The Hingir-Rampur Coal Co., Ltd. &
Ors Vs. The State of Orissa & Ors [1960] INSC 208 (21 November 1960)
GAJENDRAGADKAR, P.B.
SARKAR, A.K.
SUBBARAO, K.
WANCHOO, K.N.
MUDHOLKAR, J.R.
CITATION: 1961 AIR 459 1961 SCR (2) 537
CITATOR INFO :
R 1963 SC 703 (23) F 1964 SC1284 (11,14) D
1965 SC 177 (8) R 1965 SC1107 (17,48,50) APL 1970 SC1436 (14,15,16) R 1971
SC1182 (7) F 1975 SC 846 (14) RF 1976 SC1654 (5,19,24,25) AFR 1980 SC 1 (13) R
1980 SC1008 (13,14) RF 1980 SC1955 (41) RF 1981 SC 711 (11) RF 1981 SC 951 (11)
R 1983 SC 617 (6) R 1983 SC 930 (7) F 1983 SC1246 (30) R 1984 SC 420 (15) RF
1985 SC 218 (7,9) D 1985 SC1211 (41) RF 1986 SC 726 (11) RF 1987 SC2034 (16) RF
1989 SC 317 (34) R 1989 SC2015 (10) F 1990 SC 85 (26,30) R 1990 SC1637 (47) E
1991 SC1676 (5,6,9,13,15,18,27,42,48,50,52 RF 1992 SC1383 (14) R 1992 SC2038
(3,7)
ACT:
Mining Areas, Development of--Enactment by
State Legislature authorising constitution of mining areas and development
fund-Imposition of cess-Constitutional validity-Competency of State
Legislature-Orissa Mining Areas Development Fund Act, 1952 (Orissa XXVII of
1952), S. 4-Constitution of India, Art. 372, Seventh Schedule, List II, Entry
23, 66, List I, Entries 52, 54, 84--Adaptation of Laws Order, 1950, cls. 16,
21.
HEADNOTE:
The petitioners challenged the constitutional
validity of the Orissa Mining Areas Development Fund Act, 1952, which by s. 3
empowered the State Government to constitute mining areas for the purpose of
providing them with certain amenities after hearing objections from the
lessees, by s. 4 to impose and collect a cess not exceeding 5% of the valuation
of the minerals at the pit's mouth and by s. 5 created a fund to which the cess
was to be credited. The petitioners' case, inter alia, was that the impugned
Act and the rules made thereunder were ultra vires the powers of the State
Legislature, the cess levied there under was not a fee but a duty of excise on
coal within Entry 84 of List I of the Seventh Schedule to the Constitution and
repugnant to Coal Mines Labour Welfare Fund Act, 1947 (Act XXXII of 1947), and,
alternatively, even supposing it was a fee relatable to Entries 23 and 66 of
List II, it was hit by Entry 54 of List I read with the Mines and Minerals
(Regulation and Development) Act 1948 (Act LIII of 1948), or by Entry 52 of
List I read with the Industries (Development and Regulation) Act, 1951 (Act LXV
of 1951). It was urged on behalf of the State, inter alia, that the cess was a
fee and not a duty of excise and the competence of the State Legislature to
levy it was not affected by the Central Acts.
Held (per Gajendragadkar, Sarkar, Subba Rao
and Mudholkar, JJ.), that the cess imposed by the Act was a fee relatable to
Entries 23 and 66 of List II of the Seventh Schedule to the Constitution and
the Constitutional validity of the impugned Act was beyond question.
Although there can be no generic difference
between a tax and a fee since both are compulsory exactions of money by public
authorities, there is this distinction between them that whereas a tax is
imposed for public purposes and requires no consideration to support it, a fee
is levied essentially for services rendered and there must be an element of
quid pro quo between the person 538 who pays it and the public authority that
imposes it. While a tax invariably goes into the consolidated fund, a fee is
earmarked for the specified services in a fund created for the purpose. Whether
a cess is one or the other would naturally depend on the facts of each case. If
in the guise of a fee, the Legislature imposes a tax, it is for the Court on a
scrutiny of the scheme of the levy, to determine its real character. The
distinction is recognised by the Constitution which while empowering the
appropriate Legislatures to levy taxes under the Entries in the three lists
refers to their power to levy fees in respect of any such matters, except the
fees taken in court, and tests have been laid down by this Court for
determining the character of an impugned levy.
Matthews v. Chicory Marketing Board, 60
C.L.R. 263, The Commissioner, Hindu Religious Endowments, Madras v. Sri
Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, [1954] S.C.R. 1005, Mahant Sri
Jagannath Ramanuj Das & Any. v. The State of Orissa, [1954] S.C.R. 1046,
and Ratilal Panachand Gandhi v. The State of Bombay, [1954] S.C.R. 1055,
referred to.
P. P. Kutti Keva & Ors. v. The State of
Madras, A.I.R.
1954 Mad. 621, Attorney-General for British
Columbia v. Esquimalt and Nanaimo Railway Co., (1950) A.C. 87 and Parton &
Any. v. Mils Board (Victoria), (1949) 80 C.L.R.
229, considered and held inapplicable.
In determining whether a levy is a fee the
true test must be whether its primary and essential purpose is to render
specific services to a specified area or class, it being of no consequence that
the State may ultimately and indirectly be benefited by it.
So judged, the scheme of the impugned Act
leaves no manner of doubt that the levy authorised by it is a fee and not a
tax.
The amount of the levy must depend on the
extent of the services sought to be rendered and if they are proportionate, it
would be unreasonable to say that since the impost is high it must be a duty of
excise. The rate specified by s. 4(2) of the Act, therefore, cannot by itself
alter the character of the levy and constitute a trespass by the State
Legislature on the legislative powers of the Parliament under Entry 84 of the
List I.
Nor can the method prescribed by the
Legislature for recovering the levy by itself alter its character. The method
is a matter of convenience and, though relevant, has to be tested in the light
of other relevant circumstances. It is not permissible to challenge the vires
of a statute relatable to an Entry in List II solely on the ground that the
method adopted for the recovery of the impost can and generally is adopted in
levying a duty of excise.
Ralla Ram v. The Province of East Punjab,
[1948] F.C.R. 207, Byramjee Jeejeebhoy v. The Province of Bombay & Anr.
I.L.R.
539 1940 Bom. 58 and Governor-General in
Council v. Province of Madras, (1945)'L.R. 72 I.A. 91, considered.
The limitation imposed by the latter part of
Entry 23 of List II is a limitation on the legislative competence of the State'
Legislature itself and the test whether a statute passed by the State
Legislature thereunder was ultra vires would be whether the requisite
declaration under Entry 54, List I, has been made by Parliament by law covering
the same field or not; it is not necessary in order to make the declaration
effective that rules should also be made and enforced.
Although by operation of Art. 372 of the
Constitution Act LIII of 1948 was an existing Act substantially covering the
same field as covered by the impugned Act, there was no adaptation of S. 2 of
that Act whereby a declaration implied by it could be said to have been adapted
to a declaration by Parliament. Clause 16 of the Adaptation of Laws Order,
1950, properly construed, cannot be held to refer to the Dominion Legislature
and equate it with the Parliament. It can be resorted to only where the
existing law expressly refers to some authority that can be equated with the
corresponding new authorities. Since the Dominion Legislature was not so
referred to, its competence under the Constitution Act of 1935, repealed by the
Constitution of India, was clearly outside the clause. Nor can Cl. 21 of the
order be of any help to the petitioners.
Consequently, in the absence of the requisite
Parliamentary declaration, the competence of the Orissa State Legislature under
Entry 23 read with Entry 66 of the List II was not impaired and the impugned
Act must be deemed to have repealed the Central Act, so far as that State was
concerned.
This case incidentally discloses that in
regard to the requisite Parliamentary declaration prescribed by Entry 54 in List
I in its application to the pre-constitution Acts under corresponding Entry 36
in List I of the Constitution Act of 1935, there is a lacuna which has not been
covered by any clauses of the Adaptation of Laws Order, 1950.
Nor was the impugned Act ultra vires the
State Legislature by operation of Entry 52 of List I read with S. 2 of the
Industries (Development and Regulation) Act, 1951 (LXV of 1951). That Act, in
pith and substance, deals more directly with the control of certain specified
industries including the coal industry, while the impugned Act is concerned
with the development of the mining-areas notified under it. The field covered
by the two Acts was not, therefore, the same.
per Wanchoo, J.-In order to determine whether
a levy is a tax or a fee, what has to be considered is the pith and substance
of the levy. Where the levy in pith and substance is not essentially different
from a tax, it cannot be converted into a fee by crediting it to a special fund
and attaching certain services to it.
540 The Commissioner, Hindu Religious
Endowments, Madras, v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt,
[1954] S.C.R. 1005, Mahant Sri Jaannath Ramanuj Das v. The State of Orissa,
[1954] S.C.R. 1046 and Ratilal Panachand Gandhi v. The State of Bombay, [1954]
S.C.R. 1055, discussed.
A duty of excise in pith and substance is
primarily a duty levied on a manufacturer or producer in respect of the
commodity manufactured or produced. It is different and distinct from a sales
tax and in law they do not overlap.
Governor-General in Council v. Province of
Madras, 72 I.A.
91, referred to.
What the impugned Act did was to provide for
the levying of the cess on the goods produced at a rate not exceeding five per
centum of the value at the pit's mouth. The cess was, therefore, in pith and
substance a duty of excise falling within Entry 84 of List I, which the State
legislature could not levy.
It was not correct to say that the method
employed by the impugned Act for realising the cess was a mere method of quantification
and did not affect its character which was that of a fee. In the present case
the very mode of the levy of the cess is nothing other than the levy of a duty
of excise, and, therefore, the principle of quantification for purposes of a
fee could not be so extended as to convert what was in pith and substance a tax
into a fee.
Sri Byramjee Jeejeebhoy v. The Province of
Bombay, I.L.R.
1940 Bom. 58, Municipal Corporation,
Ahmedabad v. Patel Gordhandas Hargovandas, I.L.R. 1054 Bom. 41 and Ralla Ram v.
The Province of East Punjab, [1948] F.C.R.
207, considered.
K. C. Gajapati Narayan Deo v. The State of
Orissa, [1954] S.C. R. 1, referred to.
The cess levied under s. 4 of the Act could
not be justified as a tax on mineral rights under Entry 50 of List II of the
Seventh Schedule and the impugned Act was in effect a colourable piece of
legislation.
ORIGINAL JURISDICTION: Petition No. 87 of
1959.
Petition under Art. 32 of the Constitution of
India for enforcement of Fundamental Rights.
M. P. Amin, Dara P. Mehta, P. M. Amin; S. N.
Andley, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra for the petitioners.
A. V. Viswanatha Sastri, R. Ganapathy Iyer,
P. Kesava Pillai and T. M. Sen, for the respondents.
H. N. Sanyal, Additional Solicitor-General of
India, B. Sen and R. H. Dhebar, for the Intervener.
541 1960. November, 21. The, Judgment of P.
B. Gajendragadkar, A. K. Sarkar, K. Subba Rao and J. R. Mudholkar, JJ., was
delivered by P. B. Gajendragadkar J., K. N. Wanchoo, J., delivered a separate
judgment.
GAJENDRAGADKAR, J.-This is a petition filed
under Art. 32 of the Constitution in which the validity of the Orissa Mining
Areas Development Fund Act,(-, 1952 (XXVII of 1952), is challenged. The first
petitioner is a public limited company which has its registered office at
Bombay. A large majority of its shareholders are citizens of India; some of
them are themselves companies incorporated under the Indian Companies Act.
Petitioners Nos. 2 to 7 are the Directors of Petitioner No. 1, the second petitioner
being the Chairman of its Board of Directors. These petitioners are all
citizens of India. At all material times the first petitioner carried on and
still carries on the business of producing and selling coal excavated from its
collieries at Rampur in the State 'of Orissa. Two leases have been executed in
its favour; the first was executed on October 17, 1941, by the Governor of
Orissa whereby all that piece or parcel of land in the registration district of
Sambalpur admeasuring about 3341.79 acres has been demised for a period of 30
years commencing from September 1, 1939, in consideration of the rent reserved
thereby and subject to the covenants and conditions prescribed there under; and
the second is a surface lease executed in its favour by Mr. Mohan Brijraj Singh
Dee on April 19, 1951, in relation to a land admeasuring approximately 211.94
acres for a like period of 30 years commencing from February 4, 1939, in
consideration of the rent and subject to the terms and conditions prescribed by
it.
Pursuant to s. 5 of the Orissa Estates
Abolition Act, 1951, all the right, title and interest of the Zamindar of
Rampur in the lands demised to the first petitioner under the second lease
vested in respondents, the State of Orissa.
Since then the first petitioner has duly paid
the rent reserved by the said lease to the appropriate authorities appointed by
respondent 1, 69 542 and has observed and performed all the conditions and
covenants of the said lease. In exercise of its rights under the said two
leases the first petitioner entered upon the lands demised and has been
carrying on the business of excavating and producing coal at its collieries at
Rampur.
In December, 1952, the Legislature of the
State of Orissa passed the impugned Act; and it received the assent of the
Governor of Orissa on December 10, 1952. It was, however, not reserved for the
consideration of the President of India nor has it received his assent. In
pursuance of the rulemaking power conferred on it by the impugned Act
respondent 1 has purported to make rules called the Orissa Mining Areas
Development Act Rules, 1955; these rules have been duly notified in the State
Gazette on January 25, 1955.
Subsequently, the Administrator, respondent
2, appointed under the impugned Act issued a notification on June 24, 1958,
whereby the first petitioner's Rampur colliery has been notified for the
purpose of liability for the payment of cess under the impugned Act. The area
of this colliery has been determined at 3341.79 acres. In its appeal filed under
rule 3 before the Director of Mines the first petitioner objected to the issue
of the said notification, inter alia, on the ground that the impugned Act and
the rules framed under it were ultra vires and invalid; no action has, however,
been taken on the said appeal presumably because the authority concerned could
not entertain or deal with the objections about the vires of the Act and the
rules.
Thereafter on March 26, 1959, the Assistant
Administrative Officer, respondent 3, called upon the first petitioner to
submit monthly returns for the assessment of the cess. The first petitioner
then represented that it had filed an appeal setting forth its objections
against the notification, and added that until the said appeal was disposed of
no returns would be filed by it. In spite of this representation respondent 3,
by his letter of May 6, 1959, called upon the 543 first petitioner to submit
monthly returns in the prescribed form and issued the warning that failing
compliance the first petitioner would be prosecuted under s. 9 of the impugned
Act. A similiar demand was made and a similar warning issued by respondent 3 by
his letter dated June 6, 1959. It is under these circumstances that the present
petition has been filed.
The petitioners contend that the impugned Act
and' the rules made thereunder are ultra vires the powers of the Legislature of
the State of Orissa, or in any event they are repugnant to the provisions of an
existing law. According to the petition the cess levied under the impugned Act is
not a fee but is in reality and in substance a levy in the nature of a duty of
excise on the coal produced at the first petitioner's Rampur colliery, and as
such is beyond the legislative competence of the Orissa Legislature.
Alternatively it is urged that even if the
levy imposed by the impugned Act is a fee relatable to Entries 23 and 66 in
List II of the Seventh Schedule, it would nevertheless be ultra vires having
regard to the provisions of Entry 54 in List I read with Central Act LIII of
1948. The petitioners further allege that even if the said levy is held to be a
fee it would be similarly ultra vires having regard to Entry 52 in List I read
with Central Act LXV of 1951. According to the petitioners the impugned Act is
really relatable to Entry 24 in List III, and since it is repugnant with
Central Act XXXII of 1947 relatable to the same Entry and covering the same
field the impugned Act is invalid to the extent of the said repugnancy under
Art. 254. On these allegations the petitioners have applied for a writ of
mandamus or a writ in the nature of the said writ or any other writ, order or
direction prohibiting the respondents from enforcing any of the provisions of
the impugned Act against the first petitioner; a similar writ or order is
claimed against respondent 3 in respect of the letters addressed by him to the
1st petitioner on March 3, 1959 and June 6, 1959.
This petition is resisted by respondent 1 on
several grounds. It is urged on its behalf that the levy 544 imposed by the
impugned Act is a fee relatable to Entries 23 and 66 in List II and its
validity is not affected either by Entry 54 read with Act LIII of 1948 or by
'Entry 52 read with Act LXV of 1951. In the alternative it is contended that if
the said levy is held to be a tax and not a fee, it would be a tax relatable to
Entry 50 in List II, and as such the legislative competence of the State
Legislature to impose the same cannot be successfully challenged.
Respondent 1 disputes the petitioner's
contention that the impugned Act is relatable to Entry 24 in List III; and so,
according to it, no question of repugnancy with the Central Act XXXII of 1947
arises.
After this appeal was fully argued before us
Mr. Amin suggested-and Mr. Sastri did not object-that we should hear the
learned Attorney-General on the question as to whether even if the levy imposed
by the impugned Act is a fee relatable to Entries 23 and 66 in List II of the
Seventh Schedule, it would nevertheless be ultra vires having regard to the
provisions of Entry 54 in List I read with Central Act LIII of 1948.
Accordingly we directed that a notice on this point should be served on the
learned Attorney-General and the case should be set down for hearing on that
point again. For the learned Attorney-General the learned Additional
Solicitor-General appeared before us in response to this notice and we have had
the benefit of hearing his arguments on the point in question.
The first question which falls for
consideration is whether the levy imposed by the impugned Act amounts to a fee
relatable to Entry 23 read with Entry 66 in List II. Before we deal with this
question it is necessary to consider the difference between the concept of tax
and that of a fee.
The neat and terse definition of tax which
has been given by Latham, C. J., in Matthews v. Chicory Marketing Board (1) is
often cited as a classic on this subject. "A tax", said Latham, C.
J., "is a compulsory exaction of money by public authority for public
purposes enforceable by law, and is not payment for services rendered". In
bringing out the essential features of a tax this defini(1) (1938) 60 C.L.R.
263, 276.
545 tion also assists in distinguishing a tax
from a fee. It is true that between a tax and a fee there is no generic
difference. Both are compulsory exactions of money. by public authorities; but
whereas a tax is imposed for public purposes and is not, and need not, be
supported by any consideration of service rendered in return, a fee is levied
essentially for services rendered and as such there is an element of quid pro
quo between the person who pays the fee and the public authority which imposes
it. If specific services are rendered to a specific area or to a specific class
of persons or trade or business in any local area, and as a condition precedent
for the said services or in return for them cess is levied against the said
area or the said class of persons or trade or business the cess is
distinguishable from a tax and is described as a fee. Tax recovered by public
authority invariably goes into the consolidated fund which ultimately is
utilised for all public purposes, whereas a cess levied by way of fee is not
intended to be, and does not become, a part of the consolidated fund. It is
earmarked and set apart for the purpose of services for which it is levied.
There is, however, an element of compulsion in the imposition of both tax and
fee. When the Legislature decides to render a specific service to any area or
to any class of persons, it is not open to the said area or to the said class
of persons to plead that they do not want the service and therefore they should
be exempted from the payment of the cess.
Though there is an element of quid pro quo
between the taxpayer and the public authority there is no option to the
tax-payer in the matter of receiving the service determined by public
authority. In regard to fees there is, and must always be, co-relation between
the fee collected and the service intended to be rendered. Cases may arise
where under the guise of levying a fee Legislature may attempt to impose a tax;
and in the case of such a colourable exercise of legislative power courts would
have to scrutinise the scheme of the levy very carefully and determine whether
in fact there is a co-relation between the service and the levy, or whether the
levy is either not co-related with service or is levied to such an 546
excessive extent as to be a presence of a fee and not a fee in reality. In
other words, whether or not a particular cess levied by a statute amounts to a
fee or tax would always be a question of fact to be determined in the
circumstances of each case. The distinction between a tax and a fee is,
however, important, and it is recognised by the Constitution. Several Entries
in the Three Lists empower the appropriate Legislatures to levy taxes; but
apart from the power to levy taxes thus conferred each List specifically refers
to the power to levy fees in respect of any of the matters covered in the said
List excluding of course the fees taken in any Court.
The question about the distinction between a
tax and a fee has been considered by this Court in three decisions in 1954. In
The Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha
Swamiar of Sri Shirur Mutt (1) the vires of the Madras Hindu Religious and
Charitable Endowments Act, 1951 (Madras Act XIX of 195 1), came to be examined.
Amongst the sections challenged was s. 76(1).
Under this section every religious
institution had to pay to the Government annual contribution not exceeding 5%
of its income for the services rendered to it by the said Government; and the
argument was that the contribution thus exacted was not a fee but a tax and as
such outside the competence of the State Legislature. In dealing with this
argument Mukherjee, J., as he then was, cited the definition of tax given by
Latham, C.J., in the case of Matthews (2), and has elaborately considered the
distinction between a tax and a fee. The learned judge examined the scheme of
the Act and observed that "the material fact which negatives the theory of
fees in the present case is that the money raised by the levy of the
contribution is not earmarked or specified for defraying the expense that the
Government has to incur in performing the services. All the collections go to
the consolidated fund of the State and all the expenses have to be met not out
of those collections but out of the general revenues by a proper method of
appropriation as is done in the (1) [1954] S.C.R. 1005.
(2) (1938) 60 C.L.R. 263.
547 case of other Government expenses".
The learned judge no doubt added that the said circumstance was not conclusive
and pointed out that in fact there was a total absence of any co-relation
between the expenses incurred by the Government and the amount raised by
contribution. That is why s. 76(1) was struck down as ultra vires.
The same point arose before this Court in
respect of the Orissa Hindu Religious Endowments Act, 1939, as amended by
amending Act 11 of 1952 in Mahant Sri Jagannath Ramanuj Das v. The, State of
Orissa (1). Mukherjea, J., who again spoke for the Court, upheld the validity
of s. 49 which imposed the liability to pay the specified contribution on every
Mutt or temple having an annual income exceeding Rs. 250 for services rendered
by the State Government. The scheme of the impugned Act was examined and it was
noticed that the collections made under it are not merged in the general public
revenue and are not appropriated in the manner laid down for appropriation of
expenses for other public purposes. They go to constitute a fund which is contemplated
by s. 50 of the Act, and this fund to which the Provincial Government
contributes both by way of loan and grant is specifically set apart for the
rendering of services involved in carrying out the provisions of the Act.
The same view was taken by this Court in
regard to s. 58 of the Bombay Public Trust Act, 1950 (Act XXIX of 1950) which
imposed a similar contribution for a similar purpose in Ratilal Panachand
Gandhi v. The State of Bombay (2). It would thus be seen that the tests which
have to be applied in determining the character of any impugned levy have been
laid down by this Court in these three decisions; and it is in the light of
these tests that we have to consider the merits of the rival contentions raised
before us in the present petition.
On behalf of the petitioners Mr. Amin has
relied on three other decisions which may be briefly considered. In P. P. Kutti
Keya v. The State of Madras (3), the Madras High Court was called upon to
consider, inter (1) [1954] S.C.R. 1046. (2) [1954] S.C.R. 1055.
(3) A.I.R. 1954 Mad. 621.
548 alia, the validity of s. 11 of the Madras
Commercial Crops Markets Act 20 of 1933 and Rules 28(1) and 28(3) framed
thereunder. Section 11(1) levied a fee on the sales of commercial crops within
the notified area and s. 12 provided that the amounts collected by the Market
Committee shall be constituted into a Market Fund which would be utilised for
acquiring a site for the market, constructing a building, maintaining the
market and meeting the expenses of the Market Committee. The argument that
these provisions amounted to services rendered to the notified area and thus
made the levy a fee and not a tax was not accepted by the Court. Venkatarama
Aiyar, J., took the view that the funds raised from the merchants for a construction
of a market in substance amounted to an exaction of a tax. Whether or not the
construction of a market amounted to a service to the notified area it is
unnecessary for us to consider.
Besides, as we have already pointed out we
have now three decisions of this Court which have authoritatively dealt with
this matter, and it is in the light of the said decisions that the present
question has to be considered.
In Attorney-General for British Columbia v.
Esquimalt and Nanaimo Railway Co. (1), the Privy Council had to deal with the
validity of forest protection impost levied by the relevant section of the
Forest Act R. S. B. C. 1936. The lands in question were statutorily exempted
from taxation, and it was urged against the validity of the impost that the
levy of the said impost was not a service charge but a tax;
and since it contravened the exemption from
taxation granted to the land it was invalid. This plea was upheld by the Privy
Council. The Privy Council did consider two circumstances which were relevant;
the first that the levy was on a defined class of interested individuals, and
the second that the fund raised did not fall into the general mass of the
proceeds of taxation but was applicable for a special and limited purpose. It
was conceded that these considerations were relevant but the Privy Council
thought that the weight to be attached to them should not be exagge(1) (1950)
A.C. 87.
540 rated. In appreciating the weight of the
said relevant circumstances the Privy Council was impressed by the fact that
the lands in question formed an important part of the national wealth of the
Province and their proper administration, including in particular protection
against fire, is a matter of high public concern' as well as one of particular
interest to individuals. In other words, the effect of the impugned provision
was, that the expenses of what was the public service of the greatest
importance for the Province as a whole had been divided between the general
body of tax. payers and those individuals who had a special interest in having
their property protected. It would thus appear that this decision proceeded on
the basis that what was claimed to be a special service to the lands in
question was in reality an item in public service itself, and so the element of
quid pro quo was absent. It is true that when the Legislature levies a fee for
rendering specific services to a specified area or to a specified class of
persons or trade or business, in the last analysis such services may indirectly
form part of services to the public in general.
If the special service rendered is distinctly
and primarily meant for the benefit of a specified class or area the fact that
in benefiting the specified class or area the State as a whole may ultimately
and indirectly be benefited would not detract from the character of the levy as
a fee. Where, however, the specific service is indistinguishable from public
service, and in essence is directly a part of it, different considerations may
arise. In such a case it is necessary to enquire what is the primary object of
the levy and the essential purpose which it is intended to achieve.
Its primary object and the essential purpose
must be distinguished from its ultimate or incidental results or consequences.
That is the true test in determining the character of the levy.
In Parton. v. Milk Board (Victoria)(1), the
validity of the levy imposed on dairymen and owners of milk depots by s. 30 of
the Milk Board Act of 1933 as amended by subsequent Acts of 1936-1939 was (1)
(1949) 80 C.L.R. 229.
70 550 challenged, and it was held by Dixon,
J., that the levy of the said contribution amounted to the imposition of a duty
of excise. This decision was substantially based on the ground that the
statutory board "performs no particular service for the dairyman or the
owner of a milk depot for which his contribution may be considered as a fee or
recompense" that is to say the element of quid pro quo was absent qua the
persons on whom the levy had been imposed.
Therefore none of the decisions on which Mr.
Amin has relied can assist his case.
Let us now examine the scheme of the impugned
Act. As the preamble shows it has been passed because it was thought expedient
to constitute mining areas and a Mining Areas Development Fund in the State of
Orissa. It consists of 11 sections. Section 3 of the Act provides for the
constitution of a mining area whenever it appears to the State Government that
it is necessary and expedient to provide amenities like communications,
water-supply and electricity for the better development of any area in the
State of Orissa wherein any mine is situated, or to provide for the welfare of
the residents or to workers in any such areas within which persons employed in
a mine or a group of mines reside or work. Under this section the State
Government has to define the limits of the area. and is given the power to
include within such area any local area contiguous to the same or to exclude
from such area any local area comprised therein; that is the effect of s. 3(1).
Section 3(2) empowers the owner or a lessee
of a mine or his duly constituted representative in the said area to file
objections in respect of any notification issued under s. 3(1) within the
period specified, and the State Government is required to take the said
objection into consideration.
After considering objections received the
State Government is authorised to issue a notification constituting a mining
area under s. 3(3). Section 4 deals with the imposition and collection of cess.
The rate of the levy authorised shall not exceed 5 per centum of the valuation
of the minerals at the pit's mouth. Section 5 provides for the constitution of
the Orissa Mining Areas Development 551 Fund. This fund vests in the State
Government and has to be administered by such officer or officers as may be
appointed by the State Government in that, behalf Section 5(2) requires that
there shall be paid to the credit of the said fund the proceeds of the cess
recovered under s. 4 for each mining area during the quarter after deducting
expenses, if any, for collection and recovery. Section 5(3) contemplates that
to the credit of the said fund shall be placed all collections of cess under s.
5(2) as well as amounts from State Government and the local authorities and
public subscriptions specifically given for any of the purposes of the fund.
Section 5(4) deals with the topic of the application of the said fund. The fund
has to be utilised to meet expenditure incurred in connection with such
measures which in the opinion of the State Government are necessary or
expedient for providing amenities like communications, water supply and
electricity, for the better development of the mining areas, and to meet the
welfare of the labour and other persons residing or working in the mining
areas.
Section 5(5) lays down that without prejudice
to the generality of the foregoing provisions the fund may be utilised to
defray any of the purposes specified in cls. (a) to (e). Under s. 5(6) the
State Government is given the power to decide whether any particular
expenditure is or is not debitable to the fund and their decision is made
final;
and s. 5(7) imposes on the State Government
an obligation to publish annually in the gazette a report of the activities
financed from the fund together with an estimate of receipts and expenditure of
the fund and a statement of account.
Section 6 prescribes the mode of constituting
an advisory committee. It has to consist of such number of members and chosen
in such manner as may be prescribed, provided however that each committee shall
include representatives of mineowners and workmen employed in mining industry.
The names of the members of the committee are required to be published in the
gazette. Section 7 deals with the appointment and functions of the statutory
authorities to carry out the purpose of the Act, while s. 8 confers on the
State Government power to 552 make rules. Section 9 prescribes penalties and
provides for prosecutions; and s. 10 gives protection to the specified
authorities or officers in respect of anything done or intended to be done by
them in good faith in pursuance of the Act or any rules or order made
thereunder. Section 11, which is the last section confers on the State
Government the power to do anything which may appear to them to be necessary
for 'the purpose of removing difficulties in giving effect to the provisions of
the Act.
The scheme of the Act thus clearly shows that
it has been passed for the purpose of the development of mining areas in the
State. The basis for the operation of the Act is the constitution of a mining
area, and it is in regard to mining areas thus constituted that the provisions
of the Act come into play. It is not difficult to appreciate the intention of
the State Legislature evidenced by this Act. Orissa is an underdeveloped State
in the Union of India though it has a lot of mineral wealth of great potential
value. Unfortunately its mineral wealth is located generally in areas sparsely
populated with bad communications. Inevitably the exploitation of the minerals
is handicapped by lack of communications, and the difficulty experienced in
keeping the labour force sufficiently healthy and in congenial surroundings.
The mineral development of the State, therefore, requires that provision should
be made for improving the communications by constructing good roads and by
providing means of transport such as tramways; supply of water and electricity
would also help. It would also be necessary to provide for amenities of
sanitation and education to the labour force in order to attract workmen to the
area. Before the Act was passed it appears that the mine-owners tried to put up
small-length roads and tramways for their own individual purpose, but that
obviously could not be as effective as roads constructed by the State and
tramway service provided by it. It is on a consideration of these factors that
the State Legislature decided to take an active part in unsystematic
development of its mineral areas which would help the mine-owners in moving
their 553 minerals quickly through the shortest route and would attract labour
to assist the excavation of the minerals.
Thus there can be no doubt that the primary
and the principal object of the Act is to develop' the mineral areas in the
State and to assist more efficient and extended exploitation of its mineral
wealth.
The constitution of the advisory committee as
prescribed by s. 4 emphasises the fact that the policy of the Act would be to
carry out with the assistance of the mine-owners and their workmen. Thus after
a mining area is notified an advisory committee is constituted in respect of
it, and the task of carrying out the objects of the Act is left to the care of
the said advisory committee subject to the provisions of the Act. Even before
an area is notified the mine-owners are allowed an opportunity to put forward
their objections. These features of the Act are also relevant in determining
the question as to whether the Act is intended to render service to the
specified area and to the class of persons who are subjected to the levy of the
cess.
Section 5 shows that the cess levied does not
become a part of the consolidated fund and is not subject to an appropriation
in that behalf; it goes into the special fund earmarked for carrying out the
purpose of the Act, and thus its existence establishes a correlation between
the cess and the purpose for which it is levied. It was probably felt that some
additions should be made to the special fund, and so s. 5(3) contemplates that
grants from the State Government and local authorities and public subscriptions
may be collected for enriching the said fund. Every year a report of the
activities financed by the fund has to be published together with an estimate
of receipt and expenditure and a statement of accounts. It would thus be clear
that the administration of the fund would be subject to public scrutiny and
persons who are called upon to pay the levy would have an opportunity to see
whether the cess collected from them has been properly utilised for the
purposes for which it is intended to be used. It is not alleged by the
petitioners 554 that the levy imposed is unduly or unreasonably excessive so as
to make the imposition a colourable exercise of legislative power. Indeed the
fact that the accounts have to be published from year to year affords an
indication to the contrary. Thus the scheme of the Act shows that the cess is
levied against the class of persons owning mines in the notified area and it is
levied to enable the State Government to render specific services to the said
class by developing the notified mineral area. There is an element of quid pro
quo in the scheme, the cess collected is constituted into a specific fund and
it has not become a part of the consolidated fund, its application is regulated
by a statute and is confined to its purposes, and there is a definite
co-relation between the impost and the purpose of the Act which is to render
service to the notified area.
These features of the Act impress upon the
levy the character of a fee as distinct from a tax.
It is, however, urged that the cess levied by
s. 4(2) is in substance and reality a duty of excise. As we have already
noticed s. 4(2) provides that the rate of such levy shall not exceed 5 per
centum of the valuation of the minerals at the pit's mouth; in other words it
is the value of the minerals produced which is the basis for calculating the
cess payable by mine-owners, and that precisely is the nature in which duty of
excise is levied under Entry 84 in List I. The said Entry empowers Parliament
to impose duties of excise, inter alia, on goods manufactured or produced in
India. When minerals are produced from mines and a duty of excise is intended
to be imposed on them it would be normally imposed at the pit's mouth, and that
is precisely what the impugned Act purports to do. It is also contended that
the rate prescribed by s. 4(2) indicates that it operates not as a mere fee but
as a duty of excise. This argument must be carefully examined before the
character of the cess is finally determined. It is not disputed that under
Entry 23 in List II read with Entry 66 in the said List the State Legislature
can levy a fee in respect of mines and mineral development. Entry 23 reads
thus: "Regulation of Mines and mineral development subject to 555 the
provisions of List I with respect to regulation and development under the
control of the Union". We will deal with the condition imposed by the
latter part of this Entry later. For the present it is enough to state that
regulation of mines and mineral development is within the competence of the
State Legislature. Entry 66 provides that fees in respect of any of the matters
in the said List can be imposed by the State Legislature subject of course to
the exception of fees taken in any Court. The argument is that though the State
Legislature is competent to levy a fee in respect of mines and mineral
development, if the statute passed by a State Legislature in substance and in
effect imposes a duty of excise it is travelling outside its jurisdiction and is
trespassing on the legislative powers of Parliament.
This argument is based on two considerations.
The first relates to the form in which the levy is imposed, and the second
relates to the extent of the levy authorised. The extent of the levy authorised
would always depend upon the nature of the services intended to be rendered and
the financial obligations incurred thereby. If the services intended to be
rendered to the notified mineral areas require that a fairly large cess should
be collected and correlation can be definitely established between the proposed
services and the impost levied, then it would be unreasonable to suggest that
because the rate of the levy is high it is not a fee but a duty of excise. In
the present case, if the development of the mining areas involves considerable
expenditure which necessitates the levy of the prescribed rate it only means
that the services being rendered to the mining areas are very valuable and the
ratepayer in substance is compensating the State for the services rendered by
it to him. It is significant that the petitioners do not seriously suggest that
the services intended to be rendered are a cloak and not genuine, or that the
taxes levied have no relation to the said services, or that they are unreasonable
and excessive. Therefore, in our opinion, the extent of the rate allowed to be
imposed by s. 4(2) cannot by itself alter the character of the levy from a 556
fee into that of a duty of excise. If the co-relation between the levy and the
services was not genuine or real, or if the levy was disproportionately higher
than the requirements of the services intended to be rendered it would have
been another matter.
Then as to the form in which the impost is
levied, it is difficult to appreciate how the method adopted by the Legislature
in recovering the impost can alter its character. The character of the levy
must be determined in the light of the tests to which we have already referred.
The method in which the fee is recovered is a
matter of convenience, and by itself it cannot fix upon the levy the character
of the duty of excise. This question has often been considered in the past, and
it has always been held that though the method in which an impost is levied may
be relevant in determining its character its significance and effect cannot be
exaggerated. In Balla Ram v. The Province of East Punjab (1) the Federal Court
had to consider the character of the tax levied by s. 3 of the Punjab Urban
Immoveable Property 'tax Act XVII of 1940. Section 3 provided as follows:
"There shall be charged, levied and paid an annual to tax on buildings and
lands situated in the rating areas shown in the schedule to this Act at such
rate not exceeding twenty per centum of the annual value of such buildings and
lands as the Provincial Government may by notification in official gazette
direct in respect of each such rating area". The argument urged before the
Federal Court was that the tax imposed by the said section was in reality a tax
on income within the meaning of Item 54 in List I of the Seventh Schedule to
the Constitution Act of 1935, and as such it was not covered by Item 42 in List
II of the said Schedule. This argument was rejected on the ground that the tax
levied by the Act was in pith and substance a tax on lands and buildings
covered by Item 42.
It would be noticed that the basis of the tax
was the annual value of the building which is the basis used in the Indian
Income-tax Act for determining income from property; and so, the attack against
the section was based on (1) (1948) F.C.R. 207.
557 the ground that it had adopted the same
basis for leaving the impost as the Income-tax Act and the said basis
determined its character whatever may be the appearance in which the impost was
purported to be levied. In repelling this argument Fazl Ali, J. observed that
the crucial question to be answered was whether merely because the Income-tax
Act has adopted the annual value as the standard for determining the income it
must necessarily follow that if the same standard is employed as a measure for
any other tax that tax becomes a tax on income. The learned judge then
proceeded to add that if the answer to this question is to be given in the
affirmative then certain taxes which cannot possibly be described as income-tax
must be held to be so. In other words, the effect of this decision is that the
adoption of the standard used in Income-tax Act for getting at the income by
any other act for levying the tax authorised by it would not be enough to
convert the said.
tax into an income-tax. During the course of
this judgment Fazl Ali, J. also noticed with approval a similar view taken by
the Bombay High Court in Sir Byramjee Jeejeebhoy v. The Province of Bombay (1).
This decision has been expressly approved by
the Privy Council in Governor-General in Council v. Province of Madras (2).
Consistently with the decision of the Federal Court their Lordships expressed
the opinion that "a duty of excise is primarily a duty levied on a
manufacturer or producer in respect of the commodity manufactured or produced.
It is a tax on goods and not on sales or the proceeds of the sale of goods. The
two taxes, the one levied on the manufacturer in respect of his goods and the
other on the vendor in respect of his sales may in one sense overlap, but in
law there is no overlapping; the taxes are separate and distinct imposts.
If in, fact they overlap that may be because
the taxing authority imposing a duty of excise finds it convenient to impose
that duty at the moment when the excisable article (1) I.L.R. 1940 Bom. 58.
(2) (1945) L.R. 72 I.A. 91.
71 558 leaves the factory or workshop for the
first time on the occasion of its sale". In that case the question was
whether the tax authorised by the Madras General Sales Tax Act, 1939, was a tax
on the sale of goods or was a duty of excise, and the Privy Council held it was
the former and not the latter. Therefore, in our opinion, the mere fact that
the levy imposed by the impugned Act has adopted the method of determining the
rate of the levy by reference to the minerals produced by the mines would not
by itself make the levy a duty of excise. The method thus adopted may be
relevant in considering the character of the impost but its effect must be
weighed along with and in the light of the other relevant circumstances. In
this connection it is always necessary to bear in mind that where an impugned
statute passed by a State Legislature is relatable to an Entry in List II it is
not permissible to challenge its vires only on the ground that the method adopted
by it for the recovery of the impost can be and is generally adopted in levying
a duty of excise. Thus considered the conclusion is inevitable that the cess
levied by the impugned Act is neither a tax nor a duty of excise but is a fee.
The next question which arises is, even if
the cess is a fee and as such may be relatable to Entries 23 and 66 in List II
its validity is still open to challenge because the legislative competence of
the State Legislature under Entry 23 is subject to the provisions of List I
with respect to regulation and development under the control of the Union;
and that takes us to Entry 54 in List I. This
Entry reads thus: "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".
The effect of reading the two Entries together is clear. The jurisdiction of
the State Legislature under Entry 23 is subject to the limitation imposed by the
latter part of the said Entry. If Parliament by its law has declared that
regulation and development of mines should in public interest be under the
control of the Union, to 559 the extent of such declaration the jurisdiction of
the State Legislature is excluded. In other words, if a Central Act has been
passed which contains a declaration by Parliament as required by Entry 54, and
if the said declaration covers the field occupied by the impugned Act the
impugned Act would be ultra vires, not because of any repugnance between the
two statutes but because the State Legislature had no jurisdiction to pass the
law. The limitation imposed by the latter part of Entry 23 is a limitation on
the legislative competence of (,he State Legislature itself. This position is not
in dispute.
It is urged by Mr. Amin that the field
covered by the impugned Act has already been covered by the Mines and Minerals
(Regulation and Development) Act, 1948, (LIII of 1948) and he contends that in
view of the declaration made by s. 2 of this Act the impugned Act is ultra
vires. This Central Act was passed to provide for the regulation of mines and
oil fields and for the development of minerals.
It may be stated at this stage that by Act
LXVII of 1957 which has been subsequently passed by Parliament, Act LIII of
1948 has now been limited only to oil fields. We are, however, concerned with
the operation of the said Act in 1952, and at that time it applied to mines as
well as oil fields. Section 2 of the Act contains a declaration as to the expediency
and control by the Central Government. It reads thus: "It is hereby
declared that it is expedient in the public interest that the Central
Government should take under its control the regulation of mines and oil fields
and the development of minerals to the extent hereinafter provided". It is
common ground that at the relevant time this Act applied to coal mines. Section
4 of the Act provides that no mining lease shall be granted after the
commencement of this Act otherwise than in accordance with the rules made under
this Act. Section 5 empowers the Central Government to make rules by
notification for regulating the grant of mining leases or for prohibiting the
grant of such leases in respect of any mineral or in any area. Sections 4 and 5
thus 560 purport to prescribe necessary conditions in accordance with which
mining leases have to be executed. This part of the Act has no relevance to our
present purpose. Section 6 of the Act, however, empowers the Central Government
to make rules by notification in the official gazette for the conservation and
development of minerals. Section 6(2) lays down several matters in respect of
which rules can be framed by the Central Government. This power is, however,
without prejudice to the generality of powers conferred on the Central
Government by s. 6(1). Amongst the matters covered by s. 6(2) is the levy and
collection of royalties, fees or taxes in respect of minerals mined, quarried,
excavated or collected. It is true that no rules have in fact been framed by the
Central Government in regard to the levy and collection of any fees; but, in
our opinion, that would not make any difference. If it is held that this Act
contains the declaration referred to in Entry 23 there would be no difficulty
in holding that the declaration covers the field of conservation and
development of minerals, and the said field is indistinguishable from the field
covered by the impugned Act. What Entry 23 provides is that the legislative
competence of the State Legislature is subject to the provisions of List I with
respect to regulation and development under the control of the Union, and Entry
54 in List I requires a declaration by Parliament by law that regulation and
development of mines should be under the control of the Union in public interest.
Therefore, if a Central Act has been passed for the purpose of providing for
the conservation and development of minerals, and if it contains the requisite
declaration, then it would not be competent to the State Legislature to pass an
Act in respect of the subject-matter covered by the said declaration. In order
that the declaration should be effective it is not necessary that rules should
be made or enforced; all that this required is a declaration by Parliament that
it is expedient in the public interest to take the regulation and development
of mines under the control of the Union. In such a case the test must be
whether the legislative declaration covers the field 561 or not. Judged by this
test there can be no doubt that the field covered by the impugned Act is
covered by the Central Act LIII of 1948.
It still remains to consider whether s. 2 of
the said Act amounts in law to a declaration by Parliament as required by Art.
54. When the said Act was passed in 1948 the legislative powers of the Central
and the Provincial Legislatures were governed by the relevant Entries in the
Seventh Schedule to the Constitution Act of 1935. Entry 36 in List I
corresponds to the present Entry 54 in List I. It reads thus: "Regulation
of Mines and Oil Fields and mineral development to the extent to which such
regulation and development under Dominion control is declared by Dominion law
to be expedient in public interest". It would be noticed that the
declaration required by Entry 36 is a declaration by Dominion law. Reverting
then to s. 2 of the said Act it is clear that the declaration contained in the
said section is put in the passive voice; but in the context there would be no
difficulty in holding that the said declaration by necessary implication has
been made by Dominion law. It is a declaration contained in a section passed by
the Dominion Legislature' and so it is obvious that it is a declaration by a
Dominion law; but the question is: Can this declaration by a Dominion law be
regarded constitutionally as declaration by Parliament which is required by
Entry 54 in List I.
It has been urged before us by the learned
Additional Solicitor-General and Mr. Amin that in dealing with this question we
should bear in mind two general considerations.
The Central Act has been continued under Art.
372(1) of the Constitution as an existing law, and the effect of the said
constitutional provision must be that the continuance of the existing law would
be as effective and to the same extent after the Constitution came into force
as before. It is urged that after the said Act was passed and before the Constitution
came into force no Provincial Legislature could have validly made a law in
respect of the field covered by the said Act, and it would be commonsense to
assume that the effect of the continuance of the 562 said law under Art. 372(1)
cannot be any different. In other words, if no Provincial Legislature could
have trespassed on the field covered by the said Act before the Constitution,
the position would and must be the same even after the Constitution came into
force.
It is also contended that for the purpose of
bringing the provision of existing laws into accord with the provisions of the
Constitution the President was given power to make by order appropriate adaptations
and modifications of such laws, and the object of making such adaptations
obviously was to make the continuance of the existing laws fully effective. It
is in the light of these two general considerations, so the. argument runs,
must the point in question be considered. The relevant clause in the Adaptation
of Laws Order, 1950, on which reliance has been placed in support of this
argument is el. 16 in the Supplementary Part of the said Order. This clause
provides that subject to the provisions of this Order any reference by whatever
form of words in any existing law to any authority competent at the date of the
passing of that law to exercise any powers or authorities, or to discharge any
functions, in any part of India shall, where a corresponding new authority has
been constituted by or under the Constitution, have effect until duly repealed
or amended as if it were a reference to that new authority. The petitioners
contend that as a result of this clause the declaration made by the Dominion
Legislature in s. 2 of the Central Act must now be held to be the declaration
made by Parliament. Is this contention justified on a fair and reasonable
construction of the clause? That is the crux of the problem.
In considering this question it would be
relevant to recall the scheme of the Adaptation of Laws Order, 1950. It
consists of Three Parts. Part 1 deals with the adaptation of Central Laws and
indicates the adaptation made therein;
Part 11 deals with the adaptation of
Provincial Laws and follows the same pattern; and Part III is a Supplementary
Part which contains provisions in the nature of supplementary provisions. A
perusal of the clauses contained in Part 563 I would show that though some
adaptation was made in Act LIII of 1948 it was not thought necessary to make an
adaptation in s. 2 of the said Act whereby the declaration implied in the said
section has been expressly adapted into a declaration by Parliament.
Now, the effect of el. 16 in substance is to
equate an authority competent at the date of the passing of the existing law to
exercise any powers or authorities, or to discharge any functions with a
corresponding new authority which has been constituted by or under the
Constitution.
Reference to the authority in the con. text
would suggest cases like reference to the Governor-General eo nomine, or
Central Government which respectively would be equated with the President or
the Union Government. Prima facie the reference to authority would not include
reference to a Legislature; in this connection it may be relevant to point out
that Art. 372(1) refers to a competent Legislature as distinguished from other
competent authorities. That is the first difficulty in holding that el. 16
refers to the Dominion Legislature and purports to equate it with the Parliament.
It is clear that for the application of this
clause it is necessary that a reference should have been made to the authority
by some words whatever may be their form. In other words it is only where the
existing law refers expressly to some authority that this clause can be
invoked.
It is difficult to construe the first part of
this clause to include authorities to which no reference is made by any words
in terms, but to which such reference may be implied;
and quite clearly the Dominion Legislature is
not expressly referred to in s. 2. In construing the present clause we think it
would be straining the language of the clause to hold that an authority to
which no reference is made by words in any part of the existing law could claim
the benefit of this clause.
Besides, there is no doubt that when the
clause refers to any authority competent to exercise any powers or authorities,
or to discharge any functions, it refers to the powers, authorities or
functions attributable to the existing law itself; that is to say, authorities
564 which are competent to exercise powers or to discharge functions under the
existing laws are intended to be equated with corresponding new authorities. It
is impossible to hold that the Dominion Legislature is an authority which was
competent to exercise any power or to discharge any function under the existing
law. Competence to exercise power to discharge functions to which the clause
refers must inevitably be related to the existing law and not to the
Constitution Act of 1935 which would be necessary if Dominion Legislature was
to be included as an authority under this clause. The Constitution Act of 1935
had been repealed by the Constitution and it was not, and could not obviously
be, the object of the Adaptation of Laws Order to make any adaptation in regard
to the said Act. Therefore, the competence of the Dominion Legislature which
flowed from the relevant provisions of the Constitution Act of 1935 is wholly
outside this clause. We have carefully considered the arguments urged before us
by the learned Additional Solicitor-General and Mr. Amin but we are unable to
hold that cl. 16 can be pressed into service for the purpose of supporting the
conclusion that the declaration by the Dominion Legislature implied in s. 2 of
Act LIII of 1948 can, by virtue of cl. 16, be held to be a declaration by
Parliament within the meaning of the relevant Entries in the Constitution. If
that be the true position then the alternative challenge to the vires of the
Act based on el. 16 of the Adaptation of Laws Order must fail.
There is another possible argument which may
prima facie lead to the same conclusion. Let us assume that the result of
reading Art. 372 and cl. 16 of the Adaptation of Laws Order is that under s. 2
of Act LIII of 1948 there is a declaration by Parliament as suggested by the
petitioners and the learned Additional Solicitor-General. Would that meet the
requirements of Entry 54 in List I of the Seventh Schedule? It is difficult to
answer this question in the affirmative because the relevant provisions of the
Constitution are prospective and the declaration by Parliament specified by
Entry 54 must be declaration made by 565 Parliament subsequent to the date when
the Constitution came into force. Unless a declaration is made by Parliament
after the Constitution came into force it will not satisfy the requirements of
Entry 54, and that inevitably would mean that the impugned Act is validly
enacted under Entry 23 in List II of the Seventh Schedule. If that be the true
position then it would follow that even on the assumption that el. 16 of the
Adaptation of Laws Order and Art. 372 can be construed as suggested by the
petitioners the impugned Act would be valid.
Faced with this difficulty, both the learned
Additional Solicitor-General and Mr. Amin argued that cl. 21 of the said Order
may be of some assistance. Clause 21 reads thus:
"Any Court, Tribunal, or authority
required or empowered to enforce any law in force in the territory of India
immediately before the appointed day shall, notwithstanding that this Order
makes no provision or insufficient provision for the adaptation of the law for
the purpose of bringing it into accord with the provisions of the Constitution,
construe the law with all such adaptations as are necessary for the said
purpose". Assuming that this clause is valid we do not see how it is
relevant in the present case. All that this clause purports to do is to empower
the Court to construe the law with such adaptations as may be necessary for the
purpose of bringing it in accord with the provisions of the Constitution. There
is no occasion to make any adaptation in construing Act LIII of 1948 for
bringing it into accord with the provisions of the Constitution at all.
The said Act has been continued under Art. 372(1)
and there is no constitutional defect in the said Act for the avoidance of
which any adaptation is necessary. In fact what the petitioners seek to do is
to read in s. 2 of the said Act the declaration by Parliament required by Entry
54 so as to make the impugned Act ultra vires. Quite clearly cl. 21 cannot be
pressed into service for such a purpose.
Therefore, we reach this position that the
field covered by Act LIII of 1948 is substantially the same as the field
covered by the 72 566 impugned Act but the declaration made by s. 2 of the said
Act does not constitutionally amount to the requisite declaration by
Parliament, and so the limitation imposed by Entry 54 does not come into
operation in the present case.
Act LIII of 1948 continues in operation under
Art. 372; with this modification that so far as the State of Orissa is
concerned it is the impugned Act that governs and not the Central Act. Article
372(1) in fact provides for the continuance of the existing law until it is
altered, repealed or amended by a competent Legislature or other competent
authority. In the absence of the requisite parliamentary declaration the
legislative competence of the Orissa Legislature under Entry 23 read with Entry
66 is not impaired, and so the said Legislature is competent either to repeal,
alter or amend the existing law which is the Central Act LIII of 1948; in
effect, after the impugned Act was passed, so far as Orissa is concerned the
Central Act must be deemed to be repealed. This position is fully consistent
with the provisions of Art. 372. The result is that the material words used in
cls. 16 and 21 being unambiguous and explicit, it is difficult to give effect
to the two general considerations on which reliance has been placed by the
petitioners. Incidentally the present case discloses that in regard to the
requisite parliamentary declaration prescribed by Entry 54 in List I in its
application to the pre-Constitution Acts under corresponding Entry 36 in List I
of the Constitution Act of 1935, there is a lacuna which has not been covered
by any clauses of the Adaptation of Laws Order; that, however, is a matter for
Parliament to consider.
There is one more point which is yet to be
considered. Mr. Amin contends that Entry 23 in List II is subject to the provisions
in List I with respect to regulation and development under the control of the
Union, and according to him Entry 52 in List I is one of such provisions. In
this connection he relies on the said Entry which deals with industries the
control of which by the Union is declared by Parliament by law to be expedient
in the public interest, and Industries (Development and Regulation) Act, 1951
(LXV 567 of 1951). This Act has been passed to provide for the development and
regulation of certain industries one of which undoubtedly is coal mining
industry. Section 2 of this Act declares that it is expedient in the public
interest that the Union should take under its control the industries specified
in the First Schedule. This declaration is a declaration made by Parliament,
and if the provisions of the Act read with the said declaration covered the
same field as is covered by the impugned Act, it would undoubtedly affect the
vires of the impugned Act; but in dealing with this question it is important to
bear in mind the doctrine of pith and substance. We have already noticed that
in pith and substance the impugned Act is concerned with the development of the
mining areas notified under it.
The Central Act, on the other hand, deals
more directly with the control of all industries including of course the
industry of coal. Chapter II of this Act provides for the constitution of the
Central Advisory Council and Development Councils, chapter III deals with the
regulation of scheduled industries, chapter IIIA provides for the direct
management or control of industrial undertakings by Central Government in
certain cases, and chapter IIIB is concerned with the topic of control of
supply, distribution, price, etc, of certain articles. The last chapter deals
with miscellaneous incidental matters. The functions of the Development
Councils constituted under this Act prescribed by s. 6(4) bring out the real
purpose and object of the Act. It is to increase the efficiency or productivity
in the scheduled industry or group of scheduled industries, to improve or
develop the service that such industry or group of industries renders or could
render to the community, or to enable such industry or group of industries to
render such service more economically. Section 9 authorises the imposition of
cess on scheduled industries in certain cases.
Section 9(4) provides that the Central
Government may hand over the proceeds of the cess to the Development Council
there specified and that the Development Council shall utilise the said
proceeds to achieve the objects mentioned in cls. (a) to (d). These 568 objects
include the promotion of scientific and industrial research, of improvements in
design and quality, and the provision for the training of technicians and
labour in such industry or group of industries. It would thus be seen that the
object of the Act is to regulate the scheduled industries with a view to
improvement and development of the service that they may render to the society,
and thus assist the solution of the larger problem of national economy. It is
difficult to hold that the field covered by the declaration made by s. 2 of
this Act, considered in the light of its several provisions, is the same as the
field covered by the impugned Act. That being so, it cannot be said that as a result
of Entry 52 read with Act LXV of 1951 the vires of the impugned Act can be
successfully challenged.
Our conclusion, therefore, is that the
impugned Act is relatable to Entries 23 and 66 in List II of the Seventh
Schedule, and its validity is not impaired or affected by Entries 52 and 54 in
List I read with Act LXV of 1951 and Act LIII of 1948 respectively. In view of
this conclusion it is unnecessary to consider whether the impugned Act can be
justified under Entry 50 in List II, or whether it is relatable to Entry 24 in
List III and as such suffexs from the vice of repugnancy with the Central Act
XXXII of 1947.
The result is the petition fails and is
dismissed with costs.
WANCHOO, J.-I have read the judgment just
delivered by my learned brother Gajendragadkar J. and regret that I have not
been able to persuade myself that the cess levied in this case on all extracted
minerals from any mine in any mining area at a rate not exceeding five per
centum of the value of the minerals at the pit's mouth by the Orissa State
Legislature under s. 4 of the Orissa Mining Areas Development Fund Act, No.
XXVII of 1952, (hereinafter called the Act) is a fee properly so called and not
a duty of excise. The facts are all set out in the judgment just delivered and
I need not repeat them.
The scheme of the Act, as appears from s. 3
thereof is to give power to the State Government, whenever it 569 thinks it
necessary and expedient to provide amenities, like communications, water-supply
and electricity for the better development of any area in the State where-, in
any mine is situated or to provide for the welfare of residents or workers in
any such area within. which persons employed in a mine or a group of mines
reside or work, to constitute such an area to be a mining area for the purposes
of the Act, to define the limits of the area, to include within such area any
local area contiguous to the same and defined in the notification and to
exclude from such area any local area comprised therein and defined in the
notification. A notification under s. 3 is made, after hearing objections from
owners or lessees of mines. After such an area is constituted under s. 3, a
cess is imposed under s. 4 on all extracted minerals from any mine in any such
area at the rate not exceeding five per centum of the value of the minerals at
the pit's mouth. The cess so collected is credited to a fund called the Orissa
Mining Area Development Fund created under s. 5 of the Act, besides other
amounts with which we are not concerned in this case. The Fund is to be applied
to meet expenditure incurred in connection with such measures, which in the
opinion of the State Government, are necessary or expedient for providing
amenities like communications, water-supply and electricity, for the better development
of mining areas and to meet the welfare of labour and other persons residing or
working in the mining areas. Then come other provisions for working out the
above provisions including s. 8, which gives power to the State Government to
frame rules to carry. into effect the purposes of the Act. The Rules were
framed under the Act in January, 1955.
The constitutional competence of the Orissa
State Legislature to levy the cess under the Act is attacked on two main
grounds. In the first place, it is urged that the cess is in pith and substance
a duty of excise under item 84 of List I of the Seventh Schedule and therefore
the levy of such a cess is beyond the competence of the Orissa State
Legislature. In the second place, it is urged that even if the cess is a fee,
in view 570 of the two Acts of the Central Legislature and Parliament, namely,
The Mines and Minerals (Regulation and Development) Act, No. LIII of 1948 and
The Industries (Development and Regulation) Act, No. LXV of 1951, the Orissa
Legislature was not competent to pass the Act.
The petition has been opposed on behalf of
the State of Orissa and the main contentions urged on its behalf are that the
cess is a fee properly so called and not a duty of excise and therefore the
Orissa State Legislature was competent to levy it and the two Central Acts do
not affect that competence. In the alternative it has been urged that even if
the cess is a tax the State Legislature was competent to levy it under item 50
of List If of the Seventh Schedule.
The first question therefore that falls for
consideration is whether the cess in this' ease is a tax or a fee.
Difference between a tax properly so called
and a fee properly so called came up for consideration before this Court in
three cases in 1954 and was considered at length.
In the first of them, namely, The
Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha
Swamiar of Sri Shirur Mutt it was pointed out that" though levying of fees
is only a particular form of the exercise of the taxing power of the State, our
Constitution has placed fees under a separate category for purposes of
legislation and at the end of each one of the three legislative lists, it has
given a power to the particular legislature to legislate on the imposition of
fees in respect to every one of the items dealt with in the list itself".
It was also pointed that"the essence of
a tax is compulsion, that is to say, it is imposed under statutory power
without the taxpayer's consent and the payment is enforced by law. The second
characteristic of a tax is that it is an imposition made for public purpose
without reference to any special benefit to be conferred on the payer of the
tax. This is expressed by saying that the levy of tax is for the purposes of
general revenue, which when (1) [1954] S.C.R. 1005.
571 collected forms part of the public
revenues of the State.
As the object of a tax is not to confer any
special benefit upon any particular individual, there is, as it is said, no
element of quid pro quo between the tax-payer and the public authority. Another
feature of taxation is that as it is a part of the common burden, quantum of
imposition upon the tax-payer depends generally upon his capacity to pay."
As to fees, it was pointed out that"a 'fee' is generally defined to be a
charge for a special service rendered to individuals by some governmental
agency.
The amount of fee levied is supposed to be
based on the expenses incurred by the Government in rendering the service,
though in many cases the costs are arbitrarily assessed. Ordinarily, the fees
are uniform and no account is taken of the varying abilities of different
recipients to pay." Finally, it was pointed out that" the distinction
between a tax and a fee lies primarily in the fact that a tax is levied as a
part of a common burden, while a fee is a payment for a special benefit or
privilege............... Public interest seems to be at the basis of all
impositions, but in a fee it is some special benefit which the individual
receives." The consequence of these principles was that" if, as we
hold, a fee is regarded as a sort of return or consideration for services
rendered, it is absolutely necessary that the levy of fees should, on the face
of the legislative provision be co-related to the expenses incurred by
Government in rendering the services............... If the money thus paid is
set apart and appropriated specifically for the performance of such work and is
not merged in the public revenues for the benefit of the general public, it
could be counted as fees and not a tax." Having laid down these
principles, that case then considered the vires of s. 76 of the Madras Hindu
Religious and Charitable Endowments Act, No. XIX of 1951, and it was pointed
out that the material fact which negative the theory of fees in that case was
that the money raised by levy of the contribution was not ear-marked or
specified for defraying the expenses 572 that the Government had to incur in
performing the services.
All the collections went to the consolidated
fund of the State and all the expenses had to be met not out of those
collections but out of the general revenues by a proper method of appropriation
as was done in the case of other government expenses. That in itself might not
be conclusive, but in, that case there was total absence of any co-relation
between the expenses incurred by the Government and the amount raised by
contribution under the provision of s. 76 and in those circumstances the theory
of return or counter-payment or quid pro quo could not have any possible
application to that case. Consequently, the contribution levied under s. 76 was
held to be a tax and not a fee.
In the second case of Mahant Sri Jagannath
Ramanuj Das v. The State of Orissa (1), a similar imposition by the Orissa
Legislature came up for consideration. After referring to the earlier case, it
was pointed out that"two elements are thus. essential in order that a
payment may be regarded as a fee. In the first place, it must be levied in
consideration of certain services which the individuals accepted either
willingly or unwillingly. But this by itself is not enough to make the
imposition a fee, if the payments demanded for rendering of such services are
not set apart or specifically appropriated for that purpose but are merged in
the general revenue of the State to be spent for general public purposes."
The Orissa imposition was held to be a fee because the collections made were
not merged in the general public revenue and were meant for the purpose of
meeting the expenses of the Commissioner and his office which was the machinery
set up for due administration of the affairs of the religious institution. They
went to constitute a fund which was contemplated by s. 50 of the Orissa Act and
this fund was specifically set apart for rendering services involved in
carrying out the provisions of the Act.
The third case, namely, Ratilal Panachand
Gandhi (1) [1954] S.C.R. 1046.
573 v. The State of Bombay (1) came from
Bombay. Sec. 58 of the Bombay Act, No. XXIX of 1950, provided for an imposition
in proportion to the gross annual income of the trust. This imposition was
levied for the purpose of due administration of the trust property and for
defraying the expenses incurred in connection with the same. After referring to
the two earlier cases, the Court went on to say that" taxis a common
burden and the only return which the taxpayer gets is participation in the
common benefits of the State. Fees, on the other hand, are payments primarily
in the public interest, but for some special service rendered or some special
work done for the benefit of those from whom the payments are demanded. Thus in
fees there is always an element of quid pro quo which is absent in a
tax.........
But in order that the collections made by the
Government can rank as fees, there must be co-relation between the levy imposed
and the expenses incurred by the State for the purpose of rendering such
services." It was then pointed out that the contributions, which were
collected under s. 58, were to be credited in the Public Trusts Administration
Fund as constituted under s. 57. This fund was to be applied exclusively for
the payment of charges for expenses incidental to the regulation of public
trusts and for carrying into effect the provisions of the Act. The imposition therefore
was in that case held to be a fee.
These decisions clearly bring out the
difference between a tax and a fee and generally speaking there is always an
element of quid pro quo in a fee and the amount raised through a fee is
co-related to the expenses necessary for rendering the services which are the
basis of quid pro quo.
Further, the amount collected as a fee does
not go to augment the general revenues of the State and many a time a special
fund is created in which fees are credited-though this is not absolutely
necessary. But as I read these decisions, they cannot be held to lay down that
'What is in pith and substance a tax can become a fee merely (1) [1954] S.C.R.
1055.
574 because a fund is created in which
collections are credited and some services may be rendered to the persons from
whom collections are made. If that were so, it will be possible to convert many
taxes not otherwise leviable into fees by the device of creating a special fund
and attaching some service to be rendered through that fund to the persons from
whom collections are made. I am therefore of opinion that one must first look
at the pith and substance of the levy, and if in its pith and substance it is
not essentially different from a tax it cannot be converted into a fee by
creating a special fund in which the collections are credited and attaching
some services to be rendered through that fund.
Let me then look at the pith and substance of
the cess, which has been imposed in this case. The cess consists of a levy not
exceeding five per centum of the value of the minerals at the pit's mouth on
all extracted minerals.
Prima facie such a levy is nothing more nor
less than a duty of excise. Item 84 of List I gives power to levy duties of
excise exclusively to the Union and is in these terms :"Duties of excise
on tobacco and other goods manufactured or produced in India except(a)
alcoholic liquors for human consumption;
(b) opium, Indian hemp and other narcotic
drugs and narcotics, but including medicinal and toilet preparations containing
alcohol or any substance included in subparagraph (b) of this entry." This
item gives power to Parliament to impose duties of excise on all goods
manufactured. or produced in India with certain exceptions mentioned therein.
Taking this particular case, coal is produced from the mine and would clearly
be covered by the words " other goods produced in India" and a duty
of excise can be levied on it. What then exactly is meant by a duty of excise?
Reference in this connection may be made to Governor-General in Council v.
Province of Madras (1). In that case the
point arose whether the sales-tax imposed by the Madras Legislature was a duty
of excise. The Privy Council pointed out that-(1) (1945) L.R. 72 I.A. 91.
575 "in a Federal constitution in which
there is a division of legislative powers between Central and Provincial
legislatures, it appears to be inevitable that controversy should arise whether
one or other legislature is not exceeding its own, and encroaching on the
other's, constitutional legislative power, and in such a controversy it is a
principle, which their Lordships do not hesitate to apply in the present case,
that it is not the name of the tax but its real nature, its 'pith and
substance' as it has sometimes been said which must determine into what
category it falls." The Privy Council went on to consider what a duty of
excise was and said that" it is primarily a duty levied on a manufacturer
or producer in respect of the commodity manufactured or produced. It is a tax on
goods not on sales or the proceeds of sale of goods. Though sometimes a duty of
excise may be imposed on first sales, a duty of excise and a tax on the sale of
goods were separate and distinct imposts and in law do not overlap." The
Privy Council approved of the decisions of the Federal Court in re The Central
Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 (1)
and The Province of Madras v. Messrs. Boddu Paidanna and Sons (2).
It seems to have been urged that because in
some cases a duty of excise may be levied on the occasion of the first sale and
a sales tax may also be levied on the same occasion, there is really no
difference between the two. It is however clear that a duty of excise is
primarily a tax on goods manufactured or produced; it is not a tax on the sale
of goods, though the taxing authority may as a matter of concession to the
producer not charge the tax immediately the goods are produced and may postpone
it, to make it easy for the producer to pay the tax, till the first sale is
made by him; nevertheless the charge is still on the goods and is therefore a
duty of excise. On the other hand, a sales tax can only be levied when a sale
is made and there is nothing to prevent its levy on the first sale. The two
concepts (1) (1939) F.C.R. 18. (2) (1948) F.C.R. go.
576 are however different and, as the Privy
Council pointed out, a sales tax and a duty of excise are separate and distinct
imposts and in law do not overlap. The pith and substance of a duty of excise
is that it is primarily a duty levied on a manufacturer or producer in respect
of the commodity manufactured or produced.
Let me therefore see what the Orissa
Legislature has done in the present case. It has levied a cess at a rate not
exceeding five per centum on the value of minerals at the pit's mouth on all
extracted minerals. All the extracted minerals are nothing other than goods
produced and the cess is levied on the goods produced at a rate not exceeding
five per centum of the value at the pit's mouth. The cess therefore in the
present case cannot be anything other than a duty of excise. The pith and
substance of the cess in this case falls fairly and squarely within entry 84 of
List I and is therefore a duty of excise, which cannot be levied by the Orissa
State Legislature. I may in this connection refer to the cesses levied by the
Central Legislature and Parliament by Act XXXII of 1947 and by the Act No. LXV
of 1951. Sec. 3 of Act XXXII of 1947 lays down that there shall be levied and
collected as a cess for the purposes of that Act a duty of excise on all coal
and coke dispatched from collieries at such rate not less than four annas and
not more than eight annas per ton as may from time to time be fixed by the
Central Government by notification in the Official Gazette. This is obviously a
tax on the goods produced, the basis of the tax being so much per ton. Again
sec. 9 of Act LXV of 1951 lays down that there may be levied and collected as a
cess for the purposes of that Act on all goods manufactured or produced in any
such scheduled industry as may be specified in this behalf by the Central
Government by notified order a duty of excise at a rate not exceeding two annas
per centum of the value of the goods.
This again is clearly a tax on goods produced
or manufactured and is in the nature of a duty of excise, the basis of the tax
being so much of the value of the goods.
If these two taxes are duties of excise, 577
I fail to see any difference in pith and substance between these two taxes and
the cess levied under the Act.
It is however urged that the method employed
in the Act for realising the cess is only a method of quantification of the fee
and merely because of this quantification, the pith and substance of the impost
does not change from a fee to a duty of excise. Reference in this connection
was made to three cases of quantification. In Sir Byramjee Jeejeebhoy v. The
Province of Bombay (1), a question arose with respect to a tax imposed on urban
immovable property, whether it was a tax on lands and buildings. The challenge
to the tax was on the ground that it was tax on income or capital value within
items 54 and 55 of List I of the Seventh Schedule of the Government of India
Act and could not therefore be imposed by the Bombay Legislature. It was held
that the tax was a tax on lands and buildings within the meaning of item 42 of
List II of the same Schedule and that the basis of the tax, which was the
annual value, would not convert it into a tax on income or capital value. The
High Court considered the pith and substance of the said Act and came to the
conclusion that every tax on annual value was not necessarily a tax on income
and it was held that the mode of assessment of a tax did not determine its
character and one has to look to the essential character of the tax to decide
whether it was a tax on income or on lands and buildings.
Looking to the pith and substance of the tax
it was held in that case that it was a tax on lands and buildings. That
decision was in the circumstances of that case right because the intention of
the legislature was not to tax the income of any one; the essential character
of the tax in that case was to tax the lands and buildings and the annual value
of the lands and buildings was only taken as a mode of levying the tax. In the
present case, however, the very mode of the levy of the cess is nothing other
than the levy of a duty of excise and therefore the principle of quantification
for purposes of a fee cannot be extended to (1) I.L.R. 1940 Bom. 58.
578 such an extent as to convert what is in
pith and substance a tax into a fee on that basis.
The next case to which reference was made is
Municipal Corporation, Ahmedabad v. Patel Gordhandas Hargovandas (1).
In that case the Ahmedabad Bo. rough
Municipality had levied a rate on open lands and the basis of the levy was one
per centum of the capital value of the land. It was urged that this amounted to
a capital levy within entry 54 of List I;
but the court repelled that contention and
held that the levy was in pith and substance a tax on lands, which came within
entry 42 of List II of the Seventh Schedule to the Government of India Act. A
distinction was made between a tax on land which is levied on the basis of its
capital value and a tax which is on capital treating it as an asset itself.
This decision also, if I may say so with respect, is correct, for the basic
idea was to tax lands and some method had to be found for doing so and the
method evolved, though it might look like a capital levy, was in pith and
substance not so. But the theory of quantification which is the basis of these
two cases cannot be stretched so far as to turn levies which are in pith and
substance taxes into fees, by the process of attaching certain services and
creating a fund.
The third case is Ralla Ram v. The Province
of East Punjab (2). That was a case of a tax on lands and buildings and annual
value was the basis on which the tax was levied. The Federal Court rightly
pointed out that the pith and substance of the levy had to be seen and on that
view it was not income-tax but a tax on lands and buildings and the method
adopted was merely a method of quantification. The Federal Court also pointed
out that "where there is an apparent conflict between an Act of the
Federal Legislature and an Act of the Provincial Legislature, we must try to
ascertain the pith and substance or the true nature and character of the
conflicting provisions and that before an Act is declared ultra vires, there
should be an attempt to reconcile the two conflicting jurisdictions, and, only
if such a reconciliation should prove (1) I.L.R. 1954 Bom. 41.
(2) (1948) F.C.R. 207.
579 impossible, the impugned Act should be
declared invalid." It may also be pointed out that in all these three
cases, one source of income of an individual or one item out of the total
capital of an individual was the basis of calculation while income-tax or
capital levy is generally on the total income or the total capital of a person.
That aspect must have gone into the decision that the method employed was
merely a mode for imposing a tax on lands and buildings. In the present case,
however, I see no difference between the method of imposing a duty of excise
and the method employed in the Act for imposing a cess-a matter which will be
clear from the cesses imposed under the two Central Acts already referred to
(No. XXXII of 1947 and No. LXV of 1951). It is not as if there could be no
method of imposing a fee properly so called in this case except the one
employed.
Two methods readily suggest themselves. A
lump sum annual fee could be levied on each mine even on a graded scale
depending on the size of the mine as evidenced by its share capital. Or a
similar graded fee could be levied on each mine depending on its size
determined by the number of men employed therein. Where therefore the result of
quantification is to bring a particular impost entirely within the ambit of a
tax it would not be right to say that such an impost is still a fee, because
certain services have to be rendered and a fund has been created in which
collections of the impost are credited. If this were permissible many taxes not
otherwise leviable would be converted into fees by the simple device of
creating a special fund and attaching certain services to be rendered from the
amount in that fund. That would in my opinion be a colourable exercise of the
power of legislation, as explained in K. C. Gajapati Narayan Deo v. The State
of Orissa (1). Let me illustrate how taxes can be turned into fees on the
so-called basis of quantification with the help of the device of creating a
fund and attaching certain services to be rendered out of monies in the fund.
Take the case of income-tax under item 82 of List I of the Seventh Schedule,
which is exclusively reserved (1) [1954] S.C.R. 1.
580 for the Union. Suppose that some State
Legislature wants to impose a tax on income other than agricultural income in
the garb of fees. All that it has to do is then to create a special fund out of
the amounts collected and to attach rendering of certain services to the fund.
All that would be necessary would be to define the services to be rendered so
widely that the amount required for the purpose would be practically limitless.
In that case there would be no difficulty in levying any amount of tax on income,
for the amount collected would always be insufficient for the large number of
services to be rendered. What has to be done is to find out a number of items
in Lists II and III of the Seventh Schedule in respect of which fees can be
levied by the State Legislature. These fees can be levied on a total basis for
a large number of services under various entries of Lists II and III. A fund
can be created, say, for rendering services of various kinds to residents of
one district. In order to meet the expenses of tendering such services,
suppose, the legislature imposes a tax on everyone in the district at 10 per
centum of the net total income (other than agricultural income); the amount so
collected is put in a separate fund and ear-marked for such special services to
be rendered to the residents of that district.
Can it be said that such a levy is a fee
justified under various entries of Lists II and III, and not a tax on income,
on the ground that this is merely a mode of quantification? As an instance, take,
item 6 of List II, "Public health and sanitation, hospitals and
dispensaries";
item 9, "Relief of the disabled and
unemployable"; item II, Education; item 12, Libraries, museums and similar
institutions"; item 13, communications, that is to say, roads, bridges and
other means of communications; item 17, "Water, that is to say, water
supplies, irrigation and canals, drainage and embankments, water storage and
water power"; and item', 25, "Gas and gas-works"; item 23 of
List III, "Social security and social insurance, employment and
unemployment"; item 24, "Welfare of labour including conditions of
work, provident funds, employers' liability workmen's compensation, invalidity
and old age 581 pensions and maternity benefits"; item 25, "Vocational
and technical training of labour"; and item 38, "Electricity".
Assume that a fund is created for rendering,
these services to the residents of a district. The State Legislature is
entitled to impose fees for rendering these services to the residents of the
district; the costs of these services would obviously be limitless and in order
to meet these costs, the State legislature levies a consolidated fee for all
these purposes at 10 per centum of the total net income on the residents of the
district (excluding his agricultural income) as a measure of quantification of
the fee. Can it be said in the circumstances that such a levy would not be
Income-tax, simply because a fund is created to be used in the district where
collections are made and these services have to be rendered out of the fund so
created to the residents of that district and to no others? The answer can only
be one, viz., that the nature of the impost is to be seen in its pith and
substance; and if in pith and substance it is income-tax within item 82 of List
I of the Seventh Schedule it will still remain income-tax in spite of the
creation of a fund and the attaching of certain services to the monies in that
fund to be rendered in a particular area.
Such an impost can never be justified as a
consolidated fee on the ground that it is merely a method of quantification.
Compare what has been done in this case. Sec.
3 of the Act which refers to the services to be rendered mentions
communications, that is,, roads, bridges and other means of communication (barring
those given in List I), water-supply and electricity, for the better
development of the area.
These three items themselves would mean
expenditure of such large amounts that anything could be charged as a fee to
meet the costs, particularly in an undeveloped State like Orissa. Further, the
section goes on to mention provision for the welfare of residents or workers in
any such area, which would include such things as social security and social
insurance, provident-funds, employer's liability, workmen's compensation,
invalidity and old age pensions and maternity benefits and may be even
employment and unemployment. Again large funds would 74 582 be required for
these purposes. Therefore, the services enumerated in s. 3 being so large and
requiring such large sums, any amount can be levied as a fee and in the name of
quantification any tax, even though it may be in List I, can be imposed; and
that is exactly what has been done, namely, what is really a duty of excise has
been imposed as a fee for these purposes which fall under items 13 and 17 of
List II and 23, 24 and 38 of List III. There can be no doubt in the
circumstances that the levy of a cess as a fee in this case is a colourable
piece of legislation. I do not say that the Orissa State Legislature did this
deliberately.
The motive of the legislature in such cases
is irrelevant and it is the effect of the legislation that has to be seen.
Looking at that, the cess in this case is in
pith and substance nothing other than a duty of excise under item 84 of List I
and therefore the State legislature was incompetent to levy it as a fee.
The next contention on behalf of the State of
Orissa is that if the cess is not justified as a fee, it is a tax under item 50
of List II of the Seventh Schedule. Item 50 provides for taxes on mineral
rights subject to any limitations imposed by Parliament by law relating to
mineral development. This raises a question as to what are taxes on mineral
rights. Obviously, taxes on mineral rights must be different from taxes on
goods produced in the nature of duties of excise. If taxes on mineral rights
also include taxes on minerals produced, there would be no difference between
taxes on mineral rights and duties of excise under item 84 of List I. A
comparison of Lists I and II of the Seventh Schedule shows that the same tax is
not put in both the Lists. Therefore, taxes on mineral rights must be different
from duties of excise which are taxes on minerals produced. The difference can
be understood if one sees that before minerals are extracted and become liable
to duties of excise somebody has got to work the mines. The usual method of
working them is for the owner of the mine to grant mining leases to those who
have got the capital to work the mines.
There should 583 therefore be no difficulty
in holding that taxes on mineral rights are taxes on the right to extract
minerals and not taxes on the minerals actually extracted. Thus tax on mineral
rights would be confined, for example, to taxes on leases of mineral rights and
on premium or royalty for that.
Taxes on such premium and royalty would be
taxes on mineral rights while taxes on the minerals actually extracted would be
duties of excise. It is said that, there may be cases where the owner himself
extracts minerals and does not give any right of extraction to somebody else
and that in such cases in the absence of mining leases or sub-leases there
would be no way of levying tax on mineral right,-,. It is enough to say that
these cases also, rare though they are, present no difficulty. Take the case of
taxes on annual value of buildings. Where there is a lease of the building, the
annual value is determined by the lease-money; but there are many cases where
owners themselves live in buildings.
In such cases also taxes on buildings are
levied on the annual value worked out according to certain rules. There would
be no difficulty where an owner himself works the mine to value the mineral
rights on the same principles on which leases of mineral rights are made and
then to tax the royalty which, for example, the owner might have got if instead
of working the mine himself he had leased it out to somebody else. There can be
no doubt therefore that taxes on mineral rights are taxes of this nature and
not taxes on minerals actually produced. Therefore the present case is not a
tax on mineral rights; it is a tax on the minerals actually produced and can be
no different in pith and substance from a tax on goods produced which comes
under Item 84 of List I, as duty of excise. The present levy therefore under s.
4 of the Act cannot be justified as a tax on mineral rights.
In the view I have taken, it is not necessary
to consider the other point, raised on behalf of the petitioners, namely, that
even if it is a fee, in view of the two Central Acts (mentioned earlier) the,
Orissa Legislature was not competent to pass the Act. I would 584 therefore
allow the petition, and declare that the Orissa Mining Areas Development Fund
Act, 1952, is beyond the constitutional competence of the Orissa Legislature to
pass it. The whole Act must be struck down because there will be very little
left in the Act if s. 4 falls as it must. The legislature would never have
passed the Act without s. 4.
By COURT. In accordance with the majority
Judgment of the Court, the Writ Petition is dismissed with costs.
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