referring to hereinafter. So far as the principles are concerned they have been followed invariably in all the decisions, however diverse results have followed based on facts of individual cases and manner of application of such principles to the facts of those cases.
The relevant entries to which reference would be required to be made during the course of this judgment are extracted and reproduced herein:- "SEVENTH SCHEDULE (Article 246) List I - Union List
52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in the public interest.
54. Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest.
96. Fees in respect of any of the matters in this List, but not including fees taken in any court.
97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.
List II - State List
23. Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union.
49. Taxes on lands and buildings.
50. Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development.
66. Fees in respect of any of the matter in this List, but not including fees taken in any court." Article 245 of the Constitution is the fountain source of legislative power. It provides - subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. The legislative field between the Parliament and the Legislature of any State is divided by Article 246 of the Constitution. Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in Seventh Schedule, called the 'Union List'.
Subject to the said power of the Parliament, the Legislature of any State has power to make laws with respect to any of the matters enumerated in List III, called the 'Concurrent List'.
Subject to the abovesaid two, the Legislature of any State has exclusive power to make laws with respect to any of the matters enumerated in List II, called the 'State List'. Under Article 248 the exclusive power of Parliament to make laws extends to any matter not enumerated in the Concurrent List or State List. The power of making any law imposing a tax not mentioned in the Concurrent List or State List vests in Parliament. This is what is called the residuary power vesting in Parliament. The principles have been succinctly summarized and restated by a Bench of three learned Judges of this Court on a review of the available State of Bihar & Ors., - (1983) 4 SCC 45. They are-
(1) the various entries in the three Lists are not 'powers' of legislation but 'fields' of legislation. The Constitution effects a complete separation of the taxing power of the Union and of the States under Article 246. There is no overlapping anywhere in the taxing power and the Constitution gives independent sources of taxation to the Union and the States.
(2) In spite of the fields of legislation having been demarcated, the question of repugnancy between law made by Parliament and a law made by the State Legislature may arise only in cases when both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List and a direct conflict is seen. If there is a repugnancy due to overlapping found between List II on the one hand and List I and List III on the other, the State law will be ultra vires and shall have to give way to the Union law.
(3) Taxation is considered to be a distinct matter for purposes of legislative competence. There is a distinction made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. The power to tax cannot be deduced from a general legislative entry as an ancillary power.
(4) The entries in the List being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest possible interpretation. This is because, to quote V.Ramaswami, J., the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeratio of broad categories. A power to legislate as to the principal matter specifically mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters.
(5) Where the legislative competence of a Legislature of any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation relates to any of the entries in Lists I or III. If it does, no further question need be asked and Parliament's legislative competence must be upheld. Where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other Legislature is of no consequence. The Court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the Legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and to the scope and effect of its provisions. Incidental and superficial encroachments are to be disregarded.
(6) The doctrine of occupied field applies only when there is a clash between the Union and the State Lists within an area common to both. There the doctrine of pith and substance is to be applied and if the impugned legislation substantially falls within the power expressly conferred upon the Legislature which enacted it, an incidental encroaching in the field assigned to another Legislature is to be ignored. While reading the three Lists, List I has priority over Lists III and II, and List III has priority over List II. However, still, the predominance of the Union List would not prevent the State Legislature from dealing with any matter within List II though it may incidentally affect any item in List I.
(emphasis supplied) Tax Legislation The abovestated are general principles. Legislations in the field of taxation and economic activities need special consideration and are to be viewed with larger flexibility in approach. Observations of the Constitution Bench in R.K. Garg wherein this Court has emphasized a greater latitude - like play in the joints - being allowed to the Legislature because it has to deal with complex problems which do not admit of solution through any doctrinaire or straitjacket formula. In this field the Court should feel more inclined to give judicial deference to legislative judgment. Their Lordships quoted with approval the (1957) 354 US 457:- "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events, self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability".
Their Lordships further observed that the Courts ought to adopt a pragmatic approach in solving problems rather than measuring the propositions by abstract symmetry. The exact wisdom and nice adaptations of remedies may not be possible. Even crudities and inequities have to be accommodated in complicated tax and economic legislations.
We now proceed to enter a deeper dimension in the field of tax legislation by considering the problem of devising the measure of taxation. This aspect has been dealt with in detail in (1983) 4 SCC 210. Tracing the principles from the leading authority of Re.: a reference under the Government of Ireland Act 1920 and Section 3 of the Finance Act (Northern Ireland) 1934, (1936) A.C. 352, passing through treading through the law as it has developed through judicial pronouncements one after the other, this Court has made subtle observations therein. It has been long recognized that the measure employed for assessing a tax must not be confused with the nature of the tax. A tax has two elements: first, the person, thing or activity on which the tax is imposed, and secondly, the amount of tax. The amount may be measured in many ways; but a distinction between the subject matter of a tax and the standard by which the amount of tax is measured must not be lost sight of. These are described respectively as the subject of a tax and the measure of a tax. It is true that the standard adopted as a measure of the levy may be indicative of the nature of the tax, but it does not necessarily determine it.
The nature of the mechanism by which the tax is to be assessed is not decisive of the essential characteristic of the particular tax charged, though it may throw light on the general character of the tax.
Here we may refer to certain illustrative cases of well settled authority - the authority which has not been shaken so far and has rather withstood the test of times.
Taxation - measure of levy not suggestive of nature of tax - illustrative cases In Ralla Ram (supra) the Federal Court held that a tax on buildings under Section 3 of the Punjab Urban Immovable Property Tax Act, 1940, measured by a percentage of the annual value of such building, remained a tax on buildings even though the measure of annual value of a building was also adopted as a standard for determining income from property under the Income Tax Act. The same standard was adopted as a measure for the two levies, yet the levies remained separate imposts by virtue of their distinctive nature. The measure adopted, it was held, could not be identified with the nature of the tax levied.
Rajasthan, (1962) 1 SCR 517, a tax on passengers and goods was assessed as a rate on the fares and freights payable by the owners of the motor vehicles. The contention that the levy was a tax upon income and not upon passengers and goods was repelled by this Court. The Court pointed out that though the measure of the tax is furnished by the fares and freights it does not cease to be a tax on passengers and goods.
410, the Court examined the different modes available to the Legislature for measuring the levy of tax on buildings. The Court upheld the provision made by the Legislature linking the levy with the annual value of the building and prescribing a uniformed formula for determining its capital value and for calculating the tax.
Orissa, (1961) 2 SCR 537, the form in which the levy was imposed was held to be an impermissible test for defining in itself the character of the levy. It was argued that the method of determining the rate of levy was by reference to the minerals produced by the mines and, therefore, it was levy in the nature of a duty of excise. This Court held that the method thus adopted may be relevant in considering the character of the impost but its effect must be weighed alongwith and in the light of the other relevant circumstances. Referring to Bombay Tyre International Ltd. (supra), the Court further held that it is clear that when enacting a measure to serve as a standard for assessing the levy, the Legislature need not contour it along lines which spell out the character of the levy itself. A broader based standard of reference is permissible to be adopted for the purpose of determining the measure of the levy. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy.
Meaning of 'Lands' - as used in Entry 49 in List II The word 'land' __ as used in Entry 49 in List II, came up Gujarat, (1975) 2 SCC 175. It was held that the word 'land' cannot be assigned a narrow meaning so as to confine it to the surface of the earth. It includes all strata above or below. In other words, the word 'land' includes not only the surface of the earth but everything under or over it, and has in its legal significance an indefinite extent upward and downward. The four-Judges' Bench upheld the validity of the law levying tax in respect of area occupied by underground lines by reference to Entry 49 in List II, holding it to be a tax on land only.
Ample authority is available for the concept that under Entry 49 in List II the land remains a land without regard to the use to which it is being subjected. It is open for the Legislature to ignore the nature of the user and tax the land. At the same time it is also permissible to identify, for the purpose of classification, the land by reference to its user. While taxing the land it is open for the Legislature to consider the land which produces a particular growth or is useful for a particular utility and to classify it separately and tax the same. Different pieces of land identically situated otherwise, but being subjected to different uses, or having different potential, are capable of being classified separately without incurring the wrath of Article 14 of the Constitution. The Constitution Bench in Kunnathat (1961) 3 SCR 77, held that the land on which a forest stands is not to be excluded necessarily from Entry 49. The erstwhile Entry 19 of Schedule II applied to 'forest'. Their Lordships held that the use of the word 'forest' in Entry 19 could not be pressed into service to cut down the plain meaning of the word 'land' in Entry 49. It was permissible to tax the land on which a forest stands by reference to Entry 49. In Ajoy Kumar Mukherjee land holder, held a hatt (or market) on his land. The Local Board asked the appellant to take out a licence and pay Rs.600/-, later Rs.700/-, by way of licence fee for holding the market. It was urged that the impost was unconstitutional, inter alia, on the ground that the tax was actually imposed on the market, which infringed Article 14 of the Constitution, and also because the State Legislature had no legislative competence to tax a market.
The Local Board relied on Entry 49 in List II. The appellant urged that Entries 45 to 63 which deal with taxes do not contemplate a tax on markets. Repelling the plea, the Constitution Bench held that the tax was on the land though the charges arise only when the land is used for a market. The tax remained a tax on land in spite of the imposition being dependant upon the user of the land as a market. The tax was an annual tax as contrasted to a tax for each day on which the market was held. The owner or occupier of the land was responsible for payment of tax on an annual basis. The amount of tax depended upon the area of the land on which the market was held and the importance of the market. Thus, the tax was held to be a tax on land, though the incidence depended upon the use of the land as a market.
Corporation of Greater Bombay & Ors., (1972) 1 SCC 70, the tax was confined to the residential tenanted buildings. The classification was held to be valid. In The Government of (1975) 2 SCC 274, house tax was levied on the buildings. The new definition of 'house' included 'a factory'. However, the house tax was levied only on the building occupied by the factory and not on the machinery and furniture. The State Legislature claimed competence to do so under Entry 49, List II. The power to tax a building, exercisable without reference to the use to which the building is put, was held to be valid. In the opinion of the Court, it was irrelevant that the building was occupied by a factory which could not conduct its activities without the machinery and furniture.
Once it is held that the land or building is available to be taxed, it does not matter to what use the land is being subjected though the nature of the user may enable land of one particular user being classified separately from the land being subjected to another kind of user. The tax would remain a tax on land. It cannot be urged that what is being taxed is not the land but the nature of its user. So also it is permissible to adopt myriad forms and methods of valuation for the purpose of quantifying the tax.
1948 FCR 207, the Federal Court made it clear that every effort should be made as far as possible to reconcile the seeming conflict between the provisions of the Provincial Legislation and the Federal Legislation. Unless the court forms an opinion that the extent of the alleged invasion by a Provincial Legislature into the field of the Federal Legislature is so great as would justify the view that in pith and substance the impugned tax is a tax within the domain of the Federal Legislature, the levy of tax would not be liable to be struck down. The test laid down in Sir Byramjee Jeejeebhoy's case (AIR 1940 Bom 65) by the Full Bench of Bombay High Court was approved.
In Assistant Commissioner of Urban Land Tax Madras (1969) 2 SCC 55, for the purpose of attracting the applicability of Entry 49 in List II, so as to cover the impugned levy of tax on lands and buildings, the Constitution Bench laid down twin tests, namely,
(i) that such tax is directly imposed on lands and buildings, and
(ii) that it bears a definite relation to it.
Once these tests were satisfied, it was open for the State Legislature, for the purpose of levying tax, to adopt the annual value or the capital value of the lands and buildings for determining the incidence of tax. Merely, on account of such methodology having been adopted, the State Legislature cannot be accused of having encroached upon Entries 86, 87 or 88 of List I. Entry 86 in List I proceeds on the Principle of Aggregation and tax is imposed on the totality of the value of all the assets. It is quite permissible to separate lands and buildings for the purpose of taxation under Entry 49 in List
