Indian Law Research

SUPREME COURT OF INDIA

Mineral Area Development Authority v. Steel Authority of India

Decision date:

25 July 2024 · 2024 INSC 554

Whether states have the power to tax mineral rights and mine bearing lands and whether royalty on mining leases is a tax.

Read summaryRead court textOriginal PDF · 393 pages
Source and extraction notes

Official source

Draft summary

AI-assisted historical explanation. Independently checked against the source by an AI reviewer. Not reviewed by a lawyer. This historical summary does not certify the current legal position.

In one sentence

Royalty is not a tax, and States retain constitutionally allocated mineral-taxing powers.

Question decided

How do mineral royalty, State taxation and the MMDR Act interact?

Key holdings

Outcome

The nine-judge bench answered the reference by an eight-to-one majority.

Source PDF pages: 196, 197, 198, 199, 200.

Plain-English explanation

The judgment separates payments that are often discussed together. Royalty is paid for the right to extract minerals under the mining arrangement; a tax is imposed through a distinct sovereign power. The majority rejected the argument that royalty itself exhausted the relevant State taxing field. It also distinguished taxation of mineral rights from taxation of land, even where mineral value helps calculate the latter. Parliament can impose constitutionally permitted limitations, so the decision is not a declaration of unlimited State power. The source includes Justice Nagarathna’s dissent, which reached a different view. This page concerns the principal July judgment. A separate August 2024 ruling dealt with temporal and payment consequences and must be consulted before discussing arrears, instalments, interest or historical demands.

Relevant law

Opinions

Eight-judge majority; Justice B.V. Nagarathna dissented.

Research notes and limits

Read the 14 August 2024 temporal-relief ruling before discussing retrospective tax demands, payment schedules or interest.

Judgment - source material

All pages of the downloaded court document follow, including separate opinions, annexures and any final joint order. This is machine-extracted original text, not an AI rewrite. Use the PDF to check exact wording.

Jump to a source page

1 · 2 · 3 · 4 · 5 · 6 · 7 · 8 · 9 · 10 · 11 · 12 · 13 · 14 · 15 · 16 · 17 · 18 · 19 · 20 · 21 · 22 · 23 · 24 · 25 · 26 · 27 · 28 · 29 · 30 · 31 · 32 · 33 · 34 · 35 · 36 · 37 · 38 · 39 · 40 · 41 · 42 · 43 · 44 · 45 · 46 · 47 · 48 · 49 · 50 · 51 · 52 · 53 · 54 · 55 · 56 · 57 · 58 · 59 · 60 · 61 · 62 · 63 · 64 · 65 · 66 · 67 · 68 · 69 · 70 · 71 · 72 · 73 · 74 · 75 · 76 · 77 · 78 · 79 · 80 · 81 · 82 · 83 · 84 · 85 · 86 · 87 · 88 · 89 · 90 · 91 · 92 · 93 · 94 · 95 · 96 · 97 · 98 · 99 · 100 · 101 · 102 · 103 · 104 · 105 · 106 · 107 · 108 · 109 · 110 · 111 · 112 · 113 · 114 · 115 · 116 · 117 · 118 · 119 · 120 · 121 · 122 · 123 · 124 · 125 · 126 · 127 · 128 · 129 · 130 · 131 · 132 · 133 · 134 · 135 · 136 · 137 · 138 · 139 · 140 · 141 · 142 · 143 · 144 · 145 · 146 · 147 · 148 · 149 · 150 · 151 · 152 · 153 · 154 · 155 · 156 · 157 · 158 · 159 · 160 · 161 · 162 · 163 · 164 · 165 · 166 · 167 · 168 · 169 · 170 · 171 · 172 · 173 · 174 · 175 · 176 · 177 · 178 · 179 · 180 · 181 · 182 · 183 · 184 · 185 · 186 · 187 · 188 · 189 · 190 · 191 · 192 · 193 · 194 · 195 · 196 · 197 · 198 · 199 · 200 · 201 · 202 · 203 · 204 · 205 · 206 · 207 · 208 · 209 · 210 · 211 · 212 · 213 · 214 · 215 · 216 · 217 · 218 · 219 · 220 · 221 · 222 · 223 · 224 · 225 · 226 · 227 · 228 · 229 · 230 · 231 · 232 · 233 · 234 · 235 · 236 · 237 · 238 · 239 · 240 · 241 · 242 · 243 · 244 · 245 · 246 · 247 · 248 · 249 · 250 · 251 · 252 · 253 · 254 · 255 · 256 · 257 · 258 · 259 · 260 · 261 · 262 · 263 · 264 · 265 · 266 · 267 · 268 · 269 · 270 · 271 · 272 · 273 · 274 · 275 · 276 · 277 · 278 · 279 · 280 · 281 · 282 · 283 · 284 · 285 · 286 · 287 · 288 · 289 · 290 · 291 · 292 · 293 · 294 · 295 · 296 · 297 · 298 · 299 · 300 · 301 · 302 · 303 · 304 · 305 · 306 · 307 · 308 · 309 · 310 · 311 · 312 · 313 · 314 · 315 · 316 · 317 · 318 · 319 · 320 · 321 · 322 · 323 · 324 · 325 · 326 · 327 · 328 · 329 · 330 · 331 · 332 · 333 · 334 · 335 · 336 · 337 · 338 · 339 · 340 · 341 · 342 · 343 · 344 · 345 · 346 · 347 · 348 · 349 · 350 · 351 · 352 · 353 · 354 · 355 · 356 · 357 · 358 · 359 · 360 · 361 · 362 · 363 · 364 · 365 · 366 · 367 · 368 · 369 · 370 · 371 · 372 · 373 · 374 · 375 · 376 · 377 · 378 · 379 · 380 · 381 · 382 · 383 · 384 · 385 · 386 · 387 · 388 · 389 · 390 · 391 · 392 · 393

Source PDF page 1

Open this page in the original PDF
2024 INSC 554
1 
 
Reportable  
 
IN THE SUPREME COURT OF INDIA 
CIVIL APPELLATE/ORIGINAL JURISDICTION 
 
 
Civil Appeal Nos. 4056-4064 of 1999 
 
 
 
Mineral Area Development Authority & Anr.       …Appellant s  
  
 
Versus 
 
M/S Steel Authority of India & Anr Etc.             …Respondents  
 
 
 
 
With  
 
Civil Appeal No. 7937 of 2019 
With  
Writ Petition (Civil) No. 512 of 2018 
 With  
Civil Appeal No. 7938 of 2019 
With  
Civil Appeal No. 7936 of 2019 
With  
Civil Appeal No. 6221 of 2008 
 With  
Civil Appeal No. 5250 of 2019 
With  
Writ Petition (C) No. 729 of 2019 
With  
Writ Petition (C) No. 1029 of 2019 
With  
Special Leave Petition (C) No. 16028 of 2021 
With 
Civil Appeal No. 4286 of 2023

Source PDF page 2

Open this page in the original PDF
 2 
With  
Civil Appeal No. 5682 of 2007 
With  
Civil Appeal No. 1295 of 2008 
With  
Civil Appeal No. 874 of 2013 
With 
Civil Appeal Nos. 8269-8271 of 2013 
With  
Civil Appeal No. 8268 of 2013 
 With  
Civil Appeal No. 8267 of 2013 
With  
Civil Appeal No. 6135 of 2013 
With  
Civil Appeal No. 8272 of 2013 
With  
Civil Appeal No. 9458 of 2013 
With  
Special Leave Petition (Civil) No. 18600 of 2013 
With  
Civil Appeal No. 4332 of 2013 
With  
Civil Appeal No. 5329 of 2002 
With  
Civil Appeal No. 4993 of 2006 
With  
Civil Appeal No. 8273 of 2013 
With  
Civil Appeal No. 8274 of 2013 
With  
Civil Appeal No. 3869 of 2014 
With  
Civil Appeal No. 2632 of 2013 
With  
Civil Appeal No. 14685 of 2015 
With  
Civil Appeal No. 6784 of 2014 
With  
Writ Petition (Civil) No. 376 of 2015 
With  
Civil Appeal No. 10082 of 2016 
With  
Civil Appeal No. 886 of 2017

Source PDF page 3

Open this page in the original PDF
 3 
With  
Civil Appeal No. 4588 of 2017 
With  
Civil Appeal No. 205 of 2017 
With  
Civil Appeal Nos. 5728-5729 of 2018 
With  
Civil Appeal Nos. 4722-4724 of 1999 
With  
Civil Appeal No. 5333 of 2002 
With  
Civil Appeal Nos. 5335-5336 of 2002 
With  
Civil Appeal No. 5332 of 2002 
With  
Civil Appeal No. 1352 of 2005 
With  
Civil Appeal No. 1883 of 2006 
With  
T.P. (Civil) No. 722 of 2006 
With  
Civil Appeal No. 4745 of 2006 
With  
Civil Appeal No. 4990 of 2006 
With  
Civil Appeal No. 5599 of 2006 
With  
Civil Appeal No. 5649 of 2006 
With  
Civil Appeal No. 378 of 2007 
With  
Civil Appeal No. 665 of 2007 
With  
Civil Appeal No. 1180 of 2007 
With  
T.P. (Civil) No. 481 of 2007 
With  
T.P. (Civil) No. 906 of 2007 
With  
Civil Appeal No. 3401 of 2008 
With  
Civil Appeal No. 3400 of 2008 
With  
Civil Appeal No. 3402 of 2008

Source PDF page 4

Open this page in the original PDF
 4 
With  
Civil Appeal No. 8311 of 2011 
With  
Civil Appeal No. 4293 of 2012 
With  
Civil Appeal No. 2055 of 2009 
With  
T.P. (Civil) No. 951 of 2006 
With  
Civil Appeal No. 4991 of 2006 
With  
Civil Appeal No. 4992 of 2006 
With  
Special Leave Petition (Civil) No. 763 of 2007 
With  
Special Leave Petition (Civil) No. 15900 of 2007 
With  
Civil Appeal No. 3403 of 2008 
With  
Civil Appeal No. 98 of 2009 
With  
T.P. (Civil) No. 613 of 2009 
With  
T.P. (Civil) No. 626 of 2009 
With  
Civil Appeal No. 4479 of 2010 
With  
Civil Appeal No. 4478 of 2010 
With  
Civil Appeal No. 3643 of 2011 
With  
Civil Appeal Nos. 4710-4721 of 1999 
With  
Civil Appeal No. 2174 of 2009 
With  
Civil Appeal No. 6497 of 2008 
With  
Civil Appeal No. 6498 of 2008 
With  
Civil Appeal No. 6137 of 2008 
With  
Civil Appeal No. 7397 of 2008 
With  
Civil Appeal No. 96 of 2009

Source PDF page 5

Open this page in the original PDF
 5 
With  
Civil Appeal No. 6499 of 2008 
With  
Civil Appeal No. 97 of 2009 
And With  
Special Leave Petition (Civil) No. 26160 of 2008

Source PDF page 6

Open this page in the original PDF
 6 
J U D G M E N T  
 
 
Dr Dhananjaya Y Chandrachud, CJI 
 
Table of Contents 
A. Background .............................................................................................................. 9 
B. Issues ...................................................................................................................... 13 
C. Submissions ........................................................................................................... 14 
i. Submissions of the petitioners ......................................................................... 14 
ii. Submissions of the respondents ...................................................................... 18 
D. Distribution of legislative fields relating to mines and minerals........................ 24 
E. Underlying constitutional philosophy .................................................................. 29 
i. Scheme of distribution of legislative powers and constitutional limitations 29 
ii. Interpretation of legislative entries ................................................................... 35 
iii. Fiscal Federalism ................................................................................................ 41 
iv. Natural resources and the public trust doctrine .............................................. 45 
F. Whether royalty is tax ............................................................................................ 48 
i. Royalty under the MMDR Act ............................................................................. 48 
ii. Purpose of Section 9 of the MMDR Act ............................................................. 54 
iii. Contours of a mining lease ................................................................................ 56 
a. Lease and license ............................................................................................. 56

Source PDF page 7

Open this page in the original PDF
 7 
b. The nature of a mining lease under the MMDR Act and the Mineral Concession 
Rules 1960 ........................................................................................................ 61 
iv. Meaning of “royalty” .......................................................................................... 65 
v. Characteristics of Tax ........................................................................................ 68 
vi. Royalty is not in the nature of tax ..................................................................... 73 
a. Prelude to India Cement ................................................................................... 73 
b. Divergence between India Cement and Kesoram ............................................. 76 
c. Royalty is not a tax ............................................................................................ 80 
G. Inter-relationship between Entry 23 of List II and Entry 54 of List I ................... 84 
i. Meaning of “regulation of mines” and “mineral development”...................... 84 
ii. Analysis of Hingir-Rampur, M A Tulloch, and Baijnath Kedia ......................... 90 
iii. Examination of the “extent” of the MMDR Act ................................................. 98 
H. Inter-relationship between Entry 50 of List II and Entry 54 of List I ................. 104 
i. Taxes on mineral rights .................................................................................... 106 
a. Mineral rights duty ........................................................................................... 106 
b. Meaning of the expression “mineral rights” ..................................................... 107 
c. Taxes on mineral rights ................................................................................... 113 
ii. The limitations on the taxing power of the State under Entry 50 of List II .. 116 
a. Entry 50 of List II does not constitute an exception to the Sundararamier 
principle ........................................................................................................... 117 
b. Nature of “any limitation” ................................................................................. 124 
c. Scheme of the MMDR Act does not serve as “any limitation” ......................... 129 
d. Section 9 does not serve as a limitation on the taxing powers of State ........... 134

Source PDF page 8

Open this page in the original PDF
 8 
e. “Any limitation” can extend to prohibition ........................................................ 135 
f. Impact of taxes on mineral rights on mineral development ............................. 142 
I. Scope of Entry 49 .................................................................................................  146 
i. Land System in India ........................................................................................ 146 
ii. Tax on land and buildings ................................................................................ 157 
a. Principles governing ‘taxes on lands and buildings’ ........................................ 158 
a. States can impose tax on mineral bearing land .............................................. 162 
iii. Measure of tax................................................................................................... 166 
a. Taxing mineral-bearing land ............................................................................ 170 
b. Goodricke ........................................................................................................ 176 
iv. Measure of tax on mineral-bearing land ......................................................... 180 
a. Decoupling of minerals from land .................................................................... 180 
b. Minerals as measure of tax on land ................................................................ 188 
J. Conclusions .......................................................................................................... 198

Source PDF page 9

Open this page in the original PDF
PART A  
 9 
A. Background 
1. The pres ent batch of appeals bears on the distribution of legislative power s 
between the Union and the States on the taxation of mineral rights . The 
legislative entry which lies at the core of the present reference is Entry 50 of List 
II of the Seventh Schedule to the Constitution. The entry deals with taxes on 
mineral rights subject to “any limitations imposed by Parliament by law relating 
to mineral development. ” Regulation of mines and mineral development is 
enumerated under both the Union List (Entry 54 of List I) and the State List (Entry 
23 of List II) of the Seventh Schedule. The entrustment of the subject to the State 
legislatures under Entry 23 of List II is made subject to the provisions of Entry 54 
of List I.  
2. Parliament enacted the Mines and Minerals (Development and Regulation) Act, 
19571 in exercise of its legislative powers  under Article 246 of the Constitution. 
The subject which the legislation predominantly covers is relatable to Entry 54 of 
List I. The MMDR Act is a comprehensive code for the regulation of mines and 
development of minerals. Section 9  provides that the holder of a mining lease 
shall pay royalty in respect of any mineral removed or consumed from the leased 
area at the specified rates . In India Cement Ltd.  v. State of Tamil Nadu ,
2 a 
seven-Judge Bench of this Court held that royalty is tax and the state legislatures 
lack competence to levy taxes on mineral rights because the  subject-matter is 
covered by the MMDR Act. The Court also held that royalty cannot be used by 
the State legislature as a measure of tax on  mineral-bearing lands under Entry 
49 of List II. Later in time, in State of West Bengal v. Kesoram Industries Ltd.3 
 
1 “MMDR Act” 
2 (1990) 1 SCC 12 [34] 
3 (2004) 10 SCC 201 [71]

Source PDF page 10

Open this page in the original PDF
PART A  
 10 
a Constitution Bench of this Court held that the decision in India Cement (supra) 
stemmed from an inadvertent error and clarified that royalty is not a tax.  
3. In the aftermath of India Cement (supra) and Kesoram  (supra), State 
legislatures exercised their legislative powers to impose tax es on mineral -
bearing land in pursuance of Entry 49 of List II by applying the mineral value or 
royalty as the measure of the tax.4 States such as Rajasthan5 and Uttar Pradesh6 
also sought to impose environment and health cess and fees for transporting 
coal and coal-dust collected from mines. The constitutional validity of these levies 
was challenged before the High Courts on the ground that they were beyond the 
legislative competence of the S tate legislatures. The levies were also assailed 
on the ground that they were in violation of the law laid down in India Cement  
(supra).  
4. One such matter is  Civil Appeal No. 4056- 64 of 1999 , where  the petitioners  
initially filed writ petitions before the High Court of Judicature at Patna 
challenging the validity of the Bihar Coal Mining Area Development Authority 
(Amendment) Act 1992 and the Bihar Mineral Area Development Authority (Land 
Use Tax) Rules 1994, which levied tax
7 on land being used for mining. Relying 
on India Cement (supra), the High Court allowed the petition by holding that the 
 
4 Mineral Area Development Authority v. Steel Authority of India, Civil Appeal No. 4056 -64 of 1999; Sanghi 
Infrastructures MP Ltd. v. Union of India, Writ Petition (C) No. 512 of 2018. 
5 Ambuja Cement v. State of Rajasthan, Diary No. 21291 of 2023; Wolkem Industries v. State of Rajasthan, Civil 
Appeal No. 8273 of 2013; Wonder Cement Ltd. v. State of Rajasthan, Civil Appeal No. 4588 of 2017. 
6 Kanoria Chemicals v. State of UP , Civil Appeal No. 1295 of 2008; Hindalco Industries Ltd. v. State of UP , Civil 
Appeal No. 3869 of 2014. 
7 Section 89, Bihar Coal Mining Area Development Authority Act 1986. [It reads:  
Levy of Tax on Use of Land for Other Than Agricultural and Residential Purposes – 
(1) The Authority shall subject to the provisions of this Act and Rules framed thereunder levy tax, by 
notification published in the Official Gazette on land being by any person, group of persons, company, the 
Central Government or the State Government, Local or Corporate Body for mining, commercial or 
industrial purposes with the prior approval of the State Government. 
Provided that the tax so levied shall not exceed Rupees 1.50 per square meter annually for any such land 
but such tax shall not be levied on land which is subject to Holding Tax.  
(2) The State Government shall, out of the tax so levied and collected, determine the amount to be deposited 
into the consolidated Fund of the State Government from time to time.”]

Source PDF page 11

Open this page in the original PDF
PART A  
 11 
tax was not within the scope of Entry 49 of List II of the Seventh Schedule. The 
correctness of the High Court’s decision was assailed before this Court . On 30 
March 2011, a Bench of three Judges noticed the divergence between India 
Cement (supra) and Kesoram (supra) and referred the following questions to a 
Bench of nine Judges to provide a decisive ruling: 
a. Whether ‘royalty’ determined under Sections 9/15(3) of the MMDR Act is in 
the nature of tax; 
b. Can the State Legislature while levying a tax on land under Entry 49 List II of 
the Seventh Schedule of the Constitution adopt a measure of tax based on 
the value of the produce of land? If yes, then would the constitutional position 
be any different insofar as the tax on land is imposed on mining land on 
account of Entry 50 List II and its interrelation with Entry 54 List I? 
c. What is the meaning of the expression “Taxes on mineral rights subject to any 
limitations imposed by Parliament by law relating to mineral development” 
within the meaning of Entry 50 of List II of the Seventh Schedule of the 
Constitution of India? Does the MMDR Act contain any provision which 
operates as a limitation on the field of legislation prescribed in Entry 50 of List 
II of the Seventh Schedule of the Constitution of India? In particular, whether 
Section 9 of the MMDR Act denudes or limits the scope of Entry 50 of List II? 
d. What is the true nature of royalty/ dead rent payable on minerals produced/ 
mined/ extracted from mines? 
e. Whether the majority decision in Kesoram (supra) could be read as departing 
from the law laid down in India Cement (supra)?

Source PDF page 12

Open this page in the original PDF
PART A  
 12 
f. Whether “taxes on lands and buildings” in Entry 49 List II of the Seventh 
Schedule to the Constitution contemplate a tax levied directly on the land as 
a unit having definite relationship with the land? 
g. What is the scope of the expression “taxes on mineral rights” in Entry 50 of 
List II of the Seventh Schedule to the Constitution? 
h. Whether the expression “subject to any limitation imposed by Parliament by 
law relating to mineral development” in Entry 50 of List II refers to the subject 
matter in Entry 54 of List I of the Seventh Schedule to the Constitution; 
i. Whether Entry 50 of List II read with Entry 54 of List I of the Seventh Schedule 
to the Constitution constitute an exception to the general scheme of Entries 
relating to taxation being distinct from other Entries in all the three Lists of the 
Seventh Schedule to the Constitution as enunciated in M P V Sundararamier 
& Co. v. State of Andhra Pradesh
8; 
j. Whether in view of the declaration under Section 2 of the MMDR Act made in 
terms of Entry 54 of List I of the Seventh Schedule to the Constitution 
and the provisions of the said Act, the State legislature is denuded of its power 
under Entry 23 of List II and/ or Entry 50 of List II; and  
k. What is the effect of the expression “ subject to any limitation imposed by 
Parliament by law relating to mineral development” on the taxing power of the 
State legislature in Entry 50 of List II, particularly in view of its uniqueness in 
the sense that it is the only entry in all the entries in three Lists (Lists I, II, and 
III) where the taxing power of the State legislature has been subjected to “any 
limitation imposed by Parliament by law relating to mineral development.”
 
8 (1958) 1 SCR 1422

Source PDF page 13

Open this page in the original PDF
PART B  
13 
 
B. Issues 
5. During the course of the hearing, 9 counsel for the petitioners and respondents 
agreed that the main questions that fall for determination by  this Court could be 
reframed in the following terms: 
a. What is the true nature of royalty determined under Section 9 read with 
Section 15(1) of the MMDR Act? Whether royalty is in the nature of tax; 
b. What is the scope of Entry 50 of List II of the Seventh Schedule? What is 
the ambit of the limitations imposable by Parliament in exercise of its 
legislative powers under Entry 54 of List I? Does Section 9,  or any other 
provision of the MMDR Act, contain any limitation with respect to the field in 
Entry 50 of List II?
c. Whether the expression “subject to any limitations imposed by Parliament 
by law relating to mineral development” in Entry 50 of List II pro tanto  
subjects the entry to Entry 54 of List I, which is a non-taxing general entry? 
Consequently, i s there any departure from the general scheme of 
distribution of legislative powers as enunciated in M P V Sundararamier 
(supra)? 
d. What is the scope of Entry 49 of List II and whether it covers a tax which 
involves a measure based on the value of the produce of land? Would the 
constitutional position be any different qua mining land on account of Entry 
50 of List II read with Entry 54 of List I?
 
 
9 Civil Appeal No. 4056-4064 of 1999, Mineral Area Development Authority v. Steel Authority of India, Transcript of 
Hearing, 27 February 2024, 8-9.

Source PDF page 14

Open this page in the original PDF
PART C  
 14 
e. Whether Entry 50 of List II is a specific entry in relation to Entry 49 of List II, 
and would consequently subtract mining land from the scope of Entry 49 of 
List II? 
6. The Union of India has filed an affidavit stating that the issues in this reference 
do not involve the interpretation of Entry 53  of List I of the Seventh Schedule 
which pertains to oilfields, mineral oil resources, petroleum and petroleum 
products. Counsel on both sides have not addressed submissions on any issues 
pertaining to the interpretation of Entry 53 of List I. We have accordingly neither 
discussed nor considered any issues pertaining to Entry 53 of List I . We have 
circumscribed the scope of the reference to the above-mentioned issues referred 
to the nine-Judge Bench as reframed in the above terms.
 
C. Submissions 
i. Submissions of the petitioners 
7. Mr Rakesh Dwivedi, learned senior counsel, made the following submissions: 
a. Royalty is the consideration for parting with the right to work the mine and win 
minerals which are vested either in the Government or a private person. Section 
9 of the MMDR Act statutorily determines the price to be compulsorily paid by 
the lessee to the lessor in lieu of the grant of rights under a mining lease. 
Royalty paid by the lessee under Section 9 does not meet either the criteria of 
a ‘tax’ or an ‘impost’ under Article 366(28) of the Constitution. Therefore, royalty 
is not a tax on either minerals or mineral rights;

Source PDF page 15

Open this page in the original PDF
PART C  
 15 
b. Entry 49 of List II -  “taxes on lands and buildings” - must be construed 
expansively because it is not subordinated to any other entry in the Seventh 
Schedule. The expression “lands” in Entry 49 has been interpreted to include 
all kinds of lands, including mineral -bearing land. Minerals continue to remain 
a part of the land until they are extracted. Therefore, the value of minerals can 
be used as a measure to tax mineral bearing land; 
c.  Entry 54 of List I and Entry 23 of List II are general entries relating to the subject 
matter of regulation of mines and mineral development . Entry 23 of List II has 
been expressly subordinated to the provisions of List I with respect to regulation 
and development under the control of the Union. Thus, the subject matter 
available to the State legislature under Entry 23 of List II is the residue of what 
is left after declaration by Parliament under Entry 54 of List I. Moreover, Entries 
54 of List I and 23 of List II, being general entries, do not provide a source of 
imposing any kind of tax;  
d. The legislative power of the State legislatures to levy tax on mineral rights under 
Entry 50 of List II has been made subject to “ any limitations imposed by 
Parliament by law relating to mineral development. ” Parliament has no 
legislative competence to tax with respect to any subject matter enumerated in 
List II of the Seventh Schedule. Parliament cannot assume to itself the power 
to tax mineral rights, but can only impose limitations on the states when they 
exercise their powers in pursuance of Entry 50 of List II;  
e. The limitations contemplated under Entry 50 of List II have to be express 
because they deprive the State legislatures of their plenary power to impose 
tax. The MMDR Act does not expressly limit the legislative competence of the 
State legislatures to tax mineral rights.  Royalty is neither tax, nor an exaction

Source PDF page 16

Open this page in the original PDF
PART C  
 16 
in the nature of tax. It cannot serve as a limitation envisaged by Entry 50 of List 
II;  
f. Under Entry 50 of List II, t he limitations are required to be imposed “by law” 
made by Parliament. They cannot be imposed by a delegate acting under 
parliamentary legislation; and 
g. Entry 54 of List I read with Entry 50 of List II is not an exception to the principle 
laid down in M P V Sundararamier  (supra). Entry 54 of List I is a regulatory 
entry, while Entry 50 of List II is a tax ing entry. The power to impose “any 
limitations” under Entry 50 of List II cannot be interpreted so as to bestow upon 
Parliament legislative powers to tax mineral rights. There cannot be any overlap 
of the power of taxation because the legislative power of Union and States to 
tax is mutually exclusive and clearly demarcated under the Seventh Schedule. 
8. Mr S Niranjan Reddy, learned senior counsel, made the following submissions: 
a. It is a settled law that the rights to sub-soil minerals vest in the title holder of the 
land. The ownership to sub-soil minerals generally follows the ownership of the 
land, unless the owner of the land is deprived of the same by some valid legal 
process; 
b. Ordinarily, the land owner , or the mining lessor,  contractually requires the 
lessee to pay royalty as a compensation for the loss of the value of minerals 
from the land. Under Section 9 of the MMDR Act, Parliament has statutorily 
capped the amount of royalty that can be contractually collected by the lessor. 
Moreover, Section 9(3) of the MMDR Act (which limits the power of the Central 
Government to increase the rates of royalty) does not serve as a limitation on 
the taxing power of the State legislatures under Entry 50 of List II;

Source PDF page 17

Open this page in the original PDF
PART C  
 17 
c. The Constitution is cognizant of the fact that the legislative power of the States 
to tax mineral rights may impede mineral development. Therefore, the 
Constitution has empowered Parliament to limit or restrict the taxing powers of 
the State legislatures under Entry 50 of List II by a law relating to mineral 
development; and 
d. The word “lands” under Entry 49 of List II includes lands of every character. The 
measure of a tax cannot determine the nature of tax. The productivity of land 
can be used as a measure for levy of taxes on lands . Resultantly, mineral 
produced from a land can always be used as a measure to tax lands.  
9. Mr Vijay Hansaria, learned senior counsel, made the following submissions: 
a. The MMDR Act only deals with the regulation of mines and mineral 
development. Further, the legislation does not seek to legislate on the entire 
field of mines and minerals, but only to the extent provided. The levies such as 
royalty and dead rent payable under the MMDR Act are not in the nature of tax 
but only a payment for a right to enjoy the land and the usufruct of the land;  
b.  Entry 50 of List II, being a taxing entry, has to be construed with clarity and 
precision. The expression “law relating to mineral development” occurring in 
Entry 50 of List II has to be construed in light of Section 18 of the MMDR Act 
which deals with mineral development. Section 18 does not impose any 
express limitation on the legislative power of the state s to tax mineral rights ; 
and 
c. Parliament does not have the legislative powers to tax minerals rights using its 
residuary powers because the subject matter has been expressly enumerated 
in the State List.

Source PDF page 18

Open this page in the original PDF
PART C  
 18 
10. Ms Sansriti Pathak, learned counsel, made the following submissions:  
a. The State, being the proprietor  of minerals, can receive royalty for parting 
with its mineral rights  and can also levy tax on the same minerals in the 
capacity of the sovereign; and 
b. The expression “any limitations” appearing in Entry 50 of List I I cannot be 
construed to mean prohibition. Parliament can only limit the exclusive 
legislative powers of the State legislature to tax minerals, but cannot prohibit 
them.  
ii. Submissions of the respondents 
11. Mr R Venkataramani, the learned Attorney General for India, made the following 
submissions: 
a. The grant of permission to undertake any activity in relation to a mineral is 
based on certain terms and conditions prescribed under the MMDR Act. The 
consideration for the grant of such permission is royalty , which in essence is 
the demand for parting with the privilege of working the mineral; 
b. It is immaterial whether royalty is designated as a tax. Any levy relating to 
mineral development, in so far as it is in relation to mineral rights, will serve as 
a limitation on the taxing powers of the State legislature under Entry 50 of List 
II; 
c.  Both Entry 54 of List I and Entry 50 of List II constitute a family of entries. Taxes 
on minerals rights must be understood as such levies, charges, impositions or 
demands that are related to mineral development. Entry 50 of List II cannot be 
a source of authority for imposing any levy, charge, impost, or demand which

Source PDF page 19

Open this page in the original PDF
PART C  
 19 
is either unconnected with mineral development or in relation to any other alien 
purpose, such as education cess; 
d. The MMDR Act contemplates all mann er of levies, charges, imposts, or 
demands that can be legitimately provided for having a nexus with mineral 
rights. Therefore, the provisions of the MMDR Act will be treated as a limitation 
on the power of the States to demand or impose similar levies, im posts or 
demands of the same nature. Although Entry 50 of List II is a taxing entry, it will 
be limited by a law relating to mineral development enacted under a general 
entry, that is, Entry 54 of List I; and 
e. Entry 49 of List II cannot include any matter in relation to mineral rights 
activities. Any levy with reference to the value of mineral produced  from a 
mineral bearing land will be treated as a levy in relation to mineral rights.   
12. Mr Tushar Mehta, the learner Solicitor  General of India, made the following 
submissions: 
a. The only pertinent issue in this reference is whether the State Government can 
impose levies under Entry 50 of List II over and above the amount of royalty 
received by them under the MMDR Act. The State legislature’s competence to 
tax mineral rights under Entry 50 does not extend to taxing other aspects such 
as mining activities and minerals produced;  
b. The Central Government fixes the rates of royalty to ensure harmonized 
development of minerals in India. The MMDR Act exhausts the field of statutory 
charges and levies on minerals  and thereby denudes the power of the State 
legislature to impose any levy relating to mineral development. The MMDR Act

Source PDF page 20

Open this page in the original PDF
PART C  
 20 
occupies the entire field of legislation covered by both Entries 23 and 50 of List 
II; 
c. In the context of mineral -bearing lands, the words “lands” used in Entry 49 of 
List II can only mean the surface of the land. I t cannot be interpreted 
expansively to include sub- soil minerals because the subject matter of mines 
and minerals is covered by Entry 54 of List I and Entries 23 and 50 of List II. If 
mineral produce or mineral rights are used as a measure for taxation of lands 
under Entry 49 of List II, it will impact the Union’s powers to legislate under 
Entry 54 of List I to limit the taxes on mineral rights in the manner contemplated 
in Entry 50 of List II; and 
d. Any levy imposed by the States  with reference to the value of minerals 
produced is in pith and substance a tax on mineral rights under Entry 50 of List 
II. Since subject-matter of mineral rights covered by Entry 50 of List II is limited 
by a parliamentary law, giving an expansive reading to Entry 49 of List II  by 
interpreting lands to include mineral deposits will lead to an overlap between 
the two entries.  
13. Mr Harish Salve, learned senior counsel, made the following submissions: 
a. Entry 50 of List II is sui generis  because it is the only legislative entry which 
limits the taxing power of the State legislatures by reference to a general law;  
b. The MMDR Act is a complete code on all aspects relating to regulation of mines 
and development of minerals. All mineral rights are granted according to the 
provisions of the central legislation regardless of whether that the minerals vest 
in the State Government;

Source PDF page 21

Open this page in the original PDF
PART C  
 21 
c. The important issue in this reference pertains to the nature of “any limitations” 
mentioned under Entry 50 of List II. The State legislature’s power under Entry 
50 of List II is excluded if taxes on mineral rights become incompatible with 
mineral development as contemplated by a regulatory law enacted under Entry 
54 of List I. Any levy by State legislatures under Entry 50 of List II impinges 
upon mineral development;  
d. Royalty belongs to the same genus as a tax on mineral rights in the sense that 
both are exactions by the sovereign in exercise of their statutory powers.  The 
expression “taxes on mineral rights” has a very narrow focus and has to be 
interpreted accordingly.  In a constitutional sense, the expression “tax on 
mineral rights” connotes that exaction which gives the States the share of the 
mineral produced. The royalty payable under Section 9 of the MMDR Act meets 
that definition;  
e. The expression “mineral development” used in Entry 50 of List II has to be 
traced to the entire architecture of the MMDR Act. Therefore, the entirety of the 
MMDR Act serves as a limitation on the taxing powers of the State legislatures 
under Entry 50 of List II. Further, other provisions of the MMDR Act cover the 
taxing powers of the State legislature by satisfying the threshold of “any 
limitation” under Entry 50 of List II; 
f. The tax on mineral rights can only be a tax on an owner (who is a private 
person) of minerals seeking to monetize the mineral resources. Resultantly, the 
State Government can exercise its legislative powers under Entry 50 of List II 
only in situations where the mineral rights vest in private persons; and   
g. The measure of tax must have a nexus with the nature of tax. In India, all 
minerals vest in the State. Ownership of land does not give the owner the right

Source PDF page 22

Open this page in the original PDF
PART C  
 22 
to the sub- soil minerals. Therefore, a tax on mineral bearing land cannot be 
imposed on the owner on the basis of the value of the sub-soil minerals. 
14. Dr A M Singhvi, learned senior counsel, made the following submissions: 
a. Royalty and dead rent are compulsory imposts under the MMDR Act, and not 
a result of negotiations leading to a contractual agreement. Royalty meets the 
criteria of tax under Article 366(28) of the Constitution;  
b. The legislative declaration under Section 2 of the MMDR Act denudes the 
States of any power to tax mineral rights under Entry 50 of List II . Even if the 
legislative declaration does not ipso facto exclude the legislative competence 
of the State legislatures under Entry 50 of List II , the MMDR Act contains 
specific provisions such as Sections 9, 9A,  and 9B imposing taxes on mining 
lessees which occupy the field of taxation of mineral rights; 
c. The express language of Entry 50 of List II suggests that the tax ing power of 
the State legislature is subordinated by a legislation made under Entry 54 of 
List I. This necessarily implies that Entry 54 of List I read with Entry 97 of List I 
empowers Parliament to tax mineral rights; and  
d. Entry 54 of List I read with Entry 97 of List I implies a sui generis and complete 
code on the legislative subject of regulation of mines and mineral development 
and taxation of minerals and mineral rights. Therefore, Entry 54 of List I and 
Entry 50 of List II constitute an exception to the principle laid down in M P V 
Sundararamier (supra). 
15. Mr Darius Khambata, learned senior counsel, made the following submissions:  
a. The limitations imposed by Parliament under Entry 50 of List II need not be 
express, they can also be implied. Therefore, once Parliament imposes

Source PDF page 23

Open this page in the original PDF
PART C  
 23 
charges or levies under a law relating to mineral development, it occupies the 
entire field pertaining to the subject-matter of Entry 50 of List II; and 
b. The MMDR Act is a complete code on the regulation of mineral development, 
including the field of taxation or exactions on minerals and mineral rights. The 
scheme of the MMDR Act is such that Parliament not only imposes a tax on 
mineral rights, but also curtails the powers of the State legislature under Entry 
50 of List II. 
16. Mr A K Ganguly, learned senior counsel, submitted that minerals cannot 
constitute as a measure for tax on land because they cease to be a part of land 
once extracted.  
17. Mr S K Bagaria, learned senior counsel, submitted that the totality of levies 
pertaining to minerals and mineral rights are comprised in Sections 9, 9A, 9B, 
and 9C of the MMDR Act which leave nothing for the State legislature to tax 
under Entry 50 of List II. Moreover, the expression ‘tax on mineral rights ’ under 
Entry 50 of List II will not empower State legislatures to levy tax on minerals. 
18. Mr Arvind Datar, learned senior counsel, made the following submissions:  
a. Since Entry 50 of List II is “subject to” any limitations imposed by Parliament by 
law relating to mineral development, the legislative power of the State 
legislature to tax mineral rights must yield to parliamentary legislation, that is, 
the MMDR Act. The taxing powers under Entry 50 of List II are made subject to 
a law made by Parliament to maintain uniformity and promote mineral 
development; and 
b. The scope of taxes on mineral rights under Entry 50 of List II is limited and only 
entails a taxation on the activity of excavation and mining. This has already

Source PDF page 24

Open this page in the original PDF
PART D  
24 
 
been accounted for under the MMDR Act.  The taxes on minerals produced is 
akin to an excise duty and can only be levied under Entry 84 of List I, and the 
taxes on sale of minerals can be levied under Entry 54 of List II. 
19. Mr Sujit Ghosh, learned senior counsel, submitted that the sovereign right of the 
State legislature can be curtailed by Parliament in the interests of mineral 
development. Counsel further contended that the ‘aspect’ of taxation of mineral 
rights has been taken over by Parliament by virtue of Section 9 of the MMDR 
Act. 
20. Ms Aishwarya Bhati, the Additional Solicitor-General of India, submitted that the 
taxing powers of the State legislatures under Entry 50 of List II is not eclipsed by 
a taxing power of Parliament, but by a regulatory power. The learned ASG also 
emphasized that the concept of inter-generational equity has to be borne in mind 
by this Court to balance the legislative power of the State legislatures to tax 
mineral rights against the need for the development of minerals. 
D. Distribution of legislative fields relating to mines and minerals 
21. A mineral is an inorganic substance found either on  or under the surface of the 
earth.10 Minerals are natural and non- renewable resources. They serve as vital 
raw materials for the core sectors of the economy. India produces a diversity of 
minerals such as coal, iron- ore, bauxite,  manganese and chromite. Many 
industries, especially those critical to the infrastructure sector such as power, 
 
10 Ramanatha Aiyar Advanced Law Lexicon (Volume 3) 3543; In Banarsi Dass Chadha v. Lt Governor, Delhi 
Administration, (1978) 4 SCC 11 [4]. (Justice O Chinappa Reddy, on behalf of a three-Judge Bench observed: “The 
word “mineral” is not a term of Article. It is a word of common parlance, capable of a multiplicity of meanings 
depending upon the context. For example, the word is occasionally used in a very wide sense to denote any 
substance that is neither animal nor vegetation. Sometimes it is used in a narrow sense to mean no more than 
precious metals than gold and silver. Again, the word “minerals” is often used to indicate substances obtained from 
underneath the surface of the earth by digging or quarrying.”) ; V P Pithupitchai v. Special Secretary to the 
Government of TN, (2003) 9 SCC 534.

Source PDF page 25

Open this page in the original PDF
PART D  
25 
 
steel, cement, and aluminum, are heavily dependent on minerals. For example, 
coal is an essential raw material for several key industries such as iron, steel, 
and cement, which in turn are basic ingredients for almost all manufacturing 
industries and physical infrastructure.  
22. Most of the minerals are spatially located in a few mineral rich states, namely, 
Andhra Pradesh, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Madhya 
Pradesh, Orissa, Rajasthan, and West Bengal.
11 Since mineral resources are a 
shared inheritance of the people, it has always been the imperative of the Indian 
state to ensure equitable distribution of mineral wealth to sub-serve the common 
good.12 Considering the socio- economic importance of mineral resources  to 
economic development, the Constitution has emphasized that the state shall play 
an important role in facilitating and regulating mining activities.  
23. The history of the distribution of legislative powers relating to the regulation of 
minerals and development of mineral rights could be traced to  the Government 
of India Act 1915- 1913. Section 45A of the GOI Act 1915 provided for the 
classification of subjects in relation to the functions of government as central and 
provincial subjects for the purpose of distinguishing the functions of the 
Governor-General in Council and the Indian Legislature from those of the local 
governments and local legislatures. Pursuant to Section 45A and Section 129A 
(which empowered the Governor -General to make further provisions for the 
regulation of certain matters by rules) , the Governor -General prescribed the 
Devolution Rules. The Devolution Rules prescribed the distribution of the 
 
11 Ligia Norohna et al, ‘Resource Federalism in India: The Case of Minerals’ (2009) 44(8) Economic and Political 
Weekly 51, 52.  
12 Government of India, Ministry of Mines, ‘National Mineral Policy 2019’  
13 “GOI Act 1915”

Source PDF page 26

Open this page in the original PDF
PART D  
26 
 
subject-matter of the regulation of mines and mineral resources in the following 
manner: 
“Part I Central Subjects 
25. Control of mineral development in so far as such 
control is reserved to the Governor General in 
Council under rule made or sanctioned by the 
Secretary of State, and regulation of mines. 
Part II Provincial Subjects 
24. Development of mineral resources which are 
Government property; - subject to rules made or 
sanctioned by the Secretary of State, but not 
including the regulation of mines.”  
24. The primary aim behind the introduction of the Devolution Rules was to transfer 
certain responsibilities to provincial legislative assemblies. 14 However, the 
colonial state reserved to itself almost the entirety of the subject matter relating 
to mineral development and regulation of mines. The provincial legislatures were 
given limited power to the extent of development of mineral resources which 
were Government property. The Government of India Act 1935
15 retained the 
distribution of legislative powers between the Centre and Provinces. Section 100 
of the GOI Act 1935 demarcated the legislative powers of the Federal and 
Provincial Legislatures .
16 The relevant entries relating to mines and mineral 
development were as follows: 
 
14 See Debates in the House of Commons on the Government of India Act 1919 (3rd December 1919) 
15 “GOI Act 1935” 
16 GOI Act 1935, Section 100. (It read:  
Subject matter of Federal and Provincial Laws: 
(1) Notwithstanding anything in the two next succeeding subsections, the Federal Legislature has and a Provincial 
Legislature has not, power to make laws with respect to any of the matters enumerated in List I in the Seventh 
Schedule to this Act (hereinafter called the “Federal Legislative List”).

Source PDF page 27

Open this page in the original PDF
PART D  
 27 
“List I. – Federal Legislative List  
36. Regulation of mines and oilfields and mineral 
development to which such regulation and 
development under a Federal control is declared by 
Federal law to be expedient in the public interest. 
List II. – Provincial Legislative List  
23. Regulation of mines and oilfields and mineral 
development subject to the provisions of List I with 
respect to regulation and development under 
Federal control. 
44. Taxes on mineral rights, subject to any limitations 
imposed by any Act of the Federal Legislature 
relating to mineral development.” 
25. During the debates in the House of Commons on the above entries, the then 
Solicitor General stated that the provinces c ould enact their own regulations if 
there was any “inaction” by the Federal Legislature.17 Thus, legislative power in 
relation to regulation of mines and mineral development was accorded to both 
the Federal and Provincial Legislatures. However, the subject matter in the 
Provincial Legislative List was made subject to the provisions of the Federal 
Legislative List. The Dominion Legislature enacted the Mines and Minerals 
 
(2) Notwithstanding anything in the next succeeding sub -section, the Federal Legislature, and subject to the 
preceding sub-section, a Provincial Legislature also, have power to make laws with respect to any of the matters 
enumerated in List III in the said Schedule (hereinafter called the “Concurrent Legislative List”). 
(3) Subject to the two preceding sub-sections, the Provincial Legislature has, and the Federal Legislature has not, 
power to make laws for a Province or any part thereof with respect to any of the matters enumerated in List II in 
the said Schedule (hereinafter called the “Provincial Legislative List”). 
(4) The Federal Legislature has power to make laws with respect to matters enumerated in the Provincial 
Legislature List except for a Province of any part thereof.”) 
17 Government of India Bill, Seventh Schedule (Legislative Lists) Hansard ( Volume 301) (13 May 1935). [The 
Solicitor General said: “If there is inaction at the Centre the Provinces can go ahead with their own regulations and 
developments, but to the extent to which the Centre desires and declares by law that there shall be central 
regulations and control, then the subject comes out of the purely restricted Provincial field and becomes a subject 
of control at the Centre.”]

Source PDF page 28

Open this page in the original PDF
PART D  
 28 
(Regulation and Development) Act 1948 in pursuance of the subject contained 
in Entry 36 of the Federal Legislative List. 
26. Entry 44 of the Provincial Legislative List enumerated the subject matter of taxes 
on mineral rights , but made the tax ing power of the Provinces subject to any 
legislation relating to mineral development enacted by the Federal Legislat ure. 
This scheme of the distribution of legislative powers with respect to the subject-
matter of mines and mineral development as well as the taxation of mineral rights 
is reflected in the Constitution.  
27. The Seventh Schedule to the Constitution enumerates the following entries 
pertaining to regulation of mines and mineral development and the taxation of 
mineral rights: 
“List I – Union List  
54. Regulation of mines and mineral development to 
the extent to which such regulation and development 
under the control of the Union is declared by 
Parliament by law to be expedient in the public 
interest. 
List II – State List  
23. Regulation of mines and mineral development 
subject to the provisions of List I with respect to 
regulation and development under the control of the 
Union. 
50. Taxes on mineral rights subject to any limitation 
imposed by Parliament by law relating to mineral 
development.”

Source PDF page 29

Open this page in the original PDF
PART E  
29 
 
28. Although the above entries are substantially similar to the scheme under the GOI 
Act 1935, one of the differences lies in the removal of “oil fields” from Entry 54 of 
List I and Entry 23 of List II . The regulation and development of oil fields is now 
enumerated under Entry 53 of List I.18 The other difference is that while the GOI 
Act 1935 required a declaration by Federal law, the Constitution now requires a 
declaration by Parliament . The entry pertaining to taxes on mineral rights is 
largely similar to Entry 44 of the Provincial Legislative List,  except  for  the  fact
that Entry 44 provided for imposition of “any limitations” by “any Act” enacted by 
the Federal Legislature relating to mineral development, while Entry 50 of List II 
does not include the expression “any Act” enacted by Parliament . Before we 
delve into the intrica cies of the interpretation of the legislative entries, we need 
to bear in mind the constitutional philosophy underlying the Indian federal setup. 
E. Underlying constitutional philosophy  
i. Scheme of distribution of legislative powers  and constitutional 
limitations 
29. Part XI of the Constitution deals with the relations between the Union and the 
States. Article 245 provides that subject to the provisions of the Constitution,  
Parliament may make laws for the whole or any part of the territory of India and 
the Legislature of a State may make laws for the whole or any part of the State.
19 
The power to enact laws is inherently related to the sovereignty of the Union and 
State legislatures in their respective fields. 20 While t he sovereign legislative 
 
18 Entry 53 of List I, Seventh Schedule, Constitution of India. [It reads: “53. Regulation and development of oil fields 
and mineral oil resources; petroleum and petroleum products; other liquids and substances declared by Parliament 
by law to be dangerously inflammable.”] 
19 Article 245, Constitution of India  
20 Jindal Stainless Steel v. State of Haryana, (2017) 12 SCC 1 [617]

Source PDF page 30

Open this page in the original PDF
PART E  
 30 
powers of Parliament and the State legislatures are plenary, they are subject to 
well-defined constitutional limitations.  The language of Article 245 makes the 
exercise of legislative powers expressly subject to the provisions of the 
Constitution. Therefore, laws made by a legislature may be void not only for the 
lack of legislative power in respect of the subject -matter, but  also for    
transgressing constitutional limitations.21 It is the duty of constitutional courts to  
resolve disputes regarding a breach of constitutional limits by the Union and 
State legislatures.22  
30. The scheme of distribution of legislative powers between Parliament and the 
State legislatures is embodied in Article 246. Article 246 is similar to Section 100 
of the GOI Act 1935. Article 246 deals with the subject matter of laws made by 
Parliament and the Legislatures of States and is set below: 
“246. Subject -matter of laws made by Parliament 
and by the Legislatures of States –  
(1) Notwithstanding anything in clauses (2) and (3), 
Parliament has exclusive power to makes laws with 
respect to any of the matters enumerated in List I in 
the Seventh Schedule (in this Constitution referred 
to as the “Union List”). 
(2) Notwithstanding anything in clause (3), 
Parliament and, subject to clause (1), the Legislature 
of any State also, have the power to make laws with 
respect to any of the matters enumerated in List III 
in the Seventh Schedule (in this Constitution referred 
to as the “Concurrent List”) 
(3) Subject to clauses (1) and (2), the Legislature of 
any State has exclusive power to make laws for such 
State or any part thereof with respect to any of the 
 
21 H M Seervai, Constitutional Law of India,  Volume 3 (4th edn.) [22.6] 2306; State of Kerala v. Mar Appraem Kuri 
Company Ltd., (2012) 7 SCC 106, [41].  
22 State of West Bengal v. Committee for Protection of Democratic Rights, (2010) 3 SCC 571

Source PDF page 31

Open this page in the original PDF
PART E  
 31 
matters enumerated in List II in the Seventh 
Schedule (in this Constitution referred to as the 
“State List”) 
(4) Parliament has power to make laws with respect 
to any matter for any part of the territory of India not 
included in a State notwithstanding that such matter 
is a matter enumerated in the State List.”
31. Article 246 confers exclusive power on Parliament to make laws with respect to 
any of the matters enumerated in List I (the Union List) of the Seventh Schedule. 
The exclusive power of the State legislatures with respect to the matters 
enumerated in List II is subject to the exclusive legislative powers of Parliament. 
In Hoechst Pharmaceuticals v. State of Bihar ,23 this Court culled out the 
following principles underlying Article 246: 
a. Parliament has exclusive power to make laws with respect to the matters 
enumerated in List I; 
b. The non- obstante clause in Article 246(1) provides for predominance or 
supremacy of the Union legislature; 
c. The legislative powers of the Union legislature is not encumbered by anything 
contained in Articles 246(2) and 246(3) for these clauses are expressly limited 
and made subject to the non-obstante clause in Article 246(1); 
d. The State legislature has exclusive power to make laws with respect to any 
of the matters enumerated in List II; 
e. The exclusive power of the State legislature to legislate with respect to any 
of the matters enumerated in List II has to be exercised subject  to Article 
 
23 (1983) 4 SCC 45

Source PDF page 32

Open this page in the original PDF
PART E  
 32 
246(1), that is, the exclusive power of Parliament to legislate with respect to 
matters enumerated in List I; 
f. Consequently, in case of any conflict between an entry in List I and an entry 
in List II which is not capable of reconciliation, the power of Parliament to 
legislate with respect to a matter enumerated in List I must supersede pro 
tanto the exercise of power of the State legislature; and 
g. Both Parliament and State legislatures have concurrent powers of legislation 
with respect to any of the matters enumerated in List III , the law enacted by 
Parliament prevailing in the event of any inconsistency or conflict. 
32. Article 245 ( read with Article 246 ) is the source of the legislative powers of 
Parliament and the State legislatures.  The entries in the Seventh Schedule 
delineate the subject matter over which the appropriate legislature can enact 
laws. The entries are legislative heads and not the source of legislative powers.
24 
A legislation could be composite in nature, drawing upon several entries  in a 
particular list.25 Such a legislation is referred to as a “ragbag” legislation. 
33. Article 254 clarifies that if the law made by a State legislature is repugnant to any 
provisions of a law made by Parliament with respect to any of the matters 
enumerated in List III, the law made by Parliament would prevail and the law 
made by the State legislature would be void to the extent of the repugnancy. The 
issue of repugnancy arises only when both the legislatures are competent to 
legislate on the subject with respect to List III.
26 The issue of repugnancy does 
not arise if the legislations enacted by Parliament and the State legislatures deal 
 
24 Calcutta Gas Company (Proprietary) Ltd v. State of West Bengal, 1962 Supp (3) SCR 1, [8] 
25 Ujagar Prints (II) v. Union of India, (1989) 3 SCC 488 [53] ; State of West Bengal v. Committee for Protection of 
Democratic Rights, (2010) 3 SCC 571 [27]. 
26 Ch Tika Ramji v. State of U P , 1956 SCC OnLine SC 9 [26]; State of Maharashtra v. Bharat Shanti Lal Shah, 
(2008)

Source PDF page 33

Open this page in the original PDF
PART E  
 33 
with separate and distinct legislative subject matters. By virtue of Article 248, 
Parliament has exclusive legislative powers to make laws with respect to any of 
the matters not enumerated in List II or List III.
27 However, how should courts 
deal with a situation where two legislations , enacted by Parliament and State 
legislature in pursuance of their respective legislative powers, appear to conflict 
with each other? The answer lies in Article 246 itself. 
34. Article 246 incorporates the principle of federal supremacy. 28 In Hoechst 
Pharmaceuticals (supra), this Court held that the words “notwithstanding 
anything contained in clauses (2) and (3)” in Article 246(1) and the words “subject 
to clauses (1) and (2) ” in Article 246(3) embody that principle. The principle 
postulates that in case of an inevitable conflict between Union and State powers, 
the Union’s power of legislation over a subject enumerated in List I shall prevail 
over the State powers of legislation over a subject enumerated in List II and III. 
However, it is also settled that this principle cannot be resorted to unless there is 
an irreconcilable direct conflict between the entries in the Union and State Lists.
29 
Such a conflict must be an actual one and not a mere seeming conflict between 
the two entries in two lists.30  
35. Hoechst Pharmaceuticals (supra) laid down the following principles to resolve 
any direct conflict between the entries in List I and List II: (i) in case of seeming 
conflict, the two entries should be read together without giving a narrow and 
restricted reading to either of them; (ii) an attempt should be made to see whether 
the two entries can be reconciled so as to avoid a conflict of jurisdiction; and (iii) 
no question of conflict arises between two Lists if the impugned legislation in pith 
 
27 Article 248, Constitution of India. 
28 Kishori Shetty v. The King, (1949-50) 11 FCR 650 
29 State of Kerala v. Mar Appraem Kuri Co. Ltd, (2012) 7 SCC 106 [39] 
30 Offshore Holdings (P) Ltd. v. Bangalore Development Authority, (2011) 3 SCC 139 [99]

Source PDF page 34

Open this page in the original PDF
PART E  
 34 
and substance appears to fall exclusively under one list and the encroachment 
upon the other list is incidental. 
36. Articles 245 and 246 embody the essence of Indian federalism . The division of 
legislative powers between Union and States  is an emanation of the federal 
project.31 This division also serves as a constitutional limitation on legislative 
powers. Parliament cannot entrench upon the plenary power of the State 
legislatures in the ordinary course, except where the Constitution itself 
specifically allows it.
32 The appropriate legislature must possess legislative 
competence to enact a law on the subject matter it seeks to legislate.  
37. With respect to the powers of taxation, Article 265 provides that no tax shall be 
levied or collected except by authority of law. In Mafatlal Industries v. Union of 
India, a n ine-Judge Bench of this Court held that the “law” mentioned under 
Article 265 refers to a valid law whose validity has to be determined with 
reference to other provisions in the Constitution.
33 Therefore, with respect to 
taxation laws particularly,  there is a constitutional requirement that the law 
imposing tax must be in conformity with the provisions of the Constitution, 
particularly Part III dealing with the fundamental rights . This is also a 
constitutional limitation because the appropriate legislature has to ensure that 
the law is in accord with the principles of equality and non- discrimination. Any 
 
31 Constituent Assembly Debates, Vol. 11 (25 November 1949). [Dr. B R Ambedkar – “As to the relation between 
the Centre and the States, it is necessary to bear in mind the fundamental principle on which it rests. The basic 
principle of Federalism is that the Legislative and Executive authority is partitioned between the Centre and the 
States not by any law to made by the Centre but by the Constitution itself. This is what the Constitution does. The 
States under our Constitution are in no way dependent upon the Centre for their legislative or executive authority. 
The Centre and the States are co -equal in this matter. It is difficult to see how such a Constitution can be called 
centralism. It may be that the Constitution assigns to the Centre too large field for the operation of its legislative 
and executive authority than it to be found in any other federal Constitution. It may be that the residuary powers 
are given to the Centre and not to the States. But these features do not form the essence of federalism. The chief 
mark of federalism as I said lies in the partition of the legislative and executive authority between the Centre and 
the Units by the Constitution. This is the principle embodied in our Constitution.”] 
32 See Articles 249, 250, and 252, Constitution of India. 
33 (1997) 5 SCC 536 [25].

Source PDF page 35

Open this page in the original PDF
PART E  
 35 
legislation enacted by the legislature in excess of its constitutional powers is 
void.34 
ii. Interpretation of legislative entries 
38. The structure of the legislative entries in the three Lists of the Seventh Schedule 
follows an express and deliberate pattern. The entries are classified into general 
and taxing entries.35 In the Union List, entries 1 to 81 enumerate general subject 
matters, while entries 82 to 92- C pertain to the powers of taxation. Similarly, 
entries 1 to 45 in the State List enumerate the general entries and entries 46 to 
63 provide for taxing entries. The legislature does not derive the power to tax 
from the general entries -  taxation is considered to be a distinct matter for 
purposes of legislative competence. The distinction between the general and 
taxing entries was explained by this Court in M P V Sundararamier  (supra) in 
the following manner: 
“In List I, Entries 1 to 81 mention the several matters 
over which Parliament has authority to legislate. 
Entries 82 to 92 enumerate the taxes which could be 
imposed by a law by Parliament. An examination of 
these two groups of Entries shows that while the 
main subject of legislation figures in the first group, 
a tax in relation thereto is separately mentioned in 
the second. Thus, entry 22 in List I is “Railways”, and 
Entry 89 is “Terminal taxes on goods or passengers, 
carried by railway, sea, or air; taxes on railway fares 
and freights”. If Entry 22 is to be construed as 
involving taxes to be imposed, then Entry 89 would 
be superfluous. Entry 41 mentions “Trade and 
commerce with foreign countries; import and export 
across customs frontiers”. If these expres sions are 
to be interpreted as including duties to be levied in 
respect of that trade and commerce, then Entry 83 
which is “Duties of customs including export duties” 
would be wholly redundant. Entries 43 and 44 relate 
 
34 R M D Chamarbaugwalla v. Union of India, 1957 SCC OnLine SC 11 [12] 
35 R Abdul Quader & Co. v. STO, (1964) 6 SCR 867, [8]

Source PDF page 36

Open this page in the original PDF
PART E  
 36 
to incorporation regulation and winding up of 
corporations. Entry 85 provides separately for 
Corporation tax. Turning to List II, Entries 1 to 44 
form one group mentioning the subjects on which the 
States could legislate. Entries 45 to 63 in that List 
form another group, and they deal with taxes. Entry 
18, for example, is “Land” and Entry 45 is “Land 
Revenue”. Entry 23 is “Regulation of mines” and 
Entry 50 is “taxes on mineral rights”. The above 
analysis – and it is not exhaustive of the Entries 
in the List s – leads to the interference that 
taxation is not intended to be comprise d in the 
main subject in which it might on an extended 
construction be regarded as included, but is 
treated as a distinct  matter for purposes of 
legislative competence. And this distinction is also 
manifest in the language of Art. 248, Cls. (1) and (2), 
and of Entry 97 in List I of the Constitution. […]  
To sum up: […] (2) Under the scheme of the 
Entries in the  Lists, taxation is regarded as a 
distinct matter and is separately set out.” 
                                                                                        (emphasis added) 
39. The above position of law has been expressly affirmed by the nine-Judge Bench 
of this Court in Jindal Stainless Ltd v. State of Haryana.36 Thus, it is an  
accepted principle that the subject matter of taxation is dealt with under distinct 
entries and, therefore, cannot be traced to a non-taxing entry. The taxing powers 
of Parliament and the State legislatures are mutually exclusive and clearly 
demarcated. There can be no overlap between the tax ing powers of the Union 
and the States. Entries relating to taxing powers must be construed with clarity 
and precision to maintain exclusivity and a construction of a taxation entry which 
may lead to overlapping must be eschewed. 37 If a taxing power is enumerated 
within a particular legislative list, it is automatically excluded from the purview of 
 
36 Jindal Stainless Steel (supra) [120], [237.5], [639] 
37 Godfrey Phillips India Ltd. v. State of UP , (2005) 2 SCC 515 [46]

Source PDF page 37

Open this page in the original PDF
PART E  
 37 
subject-matters in other legislative lists. The residuary power of Parliament also 
includes the power of making any law imposing a tax not mentioned in either List 
II or List III.  
40. The legislative fields or entries in the Seventh Schedule have used general words 
to define and delineate the legislative powers of Parliament and State 
legislatures. The rule that words should receive their ordinary, natural, and 
grammatical meaning applicable to statutes also applies to the entries contained 
in the Seventh Schedule.
38 It is also a well-accepted principle that the entries 
should not be read in a narrow or pedantic sense but must be given their broadest 
meaning and the widest amplitude because they are intrinsic to  a machinery of 
government.39 The ambit of the entries extends to all ancillary and subsidiary 
matters which can fairly and reasonably be said to be comprehended in them.40 
Since the Seventh Schedule uses general terms, there is always a possibility of 
an overlap and conflict between two or more entries.  
41. Many entries in the Seventh Schedule may appear to overlap because of the 
language used in the entries. The necessary corollary to the scheme of 
legislative distribution is that that any invasion by Parliament in the field assigned 
to the States and vice versa is a breach of the Constitution. 41 Even though the 
Constitution distributes legislative powers between the Union and the States, 
there have been situations where a legislation purporting to deal with a subject 
in one list, touches on a subject in another list. To remedy such situation,  the 
doctrine of pith and substance is used to examine whether the legislature has 
 
38 Navinchandra Mafatlal v. Commissioner of Income Tax, Bombay City, (1954) 3 SCC 623  
39 Hans Muller of Nurenburg v. Superintendent, Presidency Jail (1955) 1 SCR 1284; Elel Hotels & Investments Ltd 
v. Union of India, (1989) 3 SCC 698; State of Rajasthan v. G Chawla, 1958 SCC OnLine SC 33 [8]. 
40 United Provinces v Atiqa Begum, (1940) 2 FCR 110; Express Hotels (P) Ltd. v. State of Gujarat, (1989) 3 SCC 
677; Sardar Baldev Singh v. CIT, 1960 SCC OnLine SC 147 [20] 
41 Dr. B R Ambedkar, CAD Volume 7 (4 November 1948).

Source PDF page 38

Open this page in the original PDF
PART E  
 38 
the competence to enact a law with regard to either  of the three lists under the 
Seventh Schedule of the Constitution. 42 There may arise  situations where a 
legislature may frame a law that in substance and reality transgresses its 
legislative competence. S uch a piece of legislation is called “colourable 
legislation” because the legislature veils its transgression by making it seem as 
if the legislation is within its legislative competence. 43 To examine whether the 
legislature has transgressed its legislative competence, the substance of the 
legislation is material. If the subject-matter is in substance beyond the legislative 
powers of the legislature, the form in which the law is clothed woul d not save it 
from the vice of unconstitutionality.44 
42. The Constitution has used specific expressions to resolve potential overlaps or 
conflicts between and among the entries in the three Lists. The entries in the 
Seventh Schedule have used different phraseologies to either subject or restrict 
their scope and ambit. Some of the legislative entries in the State List have been 
made subject to broad or specific limitations or restrictions with respect to the 
entries in the Union List or Concurrent List . This would emerge from the 
tabulation set out below:  
Phraseology used Entries in State List 
Subject to the provisions of any law made 
by Parliament 
37 
Subject to the provisions of entries in List I 2, 17, 22, 24, 33 
Subject to a particular field of legislation in 
List I 
23 
Subject to the provisions of entries in List III 26, 27, 57 
Subject to the provisions of List I and List III 13 
Subject to any limitations imposed by 
Parliament by law 
50 
Other than 7, 12, 32, 63 
Not including 1, 51, 54, 66 
 
42 A L S P P L Subrahmanyan Chettiar v. Muthuswami Goundan, (1940) 2 FCR 188; A S Krishna v. State of Madras, 
1957 SCR 399 [8];  
43 K C Gajapathi Narayan Deo v. State of Orissa, (1953) 2 SCC 178 [11] 
44 K C Gajapathi Narayan Deo (supra) [12]

Source PDF page 39

Open this page in the original PDF
PART E  
 39 
43. The above table is an indication of the extent to which the legislative powers of 
the States have been restricted, limited, or altogether precluded. The use of the 
expression “other than” or “not including” serves the purpose of redacting from 
the ambit of the legislative power of the States to the  extent suggested. Where 
the Constitution intends to limit or preclude the legislative powers of the State to 
a particular extent, it has used specific terminologies such as “other than” and 
“not including”.  
44. Where the entries have used the phrase “subject to”, the legislative power of the 
State is made subordinate to Parliament with respect to either the Union List or 
the Concurrent List. The expression “subject to” conveys the idea of a provision 
yielding place to another provision or other provisions to which it is made 
subject.
45 Therefore, where the Constitution intends to displace or override46 the 
legislative powers of the States, it has used specific terminology – “subject to”. 
However, the Constitution has also indicated the extent to which a particular 
legislative entry under List II is subordinated. For instance, the subjection is either 
with respect to provisions of List I or List III, or it can also be to the extent of “any 
limitations” imposed by Parliament by law. Thus, it is imperative that the entries 
in List II must be read and interpreted in their proper context to understand the 
extent of their subordination to Union powers. 
45. There are numerous entries in the State List where the Constitution has imposed 
no restrictions on the exercise of the legislative powers of the States.
47 With 
 
45 South India Corporation (P) Ltd. v. Secretary, Board of Revenue, (1964) 4 SCR 280 [19] 
46 State of Bihar v. Kameshwar Singh, (1952) 1 SCC 528. [ “18. […] It was said that the words “subject to the 
provisions of List III Entry 42” must be taken to mean that the law -making power under Entry 36 could only be 
exercised subject to the two conditions as to public purpose and payment of compensation, both of which are  
referred to in Entry 42. Those words, in my opinion, mean no more than that any law made under Entry 36 by a 
State Legislature can be displaced or overridden by the Union Legislature making a law under Entry 42 of List III.”] 
47 See Entries 4, 5, 6, 8, 9, 10, etc., List II, Seventh Schedule, Constitution of India.

Source PDF page 40

Open this page in the original PDF
PART E  
 40 
respect to such entries, the absence of any express limitations indicates that the 
Constitution did not intend to fetter the legislative powers of the States.  
46. In addition to the above terminologies, the entries in the Seventh Schedule also 
indicate the manner in which a restriction or limitation can be imposed on the 
legislative powers of the State. This assumes clarity from the following tabulation: 
Phraseology Used Entries 
Declared by or under law 23, 27, 67 of List I 
Declared by Parliament by law 24, 52, 53, 54, 56, 62, 63, 64 of List I 
Imposed by Parliament by law 50 of List II 
 
47. The Constitution deploys three expressions to signify the manner in which the 
legislative power could be exercised by Parliament – “declared by or under law”, 
and “declared by Parliament by law”, and “imposed by Parliament by law” The 
difference in the character of these  provisions can be gathered from the 
Constitution (Seventh Amendment) Act 1956 which substituted the expression 
“declared by Parliament by law” with “declared by or under law made by 
Parliament” in Entry 67
48 of the Union List. The object of the amendment was to 
enable the delegate under the statute to make the required declaration. 49 The 
expression “by law” means that the legislative power should be effect uated 
through the provisions of a statute. In comparison, “by or under law” means that 
the legislative intent could be effectuated either through the provisions of the 
 
48 Entry 67, List I, Seventh Schedule, Constitution of India. [It  reads – “Ancient and historical monuments and 
records, and archaeological sites and remains, declared by or under law made by Parliament to be of national 
importance.”] 
49 Constitution (Seventh Amendment) Act, 1956, State of Objects and Reasons – “Clause 24 – Entry 67 of the 
Union List refers to “ancient and historical monuments and records, and archaeological sites and remains, declared 
by Parliament by law to be of national importance. A large number of ancient monuments, archaeological sites, etc. 
have been declared to be of national importance by an Act of Parliament. It requires another Act of Parliament to 
make the slightest alteration in, or addition to, the lists in that Act, which seems to be and unduly cumbrous 
procedure. It is, therefore, proposed to amend the entry substituting for the words “declared by Parliament by law”, 
the words “declared by or under law made by Parliament”. The same amendment is also proposed to be made in 
connected provisions, entry 12 of the State List, entry 40 of the Concurrent List and article 49.”

Source PDF page 41

Open this page in the original PDF
PART E  
 41 
statute or by any subordinate authority vested with powers in that behalf by the 
statute.50 It is important to note that Entry 50 of List II use the expression “by law 
relating to mineral development”. We will have to bear the meaning of the 
expression “by law” in mind to give an appropriate interpretation to the entry.  
iii. Fiscal Federalism 
48. Federalism is one of the basic features of the Indian Constitution.51 Federalism 
embodies a division of powers between the units of the federation, that is, the 
Union and the States. Indian federalism is defined as asymmetric because it tilts 
towards the Centre,  producing a strong Central Government. Yet, it has not 
necessarily resulted in weak S tate governments.
52 The Indian S tates are 
sovereigns within the legislative competence assigned to them.  The delicate 
balance of power is secured by constitutional courts by interpreting the scheme 
of distribution of powers.
53 In S R Bommai  v. Union of India ,54 Justice B P 
Jeevan Reddy observed that the courts should be circumspect in  adopting an 
approach or interpretation which may have an effect of whittling down the powers 
reserved to the States: 
“276. The fact that under the scheme of our 
Constitution, greater power is conferred upon the 
Centre vis -à-vis the States does not mean that 
States are mere appendages on the Centre. Within 
the sphere allotted to them, States are supreme. The 
 
50 In Dr Indramani Pyarelal Gupta v. W R Natu, (1963) 1 SCR 721 a Constitution Bench of this Court explained the 
difference between “by law” and “under law” in the following terms: “15. […] The meaning of the word “under the 
Act” is well known. “By” an Act would mean by a provision directly enacted in the statute in question and which is 
gatherable from its express language or by necessary implication therefrom. The words “under the Act” would, in 
that context, signify what is not directly to be found in the statute itself but is conferred or imposed by virtue of 
powers enabling this to be done; in other words; bye-laws made by a subordinate law -making authority which is 
empowered to do so by the parent Act. The distinction is thus between what is directly done by the enactment and 
what is done indirectly by a subordinate law-making authority which is empowered to do so by the parent Act.”  
51 Kesavananda Bharati v. State of Kerala, (1973) 4 SCC 225 [582] 
52 Granville Austin, Cornerstone of a Nation (OUP , 1966) 187 
53 In re, Special Reference No. 1 of 1964, (1965) 1 SCR 413; Jindal Stainless Steel (supra) [612] 
54 (1994) 3 SCC 1

Source PDF page 42

Open this page in the original PDF
PART E  
 42 
Centre cannot tamper with their powers. More 
particularly, the courts should not adopt an 
approach, an interpretation, which has the effect of 
or tends to have the effect of whittling down the 
powers reserved to the States. […]” 
49. In a federal form of government, each federal unit should be able to perform its 
core constitutional functions with a certain degree of independence. The 
Constitution has to be interpreted in a manner which  does not dilute the federal 
character of our constitutional scheme. 55 The effort of the constitutional court 
should be to ensure that State legislatures are not subordinated to the Union in 
the areas exclusively reserved for them.56  
50. In Union of India  v. Mohit Minerals Private Limited ,57 this Court recognized 
fiscal federalism as an important attribute of Indian federalism. Fiscal federalism 
is concerned with the assignment of functions to different levels of government 
and devolution of appropriate fiscal instruments to carry out these functions.58 In 
India, these fiscal instruments typically take the form of tax and debt instruments. 
Similar to the division of constitutional powers and responsibilities, the 
Constitution has also shared tax -raising responsibilities between the Union and 
the States.
59  
51. The Constitution is cognizant of the imbalance between resources at the disposal 
of states and the Union. The Constitution remedies the imbalance by way of 
intergovernmental distribution
60 and grants. 61 One of basic features of fiscal 
federalism is that both the Union government and the State governments ought 
 
55 Jindal Stainless Steel (supra) [85]. 
56 Jindal Stainless Steel (supra) [615]. 
57 (2022) 10 SCC 700 [56] 
58 Wallace E Oates, ‘An Essay on Fiscal Federalism’ (1999) 37(3) Journal of Economic Literature 1120, 1121. 
59 The legislative power of Parliament to tax is enumerated in entries 82 to 92B of List I. Similarly, the legislative 
power of state is enumerated is enumerated in entries 46 to 62 of List II.  
60 Article 270(2), Constitution of India 
61 Articles 273 and 275, Constitution of India

Source PDF page 43

Open this page in the original PDF
PART E  
 43 
to have adequate fiscal resources to discharge their constitutional 
responsibilities. List I and List II of the Seventh Schedule contain various subject-
matters under which Parliament and the State legislatures can respectively levy 
taxes. The purpose of such a distribution is to entrust adequate fiscal powers 
with the legislatures to raise revenues to meet the growing fiscal expenditures 
and rein in the fiscal deficit. The legislatures can formulate the principles 
underlying any taxing legislation, define the taxing event or the charge of tax as 
well the mode and manner of its implementation.  
52. The subjects in respect of which the framers of the Constitution desired that there 
should be uniformity of law throughout the country have been enumerated under 
the Union List, while matters which may require laws to be made having regard 
to the particular needs and peculiar problems of each State have been placed 
under the S tate List.
62 For instance, the State legislatures can tax the 
consumption or sale of electricity. Although electricity is an important raw material 
for many industries, the States are allowed to determine the rates of the levy by 
taking into consideration the particular needs  of the State . By laying down  a 
heterogenous distribution of legislative powers, the Constitution underscores that 
the asymmetry of our federation is an integral aspect of our federal form of 
governance. 
53. Dr B R Ambedkar in his treatise on the evolution of provincial finances in colonial 
India observed that the cornerstone of the financial relationship between the 
Federal and State governments was characterized by separation of sources and 
contributions from the yield.
63 Any dilution in  the taxing powers  of the State 
 
62 Khazan Chand v. State of Jammu and Kashmir, (1984) 2 SCC 456 [14] 
63 Dr. B R Ambedkar, The Evolution of Provincial Finance in British India: A Study in the Provincial Decentralization 
of Imperial Finance’ (1923) 152-171.

Source PDF page 44

Open this page in the original PDF
PART E  
 44 
legislatures will necessarily impact their ability to raise revenues, which in turn 
will impede their ability to deliver welfare schemes and services to the people.  
The ability of the State Governments to invest in physical infrastructure, health, 
education, human capacity, and research and development is directly co-related 
to the raising of government revenues. 64 Constitutional courts have to be 
cognizant of this context while adjudicating on issues affecting the taxing powers 
of the State legislatures. 
54. While speaking of fiscal federalism in the context of mineral resources, we have 
to be mindful of the fact that not all states are equally endowed with mineral 
resources. States such as Chhattisgarh, Jharkhand, and Orissa have greater 
reserves of mineral resources. Resultantly, the contribution of the mining sector 
in the state domestic product is higher for these states.
65 Despite the abundance 
of mineral wealth, many of these states lag economically  and suffer from, what 
many economists refer to as, “resource curse”.66 For instance, mineral rich states 
such as Jharkhand, Chhattisgarh, and Orissa have lower per capita incomes 
than the national averages.
67 Taxation is among the important sources of 
revenue for these States, impacting on their ability  to deliver welfare schemes 
and services to the people. Fiscal federalism entails that the power of the States 
to levy taxes within the legislative domain carved out to them and subject to the 
 
64 ‘State Finances: A Study of Budgets of 2023-2024, Revenue Dynamics and Fiscal Capacity of Indian States’ 
Reserve Bank of India (December 2023) 28. 
65 Ligia Noronha, et al, ‘Resource Federalism in India: The Case of Minerals’ (2009) 44(8) Economic and Political 
Weekly 51, 53. 
66 Economic Survey 2016-2017, Ministry of Finance, Government of India (January 2017) 292. (“Resource curse” 
refers to the phenomenon of economies with abundant natural resources having the tendency to grow less rapidly 
than resource-scarce economies.”) 
67 Ministry of Statistics and Programme Implementation, State-wise date on per capita income’ (24 July 2023) < 
https://www.pib.gov.in/PressReleasePage.aspx?PRID=1942055>

Source PDF page 45

Open this page in the original PDF
PART E  
 45 
limitations laid down by the Constitution must be secured from unconstitutional 
interference by Parliament. 
iv. Natural resources and the public trust doctrine 
55. The public trust doctrine is founded on the principle that certain resources  are    
nature’s bounty which ought to be reserved for the whole populace, for the 
present and for the future. 68 Since these resources are intrinsically important to 
every person in society, the State acts as a public trustee to safeguard them. In 
M C Mehta v. Kamal Nath,69 Justice Kuldip Singh observed that the State is the 
trustee of all natural resources which are by nature meant for public use and 
enjoyment. The learned Judge further observed that the State has a legal duty 
to protect natural resources which cannot be converted into private ownership.
70 
The e nvironment and natural resources are national assets and subject to 
intergenerational equity.71 The public trust doctrine looks beyond the needs of 
the present generation and obligates the State to protect natural resources for 
future generations as well.72 
56. While dealing with the allocation of spectrum  in Centre for Public Interest 
Litigation v. Union of India,73 this Court held the State should distribute natural 
resources in consonance with the principles of equality and public trust to ensure 
against action detrimental to public interest. The public trust doctrine imposes 
restrictions and obligations on the government to protect long-established public 
 
68 Joseph L Sax, ‘The Public Trust Doctrine in Natural Resource Law: Effective Judicial Intervention’ (1970) 
Michigan Law Review 471, 484. 
69 (1997) 1 SCC 388 [34] 
70 ibid 
71 M C Mehta v. Union of India, (2009) 6 SCC 142 [45] 
72 T N Godavarman Thirumulpad v. Union of India, (2006) 1 SCC 1 [89] 
73 (2012) 3 SCC 1

Source PDF page 46

Open this page in the original PDF
PART E  
 46 
rights over short-term private rights and private gain. 74 However, the obligation 
extends to every person who exercises rights over natural resources to use them 
without impairing or diminishing the rights of people and long term interest s in 
that property or resource. 75 In Reliance Natural Resources Ltd.  v. Reliance 
Industries,76 in the context of Article 297 77 of the Constitution, this Court held 
that the nature of the word “vest” must be seen in the context of the public trust 
doctrine.78  
57. The principle which emanates from the above discussion is that the State holds 
all natural resources, including minerals, as a trustee of the public and must deal 
with them in a manner consistent with the nature of such a trust.79 
58. The Central Government or the State Government may not always be the 
“owner” of the underlying minerals . But the Constitution empowers both 
Parliament (under Entry 54 of List I) and the State legislatures (under Entry 23 
of List II) to regulate mines and mineral development , the entrustment to the 
State being subject to the power of Parliament to regulate the domain. The 
Constitution has entrusted the Union and the States with the responsibility to 
regulate mines and mineral development in consonance with the principles of the 
public trust doctrine and sustainable development of mineral resources. Under 
the MMDR Act, the Central Government, acting as a public trustee of minerals, 
regulates prospecting and mining operations in public interest. 80 In the process, 
the legislation seeks to increase awareness of the compelling need to restore the 
 
74 Fomento Resorts & Hotels Ltd. v. Minguel Martins, (2009) 3 SCC 571 [55] 
75 Fomento Resorts & Hotels Ltd. (supra) [55] 
76 (2010) 7 SCC 1 [114] 
77 Article 297, Constitution of India.  
78 Reliance Natural Resources Ltd. (supra) [122] 
79 Natural Resources Allocation, In re, Special Reference No. 1 of 2012, (2012) 10 SCC 1 [88] 
80 State of Rajasthan v. Gotan Lime Stone Khanji Udyog (P) Ltd. (2016) 4 SCC 469 [29]; Orissa Mining Corporation 
Ltd. v. Ministry of Environment & Forests, (2013) 6 SCC 476 [58].

Source PDF page 47

Open this page in the original PDF
PART E  
 47 
serious ecological imbalance and protect against damage being caused to the 
nature.81 In Pradeep S Wodeyar v. State of Karnataka,82 one of us (Justice D 
Y Chandrachud) observed that the essence of the MMDR Act is to “protect 
humankind and every species whose existence depends on natural resources 
from the destruction which is caused by rapacious and unregulated mining.” The 
Court noted that the restrictions under Section 4 of the MMDR Act are intrinsically 
meant to protect the environment and communities who depend on the 
environment. 
59. The principle that the Union and State Government s act as public trustees of 
mineral resources has been incorporated in the MMDR Act. Section 4- A  
empowers the Central Government  to prematurely terminate a prospecting 
license, exploration license, or mining lease, after consultation with the State 
Government in the interests of (i) the regulation of mines and mineral 
development; (ii) preservation of the natural environment; (iii) control of floods ; 
(iv) prevention of pollution; (v)  avoiding danger to publi c health or 
communications; (vi) ensuring the  safety of buildings, monuments or other 
structures; (vii) conservation of mineral resources; and (viii) maintaining safety in 
the mines or for such other purposes.
83 Moreover, the MMDR Act now mandates 
grant of  mining lease s,84 exploration licence s,85 and composite licences 86 in 
respect of notified minerals through the process of  auction. The Central 
Government is empowered to prescribe the  terms   and   conditions   subject to
 
81 State (NCT of Delhi) v. Sanjay, (2014) 9 SCC 772 [32] 
82 (2021) 19 SCC 62 [49.3] 
83 See State of Haryana v. Ram Kishan, (1988) 3 SCC 416 [7]. [This Court observed that Section 4-A “was enacted 
with a view to improve the efficiency in this regard and with this view directs consultation between the Central 
Government and the State Government. The two governments have to consider whether premature termination of 
a particular mining lease shall advance the object or not, and must, therefore, take into account all considerations 
relevant to the issue, with reference to the lease in question.”] 
84 Section 10B, MMDR Act 
85 Section 10BA, MMDR Act  
86 Section 11, MMDR Act

Source PDF page 48

Open this page in the original PDF
PART F  
48 
 
 which the auction shall be conducted.  
60. The regulatory regime under the MMDR Act recognizes the important role of the 
state in regulating mines and mineral development. This emerges from the stand 
point of the following perspectives:  (i) the State is a public trustee of natural 
resources, including minerals; (ii) pursuant to its role as a public trustee, the State 
has been empowered to regulate prospecting and mining operations; (iii) the 
provisions of the statute reflect the priority of the s tate to regulate mining and 
related activities to ensure sustainable mineral development. (i v) prospecting 
and mining operations  may be carried out  by both the government as well as 
private lessees bearing in mind the public interest; and (v) the Government has 
to ensure that mineral concessions are granted in a fair and transparent manner. 
61. Having encapsulated the broad drift of the constitutional and statutory provisions, 
we now deal with the issues arising in this reference in the ensuing segments. 
F. Whether royalty is tax 
i. Royalty under the MMDR Act 
62. The MMDR Act was enacted by Parliament in exercise of its legislative power 
derived from Article 246 read with Entry 54 of List I. The Act seeks to provide for 
the regulation of mines and  development of minerals under the control of the 
Union. Section 2 contains a declaration in terms of Entry 54 of List I , providing 
that “it is expedient in the public interest that the Union should take under its   
control the regulation of mines and the development of minerals to the extent 
hereinafter provided.”
87 The declaration indicates that Parliament intends to take 
 
87 Section 2, MMDR Act.

Source PDF page 49

Open this page in the original PDF
PART F  
 49 
the regulation of mines and development of mines under the control of the Union 
to the extent indicated in the statute.  
63. Chapter II of the MMDR Act deals with general restrictions on undertaking 
prospecting and mining operations. Section 4 provides that no person shall 
undertake any reconnaissance, prospecting or mining operations in any area 
except under and in accordance with the terms and conditions of a 
reconnaissance permit; prospecting licence; exploration licence; or mining lease 
granted under the Act. It also provides that no mineral concession shall be 
granted otherwise than in accordance with the provisions of the Act and the rules 
made under it.  
64. Section 9 deals with royalties in respect of mining leases. Section 9(1) provides 
that the holder of a mining lease granted before the commencement of the Act 
shall, notwithstanding anything contained in the instrument of lease or in any law 
in force at the commencement of the statute, pay royalty in respect of any mineral 
removed or consumed by him or by his agent, manager, employee, contractor or 
sub-lessee from the leased area after such commencement, at the rates of 
royalties prescribed under the Second Schedule. The non- obstante clause is 
only applicable to mining leases granted before the commencement of the 
MMDR Act.  
65. Section 9(2) provides that the holder of a mining lease granted after the 
commencement of the MMDR Act is also liable to pay royalty in respect of any 
mineral removed or consumed by him or by his agent, manager, employee, 
contractor or sub-lessee from the leased area at the rate specified in the Second 
Schedule. Section 9(3) empowers the Central Government to amend the Second 
Schedule to enhance or reduce the rate at which royalty shall be payable in

Source PDF page 50

Open this page in the original PDF
PART F  
 50 
respect of minerals enumerated in the Second Schedule . However, it also 
provides that the enhancement in the rate of royalty in respect of any mineral 
shall not be done more than once during any period of three years. The then 
Minister of Mines and Oil (Mr K D Malviya ) stated during the Lok Sabha debate 
preceding the passage of the  Bill that the purpose of capping further increases  
in the rates of royalty was to ensure financial security to the private sector.88 
66. The rates of royalty payable in respect of minerals in the Second Schedule of the 
MMDR Act are computed either on an ad valorem basis at a specified percentage 
of the average sale price or at specific rates on per tonnage basis. While Section 
9 authorizes the charging of royalty, the Second Schedule provides the method 
of computation. The rate of royalty and method of computation differ from mineral 
to mineral. This Court has held that the Second Schedule has to be read as a  
part and parcel of Section 9.
89  
67. The process of mining generally involves two stages: (i) extraction of the ores  
(also known as run-of-mine mineral) from the earth; and (ii) mineral beneficiation 
which entails separating the mineral from their ores. Rule 64- B of the Mineral 
Concession Rules  1960 provides for charging of royalty in case of minerals 
subjected to processing. It provides that if the processing of run-of-mine mineral 
is carried out within the leased area, royalty shall be chargeable on the 
processed mineral removed from the leased area. In case run-of-mine mineral is 
removed from the leased area to a processing plant located outside the leased 
 
88 Mr K D Malviya, Lok Sabha Debates, Volume X (9 th December to 21 st December 1957) 7123. ( The Minister 
stated: “We gave consideration to the question of what should be the minimum time which could give a sense of 
security to the private sector, so that they could invest their money and have a fairly reasonable view of their 
investment and production programmes. Suppose we took powers to reduce or increase the royalties every six 
months, it will make the position very insecure from their point of view. As long as we want a mixed pattern of 
economy to go on and the private sector to flourish, surely my hon friend does  not expect me to put a sense of 
insecurity in the mind of the private sector, when every six months they will have to ask “look here. Are you going 
to increase the royalty or are you going to decrease it’ What are you going to do?”.) 
89 National Mineral Development Corporation Ltd. v. State of M P , (2004) 6 SCC 281 [23]

Source PDF page 51

Open this page in the original PDF
PART F  
 51 
area, the royalty shall be chargeable on the unprocessed run- of-mine mineral 
and not the processed product. Thus, royalty is payable on removal of the mineral 
from the boundaries of the leased area. 90 Rule 64D of the Mineral Concession 
Rules 1960 deals with the manner of payment of royalty on minerals on ad 
valorem basis. 
68. Section 9A deals with payment of dead rent by the lessee. It provides that the 
holder of a mining lease shall pay to the State Government dead rent at such 
rate as may be prescribed in the Third Schedule. However, where the holder of 
the mining lease also becomes liable to pay royalty under Section 9, such person 
shall be liable to pay e ither royalty or dead rent, whichever is higher. The dead 
rent is calculated on a rate per hectare basis as specified under the Third 
Schedule. Section 9A was inserted by an  amendment in 1972 with a two- fold 
purpose, namely to: (i) provide a statutory basis for calculation of dead rent; and 
(ii) prohibit the Central Government from enhancing the rate of dead- rent more 
than once during any period of three years.
91 
69. Section 9B provides for establishment of the District Mineral Foundation92 in any 
district to work for the interest and benefit of persons and areas affected by 
mining related operations. The purpose of Section 9-B and the object of the DMF 
is to further the cause of social justice for those affected by mining related 
operations, such as tribals who may be dislocated or displaced from their 
habitat.
93 Section 9B(5) provides that the holder of a mining lease shall pay, in 
addition to the royalty paid under Section 9, an amount which is equivalent to 
such percentage of the royalty as may be prescribed by the Central Government. 
 
90 Tata Steel Ltd. v. Union of India, (2015) 6 SCC 193 [71] 
91 D K Trivedi & Sons v. State of Gujarat, 1986 Supp SCC 20 [45].  
92 “DMF” 
93 Federation of Indian Mineral Industries v. Union of India, (2017) 16 SCC 186 [43]

Source PDF page 52

Open this page in the original PDF
PART F  
 52 
70. Section 9C provides for  the establishment of a non- profit autonomous body 
called the National Mineral Exploration Trust 94 for the purposes of regional and 
detailed exploration in such manner as may be prescribed by the Central 
Government. Section 9C(4) mandates the holder of a mining lease to pay a sum 
equivalent of two percent of the royalty paid in terms of Section 9 to the Trust.  
The purpose of creating the NMET is to use the funds accrued from mining lease-
holders for encouraging exploration.  
71. Section 13 authorizes the Central Government to make rules regulating the grant 
of mineral concession s in respect of minerals and for purposes connected 
therewith. Section 13(2) lists various matters in respect of which the Central 
Government can ma ke rules. A similar power is vested with the State 
Government under Section 15 to make rules with respect to minor minerals . 
Section 25 empowers the Government to recover rent, royalty, tax, fee or other 
sum due to the Government under the Act as arrears of land revenue.  
72. The Central Government has framed the Mineral Concession Rules 1960 in 
exercise of the powers conferred by  Section 13. Rule 31 of the Mineral 
Concession Rules 1960 provides that the lease deed shall be executed between 
the lessor and lessee in terms of the Form K. According to the recitals of Form 
K, the State Government executes the lease deed in favor of the lessor “in 
consideration of the rents and royalties, covenants an d agreement by and in 
these presents and the Schedule hereunder written reserved and contained and 
on the part of the lessee/lessees to be paid observed and performed.” Further, 
all the mine beds/ veins/ seams with respect to specified minerals lying and being 
in or under lands are demised by the State Government to the lessee together 
 
94 “NMET”

Source PDF page 53

Open this page in the original PDF
PART F  
 53 
with the liberties, powers, and privileges to be exercised or enjoyed in connection 
with the demise. The recitals indicate that the lease deed serves as a statutory 
agreement between the State Government, being the lessor, and the lessee. 
73. Part V of Form K deals with rents and royalties reserved by th e lease and 
specifies the rate and mode of payment of dead rent , royalty, surface rent, and 
the water rate.  This part mandates the lessee to pay royalty to the State 
Government at the  rates prescribed by the Central Government in  the Second 
Schedule to the Act.
95 Part VI contains provisions relating to rents and royalties  
and provides for the mode of computing royalty: 
“Mode of computation of royalty 
2. For the purposes of computing the said royalties 
the lessee/lessees shall keep a correct account of 
the mineral/minerals produced and dispatched. The 
accounts as well as the weight of the 
mineral/minerals in stock or in the process of export 
may be chec ked by an officer authorized by the 
Central or State Government.”  
74. Part VII contains the covenants of the lessee/lessees. The lessee undertakes to 
pay the rent, water rate, and royalties specified under Parts V and VI in addition 
to the payment of taxes, rates, assessments and impositions being in the nature 
of public demands  from time to time. Party VIII contains the covenants of the 
State Government. It provides that a lessee paying the rents, water rate, and 
 
95 Mineral Concession Rules 1960, Form K, Part V. It reads: 
[“Rate and mode of payment of royalty 
3. Subject to the provisions of clause 1 of this Part, the lessee/lessees shall during the subsistence of this lease 
pay to the State Government at such times and in such manner as the State Government may prescribe royalty in 
respect of any mineral/minerals removed by him/them from the leased area at the rate for the time being specified 
in the Second Schedule to the Mines and Minerals (Development and Regulation) Act, 1957”]

Source PDF page 54

Open this page in the original PDF
PART F  
 54 
royalties may quietly hold and enjoy the rights and premises during the term of 
the lease deed without unlawful interruption from the State Government. 
ii. Purpose of Section 9 of the MMDR Act 
75. The regime of mineral licensing prior to the enactment of the MMDR Act was 
governed by the Mines and Minerals (Regulation and Development)  Act 1948
96 
read with the Mineral Concession Rules 1948. Under t he previous regime, all 
grants and permissions (such as prospecting licences 97 and mining leases 98) 
were approved and issued by the State Government. The Industrial Policy 
Resolution of 1956  proposed an active role for  the State in setting up new 
industrial undertakings to achieve “planned and rapid development.”99 Minerals 
such as coal, lignite, mineral oils, iron ore, copper, zinc, and atomic minerals 
were exclusively reserved for the State , while the private sector was allowed to 
participate along with the public sector in case of minor minerals. The MMDR Act 
was enacted in pursuance of the above goals stated in the Industrial Policy 
Resolution. Another important consideration behind the enactment of the MMDR 
Act was to revise old and outmoded mining lease agreements and allow the 
private sector reasonable encouragement to develop mines and minerals.
100 
Through the MMDR Act, both the Central Government, and in case of minor 
minerals, the State Government, have been assigned a greater responsibility of  
development of minerals in India. This classification between major and minor 
 
96 “MMRD Act 1948” 
97 Rule 13, Mineral Concession Rules 1948. [It read: “13. Restrictions on grant of prospecting licence – (1) No 
prospecting license shall be granted to any person unless he holds a certificate of approval from the State 
Government concerned. […]”; Rule 17, Mineral Concession Rule 1948. It reads: “17. State Government may grant 
or refuse a license – (1) Subject to the provisions of rule 13, the State Government may grant or refuse the license.”] 
98 Rule 26, Mineral Concession Rules 1948. [It read: “26. Restrictions on grant of mining leases – (1) No mining 
lease shall be granted to any person unless he holds a certificate of approval from the State Government concerned 
or is covered by Rule 12.”]  
99 Cabinet Secretariat, Industrial Policy Resolution (30 April 1956)  
100 Mr J R Mehta, Lok Sabha Debates, Volume X (9th December to 21st December 1957) 7111.

Source PDF page 55

Open this page in the original PDF
PART F  
 55 
minerals was primarily done considering the export trade, the earning of foreign 
exchange, economic development, and industrial progress.101 
76. An important distinction between the MMRD Act 1948 and the MMDR Act which 
replaced it is that the former did not contain a provision similar to Section 9 of the 
subsequent legislation. Nevertheless, provisions pertaining to royalty were 
included in the Mineral Concession Rules 1948 as part of the essential conditions 
of a mining lease.102 At the introduction of the Mines and Minerals (Regulation 
and Development) Bill  in Parliament the then Minister of Mines explained the 
legislative intent in the following terms: 
“The existing Act did give authority to the 
Government through rules to modify the rates and 
the quantum of royalty that was to be charged by the 
State Government. We have taken this opportunity 
to put a maximum limit also. With regard to the time 
also, at that time there was no limit and it could not 
be changed so long as the agreement lasted. But 
now considering all the conditions that prevail 
these days, we thought that the Government 
should have the right to examine the whole 
structure of the rates of royalty and see whether 
it was desirable to introduce a change in the 
royalty by way of either an increase or a 
decrease. If it was considered desirable to 
increase it, the Government would recommend 
an increase. If it was desirable to reduce it, a 
reduction might be made.”
103 
                                                                                       (emphasis added) 
 
101 Ibid, 7124 
102 Rule 41, Mining Concession Rules 1948. 
103 Lok Sabha Debates, Volume VIII (11th November to 22nd November, 1957, Third Session) 395.

Source PDF page 56

Open this page in the original PDF
PART F  
 56 
77. The Minister further stated that allowing State Governments to fix the rates of 
royalty “will not be a healthy feature for trade in that particular commodity.” 104 
Section 9 sought to remedy the disparity of royalty rates across India.105  
78. Rates of royalty were primarily governed by the terms of lease prior to the 
enactment of the MMDR Act. Once a mining lease was entered into between a  
lessor and lessee, the rates of royalty would remain static during the subsistence 
of the lease. Section 9 of the MMDR Act has enabled the Central Government to 
examine the rates of royalty in respect of all minerals and modulate them 
periodically after taking into consideration various factors, including the 
uniformity of mineral prices. The primary reason for empowering the Central 
Government to fix the rate of royalty could be traced to the Industrial Policy 
Resolution which underscored the  active and predominant role of the State in 
organizing and utiliz ing mineral resources.  The State Governments were not 
empowered to determine royalty in order to maintain a uniform regime of royalty 
across India. This was intended to promote domestic industry  and maintain 
competitive commodity prices in the international market.
106  
iii. Contours of a mining lease 
a. Lease and license 
79. Article 31A of the Constitution was inserted by the Constitution (First 
Amendment) Act 1951 to deal with the saving of laws providing for acquisition of 
estates: 
 
104 Ibid, 462 
105 K P Varghese v. ITO, (1981) 4 SCC 173 [8]. It was observed that “[…] the speech made by the Mover of the Bill 
explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the 
mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted.” 
106 Lok Sabha Debates, Volume VIII (11th November to 22nd November, 1957, Third Session) 463

Source PDF page 57

Open this page in the original PDF
PART F  
 57 
“31A. Saving of law providing for acquisition of 
estates, etc –  
Notwithstanding anything contained in article 13, no 
law providing for –  
[…] 
(e) the extinguishment or modification of any 
rights accruing by virtue of any agreement, lease 
or licence for the purpose of searching for or 
winning, any mineral or mineral oil, or the 
premature termination or cancellation of any 
such agreement, lease or licence,  
shall be deemed to be void on the ground that it is 
inconsistent with, or takes away or abridges any of 
the rights conferred by article 14 or article 19.” 
                                                                                         (emphasis added) 
80. In Gujarat Pottery Works v. B P Sood, Controller of Mining Leases for 
India,107 a Constitution Bench of this Court held that the object of Article 31-
A(1)(e) was to make law s providing for the extinguishment or modification of 
leases in connection with mineral rights immune from the provisions of Articles 
14, 19, and 31.  
81. The expressions ‘lease’ and ‘licence’ have been used in the context of mining 
operations in the Constitution and in the MMRD Act. Therefore, it is important to 
understand the meaning of these  expressions in their general legal  sense to 
appreciate their application to mineral operations. 
 
107 (1967) 1 SCR 695

Source PDF page 58

Open this page in the original PDF
PART F  
 58 
82.  A “lease” connotes a transfer of a right of enjoyment in immoveable property for 
a certain time in lieu of consideration.108 Section 105 of the Transfer of Property 
Act 1882 defines a lease of immoveable property as a transfer of a right to enjoy 
such property, made for a certain time, express or implied, or in perpetuity, in 
consideration of a price paid or promised, or of money, a share of crops, service 
or any other thing of value, to be rendered periodically or on specified occasions 
to the transferor by the transferee, who accepts the transfer on such terms.
109 
The provision defines ‘lessor’, ‘lessee’, ‘premium’, and ‘rent’. The “transferor is 
called the lessor, the transferee is called the lessee, the price is called the 
premium, and the money, share, service or other thing to be so rendered is called 
the rent.” This Court has interpreted the expression “rent” widely to mean any 
payment for the use or occupation of land or building including the payment by a 
lessee in respect of the use or occupation of any land or building.
110 
83. According to Section 3(26) of the General Clauses Act  1897, immoveable 
property is defined to include land, benefits to arise out of land , and things 
attached to the earth, or permanently fastened to anything attached to the 
earth.
111 Section 2(6) of the Registration Act defines immoveable property to 
include land, buildings, hereditary allowance, rights of way, lights, ferries, 
fisheries, or any other benefit to arise out of land, and things attached to earth, 
or permanently fastened t o anything which is attached to the earth, except for 
standing timber, growing crops, and grass.
112 A mineral is also a benefit arising 
out of land. The right to carry out mining operations to extract minerals under a 
 
108 Mulla on the Transfer of Property Act 1882 (13th edn) 
109 Section 105, Transfer of Property Act 1882 
110 State of Punjab v. British India Corporation, (1964) 2 SCR 114 [15] 
111 Section 3(26), General Clauses Act 1897.  
112 Section 2(6), Registration Act 1908

Source PDF page 59

Open this page in the original PDF
PART F  
 59 
mining lease has been held by this Court to be a right to enjoy immoveable 
property within the meaning of Section 105.113  
84. The expression “licence” is defined in the Indian Easements Act 1882 as follows:  
“52. “License” defined. - Where one person grants 
to another, or to a definite number of other persons, 
a right to do, or continue to do, in or upon the 
immoveable property of the grantor, something 
which would, in the absence of such right, be 
unlawful, and such right does not amount to an 
easement or an interest in the property, the right is 
called a licence.”
114  
85. In Associated Hotels of India Ltd v. R N Kapoor,115 Justice K Subba Rao (as 
the learned Chief Justice then was) observed that a lease creates an interest in 
property, while a licence only permits another to make use of the property, whose 
legal possession continues to remain with the owner.  A lease envisages and 
transfers an interest in the demised property creating a right in rem in favour of 
the lessee, while a licence only makes an action lawful which without it would be 
unlawful.
116  
86. Under t he MMDR Act , a “prospecting licence” is granted for the purpose of 
undertaking prospecting operations. 117 Prospecting operations are  defined to 
mean any operations undertaken for the purpose of exploring, locating, or 
proving a mineral deposit.118 Chapter III of the Mineral Concession Rules 1960 
 
113 State of Karnataka v. Subhash Rukmayya Guttedar, 1993 Supp (3) SCC 290 [6]; Sri Tarkeshwar Sio Thakur jiu 
v. Dar Dass Dey, (1979) 3 SCC 106 [37]. 
114 Section 52, Indian Easements Act 1882 
115 (1960) 1 SCR 368, [ 28]. [“28. […] The following propositions may, therefore, be taken as well established: (1) 
To ascertain whether a document creates a licence or lease, the substance of the document must be preferred to 
the form; (2) the real test is the intention of the parties – whether they intended to create a lease or a licence; (3) if 
the document creates an interest in the property, it is a lease; but, if it only permits another to make use of the 
property, of which the legal possession continues with the owner, it is a li cence; and (4) if under the document a 
party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances 
may be established which negative the intention to create a lease.”]   
116 Mangal Amusement Park Private Ltd. v. State of Madhya Pradesh, (2012) 11 SCC 713 [15]. 
117 Section 3(g), MMDR Act 
118 Section 3(h), MMDR Act

Source PDF page 60

Open this page in the original PDF
PART F  
 60 
deals with the grant of prospecting licences in respect of land in which the 
minerals vest in the government. Form F contained in the Mineral Concession 
Rules 1960 states that under a prospecting licence, the State Government grants 
to the licesee the sole rights to enter upon lands and to search, win, carry away 
or dispose of minerals won. Rule 14 read with Schedule III allows the prospecting 
licensee to win and carry away a limited quantity of minerals  in lieu of the 
payment of specified royalty. Under a prospecting licence, the licensee does not 
get an interest in the land or in the minerals contained therein. The licensee is 
only allowed to carry away a limited quantity of minerals after payment of 
specified royalty.
119 Even a prospecting licensee has to pay royalty to the State 
Government for carrying away the minerals won during prospecting operations. 
87. A “mining lease” is defined under the MMDR Act to mean a lease granted for the 
purpose of undertaking mining operations and includes a sub- lease granted for 
such purpose.120 The expression “mining operations” has been defined to mean 
any operations undertaken for the purpose of winning any mineral. The 
expression “winning” has been explained by this Court to mean getting or 
extracting minerals from the mines.
121 In Sri Tarkeshwar Sio Thakur Jiu v. Dar 
Dass Dey & Co ,122 Justice R S Sarkaria observed that the expression “mining 
operations” is expansive , so as  to comprehend every activity by which the 
mineral is extracted or obtained from the earth irrespective of whether such 
 
119 Mineral Concession Rules 1960, Schedule III 
120 Section 3(c), MMDR Act 
121 Gujarat Pottery Works v. B P Sood, (1967) 1 SCR 695 [18]; Bhagwan Dass v. State of Uttar Pradesh, (1976) 3 
SCC 784 [13]. [Justice Y V Chandrachud (as the learned Chief Justice then was) observed: “In any case, the 
definition of mining operations and minor minerals in Section 3(d) and (e) of the Act of 1957 and Rule 2(5) and (7) 
of the Rules of 1963 shows that minerals need no t be subterranean and that mining operations cover every 
operation undertaken for the purpose of “winning” any minor mineral. “Winning” does not imply a hazardous or 
perilous activity. The word simply means “extracting a mineral” and is used generally to i ndicate any activity by 
which a mineral is secured. “Extracting”, in turn, means, drawing out or obtaining. A tooth is ‘extracted’ as much as 
is fruit juice and as much as a mineral. Only, that the effort varies from tooth to tooth, from fruit to fruit and from 
mineral to mineral.”] 
122 (1979) 3 SCC 106 [15]

Source PDF page 61

Open this page in the original PDF
PART F  
 61 
activity is carried out on the surface or in the bowels of the earth. Section 3(fa) 
defines “production” or any derivative of the word “production” to mean the 
winning or raising of mineral within the leased area for the purpose of processing 
or dispatch. The expression “dispatch” has been defined to mean the removal of 
minerals or mineral products from the leased area and to include the 
consumption of minerals and mineral products within such area.
123 It is worth 
noting that royalty is payable under Section 9 on the removal or consumption of 
minerals by the lessee in the leased area. Thus, essentially royalty is payable on 
the dispatch of minerals from the leased area.  
88. This segment indicates that under a lease deed for mining operations, the owner 
transfers the interest in the minerals to the lessee in lieu of the payment of rent, 
which usually takes the form of royalty. To answer whether this payment  is akin 
to a tax, we must understand the nature of a mining lease under the MMDR Act. 
b. The nature of a mining lease under the MMDR Act and the Mineral 
Concession Rules 1960 
89. The MMDR Act and the Mineral Concession Rules 1960 detail the procedure for 
the grant of mining leases in three situations: first, where the minerals vest in the 
government;
124 second, where the minerals vest in a person other than the 
government;125 and third, where the minerals vest partly in the government and 
partly in a private person.126 Chapter IV of the Mineral Concession Rules 1960 
(containing Rules 22 to 40) deals with the grant of mining leases in respect of 
land in which the minerals vest in the g overnment. Rule 22(1) provides that an 
 
123 Section 3(aa), MMDR Act 
124 Chapters II, III, IV, and IVA of Mineral Concession Rules 1960 
125 Chapter V, Mineral Concession Rules 1960 
126 Rule 53, Mineral Concession Rules 1960

Source PDF page 62

Open this page in the original PDF
PART F  
 62 
application for the grant of a mining lease in respect of land in which the minerals 
vest in the government shall be made to the State Government. Rule 27 provides 
the conditions which are applicable to mining leases under Chapter IV. Rule 
27(1)(c) provides that the lessee shall pay either dead rent or royalty (whichever 
is higher) to the State Government.
127 Rule 27(1)(d) deals with payment of 
surface rents, water rents, etc. by the lessee to the State Government. 128 Rule 
27(2) allows the State Government to include such other conditions as it may 
deem necessary in regard to matters enumerated therein. Rule 27(3) allows the 
State Government, either with the previous approval of the Central Government 
or at the instanc e of Central Government, to impose such further conditions as 
may be necessary in the interests of mineral development.  
90. Chapter V (containing Rules 41 to 52) deals with the procedure for obtaining 
prospecting licences or mineral lease in respect of land in which the minerals 
vest in a person other than the Government. Unlike Rule 22(1), the provisions of 
Chapter V do not require the lessee to make an application to the State 
Government. Rule 45 pertains to the conditions of mining leases with respect to 
minerals vesting in private persons. The relevant part of Rule 45 is produced 
below: 
“45. Conditions of mining lease – Every mining lease 
shall be subject to the following conditions –  
(i) the provisions of clauses (b) to (l) and (p) to (i) of 
sub-rule (1) of Rule 27 shall apply to such leases 
with the modification that in clauses (c) and (d) for 
 
127 Rule 27(c), Mineral Concession Rules 1960. 
128 Rule 27(d), Mineral Concession Rules 1960

Source PDF page 63

Open this page in the original PDF
PART F  
 63 
the words “State Government” the word “lessor” 
shall be substituted; 
[…] 
(iii) the lease may contain such other conditions, not 
being inconsistent with the provisions of the Act and 
these rules, as may be agreed upon between the 
parties; 
(iv) if the lessee makes any default in payment of 
royalty as required by Section 9 or commits a breach 
of any of the conditions of the lease, the lessor shall 
give notice to the lessee requiring him to pay the 
royalty or remedy the breach, as the case may  be, 
within sixty days from the date of the receipt of the 
notice and if the royalty is not paid or the breach is 
not remedied within such period, the lessor without 
prejudice to any proceeding that may be taken 
against the lessee determine the lease; 
(v) the lessee may determine the lease at any time 
by giving not less that one year’s notice in writing to 
lessor.” 
91. Rule 45(i) provides that certain specific conditions which apply under Rule 27 to 
mining leases in respect of minerals which vest in the Government are also 
applicable to leases of minerals vesting in private persons. While under Chapter 
IV the State Government can stipulate additional conditions, Rule 45(iii) of 
Chapter V provides that the lease may contain such other conditions, not being 
inconsistent with the provisions of the MMDR Act and the Mineral Concession 
Rules, as may be agreed upon between the parties. If the lessee of a mining 
lease granted under Chapter IV, were to default in the payment of royalty or dead 
rent or commit a breach of any conditions  of the lease the State Government is 
empowered to determine the lease. In case of a lease governed by Chapter V,

Source PDF page 64

Open this page in the original PDF
PART F  
 64 
the lessor is empowered to determine the mining lease if the lessee defaults in 
payment of royalty or commits a breach of any of the conditions of the lease. 
These differences indicates that in case of a mining lease under Chapter V of 
Mineral Concession Rules: (i) the State Government is not the lessor (that is the 
proprietor of the minerals who is a private person); and (ii) royalty, dead rent, and 
other rents are to be payable to the lessor and not the State Government. 
92. In State of Meghalaya v. All Dimasa Students Union,
129 this Court held that: 
(i) Chapter V of the Mineral Concession Rules has to be treated to be dealing 
with minerals owned by private persons; (ii) a mining lease granted according to 
Chapter V of the Mining Concession Rules 1960 is a mining lease granted by the 
owner of the minerals and not the State Government; and (iii) no authority can 
grant a mining lease in respect of minerals which vest with private owners without 
the authority of such owners.  
93. The right of proprietors to grant leases  and receive royalty stem s from the 
proprietary interest in the immovable property including the minerals. The MMDR 
Act regulates the exercise of the propriet ary rights in the minerals in the larger 
public interest.
130 The statute specifies the terms of the lease, but the lease deed 
is ultimately entered between the State Government (or the private person, as 
the case may be) and the lessee. Similarly, the rates of royalty are fixed by the 
Central Government under Section 9, but royalty is received by the mining lessor, 
that is the State Government or a private person.  
 
 
129 (2019) 8 SCC 177 [129]-[130] 
130 Monnet Ispat & Energy Ltd (supra) [138]

Source PDF page 65

Open this page in the original PDF
PART F  
 65 
iv. Meaning of “royalty” 
94. At the outset we clarify that in this reference, we are dealing with ‘royalty’ in the 
context of the MMDR Act. Royalty is generally understood as compensation paid 
for rights and privileges enjoyed by the grantee. It has its genesis in the 
agreement entered into between the grantor and grantee. In Inderjeet Singh 
Sial v. Karam Chand Thapar,
131 this Court observed that royalty is equivalent 
to the expression “jura regalia” or “jura regia”. Jura regalia is defined as royal 
prerogatives or rights.
132 For centuries, gold and silver mines (also called as royal 
metals) in the United Kingdom were treated as belonging to the Crown. R oyal 
metals could be mined only after payments in the form of royalties were made to 
the Crown. The use of the word “royalty” underwent change  in the United 
Kingdom with the decentralization of the sovereignty which was absorbed by the 
landowners.
133 Land ownership was concentrated in the hands of landowners, 
who conceded the right to work mines to les sees in return for consideration 
which took the form of dead-rent and royalties.134  
95. This Court has had occasion to analyze the meaning of the expression “royalty” 
in its decisions . In H R S Murthy  v. Collector of Chitt oor,135 a Constitution 
Bench observed that royalty connotes a payment made for materials or minerals 
won from land. In D K Trivedi  v. State of Gujarat ,136 the distinction between 
“royalty” and “dead rent” was explained thus:  
“39. In a mining lease the consideration usually 
moving from the lessee to the lessor is the rent 
 
131 (1995) 6 SCC 166. 
132 Ramanatha Aiyar, Advanced Law Lexicon (Volume 3) 2789. 
133 J U Nef, The Rise of the British Coal Industry (Routledge, 1966) 
134 Royal Commission on Mining Royalties, Final Report of the Royal Commission Appointed to Inquire into the 
Subject of Mining Royalties (1893) 4. 
135 (1964) 6 SCR 666 [6] 
136 1986 (Supp) SCC 20

Source PDF page 66

Open this page in the original PDF
PART F  
 66 
for the area leased (often called surface rent), 
dead rent and royalty.  Since the mining lease 
confers upon the lessee the right not merely to 
enjoy the property as under an ordinary lease 
but also to extract minerals from the land and to 
appropriate them for his own use or benefit, in 
addition to the usual rent for the area demised, 
the lessee is required to pay a certain amount in 
respect of the minerals extracted proportionate 
to the quantity so extracted. Such payment is 
called “royalty”. It may, however, be that the mine 
is not worked properly or as not to yield enough 
return to the lessor in the shape of royalty. In order 
to ensure for the lessor a regular income, 
whether the mine is worked or not, a fixed 
amount is provided to be paid to his by the 
lessee. This is called “dead rent”. “Dead rent” is 
calculated on the basis of the area leased while 
royalty is calculated on the quantity of minerals 
extracted or removed. Thus, while dead rent is a 
fixed return to the lessor, royalty is a return which 
varies with the quantity of minerals ex tracted or 
removed. […]”  
                                                                                       (emphasis added) 
96. Minerals are exhaustible and finite resources. Each quantity of mineral removed 
leads to the depletion of the mineral stock of the mine.137 Under a mining lease, 
a lessee acquires a right or interest in minerals. This right or interest allows the 
lessee to extract minerals and consume them. Royalty is a payment made by the 
lessee to the lessor or proprietor of the minerals for the removal of minerals. 
Royalty also serves to compensate the lessor for the degradation of the value of 
the mine because of the extraction of minerals.
138 
97. In Bherulal v. State of Rajasthan ,139 a Division Bench of the Rajasthan High 
Court explained the concept of royalty in the following terms: 
 
137 W R Sorley, ‘Mining Royalties and their Effect on the Iron and Coal Trades’ (1889) 52(1) Journal of Royal 
Statistical Society 60, 66 
138 Ibid. 
139 1956 SCC OnLine Raj 9 [8]

Source PDF page 67

Open this page in the original PDF
PART F  
 67 
“8… In Wharton’s Law Lexicon, ‘royalty’ is defined as 
“payment to a patentee by agreement on every 
article made according to his patent, or to an author 
by a publisher on every copy of his book sold; or to 
the owner of minerals for the right of working the 
same on every on or other weight raised.” The 
present case is of the third kind, namely payment 
to the owner of minerals for the right of working 
the same. This payment is based on the produce, 
and the rate is fixed as so much per ton or other 
weight. It is clear that royalty has nothing to do 
with where the purchaser is taking the mineral, 
or to whom he is going to sell it, whether at the 
place where the mine is situated or at some place 
hundreds of miles away. […] It is clear, therefore, 
that royalty is a charge by the owner of minerals 
from those to whom he gives the concession to 
remove them, and the charge is on production, 
the rate being fixed according to weight.”  
                                                  (emphasis added) 
98. The essential characteristics of royalty are that (i) it is a consideration or payment 
made to the proprietor of minerals, either the government or a private person; (ii) 
it flows from a statutory agreement (a mining lease) between the lessor and the 
lessee; (iii) it represents a  return for the grant of a privilege (to the lessee) of 
removing or consuming the minerals; and (iv) it is generally determined on the 
basis of the quantity of the minerals removed.   
99. In comparison, dead rent acts as a deterrent against a leaseholder cornering a 
mining lease and keeping the mineral resources idle. 140 Similar to royalty, dead 
rent is also a statutory imposition and an integral part of the mining lease,  but it 
generally does not serve as a consideration for the removal or consumption of 
minerals. The dead rent is determined on the basis of the area of land covered 
by the lease. Imposition of dead rent ensures that the proprietor obtains a fixed 
 
140 Government of India, Ministry of Mines, ‘Mineral Royalties’ 27 (January 2011)

Source PDF page 68

Open this page in the original PDF
PART F  
 68 
rent from the lessee even if the mine remains unworked. Therefore, dead rent is 
not in addition to royalty but an alternative. 
100. If royalty is a consideration paid by the lessee to the lessor as part of the terms 
of a mining lease, can this payment be considered in the nature of tax? This is 
the next issue for our consideration.   
v. Characteristics of Tax 
101. Taxation is a mode of raising revenue to fund public expenditure. The power of 
taxation is an essential and inherent attribute of sovereignty.
141 In the decision of 
the US Supreme Court in McCulloch  v. Maryland,142 Chief Justice John 
Marshall described the sovereign right of taxation thus: 
“It is admitted that the power of taxing the people and 
their property is essential to the very existence of 
Government, and may be legitimately exercised on 
the objects to which it is applicable, to the utmost 
extent to which the Government may choose to carry 
it. The only security against the abuse of this power 
is found in the structure of the Government itself. In 
imposing a tax, the legislature acts upon its 
constituents. This is, in general, a sufficient security 
against erroneous and oppressive taxation.” 
102. Taxes are monetary burdens or charges imposed by legislative power upon 
persons, or property to raise revenues.143 The government needs requisite funds 
to discharge its primary governmental functions. 144 No responsible government 
can function and achieve its welfare objectives without levying and collecting 
taxes.145 The objects to be taxed can be taxed by the legislature according to the 
 
141 Thomas Cooley, The Law of Taxation (4th edn, 1924) 149 
142 17 U.S. 316 (1819)  
143 Amrit Banaspati Co. Ltd. v. State of Punjab, (1992) 2 SCC 411 [10] 
144 Dena Bank v. Bhikabhai Prabhudas Parekh & Co., (2000) 5 SCC 694 [8] 
145 Jindal Stainless Steel [112.2]

Source PDF page 69

Open this page in the original PDF
PART F  
 69 
exigencies of its needs  so long as they happen to be within the legislative 
competence of the legislature.146 Although the power of taxation is pervasive and 
an incidence of sovereignty, it is subject to well-defined constitutional limitations. 
103. In Matthews v. Chicory Marketing Board ,147 Latham CJ defined “tax” as a 
“compulsory exaction of money by a public authority for public purposes, 
enforceable by law, and … not a payment for services rendered.” In 
Commissioner, Hindu Religious Endowment, Madras  v. Sri Lakshmindra 
Thirta Swamiar of Sri Shirur Mutt,148 this Court relied on the above elucidation 
to enumerate the following essential characteristics of a tax:  
“44. […] It is said that the essence of taxation 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 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 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 taxpayer 
and the public authority. Another feature of taxation 
is that as it is a part of the common bur den, the 
quantum of imposition upon the taxpayer depends 
generally upon his capacity to pay.”  
104. A tax has the following essential characteristics: (i) it is a compulsory exaction of 
money by a public authority; (ii) it is imposed under statutory power without the 
consent of the tax payer ; (iii)  the demand is enforceable by law; (iv) it is an 
imposition made for public purposes to meet the general expenses of the state 
 
146 Rai Ramkrishna v. State of Bihar, (1964) 1 SCR 897 [12] 
147 60 CLR 263 
148 (1954) 1 SCC 412

Source PDF page 70

Open this page in the original PDF
PART F  
 70 
without reference to any special benefit to be conferred on the payer of the tax; 
and (v) it is part of the common burden.149   
105. Article 366(28) defines “taxation” to include “the imposition of any tax or impost, 
whether general or local or special.” This Court has interpreted the word “tax” in 
its widest amplitude to include all money raised by taxation.
150 In Jindal 
Stainless Steel (supra), one of us (Justice D Y Chandrachud) held that the 
expression “any tax” means “any levy which the State is constitutionally 
competent to legislate.”
151  
106. One of the issues debated in the reference pertains to the meaning of the word 
“impost.” Thomas Cooley in the Law of Taxation defines “imposts” to mean “any 
tax, tribute, or duty.” 152 This Court has generally construed the expression 
“imposts” to include taxes153 and fees154 realizable by the authority of law. 155 In 
CIT v. McDowell and Co. Ltd., 156 this Court held that the term “impost” means 
compulsory levy and that “tax” in its wider sense includes all imposts. 157 In 
McDowell (supra), the assesse sought to claim a deduction under Section 43-
B(a) of the Income Tax Act 1961 on the payment of bottling fees made to the 
State Government  under the Rajasthan Excise Act 1950. Section 43- B(a) 
allowed a deduction in respect of any sum payable by the assessee by way of 
tax, duty, cess or fee, by whatever name called, under any law for the time being 
in force.  The issue before the two- Judge Bench was whether bottling fees 
 
149 See Mahant Sri Jagannath Ramanuj Das v. State of Orissa, (1954) 1 SCC 455 [11] 
150 D G Gose and Co. (Agents) (P) Ltd. v. State of Kerala, (1980) 2 SCC 410 [5]. 
151 Jindal Stainless Steel (supra) [730.1] 
152 Thomas Cooley, The Law of Taxation (4th edn, 1924) 74  
153 Sea Customs Act, S 20(2), In re, 1963 SCC OnLine SC 40 [37] (Held that customs duty or excise duty was an 
impost within the meaning of Article 366(28));  
154 CCE v. Chhata Sugar Co. Ltd., (2004) 3 SCC 466 [36] (It was observed that an impost can be either a tax or 
fee.) 
155 Indian Banks’ Association v. Devkala Consultancy Service, (2004) 11 SCC 1 [18] 
156 (2009) 10 SCC 755 [22] 
157 Reiterated in Jindal Stainless Steel (supra) [20], [395]

Source PDF page 71

Open this page in the original PDF
PART F  
 71 
chargeable from the assessee amount ed to a tax, duty, cess, or fee. The two-
Judge Bench formulated the characteristics of imposts thus: 
“21. “Tax”, “duty”, “cess” or “fee” constituting a class 
denotes various kinds of imposts by State in its 
sovereign power of taxation to raise revenue for the 
State. Within the expression of each specie each 
expression denotes different kind of impost depen ding 
on the purpose for which they are levied. The power can 
be exercised in any of its manifestation only under any 
law authorising levy and collection of tax as envisaged 
under Article 265 which uses only the expression that no 
“tax” shall be levied and collected except authorized by 
law. In its elementary meaning conveys that to support 
a tax legislation action is essential, it cannot be levied 
and collected in the absence of any legislative sanction 
by exercise of executive power of State under Article 73 
by the Union or Article 162 by the State. 
22. Under Article 366(28) “Taxation” has been defined to 
include the imposition of any tax or impost whether 
general or local or special and tax shall be construed 
accordingly. “Impost” means compulsory levy. The well-
known and well-settled characteristic of “tax” in its wider 
sense includes all imposts. Imposts in the context have 
following characteristics: 
(i) The power to tax is an incident of sovereignty. 
(ii) “Law” in the context of Article 265 means an Act 
of legislature and cannot comprise an executive 
order or rule without express statutory authority. 
(iii) The term “tax” under Article 265 read with Article 
366(28) includes imposts of every kind viz. duty, 
cess or fees. 
(iv) As an incident of sovereignty and in the nature 
of compulsory exaction, a liability founded on 
principle of contract cannot be a “tax” in its 
technical sense as an impost, general, local or 
special.”

Source PDF page 72

Open this page in the original PDF
PART F  
 72 
107. The Court held in McDowell (supra) that bottling fees are  a payment made by 
the assessee to the State Government “as consideration for acquiring the 
exclusive privilege”158 The payment was held to be neither a fee nor a tax but 
consideration for the grant of approval by the government to contract on the 
exclusive right to deal in bottling liquor. Therefore, bottling fees were held not to 
fall within the purview of Section 43-B(a). 
108. The expression “tax” under Article 265 includes every kind of impost in the form 
of a compulsory exaction. An impost is a compulsory exaction. The power to levy 
an impost is an incident of sovereignty . A liability arising out of contract cannot 
be termed as an impost or tax. A consideration paid under a contract to the State 
Government for acquiring exclusive privileges and rights with respect to a 
particular activity cannot be termed as an “impost” or “tax” under Article 366(28). 
109. The government may demand payments in the nature of a price or consideration 
for parting with its exclusive privilege  to carry on activities of a particular 
description. Well-known examples involving the parting of the exclusive privilege 
by the g overnment include telecommunication activities and the manufacture 
and sale of intoxicants. The price paid for parting with an exclusive privilege 
vesting in government is neither a tax nor a fee.
159 In State of Punjab v. Devans 
Modern Breweries,160 the issue before a Constitution Bench was whether the 
levy of an import fee by the state on potable liquor manufactured in other states 
was beyond the legislative competence of the state legislature. Justice R C 
Lahoti (as the learned Chief Justice then was)  speaking for the majority, 
 
158 McDowell and Co. Ltd. (supra) [17] 
159 Har Shankar v. Excise and Taxation Commissioner, (1975) 1 SCC 737 [56]; State Bank of India v. Jage Ram, 
(1980) 3 SCC 599 [20]; Government of Andhra Pradesh v. Anabeshahi Wine and Distilleries Pvt Ltd., (1988) 2 SCC 
25 [6] 
160 (2004) 11 SCC 26

Source PDF page 73

Open this page in the original PDF
PART F  
 73 
observed that the State Government has unfettered power to regulate the import 
of intoxicants in exercise of its regulatory powers. The learned Judge held that 
the levy was neither a tax nor  a fee, but “simply a levy for the act of granting 
permission or for the exercise of power to part with the privilege.” 161 The 
expression “impost” cannot hence be extrapolated to mean a price levied by the 
State for granting permission to part with its exclusive privilege. Imposts are such 
levies that are in the nature of tax. 
110. The basic issue for determination is whether royalty payable under Section 9 of 
the MMDR Act is in the nature of a tax or impost. The need to decide the issue 
of “whether royalty is tax” arises in the backdrop of the divergence of opinion in 
the decisions in India Cement (supra) and Kesoram (supra). 
vi. Royalty is not in the nature of tax  
a. Prelude to India Cement 
111.  Whether ‘royalty is a tax’ had been adjudicated upon by several High Courts 
before the issue reached this Court for decision in India Cement (supra). There 
was a divergence of view among the High Courts . A few High Courts had held 
that royalty is not a tax but a consideration for parting with the exclusive privilege 
over mineral rights. Others had held that royalty was a compulsory exaction, and 
hence a tax. In its decision in India Cement (supra) this Court referred to them, 
without actually analyzing their rationale. 
112. In Laddu Mal v. State of Bihar,
162 the petitioners challenged the notices issued 
to them by the Assistant Mining Officer , demanding payment of  royalty for a 
 
161 Devans Modern Breweries (supra) [113] 
162 1965 SCC OnLine Pat 30

Source PDF page 74

Open this page in the original PDF
PART F  
 74 
period from 1958 to 1964 under the Bihar Minor Mineral Concession Rules 1964. 
The Division Bench of the Patna High Court held that royalty is a levy in the 
nature of tax  because of its compulsory nature. R oyalty was held to be a 
compulsory exaction because it was imposed under a statute and because in the 
event of non-payment, it was recoverable as arrears of land revenue. However, 
it was held that the demand of royalty prior to 1964 when the Bihar Minor Mineral 
Rules came into effect was without the authority of law.  
113. In Laxminarayana Mining Co. v. Taluk Development Board,
163  licence fees  
levied on persons engaged in mining under the provisions of the Mysore Village 
Panchayats and Local Board Act 1959 were challenged before the Mysore High 
Court. Justice E S Venkataramiah (as the learned Chief Justice then was) held  
that the State legislature had no legislative power to impose the levy since its 
subject matter was covered by the MMDR Act. The High Court also held that the 
levy was in substance a tax on mineral rights.164 In the context of Entry 50 of List 
II, the High Court observed that: (i) tax on mineral rights includes royalty payable 
on extracted minerals; (ii) mineral rights and mining activities which are carried 
out in exercise of mineral rights are indistinguishable; (ii i) Parliament has 
occupied the entire subject matter of the regulation of mines and mineral 
development as well as  tax on mineral rights by virtue of the legislative 
declaration under the MMDR Act; and (i v) the provisions of the MMDR Act 
pertaining to the levy, fixation and collection of royalty (Section 9) as well as its 
recovery as arrears of land revenue (Section 25) suggest that the expression 
“royalty” under Section 9 connotes the levy of a tax . The essence of the High 
Court’s decision was that since royalty is in the nature of a tax on mineral rights 
 
163 1972 SCC OnLine Kar 80 
164 Laxminarayana Mining Co. (supra) [17]

Source PDF page 75

Open this page in the original PDF
PART F  
 75 
and is covered by P arliamentary legislation, the legislative power of the State 
legislature to levy taxes on mineral rights stands excluded. 
114. The contrary view of other High Courts (footnoted below) was that royalty is not 
a tax. 165 We will not refer to all the decisions adopting that view, to avoid 
multiplicity, except for the decision of the Punjab and Haryana High Court in Dr. 
Shanti Swaroop Sharma  v. State of Punjab .166 In that case, the petitioners 
challenged the demand of royalty by the State Government under the Punjab 
Minor Mineral Concession Rules 1964. The petitioners contended that royalty , 
being a tax , cannot be levied under delegated legislation. The High Court 
rejected the contention holding that: (i) royalty is a share of produce or profit paid 
to the owner of land for grant ing the privilege of producing minerals; (ii) mere 
occupation of land containing minor minerals does not make the occupier liable 
to pay royalty; (iii) the liability to pay royalty arises only when a lessee extracts 
minerals in pursuance of a mining lease; (iv) royalty cannot be termed as a 
compulsory exaction because the compulsion to pay royalty arises out of the 
contractual conditions of the mining lease and not through the force of law; (v) 
the fact that the State Government can recover royalty as arrears of land revenue 
does not give it a character of tax because other dues such as moneys due under 
contract and fees can be recovered in the same manner. The High Court 
disagreed with the decision of the Patna High Court  in Laddu Mal (supra). This 
 
165 Saurashtra Cement & Chemical Industries Ltd. v. Union of India, 1979 SCC OnLine Guj 23 (Gujarat High Court 
held that royalty payable under Section 9 was not a tax. Therefore, Parliament had legislative competence to 
prescribe royalty under the MMDR Act in pursuance of its regulatory powers under Entry 54 of List I); Laxmi 
Narayan Agarwalla v. State of Orissa, 1983 SCC OnLine Ori 16 (The Orissa High Court disagreed with the decisions 
in Laddu Mal (supra) and Laxminarayana Mining Co. (supra). It was held if royalty is held to be tax, Section 9 would 
have to be invalidated because Parliament has no legislative power to impose tax under Entry 54 of List I.) 
166 AIR 1969 Punj and Har 79

Source PDF page 76

Open this page in the original PDF
PART F  
 76 
judicial canvas was available before the seven- Judge Bench in India Cement  
(supra).  
b. Divergence between India Cement and Kesoram   
115. In India Cement (supra), the seven Judge Bench was called upon to determine 
the validity of the Madras Panchayat Act 1958. Section 115 of the Act levied a 
local cess on land revenue payable to g overnment. An explanation to the 
provision stated that land revenue included royalty. Thus, the impugned provision 
considered royalty as part of land revenue.  The issue was whether the State 
legislature could levy cess on royalty once Parliament had taken control of the 
regulation of mines and development of minerals under the MMDR Act. 
116. The State’s justification proceeded on the following entries: (i) Entry 45 of List II 
- land revenue; (ii) Entry 49 of List II - taxes on lands and buildings; (iii) Entry 50 
of List II - taxes on mineral rights; and (iv) Entry 66 read with Entry 23 of List II - 
levy of fees. Justice Sabyasachi Mukharji (as the learned Chief Justice then was) 
writing for the majority, observed that the cess was levied essentially on royalty 
and not on land revenue, both of which are distinct concepts. Th e State’s 
recourse to Entry 45 of List II was negatived. With respect to Entry 49 of List II, 
Justice Mukharji observed that royalty is directly relatable to the minerals 
extracted and therefore would only be relatable to Entries 23 and 50 of List II, 
and not Entry 49 of List II.167 Therefore, the statutory provision was in pith and 
substance held to be a tax on royalty and not on land.  The decision in H R S 
Murthy (supra), according to which cess paid on royalty has a direct relationship 
with land and only a remote relationship with minerals, was overruled. A detailed 
 
167 India Cement (supra) [33]

Source PDF page 77

Open this page in the original PDF
PART F  
 77 
analysis pertaining to Entry 49 of List II has been undertaken in a later segment 
of this judgment. 
117. On Entries 23 and 66 of List II, Justice Mukharji observed that the legislative 
power of the State legislature to levy fee s is denuded by the enactment of the 
MMDR Act by Parliament. Finally, on Entry 50 of List II, Justice Mukharji observed 
that the bar provided in Section 9(3) on the enhancement of royalty specified 
under the Second Schedule also applies to the s tate legislature. Imposition of 
cess on royalties was held to have the effect of amending the Second Schedule 
and was held ultra vires Section 9(3). Section 9 was regarded to be a limitation 
on the taxing power of the State legislature under Entry 50 of List II.168 Moreover, 
the Court held that the field is covered by the MMDR Act and hence the legislative 
power of the state stands denuded. 169  Paragraph 34 of the judgment sets out 
the conclusions: 
“34. In the aforesaid view of the matter, we are of 
the opinion that royalty is a tax, and as such a 
cess on royalty being a tax on royalty, is beyond the 
competence of the State legislature because Section 
9 of the Central Act covers the field and the State 
legislature is denuded of its competence under Entry 
23 of List II. In any event, we are of the opinio n that 
cess on royalty cannot be sustained under Entry 49 
of List II as being a tax on land. Royalty on mineral 
rights is not a tax on land but a payment for the 
user of land.” 
                                                                                        (emphasis added) 
 
 
168 India Cement (supra) [32] 
169 India Cement (supra) [33]

Source PDF page 78

Open this page in the original PDF
PART F  
 78 
118. In a concurring opinion, Justice G L Oza held that royalty is not a unit of charge 
merely on land, but on labour and capital as well. Resultantly, imposition of cess 
on royalty was held not to be a levy or tax on land in terms of Entry 49 of List II. 
Justice Oza suggested that the cess could have been saved, if it was levied on 
surface rent or dead rent. In his view, surface rent or dead rent is relatable to 
land, hence a cess on surface rent or dead rent w ould fall within the purview of 
Entry 49 of List II. 
119. In Raojibhai Jivabhai Patel v. State of Gujarat,170 a three judge Bench of this 
Court referred to India Cement (supra) to reiterate that royalty levied on 
extracted mineral i s in the nature of tax. In a series of subsequent decisions , 
particularly in Orissa Cement Ltd v. State of Orissa
171 and Saurashtra Cement 
& Chemical Industries Ltd. v. Union of India, 172 this Court followed India 
Cement (supra). In State of M P  v. Mahalaxmi Fabric Mills Ltd ,173 this Court 
rejected the submission that paragraph 34 of India Cement (supra) contained a 
“typographical error”. However, a divergence in opinion on whether royalty is in 
the nature of tax emerged.   
120. In Quarry Owners Association v. State of Bihar , this Court held that royalty 
“does not constitute usual tax as commonly understood” but includes return for 
the consideration for parting with the  property.174 In Kesoram (supra), a 
Constitution Bench had to decide on the validity of a cess levied by the State on 
coal-bearing land. The measure of the cess was relatable to the quantity of 
minerals produced from land. Whether royalty is a tax was not directly in issue. 
 
170 1989 Supp (2) SCC 744 
171 (1991) Supp 1 SCC 430 [36] 
172 (2001) 1 SCC 91 
173 1995 Supp (1) SCC 642 [12] 
174 Quarry Owners Association v. State of Bihar, (2000) 8 SCC 655 [34].

Source PDF page 79

Open this page in the original PDF
PART F  
 79 
In fact, Justice Lahoti, speaking for the majority, held that India Cement (supra) 
was distinguishable because in that case cess was levied on royalty and not on 
mineral rights or lands. However, the learned Judge felt “constrained” and “duty-
bound” to point out a typographical error in the majority opinion in India Cement 
(supra) to prevent any “adverse impact on subsequent judicial pronouncements”. 
Paragraph 34 of India Cement (supra) was held to contain a typographical error, 
which Justice Lahoti explained thus: 
“57. In the first sentence the word “royalty” occurring 
in the expression “royalty is a tax”, is clearly an error. 
What the majority wished to say, and has in fact said, 
is “cess on royalty is a tax”. The correct words to be 
printed in the judgment should have been “cess on 
royalty” in place of “royalty” only. The words “cess 
on” appear to have been inadvertently or 
erroneously omitted while typing the text of t he 
judgment. This is clear from reading the judgment in 
its entirety. Vide paras 22 and 31, which precede 
para 34 abovesaid, Their Lordships have held that 
“royalty” is not a tax. Even the last line of para 34 
records “royalty on mineral rights is not a tax on land 
but a payment for the user of land”. The very first 
sentence of the para records in quick succession “… 
as such a cess on royalty being a tax on royalty, is 
beyond the competence of the State Legislature….” 
What Their Lordships have intended to record is “… 
that cess on royalty is a tax, and as such a cess on 
royalty being a tax on royalty, is beyond the 
competence of the State Legislature …”. That makes 
correct and sensible reading. A doubtful expression 
occurring in a judgment, apparently by mis take or 
inadvertence, ought to be read by assuming that the 
Court had intended to say only that which is correct 
according to the settled position of law, and the 
apparent error should be ignored, far from making 
any capital out of it, giving way to the correct 
expression which ought to be implied or necessarily 
read in the context, also having regard to what has 
been said a little before and a little after. No learned 
Judge would consciously author a judgment which is 
self-inconsistent or incorporates pass ages 
repugnant to each other. Vide para 22, Their 
Lordships have clearly held that there is no entry in

Source PDF page 80

Open this page in the original PDF
PART F  
 80 
List II which enables the State to impose a tax on 
royalty and, therefore, the State was incompetent to 
impose such a tax (cess). The cess which has an 
incidence of an additional charge on royalty and not 
a tax on land, cannot apparently be justified as falling 
under Entry 49 in List II.” 
121. The decision in Kesoram (supra) analyzed the nature of royalty to hold that 
royalty is not a tax, but a payment made to the owner of land who may be a 
person and may not necessarily be the state.175 It held that India Cement (supra) 
was caused by “an apparent typographical error or inadvertent error” and should 
not be understood as a correct declaration of law.  Kesoram (supra) also 
expressed its disagreement with Mahalaxmi Fabric Mills (supra) to the extent it 
had held that there was no “typographical error” in India Cement (supra). 
Importantly, Kesoram (supra) concurred with India Cement  (supra) on the 
aspect that cess on royalty is beyond the legislative competence of the state 
legislatures.
176 
122. The divergence on the point of law between India Cement (supra) and Kesoram 
(supra) is apparent and pertains to whether or not royalty is a tax. For the reasons 
to follow, we are of the opinion that royalty does not meet the characteristic 
requirements of a tax. 
c. Royalty is not a tax 
123. On first principles, royalty is a consideration paid by a mining lessee to the lessor 
for enjoyment of mineral rights  and to compensate for  the loss of value of 
minerals suffered by the owner of the minerals . The marginal note to Section 9 
states that royalties are “in respect of mining leases.” The liability to pay royalty 
 
175 Kesoram (supra) [71] 
176 Kesoram (supra) [115].

Source PDF page 81

Open this page in the original PDF
PART F  
 81 
arises out of the contractual conditions of the mining lease. 177 A failure of the 
lessee to pay royalty  is considered to be a breach of the terms of the contract, 
allowing the lessor to determine the lease and initiate proceedings for recovery 
against the lessee.  
124. Section 9 of the MMDR Act statutorily regulates  the right of a less or to receive 
consideration in the form of royalty from the lessee for removing or carrying away 
minerals from the leased area. Prior to the enactment of the MMDR Act, such a 
condition was treated as part of a mining lease. The object of empowering the 
Central Government to specify rates of royalty for major minerals was to ensure 
a certain level of uniformity in mineral prices in view of the domestic and 
international market.  
125. The fact that the rates of royalty are prescribed under Section 9 of the MMDR 
Act does not make it a “compulsory exaction by public authority for public 
purposes” because: (i) the compulsion stems from the contractual conditions of 
the mining lease agreed between the lessor and lessee; (ii) the demand is not 
made by a public authority, but the lessor (which can either be the State 
Government or a private party); and (iii) the payment is not for public purposes, 
but a consideration paid to the lessor for parting with their exclusive privileges in 
the minerals. Moreover, the fact that Section 25 allows recovery of royalty due to 
the Government under the MMDR Act or “under the terms of the contract” as 
arrears of land does not make royalty “an impost enforceable by law.” Section 25 
is a standard recovery provision allowing the g overnment to recover any dues 
payable to it, flowing from  statute or the terms of  a contract. Pertinently, 
 
177 See Rules 27 and 45, Mineral Concession Rules 1960

Source PDF page 82

Open this page in the original PDF
PART F  
 82 
contractual payments  due to the government cannot be deemed to be  a tax 
merely because the statute provides for their recovery as arrears.  
126. There are major conceptual differences between royalty and a tax: (i) the 
proprietor charges royalty as a consideration for parting with the right to win 
minerals, while a tax is an  imposition of a sovereign; (ii)  royalty is paid in 
consideration of doing a particular action, that is, extracting minerals from the 
soil, while tax is generally levied with respect to a taxable event  determined by 
law;178 and (iii) royalty generally flows from the lease deed  as compared to tax 
which is imposed by authority of law.  
127. Under the MMDR Act, the Central Government fixes the rates of royalty, but it is 
still paid to the proprietor by virtue of a mining lease. In case the minerals vest in 
the government, the mining lease is signed between the State Government ( as 
lessor) and the lessee in pursuance of Article 299 of the Constitution. Through 
the mining lease, the g overnment parts with its exclusive privilege over mineral 
rights. A consideration paid under a contract to the State Government for 
acquiring exclusive privileges cannot be termed as an impost. Since royalty is a  
consideration paid by the lessee to the lessor under a mining lease, it cannot be 
termed as an impost. 
128. This Court has held that royalty is not a tax, in several decisions. In State of H P 
v. Gujarat Ambuja Cement Ltd,
179 a three judge Bench of this Court held royalty 
not to be a tax. The subsequent decision in Indsil Hydro Power & Manganese 
Ltd. v. State of Kerala180 brought out the distinction between tax and royalty in 
the following terms: 
 
178 Goodyear India Ltd v. State of Haryana, (1990) 2 SCC 71 [27] 
179 (2005) 6 SCC 499 
180 (2021) 10 SCC 165 [56]

Source PDF page 83

Open this page in the original PDF
PART F  
 83 
“56. Thus, the expression “royalty” has consistently 
been construed to be compensation paid for rights 
and privileges enjoyed by the grantee and normally 
has its genesis in the agreement entered into 
between the grantor and the grantee. As against tax 
which is imposed under a statutory power without 
reference to any special benefit to the conferred on 
the payer of the tax, the royalty would be in terms of 
the agreement between the parties and normally has 
direct relationship with the benefit or privilege 
conferred upon the grantee.” 
129. The principles applicable to royalty apply to dead rent because: (i) dead rent is 
imposed in the exercise of the proprietary right (and not a sovereign right) by the 
lessor to ensure that the lessee works the mine, and does not keep it idle, and in 
a situation where the lessee keeps the mine idle, it ensures a constant flow of 
income to the proprietor; (ii) the liability to pay dead rent flows from the terms of 
the mining lease;181 (iii) dead rent is an alternate to royalty; if the rates of royalty 
are higher than dead rent, the lessee is required to pay the former and not the 
latter; and (iv) the Central Government prescribes the dead rent not in the 
exercise of its sovereign right, but as a regulatory measure to ensure uniformity 
of rates. 
130. In view of the above discussion, we hold that both royalty and dead rent do not 
fulfil the  characteristics  of  tax  or   impost.  Accordingly,  we  conclude that the
observation in India Cement (supra) to the effect that royalty is a tax is incorrect. 
 
 
 
 
181 Rules 27 and 45, Mineral Concession Rules 1960

Source PDF page 84

Open this page in the original PDF
PART G  
 84 
G. Inter-relationship between Entry 23 of List II and Entry 54 of List I 
131. The subject of regulating mines and mineral development is enumerated in Entry 
23 of List II. However, Parliament can under Entry 54 of List I bring the regulation 
of mines and mineral development under its control to the extent that such control 
is declared by Parliament by law to be expedient in the public interest. Entry 54 
of List I has three pre-requisites: (i) Parliament must make a law; (ii) the law must 
contain a legislative declaration that it is in the public interest  to bring the 
regulation of mines and mineral development under its control ; and (iii) the law 
must lay down the extent to which Parliament desires to control the field relating 
to the regulation of mines and mineral development.  Entry 54 of List I exclude 
the legislative power of the state legislature under Entry 23 of List II to the extent 
to which the Parliamentary law covers the field. The interrelationship between 
Entry 54 of Union List and Entry 23 of State List has been dealt with by this Court 
in numerous decisions, which will be discussed in the following segments. 
i. Meaning of “regulation of mines” and “mineral development”  
132.  Entry 54 of List I and Entry 23 of List II are general or regulatory entries dealing 
with the same subject matter , namely  of “regulation of mines and mineral 
development.” These entries deal with regulation of two aspects: (i) regulation of 
mines; and (ii) mineral development. By making Entry 23 of List II subordinate to 
Entry 54 of List I, the Constitution tilts the balance of legislative powers with 
respect to the regulation of mines and mineral development in favor of the Union.  
133. Before delving further into the inter -relationship between the two entries, we 
deem it necessary to define the subject matter of the entries. The subject-matter

Source PDF page 85

Open this page in the original PDF
PART G  
 85 
of the entries has to be understood from both the text and the context in which 
the words have been used.  
134. The expression “regulation” generally means to manage the governance of an 
enterprise by means of rules or laws.
182 In K Ramanathan v. State of Tamil 
Nadu,183 this Court explained the meaning of the power to regulate in the 
following terms: 
“19. It has often been said that the power to regulate 
does not necessarily include the power to prohibit, 
and ordinarily the word “regulate” is not synonymous 
with the word “prohibit”. This is true in a general 
sense and in the sense that mere regulation i s not 
the same as absolute prohibition. At the same time, 
the power to regulate carries with it full power over 
the thing subject to regulation and in absence of 
restrictive words, the power must be regarded as 
plenary over the entire subject. It implies t he power 
to rule, direct and control, and involves the adoption 
of a rule or guiding principle to be followed, or the 
making of a rule with respect to the subject to be 
regulated. The power to regulate implies the power 
to check and may imply the power to prohibit under 
certain circumstances, as where the best or only 
efficacious regulation consists of suppression. It 
would therefore appear that the word “regulation” 
cannot have any inflexible meaning as to exclude 
“prohibition”. It has different shades of meaning and 
must take its colour from the context in which it is 
used having regard to the purpose and object of the 
legislation, and the Court must necessarily keep in 
view the mischief which the legislature seeks to 
remedy.” 
135. The word “regulate” is of wide import and the breadth of its meaning depends on 
the context in which it is used. This Court has construed the power to regulate to 
include the power to:  (i) grant or revoke a permission or licence including 
 
182 Ramanatha Aiyar Advanced Law Lexicon (Volume 3) 4778. 
183 (1985) 2 SCC 116 [19]

Source PDF page 86

Open this page in the original PDF
PART G  
 86 
incidental or supplemental powers; 184 (ii) prohibit depending upon the context 
and circumstance; 185 (iii) control or adjust by rule or to subject to governing 
principles;186 and (iv) issue directions .187 Thus, the expression “regulation” 
appearing in Entry 54 of List I and Entry 23 of List II must also receive a wide 
meaning, in keeping with the principle that the words used in the legislative 
entries must be interpreted broadly.  
136. A “mine” is generally defined as an excavation in the earth for the purpose of 
obtaining minerals.188 The expression was defined under the Mines Act 1952 to 
primarily mean any excavation for the purposes of searching for or obtaining 
minerals
189 and to include the place where such excavation is carried on.190 The 
 
184 State of Tamil Nadu v. Hind Stone, (1981) 2 SCC 205 [10]; State of Uttar Pradesh v. Maharaja Dharmander 
Prasad Singh, (1989) 2 SCC 505 [52] 
185 Talcher Municipality v. Talcher Regulated Market Committee, (2004) 6 SCC 178 [14] ; Union of India v. Asian 
Food Industries Ltd, (2006) 13 SCC 542 [43] 
186 UP Coop. Cane Unions Federations v. West UP Sugar Mills Association, (2004) 5 SCC 430 [20]; Balmer Lawrie 
& Company Limited v. Partha Sarathi Sen Roy, (2013) 8 SCC 345 [24] 
187 Subramanian Swamy v. State of Tamil Nadu, (2014) 5 SCC 75 [67] 
188 Lord Provost and Magistrates of Glasgow v. Faire, (1888) [L.R] 13 App. Cas. 657 
189 Section 2(j) “mine” means any excavation where any operation for the purpose of searching for or obtaining 
minerals has been or is being carried on and include – 
(i) All borings, bore holes, oil wells and accessory crude conditions plants, including the pipe conveying 
mineral oil within the oil fields; 
(ii) All shafts, in or adjacent to and belonging to a mine, whether in the course of being sunk or not; 
(iii) All levels and inclined planes in the course of being driven; 
(iv) All open cast workings; 
(v) All conveyers or aerial rope-ways provided for bringing into or removal from a mine of minerals or 
other articles or for the removal of refuse therefrom; 
(vi) All adits, levels, planes, machinery, works, railways, tramways and sidings in or adjacent to and 
belonging to a mine; 
(vii) All protective works being carried out in or adjacent to a mine; 
(viii) All workshops and stores situated within the precincts of a mine and under the same management 
and used primarily for the purposes connected with that mine or a number of mines under the same 
management; 
(ix) All power stations, transformer sub-substations, convertor stations, rectifier stations and accumulator, 
storage stations for supplying electricity or mainly for the purpose of working the mine or a number 
of mines under the same management; 
(x) Any premises for the time being used for depositing sand or other material for use in a mine or for 
depositing refuse from a mine or in which any operations in connection with such sand, refuse or 
other material is being carried on, being premises exclusively occupied by the owner of mine; 
(xi) Any premises in or adjacent to and belonging to a mine on which any process ancillary to the getting 
dressing or preparation for the sale of minerals or of coke is being carried on. 
190 Offshore Areas Mineral (Development and Regulation) Act 2002. Section 4(k) defines “mine” to mean “any place 
in the offshore area wherein any exploration or production operation is carried on, together with any vessel, 
erection, appliance, artificial island or platform and premises in the offshore area used for the purposes of 
exploration, winning, treating or preparing minerals, obtaining or extracting any mineral or metal by any mode or 
method, and includes any area covered by a composite licence, or an exploration licence, or a production lease 
where exploration or production operation has been, or is being, or may be, carried on under the provisions of this 
Act.

Source PDF page 87

Open this page in the original PDF
PART G  
 87 
Occupational Safety, Health and Working Conditions Code 2020191 has adopted 
a similar definition of mine under Section 2(1)(zl). The Working Conditions Code 
also defines “minerals” to mean all substances which can be obtained from the 
earth by mining, digging, drilling, dredging, hydraulicing, quarrying or by any 
other operation and to include mineral oils.
192 These definitions are indicative of 
the fact that: (i)  the expression “mines” includes both the process by which 
minerals are extracted from the earth as well as the place where such extraction 
takes place; and (ii) minerals are obtained from the mine by the process of 
mining. 
137. The expression “regulation of mines” can be understood in the backdrop of above 
discussion to mean the management of both the process of extracti ng minerals 
as well the place where such minerals will be extracted from sub-surface levels. 
The MMDR Act gives shape and meaning to the expression “regulation of mines 
and mineral development” through its provisions and the subordinate rules. To 
that effect, we find provisions under the MMDR Act pertaining to prospecting or 
mining operations under lease or licence ,
193 restrictions on the grant of mineral 
concessions,194 periods for which prospecting licences 195 or mining leases 196 
may be granted or renewed, and royalties in respect of mining leases.197 Chapter 
III deals with the procedure for obtaining mineral concessions in respect of land 
in which the minerals vest in the g overnment. Chapter IV empowers the 
government to frame rules for regulating the grant of mineral concessions. 
Chapter V deals with the special powers of Central Government to undertake 
 
191 “Working Conditions Code 2020” 
192 Section 2(1)(zm), Working Conditions Code 2020. 
193 Section 4, MMDR Act 
194 Section 5, MMDR Act 
195 Section 7, MMDR Act 
196 Section 8, MMDR Act 
197 Section 9, MMDR Act

Source PDF page 88

Open this page in the original PDF
PART G  
 88 
prospecting or mining operations in respect of lands in which the minerals vest 
in the Government of a State or any other person. 198 Thus, Chapters II to V of 
the MMDR Act invariably deal with aspect s regulating the place of extraction of 
minerals and the process by which mines are worked. These provisions govern 
aspects such as conceding land to a person for carrying out mining operations 
(mining concession) or granting licences for working mines and winning minerals, 
which are integral to the concept of “regulation of mines”. The fixation of rates of 
royalty under Section 9 read with the Second Schedule is also covered within the 
scope of “regulation of mines and mineral development.” 
138. Entry 54 of List I and Entry 23 of List II do not use the expression “minerals” 
simpliciter. The  entries use the term “mineral development”.  In Premium 
Granites v. State of Tamil Nadu, a two judge Bench observed that the MMDR 
Act and the rules framed thereunder furnish the scope and purport of the word 
“mineral development.”
199 In that case, it was held that the scientific exploitation 
of minerals without waste is a part of “mineral development” as envisaged by the 
MMDR Act and the rules. In Quarry Owners Association  (supra) a two-Judge 
Bench defined the ambit of the expression “regulation of mines and mineral 
development”, observing: 
“31. […] The word “regulation” may have a different 
meaning in different context but considering it in 
relation to the economic and social activities 
including the development and excavation of mines, 
ecological and environmental factors including 
States’ contribution in developing, manning and 
controlling such activities, including parting with its 
wealth, viz. the minerals, the fixation of the rate of 
royalties would also be included within its meaning.” 
 
198 Section 17, MMDR Act 
199 (1994) 2 SCC 691 [48]

Source PDF page 89

Open this page in the original PDF
PART G  
 89 
139. In Tata Iron & Steel Co. Ltd.  v. Union of India,200 it was held that the concept 
of “mineral development” can include captive mining, an assessment of its 
requirement by different industries and equitable distribution of mining leases. 
Tata Iron & Steel (supra) was decided in the context of the unamended Section 
8(3) of the MMDR Act which allowed the Central Government to renew mining 
leases “in the interests of mineral development.”  
140. As a concept, mineral development is a term of wide im port. It encompasses 
exploitation of minerals, reduction of wastage in the beneficiation process, 
regulation of mining activities for ecological and environmental factors  and 
equitable distribution of mineral resources and mining leases. Mineral 
development has been expressly recognized in Chapter VI of the MMDR Act. 
Section 18(1) mandates the Central Government to take all such steps as may 
be necessary by making rules for the conservation and systematic development 
of minerals in India and for the protection of the environment by preventing or 
controlling any pollution which may be caused by prospecting or mining 
operations. Section 18(2) indicates that the Central Government may make rules 
on matters pertaining inter  alia to regulation of mining operations in any area ; 
regulation of the excavation or collection of minerals from any mine; development 
of mineral resources in any area;  regulation of arrangement of storage of 
minerals; and regulation of prospecting operations, disposal or discharge of 
waste slime or tailing arising from mining operations.  In terms of Section 18, 
Parliament has framed the Mineral Conservation and Development Rules 2017 
to provide a framework for conservation of minerals, systematic and scientific 
mining, development of minerals and protection of the environment.
201  
 
200 (1996) 9 SCC 709 [64] 
201 Mineral Conservation and Development Rules 2017

Source PDF page 90

Open this page in the original PDF
PART G  
 90 
141. The expression “mineral development” has also been understood under the 
MMDR Act in a comprehensive manner, to include all activities and transactions 
relating to the working of mines, extracting of minerals, their storage and 
disposal, as well as the conservation of the environment. Having established the 
meaning and scope of the subject-matter in Entry 54 of List I and Entry 23 of List 
II, we now analyze the inter-relationship between the two entries in greater detail. 
ii. Analysis of Hingir-Rampur, M A Tulloch, and Baijnath Kedia 
142. In Hingir-Rampur Coal Co. Ltd. v. State of Orissa,202 writ petitions were filed 
before this Court challenging the Orissa Mining Areas Development Fund Act 
1952203 which levied cess on the petitioner’s colliery. The petitioner argued that 
the cess levied under the Orissa Act wa s beyond the legislative competence of 
the State legislature because it was in reality a levy of excise duty on the coal 
produced. In the alternative, it was argued that the cess was relatable to Entry 
23 of List II which would be ultra vires having regard to the provisions of Entry 54 
of List I read with the MMRD Act  1948, which was the applicable legislation at 
the time . The respondent state sought to repel the petitioner’s contention by 
arguing that the cess was a fee relatable to Entries 23 and 66 of List II whose 
validity is not affected by Entry 54 of List I re ad with the MMRD Act.  Thus, this 
Court was called upon to decide two issues: (i) whether the impugned levy was 
in the nature of a fee relatable to Entries 23 and 66 of List II; and (ii) the legislative 
competence of the State legislature to impose the levy in view of Entry 54 of List 
I read with the MMRD Act.  
 
202 (1961) 2 SCR 537 
203 “Orissa Act”

Source PDF page 91

Open this page in the original PDF
PART G  
 91 
143.  The Orissa Act provided that the rate of the levy shall not exceed five percent of 
the valuation of minerals at the pit’s mouth. The statute further provided that the 
proceeds of the cess recovered shall be utilized to meet the expenditure for 
providing amenities such as communications, water supply and electricity for the 
better development of the mining areas and improve the welfare of labour and 
persons residing or working in the mining areas. This Court analyzed the scheme 
of the Orissa Act to observe that it was enacted for the purpose of the 
development of mining areas in the State. It was held that the cess was in the 
nature of a fee because: (i) it had an element of quid pro quo; (ii) it was collected 
into a specific fund; (iii) its application was regulated by a statute and confined to 
its purposes; and (iv) there was a definite co- relationship between the impost 
and the purpose of the legislation which was to render service to the notified 
area.
204 
144. Having established that the cess was in the nature of a fee, the next issue before 
this Court was whether the S tate legislature had the competence to impose the 
levy in view of Entry 54 of List I read with the MMRD Act  1948. Justice P B 
Gajendragadkar (as the learned Chief Justice then was) writing for the majority, 
explained the inter-relationship between Entry 54 of List I and Entry 23 of List II 
in the following terms: 
“24. […] 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 t he control 
of the Union, to 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 
 
204 Hingir-Rampur (supra) [19]

Source PDF page 92

Open this page in the original PDF
PART G  
 92 
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 the State 
Legislature itself. This position is not in dispute.” 
145. This Court held that the test to determine the legislative competence of the state 
legislature in respect of a particular subject-matter relating to regulation of mines 
and mineral development is whether that matter is covered by the legislative 
declaration in the MMRD Act  1948. This Court examined the provisions of the 
MMRD Act 1948 which contained a legislative declaration under Section 2.
205 
Section 6 of the MMRD Act 1948 empowered the Central Government to make 
rules for the conservation and development of minerals. Section 6(2) empowered 
Parliament to make rules in respect of several subject matters, including the levy 
and collection of royalties, fees or taxes in respec t of minerals mined, quarried, 
excavated or collected.  In this respect, the observations made by Justice 
Gajendragadkar are relevant and extracted below: 
“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 
Section 6(1). Amongst the matters covered by 
Section 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 
 
205 Section 2, MMRD Act 1948. [ It read: “2. Declaration as to expediency of control by Central Government: - 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 oilfields and the development of minerals to the extent hereinafter provided.”]

Source PDF page 93

Open this page in the original PDF
PART G  
 93 
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 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 53 of 1948.” 
                                                                                    (emphasis added) 
146. The test laid down by this Court in Hingir -Rampur (supra) is whether the 
legislative declaration under a Parliamentary law enacted in pursuance of Entry 
54 of List I covers the subject -matter. If the subject matter is covered by the 
legislative declaration, the legislative competence of the States with respect to 
that subject-matter is pro tanto denuded. Applying this test, it was held that the 
subject-matter of the levy of fees for conservation and development of minerals 
was covered by the MMRD Act 1948.

Source PDF page 94

Open this page in the original PDF
PART G  
 94 
147. The next issue before this Court was whether the declaration contained in the 
MMRD Act was constitutionally valid in view of Entry 54 of List I. The MMRD Act 
1948 was a pre- constitutional legislation enacted by the Dominion Legislature 
governed by the GOI Act 1935. It was held that even though the state legislation 
covered the same field as the MMRD Act, the legislative declaration made under 
the MMRD Act did not constitutionally amount to the requisite declaration by 
Parliament in terms of Entry 54 of List  I.
206 Therefore, this Court concluded that 
the limitation imposed by Entry 54 of List I did not impair the legislative 
competence of the State to enact the legislation under Entry 23 read with Entry 
66 of List II. In view of the conclusion reached, the majority opined that it was 
unnecessary to consider the validity of the Orissa Act in terms of Entry 50 of List 
II.
207 
148. Justice Wanchoo recorded his dissent from the opinion of the majority by holding 
that the cess in question was a duty of excise falling squarely within Entry 84 of 
List I, 208 and consequently, beyond the legislative competence of the State 
legislature. The learned Judge held that the cess was levied at a rate not 
exceeding five percent of  the value of the minerals at the pit’s mouth on all 
extracted minerals. Since all the extracted minerals were goods produced, a cess 
on the value of such extracted minerals was held to constitute excise duty.
209 
Unlike the majority opinion, Justice Wanchoo dealt with the issue of the 
 
206 Hingir-Rampur (supra) [35] [ “35. […] We reach this position that the field covered by Act 53 of 1948 is 
substantially the same as the field covered by the impugned Act but the declaration made by Section 2 of the said 
Act does not constitutionally amount to the requisite declaration by Parliament, and so t he limitation imposed by 
Entry 54 does not come into operation in the present case.”] 
207 Hingir-Rampur (supra) [37] 
208 Entry 84, before the Constitution (One Hundred and First Amendment) Act 2016, read as follows: 
“84. 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 sub-paragraph (b) of this entry.” 
209 Hingir-Rampur (supra) [47]

Source PDF page 95

Open this page in the original PDF
PART G  
 95 
legislative competence of the State legislature to impose the cess in view of Entry 
50 of List II. The learned Judge held that the cess was not a tax on mineral rights, 
but rather a tax on minerals actually produced, and therefore not covered by 
Entry 50 of List II.  
149. In State of Orissa v. M A Tulloch,
210 a Constitution Bench was concerned with 
the validity of the same Orissa Act which was under consideration in Hingir -
Rampur (supra). The respondents challenged the demand for the payment of 
fees made by the State Government for the period from July 1957 to March 1958 
under the Orissa Act for being ultra vires. It must be noted that the MMDR Act 
was brought into force as and from 1 June 1958. The Constitution  Bench 
analyzed the relevant constitutional and statutory provisions, and precedent to 
reiterate the following principles of law: 
(i) The power of the State to enact legislation on the subject matter of 
“mines and mineral development” under Entry 23 of List II is plenary and 
subject to the provisions of Entry 54 of List I; 
(ii) Section 2 of the MMDR Act contains the requisite legislative declaration 
in terms of Entry 54 of List I. To the extent to which the Union 
Government has taken the regulation of mines and development of 
minerals under its control, so much was withdrawn from the ambit of the 
power of the State legislature under Entry 23 of List II. The legislation of 
the State enacted under Entry 23 of List II would,  to the extent of that 
“control”, be superseded or be rendered ineffective;
211 
 
210 (1964) 4 SCR 461 
211 M A Tulloch (supra) [5]

Source PDF page 96

Open this page in the original PDF
PART G  
 96 
(iii) The legislative power of the state remains intact beyond the “extent” of 
the MMDR Act. Therefore, the crucial enquiry has to be directed to 
ascertain the “extent” of the Parliamentary legislation;  
(iv) Where a competent legislature with superior legislative powers 
expressly or impliedly evinces by its legislation an intention to cover the 
whole field, the enactments of the other legislature whether passed 
before or after would be superseded on the ground of repugnance.
212 
Section 18(1) evinces the Parliamentary intention to cover the entire field 
relating to conservation and development of minerals. Therefore, the fact 
that the Central Government has not framed any regulation along the 
lines of the Orissa Act was not relevant; and 
(v) The declaration under Section 2 of MMDR Act has taken over the entire 
field of conservation and development of minerals. Resultantly, the 
particular subject matter would be subtracted from the scope and ambit 
of Entry 23 of List II and the State legislature would also lose the 
legislative competence to levy a fee under Entry 66 of List II.
213  
150. In M A Tulloch (supra), the Constitution Bench held that the legislative 
competence of the States to levy fees under Entry 66 of List II is also affected to 
the extent to which the subject -matter of regulation of mines and mineral 
development is taken over by the P arliamentary declaration under Entry 54 of 
List I.  
151. The third major decision dealing with the inter -relationship between Entry 54 of 
List I and Entry 23 of List II is Baijnath Kedia v. State of Bihar.214 In that case, 
 
212 M A Tulloch (supra) [14] 
213 M A Tulloch (supra) [15] 
214 (1969) 3 SCC 838

Source PDF page 97

Open this page in the original PDF
PART G  
 97 
an amendment to the Bihar Land Reforms Act 1950 and the rules pertaining to 
the modification of the terms and conditions of leases of minor minerals  were 
challenged. Having held that it was  bound by Hingir-Rampur (supra) and M A 
Tulloch (supra), the issue before this Court was the extent to which the 
declaration by Parliament left any scope for the state legislature. The Court 
observed that by the legislative declaration under Section 2 read with Section 15, 
the whole of the field relating to minor minerals came within the jurisdiction of 
Parliament and no scope was left for the  State legislature. Although Section 15 
allowed the State legislature to make rules, it did not create a scope for legislation 
at the state level.215 Consequently, it was held that the amendment to the Bihar 
Act was without jurisdiction. In Hingir-Rampur (supra) and M A Tulloch (supra), 
it was held that the whole field of conservation and development of minerals was 
covered by the MMDR Act. In Baijnath Kedia (supra), it was held that the field 
of minor minerals was covered by the central legislation, thereby depriving the 
state legislation of its plenary legislative power under Entry 23 of List II to that 
extent. 
152. The Solicitor General has relied on the above decisions to submit that the 
consequence of the whole of the legislative field being occupied by Parliament 
under the MMDR Act is that the state legislatures possess only such powers as 
are expressly conferred on them by Parliament. The propositions put forth by the 
Solicitor General can be encapsulated as follows: 
a. Hingir-Rampur (supra) shows that the subject-matter of statutory levies 
pertaining to minerals is covered by the legislative declaration. Although 
 
215 Baijnath Kedia (supra) [21]

Source PDF page 98

Open this page in the original PDF
PART G  
 98 
the MMDR Act does not contain a provision similar to Section 6 of the 
MMRD Act 1948, it provides for statutory levies such as royalty and 
dead-rent. Thus, Parliament has covered the subject-matter of statutory 
levies relating to mineral rights and the state legislature has no power to 
impose a levy in the form of taxes on mineral rights under Entry 50 of 
List II; 
b. M A Tulloch (supra) held that a Parliamentary legislation enacted under 
Entry 54 of List I also impact s the independent legislative powers of 
States with respect to Entry 66 of List II. This reasoning will be applicable 
to Entry 50 of List II with greater force, more so, because this entry is 
expressly subject to any law made by Parliament relating to miner al 
development; and 
c. In Baijnath Kedia (supra) there were no express provisions under the 
MMDR Act limiting the state legislature from enacting legislation relating 
to leases of minor minerals, but this Court held that such a limitation was 
implied. Similarly, the P arliamentary law, the MMDR Act, impliedly 
excludes the legislative competence of the state with respect to Entry 50 
of List II.  
153. The above arguments will be dealt with in the ensuing segment relating to the 
interpretation of Entry 50 of List II.  
iii. Examination of the “extent” of the MMDR Act 
154. The respondents submit that the MMDR Act is a complete code and occupies 
the entire field relating to regulation of mines and mineral development, leaving 
nothing for the state legislatur e under Entry 23 of List II. It was also submitted

Source PDF page 99

Open this page in the original PDF
PART G  
 99 
that the scope of the MMDR Act and the rules made under it has to be given an 
exhaustive interpretation because they were enacted in the “public interest.” The 
Solicitor General recounted the following public interest considerations 
underpinning the MMDR Act:  (i) provision of national legal landscape for 
protection, exploration, and extraction of minerals; (ii) usher ing a uniform 
structure of regulation and development of minerals; and (iii) ensuring sustained 
development of the mineral sector at the national level to ensure availability of 
domestic minerals to industries. 
155. The MMDR Act and the Mineral Concession Rules 1960 comprise of a complete 
code, containing exhaustive provisions in respect of the grant and renewal of 
prospecting licenses and mining leases in lands belonging to government as well 
as lands belonging to private persons.
216 Section 2 of the MMDR Act declares  
that the Union is acting in public interest to take under its control the regulation 
of mines and development of minerals to the extent provided. In State of Tamil 
Nadu v. Hind Stone ,217 the Court observed that “[t]he public interest which 
induced Parliament to make the declaration contained in Section 2 of the Mines 
and Minerals (Regulation and Development) Act, 1957, has naturally to be the 
paramount consideration in all matters concerning the regulation of mines and 
the development of minerals.” 
156. In Bharat Coking Coal Ltd.  v. State of Bihar,
218 the issue before a two judge 
Bench was whether the State Government had legal authority to execute leases 
in favor of the respondents for collection of slurry on payment of royalty. This 
Court held that the state legislature lacked authority in law to regulate the 
 
216 State of Assam v. Om Prakash Mehta, (1973) 1 SCC 584 [12];  
217 (1981) 2 SCC 205 [6] 
218 (1990) 4 SCC 557

Source PDF page 100

Open this page in the original PDF
PART G  
 100 
disposal of slurry. Section 18 of the MMDR Act was held to cover the field of the 
disposal of waste of a mine (including coal slurry), thereby denuding the 
legislative power of the state legislature with respect to that subject matter. It was 
further held that once the state legislature’s power under Entry 23 of List II is 
denuded, the State Government ceases to have any executive authority in the 
matter relating to the regulation of mines and mineral development in view of 
Article 162 of the Constitution.
219 Thus, both the legislative and the executive 
powers of the State were held to be taken away to the extent to which the MMDR 
Act cover ed the subject matter dealing with regulation of mines and mineral 
development.220  
157. This Court has to give credence to the public interest considerations  
underpinning the MMDR Act while interpreting its scope and ambit. The 
expression “public interest” occurring in both Entry 54 of List I and Section 2 of 
the MMDR Act indicates that the provisions of the legislation do not merely cover 
the interests of private individuals (such as owners of private property or holders 
of mining leases)  relating to the regulation of mines and mineral development. 
The public interest underpinning the MMDR Act synonymizes with the collective 
welfare of the people and is informed by the dictates of the public trust 
doctrine.
221 At the same time, the underlying public interest has to be construed 
in view of the entire legislative scheme, purpose, and object of the enactment.222  
 
219 Article 162, Constitution of India. [It reads: 
162. Extent of executive power of State – Subject to the provision of this Constitution, the executive power of a 
State shall extend to the matters with respect to which the Legislature of the State has power to make laws: 
Provided that in any matter with respect to which the Legislature of a State and Parliament have power to make 
laws, the executive power of the State shall be subject to, and limited by, the executive power expressly conferred 
by this Constitution or by any law made by Parliament upon the Union or authorities thereof.”]  
220 Sandur Manganese & Iron Ores Ltd v. State of Karnataka, (2010) 13 SCC 1 [39] 
221 Sayyed Ratanbhai Sayeed v. Shirdi Nagar Panchayat, (2016) 4 SCC 631 
222 Meerut Development Authority v. Association of Management Studies, (2009) 6 SCC 171 [67]

Source PDF page 101

Open this page in the original PDF
PART G  
 101 
158. The latter part of Entry 23 of List II makes the entry “subject to the provisions of 
List I with respect to regulation and development under the control of the Union.” 
Entry 54 of List I provide that Parliament can regulate mines and miner al 
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 text of Entry 54 of List I  indicates that besides declaring that it is 
taking under its control any subject relating to the regulation of mines and mineral 
development, Parliament has to specify the extent to which the P arliamentary 
regulation is deemed expedient in the public interest . The legislative domain of 
the States under Ent ry 23 of List II is excluded  only to the extent of the field 
covered by the provisions of the MMDR Act. The expression “to the extent 
provided” refers to the subject matter or fields covered by the Parliamentary 
legislation.  
159. During the proceedings of the Constituent Assembly pertaining to present Entry 
23 of List II , Mr Brajeshwar Prasad moved a motion to move the entire field of 
“regulation of mines and mineral development” under the Union List. He 
reasoned that mines constitute a vital subject and should remain a subject under 
the Union List.
223 Consequently, a motion was moved to transfer Entry 23 of List 
II (which was draft Entry 28 of List II  then) to the Union List. However, the 
amendment was negatived by the Assembly. 224 This indicates that the 
Constituent Assembly deemed it necessary that state legislatures must also have 
 
223 Constituent Assembly Debates, Volume IX, 898 (31st August 1949). [Mr. Brajeshwar Prasad explained his aim 
in introducing the motion in the following words: “My whole aim in moving this amendment is to make redundant 
entry 28, of List II. I am clear in my own mind that Mines constitute a vital subject as important as Defence, Foreign 
Affairs and Communications. I am of opinion that if the system of defence is going to be organized on sound line 
then Mines must remain a Central subject. I do not  want to give the Provinces the power even to “regulate mines 
and oil fields and mineral development subject to the provisions of List I” as has been provided for in entry 28 of 
List II.”] 
224 Constituent Assembly Debates, Volume IX, 898 (2nd September 1949)

Source PDF page 102

Open this page in the original PDF
PART G  
 102 
necessary legislative powers with respect to the regulation of mines and mineral 
development. The legislative field of the states would stand abstracted once 
Parliament makes a declaration evincing an intent to takeover the regulation and 
development of mines and specifies the extent to which control of the field by the 
Union is deemed to be in the public interest.   
160. The requirement of a legal declaration under Entry 54 of List I serves twofold 
purposes: first, it enables a clear demarcation of the subject matter under the 
control of Parliament and determines the extent of such control; and second, it 
enshrines the precept of the rule of law where the basis for trenching upon the 
legislative powers of the State has to be found in a law made by Parliament. The 
Parliamentary enactment through which legislative control is being assumed  by 
the Union, to the exclusion of sta te legislatures, cannot be abstract, vague, and 
general. While Parliament has the power to denude the field given to the states 
under Entry 23 of List II by making a declaration in the law which it enacts 
pursuant to the field reserved by Entry 54 of List I, the law enacted by Parliament 
must specify the field of regulation and development which it has taken over, and 
the extent to which the control of the Union is deemed to be in the public interest.   
161. The use of the expression “to the extent” under Entry 54 of List I carries the 
consequence that the Parliamentary legislation has to specify the subject matter 
or field over which it seeks to legislate. In M A Tulloch (supra), this Court held 
that the intention of the legislation to occupy a particular subject matter has to be 
gathered from the words of the provisions.
225 As a consequence, the coverage 
of the fields by Parliament has to be express. The ambit of the MMDR Act has to 
 
225 M A Tulloch (supra) [14]. [It reads: “14. […] In the present case, having regard to the terms of Section 18(1) it 
appears clear to us that the intention of Parliament was to cover the entire field and thus to leave no scope for the 
argument that until the rules were framed, there was no inconsistency and no supersession, of the State Act.”]

Source PDF page 103

Open this page in the original PDF
PART G  
 103 
be determined from the express words used in the provisions and not by mere 
implications or inference. This legal principle has already been accepted by this 
Court.226 
162. In Ishwari Khetan  Sugar Mills  v. State of Uttar Pradesh ,227 a Constitution 
Bench was called upon to interpret the ambit of Entry 52 of List I and Entry 24 of 
List II. The Industries (Development and Regulation) Act 1951228 was enacted by 
Parliament to assume control over specified industries in pursuance of Entry 52 
of List I. Section 2 of the IDR Act contained the legislative declaration to the effect 
that the Union shall take under its control the industries specified in Schedule I. 
The majority, speaking through Justice D A Desai, observed that the legislative 
declaration under the IDR Act has the effect of denying the legislative powers to 
the state legislature under Entry 24 of List II.
229 Therefore, it was held that the 
legislative declaration contained under Section 2 of the IDR Act has to be 
construed strictly. The Court held that the legislative competence of state 
legislature would be eroded only to the extent to which control was assumed by 
the Union in terms of the legislative declaration under the IDR Act. A legislative 
declaration which has the impact of denuding or depriving the legislative power 
of the state legislature has to be construed strictly. 
163. The inter-relationship between Entry 54 of List I and Entry 23 of List II can  be 
formulated as follows:  
(i)  The state legislatures possess plenary legislative power in respect of 
regulation of mines and mineral development under Entry 23 of List II;
 
226 Ishwari Khetan Sugar Mills v. State of Uttar Pradesh, (1980) 4 SCC 136; Rajasthan Roller Flour Mills Association 
v. State of Rajasthan, 1994 Supp (1) SCC 413 [14] 
227 (1980) 4 SCC 136 
228 “IDR Act” 
229 Ishwari Khetan Sugar Mills (supra) [11]

Source PDF page 104

Open this page in the original PDF
PART H  
104 
 
(ii) Entry 23 of List II is, however, subject to the operation of Entry 54 of 
List I;  
(ii)  The field under Entry 23 of List II is subordinated to the extent to which 
Parliament has brought under its control the regulation of mines and 
development of minerals under the MMDR Act;  
(iii)  The expression of the legislative intention to cover a particular field 
relating to mines and mineral development excludes or denudes the 
legislative powers of the State with respect to that particular field; and  
(iv)  Parliamentary intention to cover a particular field relating to the 
regulation of mines and mineral development and the extent to which 
control of the Union is regarded to be in the public interest has to be 
ascertained from the language of the statute.  
Keeping these principles in mind, we now move on to analyzing the inter -
relationship between Entry 54 of List I and Entry 50 of List II. 
H. Inter-relationship between Entry 50 of List II and Entry 54 of List I 
164. The respondents contend that the legislative declaration contained under 
Section 2 along with the other provisions of the MMDR Act serves as a “limitation” 
on the legislative powers of  state legislatures to tax minerals under Entry 50 of 
List II. The main thrust of the argument of the respondents is that anything 
encompassed in a “law relating to mineral development” serves as a limitation 
on the field of taxation under Entry 50 of List II. Moreover, it was submitted that 
the MMDR Act leaves no legislative room for the state legislature in respect of 
the subject matter of mines and mineral development, including taxes on mineral 
rights. On the contrary, the petitioners submit that the MMDR Act can only have

Source PDF page 105

Open this page in the original PDF
PART H  
105 
 
the effect of abstracting the State’s legislative field with respect to Entry 23 of List 
II. It was further contended that the MMDR Act does not contain any provision 
limiting the field of the states with respect to the taxation of mineral rights. 
165. To recap, Entry 50 of List II reads thus:  
“Taxes on mineral rights subject to any limitations 
imposed by Parliament by law relating to mineral 
development.”  
Entry 50 of List II has two elements: (i) the legislative field governing taxes on 
mineral rights is given exclusively to the states; (ii) the field given to the states is 
subject to any limitations imposed by Parliament by law relating to mineral 
development.  Entry 50 of List II is a taxing entry. The limitations on the field 
created by Entry 50 of List II is however, contemplated to be created by a law 
which relates to mineral development. The legislative competence of Parliament 
to enact a “law relating to mineral development” can be traced to Entry 54 of List 
I, which is a general entry. Therefore, the taxing powers of the state with respect 
to mineral rights under Entry 50 of List II can  be restricted by Parliament by  its 
regulatory power under Entry 54 of List I.  
166. To delve into the inter-relationship between Entry 54 of List I and Entry 50 of List 
II, we have to primarily address the following questions: (i) what is a tax on 
mineral rights; (ii) whether Entry 50 of List II is an exception to the general rule 
laid down in M  P V Sundararamier (supra); (iii) what is the nature of the 
limitations envisaged by the Constitution on the taxing powers of the state; and 
(iv) whether the MMDR Act imposes limitations on the taxing powers of the  state.

Source PDF page 106

Open this page in the original PDF
PART H  
106 
 
i. Taxes on mineral rights 
a. Mineral rights duty 
167. The expression “taxes on mineral rights” was originally used in the GOI Act 1935. 
The Constitution uses a  similar expression. Therefore, it is important to 
understand the context in which the term “taxes on mineral rights” (in its myriad 
forms) came to occupy the discourse. 
168. Under the law in England, landlords would receive royalties for exercising their 
mineral rights or assigning them to other persons or lessees.230 However, in the 
latter part of the nineteenth century and the early  twentieth century, it was 
recognized that landlords received the benefits of royalty often at the cost of the 
welfare of the miners. The Royal Commission on Mining Royalties narrated in its 
report of 1893 that: 
“[W]itnesses examined on behalf of the working 
miners expressed  the opinion that royalties and 
wayleaves, where fixed in amount, are often so high 
that in depressed times, when coal falls greatly in 
price, the royalty owner continues to receive his full 
royalty, whilst the miner suffers from a reduction in 
wages, or a closing of mines; their efforts to aver t 
any reduction sometimes taking the form of a 
strike.”
231 
To counter the appropriation of royalties by landowners, the lawmakers decided 
to levy tax on royalties received by them 232 with a view to  increase revenue 
generation and enhance the welfare measures for miners.233  
 
230 Lloyd George, ‘The Budget, The Land and The People: The New Land Value Taxes Explained and Illustrated’ 
(2nd edn, 1909) 48.  
231 Royal Commission on Mining Royalties, Final Report of the Royal Commission appointed to inquire into the 
subject of mining royalties (1893) 14. 
232 Lloyd George (n 230) 51 
233 Mr. Lloyd George (Hansard, Volume 11) 28 September 1909

Source PDF page 107

Open this page in the original PDF
PART H  
 107 
169. The Parliament in England imposed a mineral rights duty by Finance Act 1910. 
Section 20 imposed a duty “on the rental value of all rights to work minerals and 
of all mineral way leaves” at the rate of “one shilling for every twenty shillings of 
that rental value.” The rental value was calculated in the following manner: (i) 
where the right to work the minerals was the subject of a mining lease, the 
amount of rent paid in the last working year; (ii) where minerals were being 
worked by the proprietor, an amount fixed by the Commissioners of Inland 
Revenue as equivalent to rent; and (iii) in case of mineral wayleave, the amount 
of rent paid by the worki ng lessee in the last working year.  Lloyd George, the 
Chancellor of the Exchequer, stated while introducing the legislative proposal  
that the duty on mineral rights impose d “tax upon royalties and way -leaves 
actually received by the owners of those rights.”
234 The Chancellor further 
clarified that the mineral rights duty was introduced as part of taxes on land.235 It 
was in this context that the concept of taxes on mineral rights was introduced in 
England and was later entrenched in the colonial regime by the GOI Act 1935.  
b. Meaning of the expression “mineral rights” 
170. The Constitution does not define “mineral rights”. The expression has not been 
defined in the MMDR Act or the rules framed under  it. Though the expression  
“mineral rights” is used in Entry 50 of List II, it does not find mention in any of the 
other related legislative entries – Entry 54 of List I and Entry 23 of List II. The 
expression has to be given its ordinary and natural meaning by adopting an 
interpretative approach which eschews rigidity.  Mineral rights are inextricably 
 
234 Hansard, Volume 11, 22 September 1909 
235 Hansard, Volume 35, 5 March 1912

Source PDF page 108

Open this page in the original PDF
PART H  
 108 
connected to property. Any understanding of “mineral rights” must be prefaced 
on an understanding of the basics of property law. 
171. In a regime  of private property, the rules governing access to and control of 
resources are organized around the idea that resources are on the whole 
separate objects belonging to particular individual s.236 These resources can 
comprise of immovable and movable property, both corporeal and incorporeal. 
In a social order based on private property, an owner’s decision of the manner in 
which they put the resource to use is generally upheld by society as final. 237 A 
person who owns a resource has the right to determine its use. The ownership 
of a resource also precludes the claims  of other persons or individuals with 
respect to that particular resource.238  
172. In the context of land, it is well-established that the ownership of land includes 
the ownership of underlying minerals, unless the right to mineral s has been 
expressly reserved by law .239 Therefore, an owner of land has rights to the 
surface of the land and to sub -soil resources.240 Surface rights are rights to the 
surface of the land and include the right to use land, construct buildings, install 
machinery and equipment, and plant trees or dig well s. Surface rights can also 
be sold or transferred to another person. The right to minerals entails the right to 
monetize mineral resources by either consuming them or selling them to third 
parties. The right to minerals emanates from the concept of the ownership of 
property.  
 
236 Jeremy Waldron, ‘What is Private Property?’ (1985) 5(3) Oxford Journal of Legal Studies 313, 327. 
237 Ibid, 327. 
238 James Y Stern, ‘The Essential Structure of Property Law’ (2017) 115(7) Michigan Law Review 1167, 1176. 
239 Thressiamma Jacob v. Geologist, Department of Mining & Geology, (2013) 9 SCC 725 
240 State of West Bengal v. Union of India, (1964) 1 SCR 371 [18]

Source PDF page 109

Open this page in the original PDF
PART H  
 109 
173. Counsel have drawn attention to dictionary meanings attributed to “mineral 
rights”. Black’s Law Dictionary defines “mineral right” as “an interest in minerals 
in land, with or without ownership of the surface of the land ; a right to take 
minerals or a right to receive royalty.”241  
174. Corpus Juris Secundum defines the term “mineral right” as follows: 
“It is the right or title to all, or to certain specified, 
minerals in a given tract. It is a broader term and is 
more inclusive than the term “oil and gas”, and it has 
been held that, in the light of the surrounding facts 
and circumstances under which it is used, it may not 
be necessarily include the right to oil and gas.”
242 
175. In Pennsylvania Coal Co. v. Mahon,243 the US Supreme Court observed that 
the right to coal consists of the right to mine it.  Entry 50 of List II uses t he 
expression “mineral rights” in the plural. It hence envisages a bundle of rights 
associated with the ownership of minerals.  The owner of minerals may transfer 
the rights to the minerals to another person. Once transferred, the lessee stands 
in the shoes of the owner/ lessor by acquiring his  interest in the minerals , 
according to the terms and conditions of the agreement. Usually, the right to mine 
includes two related activities: (i) excavation of minerals; and (ii) removal or 
consumption of the extracted minerals. The process of excavati ng minerals 
generally entails the right to enter upon and occupy the land for the purpose of 
working the mines to extract minerals. The removal or consumption of minerals 
allows the lessee to monetize the extracted minerals. 
176. The meaning of the expression “mineral rights” has been discussed in a few 
judicial decisions in India.  In a decision of the Calcutta High Court rendered in 
 
241 Black’s Law Dictionary (6th edn,1990) 995 
242 Corpus Juris Secundum (Volume 58) 15 
243 260 US 393 (1922)

Source PDF page 110

Open this page in the original PDF
PART H  
 110 
1905, it was held that grant of mineral rights “must be taken to carry as incident 
to it the power not only to go upon the land and work the minerals known to be 
underground but to go to the land and conduct the ordinary preliminary 
operations by boring or otherwise to ascertain (when it is not known) if there are 
minerals underground.”
244 In Tata Chemicals Ltd . v. State of Gujarat, 245 the 
Gujarat Mineral Rights Tax Act 1985 imposed a tax on the mineral rights of 
holders of mining leases in respect of minerals specified in the Schedule. 246 A 
Division Bench of the Gujarat High Court, speaking through Justice A M Ahmadi 
(as the learned Chief Justice then was) repelled the challenge to  the validity of 
the legislation. The Court drew a distinction between mining rights and mineral 
rights thus: 
“51. [a] mining right is a right to enter upon and 
occupy land for the purpose of working it with a view 
to obtaining the minerals deposited therein whereas 
a mineral right is a right or title to all or to certain 
specified minerals in a given tract. It is, therefore, 
clear that a person having a mining right is entitled 
to work the mine with a view to winning the minerals 
deposited therein but unless he is give n a right to 
remove or consume the mineral, he cannot do so. It 
is the latter right which is known as the mineral right 
which the impugned legislation seeks to tax.” 
The Gujarat High Court held that a mining right is a right to enter upon and 
occupy land for the purpose of working. A mineral right is a right or title to certain 
specified minerals in a given tract. Therefore, the High Court followed the  
 
244 Kumar Ramessur Malia v. Ram Nath Bhattacharjee, 1905 SCC OnLine Cal 55 
245 1988 SCC OnLine Guj 13 
246 Section 3, Gujarat Mineral Rights Tax Act 1985. Section 3 reads: “On and from the commencement of this Act, 
there shall be levied and collected a tax on mineral rights at such rates not exceeding the maximum specified in 
Column 2 of the Schedule against minerals specified in column 1 of that Schedule as the State Government may, 
from time to time by notification in the Official gazette, fix.”

Source PDF page 111

Open this page in the original PDF
PART H  
 111 
principle that a lessee acquires mineral rights if the lessor grants them the 
permission to remove minerals from the leased area. 
177. In his dissenting opinion in Kesoram (supra), Justice S B Sinha sought to draw 
a distinction between “minerals” and “mineral rights” by observing that mineral 
rights “cannot be construed as mineral already extracted as contradistinguished 
from being capable of extraction or otherwise in a state or form when embedded 
in the earth.”
247 The learned Judge observed that when a mineral is extracted, it 
may be a culmination of the right to deal in the mineral but the mineral rights 
would not include a right to dispatch extracted minerals. Justice Sinha observed 
that the right to receive royalty is also a mineral right. According to him mineral 
rights extend till the extraction of minerals from the earth and do not include the 
right to dispatch the extracted minerals.  There is a fallacy in Justice Sinha’s 
observations. Statutorily, royalty is a consideration by the lessee to the lessor for 
winning the minerals and removing them from the leased area.  Section 9 of 
MMDR Act imposes royalty on removal or consumption of minerals by lessee.  
Royalty, is paid on dispatch of minerals. Thus, mineral rights do  not culminate 
with the extraction of minerals, but include the right to dispatch the extracted 
minerals as well.  
178. The Constitution is a living organic document and must be interpreted in that 
spirit.
248  Enumerated legislative powers ought to be interpreted with a wide and 
liberal spirit to ensure that the legislatures have the requisite authority to legislate 
and to allow the executive to govern. The expression “mineral rights” must be 
construed in this spirit to ensure that the taxing powers of the State under Entry 
 
247 Kesoram (supra) [400] 
248 Saurabh Chaudri v. Union of India, (2003) 11 SCC 146 [71]; Navtej Singh Johar v. Union of India, (2018) 10 
SCC 1 [95].

Source PDF page 112

Open this page in the original PDF
PART H  
 112 
50 of List II are not unnecessarily curtailed. The natural meaning of the 
expression “mineral rights” will include t he entire bundle of  rights that follow 
ownership of minerals , including rights which  can be transferred to a lessee 
through a mining lease. These rights will include the right to extract minerals  by 
working the mines, winning the minerals, and monetizing the minerals obtained 
by removing or consuming them. 
179. The breadth and scope of mineral rights has also been recognized under the 
MMDR Act. In a situation where the minerals vest with the State by operation of 
law, the right to those minerals also vests with the State. However, the State can 
assign or transfer its mineral rights by way of a mining lease to a lessee. This 
has been contemplated by the Mineral Concession Rules read with Form K. In 
Part I of Form K, the Government grants its mineral rights to the lessee, including 
liberties, powers, and privileges. However, it is important to note that the lessee 
is only granted rights in the minerals  specified in Part I of Form K. The 
Government can reserve to itself the right to work the other minerals found in the 
same demised land or to grant a lease to a separate person to work and remove 
these other minerals.249 Part II of Form K of the Mineral Concession Rules 1960 
enumerates the liberties, powers, and privileges of the lessee. It provides that 
the lessee has the liberty and power at all times during the term of demise to 
enter upon the land demised and search, mine, bore, dig, drill, win, work, dress, 
 
249 Part IV, Form K, Mineral Concession Rules 1960.  [“1. Liberty and power for the State Government, or to any 
lessee or persons authorized by it in that behalf to enter into and upon the said lands and to search for, win, work, 
dig, get, raise, dress, process, convert and carry away minerals other than the said  minerals and any other 
substances and for those purposes to sink, drive, make, erect, construct, maintain and use such pits, shafts, 
inclines, drifts, levels and other lines, waterways, airways, water  courses, drains, reservoirs, engines, machinery, 
plant, buildings, canals, tramways, railways, roadways, and other works and conveniences as may be deemed 
necessary or convenient. 
Provided that in the exercise of such liberty and power no substantial hindrance or interference shall be caused to 
or with the liberties, powers and privileges of the lessee/lessees under these presents and that fair compensation 
(as may be mutually agree d upon or in the event of disagreement as may be decided by the State Government) 
shall be made to the lessee/ lessees for all loss or damage sustained by the lessee/ lessees by reason or in 
consequence of the exercise of such liberty and power.”]

Source PDF page 113

Open this page in the original PDF
PART H  
 113 
process, convert, carry away, and dispose of the minerals. Part II of Form K 
further provides that a lessee has liberty and power to use the demised land to 
sink pits,
250 use machinery equipment 251 construct buildings, roadways, and 
railways,252 to beneficiate any ore produced from the lands and carry away such 
beneficiated ore,253 and clear undergrowth and brushwood and utilize any trees 
or timber standing or found on the demised lands.  
180. Having explained the scope of the expression “mineral rights”, the next issue 
pertains to the scope and ambit of “taxes on mineral rights.” 
c. Taxes on mineral rights  
181. The respondents have contended that the meaning of the term “taxes on mineral 
rights” must be derived from the related entries in List II, namely Entries 45 and 
49. It was contended that since the incidence of the tax imposed in light of Entries 
45 and 49 is on the owner of land, the incidence of tax on mineral rights is also 
on the owner of land, that is the private lessor. On the contrary, the petitioners 
have refuted the respondent’s submission on the ground that the tax under Entry 
50 of List II can als o be applied with respect to lessees who hold the land or 
building on lease from the Government. 
182. Conceptually, a tax has four elements – (i) the nature of the tax which prescribes 
the taxable event attracting the levy ; (ii) the person who is liable to pay tax ; (iii) 
the rate at which the tax is paid; and (iv) the measure or value to which the rate 
will be applied for computing the liability.
254  
 
250 Form K, Part II, Rule 2, Mineral Concession Rules 1960 
251 Rule 3, Mineral Concession Rules 1960 
252 Rule 4, Mineral Concession Rules 1960 
253 Rule 8(a), Mineral Concession Rules 1960 
254 Govind Saran Ganga Saran v. CST, 1985 Supp SCC 205 [6]; Mathuram Agrawal v. State of M P , (1999) 8 SCC 
667 [12]; Union of India v. Mohit Minerals (P) Ltd., (2022) 10 SCC 700 [97]

Source PDF page 114

Open this page in the original PDF
PART H  
 114 
183. The subject matter of taxation has been exhaustively enunciated in the Union  
and State Lists in the Seventh Schedule of the Constitution. 255 The occurrence 
of the taxable event creates or attracts the liability to tax. 256 For example, In re 
Sea Customs Act, S.20(2),257 this Court held that in the case of excise duties, 
the taxable event is the manufacture of goods and the duty is not directly on the 
goods but the manufacture thereof. Thus, the activity of the manufacture of 
goods attracts the liability for the levy of excise duties.  
184. The incidence of taxation pertains to the manner in which the burden of tax would 
fall on a person. 258 The incidence of tax was exemplified by the decision of this 
Court in State of Karnataka v. Drive-In Enterprise.259 While dealing with the 
validity of an entertainment tax imposed by the State of Karnataka, it was held 
that since an entertainment necessarily requires a   person who is entertained, 
the incidence of the tax is on the persons entertained. Th e incidence of tax is 
relatable to the person who bears the ultimate burden of the tax.  
185. The subject matter of Entry 50 of List II is “taxes on mineral rights.” As discussed 
in the above segment, ‘ mineral rights ’ is a comprehensive term to mean the 
bundle of rights with respect to minerals . The taxable event under Entry 50 of 
List II would relate to the exercise of mineral rights. 
186. In his dissenting opinion in Hingir -Rampur (supra), Justice Wanchoo observed 
that taxes on mineral rights would mean taxes on the right to extract minerals 
and not taxes on the minerals actually extracted. He opined that a tax on mineral 
rights would be confined, for example, to taxes on leases of mineral rights and 
 
255 Chhotabhai Jethabhai Patel and Co. v. Union of India, 1962 Supp (2) SCR 1 [68] 
256 Goodyear India Ltd. v. State of Haryana, (1990) 2 SCC 71 
257 (1964) 3 SCR 787 [23] 
258 Godfrey Phillips India Ltd v. State of UP , (2005) 2 SCC 515 [47] 
259 (2001) 4 SCC 60 [13]

Source PDF page 115

Open this page in the original PDF
PART H  
 115 
on premium or royalty for that. In the process, Justice Wanchoo differentiate d 
between taxes on minerals produced and taxes on mineral rights . According to 
this view, the process of working mines to extract minerals has to necessarily 
precede the production of minerals. The process of working mines, according to 
the learned Judge, attracts liability under “taxes on mineral rights”, while taxes 
on minerals extracted form part of taxes on goods produced,  in the nature of 
duties of excise. 
187. The working of a mine can be undertaken either by the owner or by another to 
whom the right to work the mine has been granted by a mining lease. In the latter 
case, the lessee has to pay royalty to the lessor as a consideration for removing 
or consuming the minerals from the leased area. The right to receive royalty is 
an integral part of the mineral rights of the lessor. However, as discussed in the 
segments above, royalty is not a tax. Therefore, royalty would not be 
comprehended within the meaning of the expression “taxes on mineral rights.” 
The scope of  taxes on mineral rights includes  taxes on the right to extract 
minerals. Taxes on mineral rights also take within their fold other aspects relating 
to the exercise of mineral rights such as working  the mines and dispatching 
minerals from the leased area. However, the legislature has to ensure that the 
exercise of the taxing powers relatable to the field under Entry 50 of List II does 
not foray into a duty of excise or a tax on the sale of minerals.  
188. The taxable event with respect to taxes on mineral rights will be the exercise of 
mineral rights. The incidence of the tax on mineral rights depends upon who is 
exercising the right. We do not agree with the respondents that the incidence of 
a tax on mineral rights would necessarily have to be on the owner of the land. A 
tax under Entry 49 of List II is not only levied on the owner of the land, but also

Source PDF page 116

Open this page in the original PDF
PART H  
 116 
an occupier.260 Similarly, a tax on mineral rights could be levied on any person 
who has an interest in the minerals.  
189. The measure of tax is a matter of legislative policy. The legislature can select any 
measure of tax to compute liability, as long as it has a reasonable nexus with the 
nature of the tax. Hence, it is for the legislature to devise an appropriate measure 
of tax to compute the tax liability , provided the measure has a nexus with the 
nature of levy, that is a tax on mineral rights. 
ii. The limitations on the tax ing power of the State under Entry 50 of 
List II 
190. Entry 50 of List II is unique because though it is a taxing entry, it is made subject 
to “any limitations imposed by Parliament by law relating to mineral 
development.” Thus, the taxing power of the state is capable of being controlled 
by a non-fiscal enactment by Parliament relating to the development of minerals. 
This seems to recognize that a fiscal imposition in the nature of a tax on mineral 
rights by a state may impact on the development of minerals. That is why the 
former has been made subject to a law relatable to mineral development enacted 
by Parliament.    
191. The common thread between Entry 54 of List I and Entries 23 and 50 of List II is 
the use of the phrase “mineral development”. Entry 54 of List I and Entry 23 of 
List II deal with the same subject matter  namely, of the regulation of mines and 
mineral development, where the latter is subordinated to the former to the extent 
to which Parliament brings the field under its control. In the above segments, we 
have analyzed the decisions of this Court in Hingir-Rampur (supra), MA Tulloch 
 
260 See Anant Mills Co. Ltd. v. State of Gujarat (1975) 2 SCC 175

Source PDF page 117

Open this page in the original PDF
PART H  
 117 
(supra), and Baijnath Kedia (supra) where it was held that Entry 23 of List II is 
pro tanto excluded to the extent to which the P arliamentary legislation enacted 
in terms of Entry 54 of List I covers the field.  
a. Entry 50 of List II does not constitute an exception to  the 
Sundararamier principle 
192. The position  which was enunciated  in M P V Sundararamier (supra) and 
accepted in Jindal Stainless Ltd (supra) is that the field of taxation is   distinct  
from the general subjects of legislation in the Union and State lists of the Seventh 
Schedule. The issue which needs to be addressed is whether Entry 50 of List II 
is an exception to the position which has been laid down in M P V 
Sundararamier (supra) in view of the fact that the ambit of a taxing entry is 
sought to be restricted by a regulatory entry.  A related issue is whether 
Parliament has the legislative competence to tax mineral rights under its 
residuary powers. 
193. The decision in Hoechst Pharmaceuticals (supra) interpreted the relationship 
between Entry 54 of List II and Entry 92A of List I. Entry 54 of List II, before 
amendment, was subject to the provisions of Entry 92A of List I.
261 The entry was 
substituted by the Constitution (One Hundred and First Amendment) Act 2016. 
The Bihar Finance Act 1981 lev ied a surcharge on dealers . The law was made 
pursuant to the field of legislation in Entry 54 of List II. The Act prohibited dealers 
from collecting surcharge. It was contended that the prohibition on  dealers 
recovering the surcharge was inconsistent with the Drug (Price Control) Order 
 
261 Entry 54 of List II, before substitution by the Constitution (One Hundred and First Amendment) Act 2016 read: 
“54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List 
I)

Source PDF page 118

Open this page in the original PDF
PART H  
 118 
1979 issued under the Essential Commodities Act , which allowed the 
manufacturer or producer of drugs to pass on the liability to pay sales tax. The 
Essential Commodities Act was enacted for the regulation, production, supply, 
distribution and pricing of essential commodities and is relatable to Entry 33 of 
List III.
262 One of the issues before this Court was whether the State power to tax 
the sale of goods under Entry 54 of List II could be encroached upon by a law 
made by Parliament with respect to one of the matters enumerated in List III. 
194. This Court referred to M P V Sundararamier (supra) to reiterate that: (i) taxation 
is considered to be a distinct matter for purposes of legislative competence; (ii) 
the power to tax cannot be deduc ed from a general legislative entry; (iii) the 
taxing powers of the Union and the States are mutually exclusive without any 
overlap; and (iv) this is also evident from the fact that there is no taxing entry in 
List III. The Court held that a law made by Parliament under a general entry, that 
is, Entry 33 of List III, cannot intrude into the plenary power of the state legislature 
to levy taxes on the sale or purchase of goods under Entry 54 of List II. Further, 
it was held that the 1981 Act and the Control Order operated  in separate and 
distinct fields without inconsistency or overlap.  
195. The decision in Hoechst Pharmaceuticals (supra) is an authority for the 
following legal propositions: (i) the principle of federal supremacy will not apply 
where there is no direct conflict between the legislative powers of Union and 
States; (ii) Parliament cannot acquire legislative competence with respect to 
subject matters of taxation enumerated under List II under the guise of regulatory 
 
262 Entry 33, List III, Seventh Schedule, Constitution of India. (It reads:  
[“33. Trade and commerce in, and the production, supply and distribution of –  
(a) the products of any industry where the control of such industry by the Union is declared by Parliament by 
law to be expedient in the public interest, and imported goods of the same kind as such products; […]” ]

Source PDF page 119

Open this page in the original PDF
PART H  
 119 
entries; and (iii) since taxing entries are mutually exclusive, the principle of 
federal supremacy is not generally applicable with respect to taxing entries under 
Lists I and II.  
196. Entry 54 of List I is a regulatory entry dealing with the regulation of mines and 
mineral development. The regulatory entries in Lists I and II of the Seventh 
Schedule are distinct from taxing entries. Though the power to levy taxes is an 
incident of sovereignty, it is subject to constitutional limitations. Giving an 
extended interpretation to general entries to include the power of taxation will 
grant arbitrary and unconstitutional authority to the Union and States. Since Entry 
54 of List I is a general entry, it will not include the power of taxation.  
197. The subject of Entry 54 of List I is “regulation of mines and mineral development”. 
In contrast, the subject of Entry 50 of List II is “taxes on mineral rights”. Each of 
these terms has a specific connotation. Whereas Entry 54 of List I encompass a 
broad subject matter covering the regulation of mines and mineral development, 
the taxing entry in Entry 50 of List II is confined to   mineral rights.  Entry 23 of 
List II also encompasses the “regulation of mines and mineral development” as 
a legislative field for the states. Since Entry 54 of List I also deals with the 
“regulation of mines and mineral development”, the states’ domain under Entry 
23 of List II is subject to the limitations created by Entry 54 of List I. Despite the 
positioning of Entry 23 in List II, the Constitution has specifically enumerated the 
taxing field with respect to mineral rights in Entry 50 of List II. Taxation of mineral 
rights is hence, traceable to Entry 50 of List II . If the framers had intended that 
the field of taxing mineral rights would be subsumed in the general entry covering 
the regulation of mines and mineral development, namely, E ntry 23 of List II, 
there would have been no reason to provide for a specific taxing entry on mineral

Source PDF page 120

Open this page in the original PDF
PART H  
 120 
rights in Entry 50 of List II. Therefore, just as the field of taxing mineral rights 
does not fall under Entry 23 of List II, it does not fall under Entry 54 of List I which 
uses similar language and is not a taxing entry. While the imposition of taxes on 
mineral rights is a field entrusted to the State legislatures in List II, it is subject to 
a law enacted by Parliament  on mineral development. While the imposition of 
taxes on mineral rights is a field exclusively  entrusted to the S tate legislatures 
(and not to Parliament) in the State List, Parliament can while making provisions 
in a law relating to mineral development make provisions which ensure that the 
exercise of the taxing power by the states does not adversely affect the 
development of minerals.  This power of Parliament to impose limitations or 
conditions which ensure that that the exercise of the taxing power of the states 
does not impede mineral development distinct from the power to tax mineral 
rights which is entrusted to the state legislatures.   
198. If Parliament has no legislative competence to tax mineral rights under Entry 54 
of List I, can it make use of its residuary powers to gain legislative competence? 
The answer has to be in in the negative. Article 246 exclusively empowers the 
state legislatures to make laws with respect to entries in List II, which includes 
taxes on mineral rights.  Article 248 provides that the residuary powers of 
Parliament shall include the power of making any law imposing a tax not 
mentioned in either the State List or Concurrent List. Under Entry 97 of List I 
Parliament can make a law with respect to any other matter not enumerated in 
List II or List III including any tax not mentioned in either of those Lists. 
199. During the debates in the Constituent Assembly, Dr. B R Ambedkar explained 
that the purpose of Entry 97 of List I is to include “anything not included in List II

Source PDF page 121

Open this page in the original PDF
PART H  
 121 
or List III.”263 In International Tourist Corporation v. State of Haryana,264 this 
Court held that it is necessary to establish the legislative incompetence of the 
State legislature before Parliament can claim exclusive legislative competence 
by resorting to the residuary power. A matter can be brought under Entry 97 only 
if it is not enumerated in List II or List III and in the case of a tax if it is not 
mentioned in List II. Importantly, it was also observed that the residuary powers 
of the Union cannot be interpreted so expansively as to whittle down the power 
of the State legislatures.  A subject can be brought under Entry 97 of List I only if 
it is not enumerated in either List II or List III.
265 
200.  In Province of Madras  v. Boddu Paidanna,266 Chief Justice Maurice Gwyer 
speaking for the Federal Court observed that “[i]t is natural enough, when 
considering the ambit of an express power in relation to an unspecified residuary 
power, to give a broad interpretation to the former at the expense of the latter.” 
The enumeration of taxes on mineral rights in  List II is a constitutional 
entrustment to the  states.  This Court is bound to abide by the constitutional 
distribution of legislative powers. The distribution also subserves  the principles 
of fiscal federalism.  
201. In Mahalaxmi Fabric Mills (supra),
267 the constitutional validity of Section 9(3) 
of the MMDR Act and a notification fixing new rates of royalty  was in question. 
The Central Government sought to increase the rate of royalty to compensate 
the state, which had suffered financial losses as a result of the invalidation of the 
cess imposed by it by the decision in India Cement (supra). The notification was 
 
263 Constituent Assembly Debates, Volume 9 (1 September 1949) 
264 (1981) 2 SCC 318 [6-A] 
265 See All India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527 [46] 
266 (1942) 4 FCR 90  
267 1995 Supp (1) SCC 642

Source PDF page 122

Open this page in the original PDF
PART H  
 122 
challenged before the High Court of Madhya Pradesh for excessively increasing 
the rates of royalty by 400 per cent to 2000 per cent as compared to the royalty 
fixed in 1981 on various varieties of coal. The High Court held that the notification 
was outside the purview of Section 9(3) of the MMDR Act. Against the decision 
of the High Court, appeals were filed before this Court. The main contention of 
the petitioners was that since royalty is a tax, as held in India Cement  (supra), 
Entry 54 of List I is a gen eral entry and did not empower Parliament to impose 
the tax. 
202. This Court held that once Parliament enacts a law under Entry 54 of List I and 
occupies the field in connection with the regulation of mines and mineral 
development, the state legislature will lose legislative competence with respect 
to both Entries 23 and 50 of List II. Further, it was observed that since royalty is 
a tax, the legislative competence of Parliament to enact Section 9 of the MMDR 
Act could be traced to both Entries 54 and 97 of List I.
268 
203. The decision in Mahalaxmi Fabric Mills (supra) was followed by a two  judge 
Bench in Saurashtra Cement  (supra).269 In State of Orissa  v. Mahanadi 
Coalfields Ltd., 270 a three judge Bench held that the MMDR Act has made 
exhaustive provisions for “all kinds of taxation on minerals and mineral rights – 
tax, royalty – fee – dead rent, etc.” which denudes the state legislature of the 
power to enact any law or to impose any tax or other levy with reference to Entry 
23 or Entry 50 of List II.  
204. As discussed in the above segments, the field of tax on mineral rights vests with 
the state legislature. Parliament cannot impose a tax on mineral rights under 
 
268 Mahalaxmi Fabric (supra) [14] 
269 (2001) 1 SCC 91 [11] 
270 1995 Supp (2) SCC 686.

Source PDF page 123

Open this page in the original PDF
PART H  
 123 
Entry 54 of List I. Parliament cannot resort to its residuary powers to tax mineral 
rights when the subject matter is specifically enumerated in Entry 50 of the State 
List. The fixation of the rates of royalty under Section 9 can be validly traced to 
Entry 54 of List I because royalty is not a tax.  The fixation of the rates of royalty 
falls with the regulatory powers of Parliament  under Entry 54 of List I . The 
decisions in Mahalaxmi Fabric Mills (supra), Saurashtra Cement (supra), and 
Mahanadi Coalfields (supra) do not reflect the correct position of law. 
205.  Entry 50 of List II is not an exception to the  Sundararamier principle which is 
that taxing entries are enumerated separately from  the general entries in Lists I 
and II of the Seventh Schedule.  The field of taxation cannot be derived from 
regulatory legislative entries and has to be derived from a specified taxing entry. 
This principle has now been well -entrenched in our constitutional 
jurisprudence.271 A legislature has incidental and subsidiary powers with respect 
to a legislative entry. However, the power to tax is neither incidental nor 
subsidiary to the power to legislate on a particular matter in the nature of a 
regulatory entry.
272 
206.  Entry 50 of List II  is subordinated only to the extent of any limitations that may 
be imposed by Parliament by law relating to mineral development.  Unless 
Parliament imposes a limitation, the plenary power of the state legislature to levy 
taxes on mineral rights is unaffected.  
207. The question of an overlap between the taxing entry and general entry does not 
arise because Parliament cannot impose taxes on minerals under Entry 54 of 
List I. There is no direct conflict between the tax ing powers of the States under 
 
271 Federation of Hotel & Restaurant Association of India v. Union of India, (1989) 3 SCC 634 [74] ; State of 
Karnataka v. State of Meghalaya, (2023) 4 SCC 416 [66] 
272 State of Mysore v. D Cawasji and Co, (1970) 3 SCC 710 [8]

Source PDF page 124

Open this page in the original PDF
PART H  
 124 
Entry 50 of List II and the regulatory powers of the Union. Resultantly, the 
principle of federal supremacy has no application in the instant case. Hence, 
while Entry 50 of List II is sui generis , it does not constitute an exception to  the 
position of law laid down in M P V Sundararamier (supra). 
b. Nature of “any limitation” 
208. Having established that the state legislature has exclusive power to enact laws 
relating to taxes on mineral rights  under Entry 50 of List II the next issue is to 
determine the nature of the limitations that Parliament can constitutionally 
impose on the exercise of the tax ing powers of the states . To recap, the latter 
part of Entry 50 of List II has three elements: (i) any limitations; (ii) imposed by 
Parliament by law; and (iii) relating to mineral development. As held in above 
segments, the element of “law relating to mineral development” can be traced to 
Entry 54 of List I. Parliament has enacted the MMDR Act in pursuance of Article 
246 read with Entry 54 of List I.  
209. In respect to the first element, the petitioners have argued that Parliament has 
not expressly imposed any limitation under the MMDR Act on the taxing powers 
of the state under Entry 50 of List II. On the contrary, the respondents argue that 
the overall scheme of the MMDR Act in itself constitutes a limitation on the taxing 
powers of the state under Entry 50 of List II.  
210. There is a significant distinction as regard the nature of the restraints imposable 
by Parliament  on the legislative field of the states  to regulate mines and the 
development of minerals, as contrasted with the Parliamentary restraints 
contemplated on the taxing power of the states over mineral rights. In relation to 
the former, this distinction emerges from the language of Entry 54 of List I and

Source PDF page 125

Open this page in the original PDF
PART H  
 125 
Entry 23 of List II. As regards the latter, the language of Entry 50 of List II needs 
analysis for this purpose. We will take up the regulatory power of the states over 
mines and mineral development under Entry 23 of List II . Entry 23 of List II is 
expressly subject to the provisions of List I with respect to regulation and 
development under the control of the Union. The expression “subject to” 
indicates that the Constitution subordinates Entry 23 of List II to the entries in List 
I with respect to regulation and development under the control of the Union. In 
other words , where there is an entry in List I relating to regulation and 
development under the control of the Union, Entry 23 of the State list has to yield 
to it. Entry 54 of List I is one such entry, which envisages the regulation of mines 
and mineral development. Entry 54 of List I is conditioned by three requirements 
– (i) a declaration by Parliament by law; (ii) envisaging that control of the Union 
is expedient in the public interest; and (iii) an indication by Parliament in the law 
of the extent of the control by the Union. Once these three conditions are fulfilled, 
the field for the states is abstracted away to the extent that is envisaged in the 
Parliamentary law. The relationship between Entry 2 3 of List II and Entry 54 of 
List I is that the latter result s in a denudation of the legislative field of the states 
to the extent envisaged by Parliament by law. The expression ‘extent’ leaves it 
entirely to Parliament to determine whether the extent of the control by the Union 
is to be total or partial. The denudation of the legislative field of the states follows 
such a declaration by Parliament and the extent would be determined by the 
provisions of the law (the MMDR Act) enacted by Parliament.  
211. We may now contrast this with Entry 50 of List II. Entry 50 of List II gives the 
legislative field of taxing mineral rights to the states. But while doing so, it makes 
it subject to limitations imposed by Parliament by law relating to mineral

Source PDF page 126

Open this page in the original PDF
PART H  
 126 
development. The words “subject to” appear in both Entry 23 and in Entry 50 of 
List II. They are words which indicate primacy of  Parliament. But in Entry 50 of 
List II, the Constitution envisages that the field of taxing mineral rights which is 
given to the states will be subject to (i) limitations; (ii) imposed by a law of 
Parliament relating to mineral development. The expression “regulation of mines” 
does not find place in Entry 50 of List II (as it does in Entry 23 of List II). Moreover, 
the law by Parliament relating to mineral development may impose limitations.  
Entry 50 of List II does not result in the field of taxing mineral rights being  
conferred on Parliament. This is clear also because there is no specific entry in 
List I giving the field of taxing mineral rights to the Union.  The field of taxing 
mineral rights is exclusive to the states and continues to remain with them but 
the field is subject to the limitations imposed by Parliament ary law relating to 
mineral development. Parliament can determine whether, and if so, how the 
taxing power of the states over mineral rights should be limited in order to ensure 
that it does not impede or retard mineral development. If Parliament does so and 
indicates the nature of the limitat ions, the states are bound to abide by them 
while exercising the taxing power over mineral rights. The authority to impose a 
tax on mineral rights remains with the states but is subject to the limitations 
envisaged by a law enacted by Parliament in relation to the development of 
minerals. Under Entry 23, the regulatory power of the State is denuded by 
Parliament, while in case of Entry 50 the legislative field assigned to the states 
to tax mineral rights is only limited.   
212. The supremacy of Parliament is one of the fundamental features of the English 
legal system . Our constitutional democracy envisages the supremacy of the 
Constitution. The subjection of all constitutional authorities to the mandate of a

Source PDF page 127

Open this page in the original PDF
PART H  
 127 
written Constitution is the fundamental feature of our Constitution.273 This Court 
in In re Powers, Privileges and I mmunities of State legislature, Special 
Reference No. 1 of 1964274 observed that the supremacy of the Constitution is 
fundamental to the existence of the federal unit and of the member States as a 
protection against destr uction or impairment of the delicate balance of power.  
The Constitution is the source of the legislative powers of both Union and the 
states.  Any limitation on the exercise of plenary powers has to be situated within 
the Constitution and not beyond. 
213. In Umeg Singh v. State of Bombay ,275 a Constitution Bench held that any 
limitation on the legislative power of the state legislature must be express: 
“13. […] The legislative competence of the State can 
only be circumscribed by express prohibition 
contained in the Constitution itself and unless and 
until there is any provision in the Constitution 
expressly prohibiting legislation on the subject either 
absolutely or conditionally, there is no fetter or 
limitation on the plenary powers which the State 
Legislature enjoys to legislate on the topics 
enumerated in the Lists 2 and 3 of the Seventh 
Schedule to the Constitution. […] ” 
“14. The fetter or limitation upon the legislative 
power of the State Legislature which had plenary 
powers of legislation within the ambit of the 
legislative heads specified in the Lists 2 and 3 of the 
Seventh Schedule to the Constitution could only be 
imposed by the Constitution itself and not by any 
obligation which had been undertaken by either the 
Dominion Government or the Province of Bombay or 
even the State of Bombay. Under Article 246 the 
State Legislature was invested with the power to 
legislate on the topics enumerated in Lists 2 and 3 
of the Seventh Schedule to the Constitution and this 
power was by virtue of Article 245(1) subject to the 
provisions of the Constitution. The Constitution itself 
 
273 Kalpana Mehta v. Union of India, (2018) 7 SCC 1 [218] 
274 (1965) 1 SCR 413 [39] 
275 (1955) 2 SCR 164

Source PDF page 128

Open this page in the original PDF
PART H  
 128 
laid down the fetters or limitations on this power e.g. 
in Article 303 or Article 286(2). But unless and until 
the court came to the conclusion that the 
Constitution itself had expressly prohibited 
legislation on the subject either absolutely or 
conditionally the power of the State Legislature to 
enact legislation within its legislative competence 
was plenary. Once the topic of legislation was 
comprised within any of the entries in the Lists 2 and 
3 of the Seventh Schedule to the Constitution the 
fetter or limitation on such legislative power had to 
be found within the Constitution itself and if there 
was no such fetter or limitation to be found there the 
State Legislature had full competence to enact the 
impugned Act no matter whether such enactment 
was con trary to the guarantee given, or the 
obligation undertaken by the Dominion Government 
or the Province of Bombay or even the State of 
Bombay.”  
214. In Firm Bansidhar Premsukhdas v. State of Rajasthan,276 this Court reiterated 
Umeg Singh (supra) by observing that the legislative competence of Parliament 
or of the State legislature can only be circumscribed by express prohibition 
contained in the Constitution. It was further observed that unless there is a 
provision in the Constitution expressly prohibiting legislation on the subject either 
absolutely or conditionally, there is no f etter or limitation on the plenary powers 
which the legislature is endowed with for legislating on the topics enumerated in 
the relevant Lists. 
215.  Any limitation on the plenary legislative powers of either the Union or the States 
with respect to a subject in the relevant Lists  must be express and specified by 
the Constitution.  
 
 
276 1966 Supp (SCR) 81 [7]

Source PDF page 129

Open this page in the original PDF
PART H  
 129 
c. Scheme of the MMDR Act does not serve as “any limitation” 
216. The Union has argued that (i) the MMDR Act occupies the entirety of the subject 
matter pertaining to mineral development, leaving no scope for the  State 
legislatures to legislate under Entry 50 of List II; (ii) the MMDR Act  abstracts the 
legislative powers of the States  under Entry 50 of List II ; (iii)  the MMDR is a 
complete code with respect to the regulation of mines and mineral development 
and no part of the field is left for the States to legislate  including on taxation of 
mineral rights.  
217. The respondents have drawn our attention to the following architecture of the 
MMDR Act to press the point that the states have been deprived of legislative 
control in respect of mineral development:  
a. Although the State Government is the owner of minerals, the MMDR Act 
defines the rights which can be created in those minerals. Section 4 provides 
that no person can undertake prospecting or mining operations except in 
accordance with the terms and conditions of the license or lease, as the case 
may be. The form of license and lease agreements is stipulated under the 
Mineral Conces sion Rules. The grant of mineral rights is governed by the 
terms and conditions laid down under Form K of the rules. The State 
Government cannot change or modify the terms of the prospecting license or 
mining lease. The proviso to Section 5(1) states that the State Government 
shall not grant any mineral concession except with the previous approval of 
the Central Government. Any mineral concession granted in contravention of

Source PDF page 130

Open this page in the original PDF
PART H  
 130 
the provisions of the MMDR Act is void.277 Moreover, Section 21 entails penal 
sanctions for contravention of Section 4;  
b. The Central Government prescribes the fiscal exactions (such as royalty, 
dead rent, and surface rent) for the grant or creation of mineral rights. Section 
9 empowers the Central Government to fix the rate of royalties. Section 25 
deals with the recovery of unpaid rent, royalty  and tax as arrears of land 
revenue; and  
c. The MMDR Act governs all aspects relating to both major minerals and minor 
minerals. Under Section 13, the Central Government is empowered to make 
rules on all or any matter relating to the grant of mineral concessions . 
Although Sections 14 and 15 allow the State Government to make rules in 
respect of minor minerals, the field of minor minerals is covered by the MMDR 
Act leaving no scope for the state legislature to legislate. In case the Central 
Government undertakes prospecting or mining operations, Secti on 17(3) 
specifies the levies it is bound to pay. Further, the State Government cannot 
reserve any area under Section 17A without the approval of the Central 
Government. The Central Government is also empowered to issue directions 
to the State Government for the conservation of mineral resources or on any 
policy matter in the national interest.  Section 18 empowers only the Central 
Government to take any measure necessary for mineral development.  
218. Two issues have to be addressed: (i) whether the MMDR Act fulfils the 
requirement of “any limitation” under Entry 50 of List II; and (ii) whether the 
MMDR Act contains any provision limiting the taxing powers of the states under 
Entry 50 of List II. 
 
277 Section 19, MMDR Act

Source PDF page 131

Open this page in the original PDF
PART H  
 131 
219. The MMDR Act lays down the means and processes by which the rights to mines 
and minerals may be exercised or granted by the owner of mineral rights. It is 
true that the MMDR Act largely denudes the states of their legislative powers with 
respect to regulation of mines and mineral development under Entry 23 of List II. 
However, the expression in Entry 50 of List II demonstrates  that: (i) Parliament 
can limit the legislative power of the States to tax minerals; and (ii) the limitation 
has to be imposed “by law” relating to mineral development.  
220. The MMDR Act has a centralizing tendency because the Central Government is 
tasked with important responsibilities such as setting out the terms and 
conditions of mining leases, fixing the rates of royalty  and issuing guidelines to 
State Governments in respect of conservation of minerals. This drift towards the 
Central Government stems from the fact that the principal aim of the MMDR Act 
is development and conservation of minerals.
278 Minerals being a natural and 
scarce resource, their exploitation has to be scientific and judicious. The MMDR 
Act enumerates rules and regulations to ensure that the exploration, extraction, 
and exploitation of minerals follow standards of conservation  and sustainability. 
The Indian State is the trustee of all natural resources, including minerals. 279 
Therefore, it is a constitutional duty of the State to protect minerals and ensure 
their exploitation in public interest.  
221. By authorizing the Centr al Government to lay down the terms of mining leases  
and grant approval to concessions, the MMDR Act seeks to ensure that there is 
uniformity in the terms for working of mines and extraction of minerals. Uniformity 
in the terms and conditions of  mining leases, rates of royalty, and in the policy 
approach towards conservation of minerals reduces indiscriminate exploitation 
 
278 Hind Stone (supra) [10] 
279 See M C Mehta v. Kamal Nath, (1997) 1 SCC 388

Source PDF page 132

Open this page in the original PDF
PART H  
 132 
of mineral resources and promotes mineral development. The fact that the State 
Government cannot alter the clauses in the mining lease cannot be understood 
to mean that all the powers of the State  with respect to regulation of mines and 
mineral development  as well as the power to tax mineral rights  have been 
extinguished.  
222. Entry 50 of List II provides that the legislative power of States to tax mineral rights 
is subject to any limitations imposed by Parliament by law relating to mineral 
development. A plain reading of the phrase makes it clear that the tax ing power 
is subject to “any limitations” and not a “law relating to mineral development.” If 
the Constitution intended to restrict the tax ing powers under Entry 50 of List II  
with respect to a parliamentary law, it would not have used the expression “any 
limitations.” It could have used phraseology  such as for example, “Taxes on 
mineral r ights subject to any law relating to mineral development made by 
Parliament.” Parliament has to ‘impose’ the limitations. That is, Parliament has 
to expressly specify the limitations by the authority of law. Thus, under Entry 50 
of List II the taxing power of the State is subject to the extent that Parliament 
imposes any limitations “by law” relating to mineral development.  
223. The phrase “by law” is also important because it indicates the manner in which 
Parliament can impose limitations. The expression “by law” means that the 
legislative power should be effectuated through the provisions of a statute.  The 
purport of including the phrase “by law” in Entry 50 of List II is to indicate that  
Parliament has to specify the extent to which it is seeks to limit the taxing powers 
under Entry 50 of List II.  
224. Parliament can impose limitations under Entry 50 of List II by means of statutory 
provisions. There is no specific provision in the MMDR Act which imposes

Source PDF page 133

Open this page in the original PDF
PART H  
 133 
limitations on the power of the States to tax mineral rights.  The scheme of the 
MMDR Act cannot by a process of stretched construction be read to limit the 
taxing powers of States under Entry 50 of List II.  
225. The respondents have referred to Entry 54 of List I to contend that once 
Parliament enacts a law relating to mineral development, its consequences on 
the taxing powers of the state legislature under Entry 50 of List II can be implied. 
In this connection, reference was made to Kesavananda Bharati v. State of 
Kerala,
280 where it was held that powers and limitations could be implied from 
necessity or from the scheme of the Constitution. Moreover, reference was made 
to the decision in Kalpana Mehta v. Union of India ,
281 to contend that the 
Constitution must be interpreted in a manner that leads to the discovery of 
“constitutional silences or abeyances.” Therefore, it was contended that Entry 50 
of List II contemplates an implicit denudation of legislative powers of States once 
a law relating to mineral development was enacted by Parliament under Entry 54 
of List I. 
226. The theory of implied limitations was adopted in Kesavananda Bharati (supra) 
to iterate that the basic structure doctrine serves as an implied limitation on the 
power of Parliament to amend the Constitution.
282 The   power of Parliament to 
amend the Constitution was subjected to the basic structure doctrine. The 
doctrine of implied limitations is not applicable in the present case in view of the 
fact that Entry 50 of List II specifies the nature of the limitation and the manner 
in which it can be imposed. The implication that any law enacted by Parliament 
 
280 (1973) 4 SCC 225 [210] 
281 (2018) 7 SCC 1 
282 See I R Coelho v. State of Tamil Nadu (2007) 2 SCC 1

Source PDF page 134

Open this page in the original PDF
PART H  
 134 
under Entry 54 of List I will impliedly  denude the powers of the s tate legislature 
under Entry 50 of List II will usurp the taxing powers of the States.  
227.  The principle of constitutional silences has generally been used to step in where 
the Constitution is silent or where there is a legislative vacuum. 283 Entry 50 of 
List II is clear in its terms –  a limitation can be imposed by Parliament by law 
relating to mineral development. In the face of an express constitutional 
provision, there is no scope for this Court to use this doctrine to limit the 
legislative powers of the State. 
228. In P Kannadasan  v. State of Tamil Nadu ,284 a two  judge Bench held that 
Parliament has denuded the States of their power to levy tax es on minerals by 
making the declaration contained in Section 2 of the MMDR Act. It was further 
observed that State legislatures cannot levy any tax or cess on minerals so long 
as the declaration in Section 2 stands. The observations in P Kannadasan  
(supra) are contrary to the legislative scheme discussed above.  
d. Section 9 does not serve as a limitation on the taxing powers of State  
229. Having noticed that the scheme of the MMDR Act does not in itself serve as a 
limitation on the  field of taxation under Entry 50 of List II, we now proceed to 
examine whether the statute contains any provision imposing “any limitations” on 
it. The respondents contend that Sections 9, 9A, 9B , and 9C expressly impose 
limitations as contemplated under Entry 50 of List II. We have held in the previous 
segments of this judgment  that royalty is not in the nature of tax but a 
consideration which is paid to the proprietor for the extraction and removal of 
mineral under the terms of the mining lease. The MMDR Act empowers the 
 
283 Vishaka v. State of Rajasthan, (1997) 6 SCC 241; Anoop Baranwal v. Union of India; (2023) 6 SCC 161 
284 (1996) 5 SCC 670 [35]

Source PDF page 135

Open this page in the original PDF
PART H  
 135 
Central Government to specify the rates of royalty under Section 9 read with the 
Second Schedule. These powers could be validly traced to Entry 54 of List I as 
they are comprehended within the regulation of mines.  
230. Since royalty payable under Section 9 is not a tax on mineral rights, any limitation 
on the enhancement of the rates of royalty is not the imposition of a tax under 
Entry 50 of List II. While royalty flows from the exercise of proprietary rights, taxes 
flow from the sovereign’s right to tax persons, objects and transactions.  Section 
9 does not expressly impose any limitations on the powers of the State to tax 
mineral rights. Section 9(3) limits the power of the Central Government to 
enhance royalty more than once in three years. This limitation does not govern 
taxes on mineral rights.  
231.  Dead rent under Section 9A is a price paid by the lessee to the lessor for not 
working the mines  and is paid in alternative to royalty. The payment s under 
Sections 9B and 9C are made as additional royalties and are used for specific 
purposes. Payment under Section 9B is made to the District Mineral Foundation 
constituted by the State Government. Similarly, payment under Section 9C is 
made to the trust created by the Central Government for funding the agencies 
specified in Section 4(1). The payments under Sections 9B and 9C do not 
amount to a tax on mineral rights. Sections 9, 9A, 9B, and 9C do not impose any 
limitations on the taxation powers of the state legislatures under Entry 50 of List 
II.  
e.  “Any limitation” can extend to prohibition  
232. In Jindal Stainless Steel  (supra), one of us ( Justice D Y Chandrachud) 
observed that c urtailment of legislative powers vest ed in the State  may take

Source PDF page 136

Open this page in the original PDF
PART H  
 136 
place through: (i) abstraction; (ii) eclipse; and (iii) limitations or restrictions. 285 
The expression “any limitations” finds mention in Entry 50 of List II in the context 
of taxes on mineral rights. In its ordinary sense, the expression “limitation” means 
a restriction or containment.286 The Constitution uses the word “limitations” in two 
provisions – Article 134(2) and Entry 50 of List II of the Seventh Schedule. Article 
134 deals with the appellate jurisdiction of Supreme Court in criminal matters. 
Article 134(2) provides that Parliament may by law confer on the Supreme Court 
any further powers to entertain and hear appeals from any judgment, final order 
or sentence in a criminal proceeding of a High Court in the territory of India 
subject to such conditions and limitations as may be specified in such law.  
233. The use of the expression “any” before “limitations”  under Entry 50 of List II  
indicates that the scope of the limitations is expansive and includes “all”
287 or 
“every”288 limitation that could be imposed by Parliament by law relating to 
mineral development. The expression “any” has to be construed in its context, 
taking into consideration the scheme, purpose, and subject matter of the 
enactment,
289 or in this case, the scheme of distribution of legislative powers 
under the Constitution. The expression “any limitations” is indicative of the fact 
that Parliament has been provided with ample legislative freedom to conceive 
limitations or restrictions on the legislative powers of the State to tax minerals.  
234. Apart from Entry 50 of List II, Entry 57 of List II is the other taxing entry in List II 
which is subordinate to another entry. It provides for taxes on vehicles, whether 
mechanically propelled or not, suitable for use on roads, including tramcars and 
 
285 Jindal Stainless Steel (supra) [626] 
286 Ramanatha Aiyar, Advanced Law Lexicon (Volume 3) 3254 
287 LDA v. M K Gupta, (1994) 1 SCC 243 [4] 
288 Raj Kumar Shivhare v. Directorate of Enforcement, (2010) 4 SCC 772 [24] 
289 Vivek Narayan Sharma v. Union of India, (2023) 3 SCC 1 [132]

Source PDF page 137

Open this page in the original PDF
PART H  
 137 
is “subject to the provisions of Entry 35 of List III.” Entry 35 of List III deals with  
mechanically propelled vehicles including the principles on which taxes on such 
vehicles are to be levied.  
235. In State of Assam  v. Labanya Probha Devi ,290 a Constitution Bench of this 
Court explained the inter-relationship between Entry 57 of List II and Entry 35 of 
List III in the following terms: 
“11. […] The two entries deal with two different 
matters though allied ones – one deals with taxes on 
vehicles and the other with the principles on which 
such taxes are to be levied. When two entries in the 
Constitution, whether in the same List or differe nt 
Lists, deal with two subjects, if possible, an attempt 
shall be made to harmonize them rather than to bring 
them into conflict. Taxes on vehicles in their ordinary 
meaning connote the liability to pay taxes at the rates 
at which the taxes are to be levi ed. On the other 
hand, the expression “principles of taxation” denotes 
rules of guidance in the matter of taxation. We, 
therefore, hold that the amending Acts do not come 
into conflict with the existing law in respect of any 
principles of taxation, but onl y deal with a subject -
matter which is exclusively within the legislative 
competence of the State Legislature. In this view, 
there is no scope for the application of Article 254 of 
the Constitution.” 
236. In Sharma Transport v. Government of AP,291 a three judge Bench held that 
the exercise of authority by Parliament under Entry 35 of List III will not deprive 
the State legislature of its exclusive legislative powers referable to Entry 57 of 
List II: 
“11. Power to levy taxes on vehicles, whether 
mechanically propelled or not vests solely in the 
State Legislature, though it may be open to 
Parliament to lay down the principles on which the 
taxes may be levied on mechanically propelled 
 
290 (1967) 3 SCR 611 
291 (2002) 2 SCC 188

Source PDF page 138

Open this page in the original PDF
PART H  
 138 
vehicles in the background of Entry 35 of List III. To 
put it differently, Parliament may lay down the 
guidelines for the levy of taxes on such vehicles, but 
the right to levy such taxes vests solely in the State 
Legislature. No principles admittedly have been 
formulated by Parliament. In that sense, the 
Government of India’s communication dated 30-08-
1993 does not in any sense violate the power of the 
State Legislature or its delegate to levy or exempt 
taxes from time to time.” 
237. Both Entries 50 and 57 of List II are subject to other legislative entries, but with 
a distinction: Entry 50 specifically uses the word “subject to any limitations” while 
Entry 57 uses the expression “subject to the  provisions”.  Under Entry 50, 
Parliament can impose “any limitations” on the taxing powers of the State, while 
under Entry 57 read with Entry 35 of List III, Parliament can only prescribe the 
principles on the basis of  which the State can levy taxes on mechanically 
propelled vehicles. Therefore, Parliament cannot impose any limitation on the 
field of taxation reserved to the States under Entry 57 of List II, but can lay down 
guidelines. In contrast, Entry 50 allows Parliament to impose any limitations on 
the field reserved to the State to tax mineral rights.  
238. In Jindal Stainless Steel  (supra), one of us ( Dr Justice D Y Chandrachud) 
described the nature of the limitations which may be imposed to contain the 
legislative powers vested in the State: 
“626.3. The third source of constitutional 
containment on the legislative power of a State is in 
the form of limitations of which clause (3) of Article 
286 provides an illustration. Under clause (3), 
Parliament provides the restrictions and conditions 
in r egard to “the system of levy, rates and other 
incidents of tax” upon which a law enacted by a State 
providing for a tax on the nature specified in sub -
clauses (a) and (b) is subject. Sub- clause (a) deals 
with tax on the sale or purchase of goods declared 
to be of special importance in inter -State trade or

Source PDF page 139

Open this page in the original PDF
PART H  
 139 
commerce by a law enacted by Parliament. Sub-
clause (b) deals with a tax on the sale or purchase 
of goods failing under sub-clauses (b), (c) and (d) of 
Article 366(29- A). Among other things, a tax on 
contract for hire purchase and involving transfer of 
the right to use goods is subject to the restrictions 
and conditions which are provided by a law enacted 
by Parliament in regard to the system of levy, rates 
and other incidents of tax.” 
239. Before its omission, Article 286(3) empowered Parliament to specify by law 
restrictions and conditions on any law of a State levying tax on the sale or 
purchase of goods.
292 In Rajasthan Rollers Flour Mills Association v. State of 
Rajasthan,293 a two-Judge Bench of this Court held that a limitation imposed by 
a law enacted under Article 286(3) is a restriction upon the plenary power of the 
State to levy tax on the sale/ purchase of goods and must be construed “strictly.” 
It was further held that the restrictions imposed by Parliament upon the legislative 
power of the States must be specified by the law.
294 
240. In its textual sense, the verb ‘ to limit ’ means to restrict or constrain. The 
respondents submit that the word “any limitation” can be interpreted in a manner 
bestowing absolute authority on Parliament to limit the field of taxation of the 
state legislature under Entry 50 of List II. However, we need to understand the 
purport of the expression “limitations” not only in its literal sense, but also IN the 
constitutional sense.  
 
292 Article 286(3) before omission read:  
“(3) Any law of a State shall, in so far as it imposes, or authorizes the imposition of, -  
(a) A tax on the sale or purchase of goods declared by Parliament by law to be of special importance in 
inter-State trade or commerce; or 
(b) A tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), sub-
clause (c) or sub-clause (d) of clause (29A) of article 366, 
be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of tax as 
Parliament may by law specify.”  
293 1994 Supp (1) SCC 413 [14] 
294 Rajasthan Rollers Flour Mills Association (supra) [21]

Source PDF page 140

Open this page in the original PDF
PART H  
 140 
241. The common thread running between Entry 54 of List I and Entries 23 and 50 of 
List II is mineral development.  The concept of mineral development is closely 
associated with proper and sustainable exploitation and utilization of mineral 
resources. Mineral resources are important for the economic development of the 
nation, considering the fact that they are used as raw materials in many  
industries. The Constitution had this aspect in mind when it empowered 
Parliament to bring under its control regulation of mi nes and mineral 
development. The rationale was that the Central Government will ensure uniform 
regulatory standards for mineral operations, especially with respect to major 
minerals. Moreover, it was envisaged that the Central Government could take 
effective steps to ensure uniform standards of exploration and extraction of 
minerals with a view to ensuring their sustainability and conservation. The phrase 
“through a law relating to mineral development” appearing in Entry 50 of List II  
indicates that Parliament can limit the field of taxation only in the interests of 
mineral development. It was in this perspective that the Constitution empowered 
Parliament to impose “any limitations” on the legislative field of States to tax 
mineral rights through a law relating to mineral development. 
242. The MMRD Act 1948 was in place when the Constituent Assembly was debating 
the incorporation of Entry 50 in List II. The framers of the Constitution were aware 
of the legislative history of the subject of mines and minerals and were aware as 
to how the Dominion Legislature had interpreted the legislative entries pertaining 
to regulation of mines and minerals and taxation of mineral rights under the GOI 
Act 1935.
295 The Constituent Assembly negatived the proposal to transfer the 
entirety of Entry 50 of List II to List I. 296 The Constitution did not  or could not 
 
295 D K Trivedi (supra) [31] 
296 Constituent Assembly Debates (2nd September 1949)

Source PDF page 141

Open this page in the original PDF
PART H  
 141 
visualize the effect of taxes on mineral rights on mineral development. Therefore, 
it left it to the legislative wisdom of Parliament to identify the taxes on mineral 
rights levied by States may impede mineral development. If Parliament considers 
that taxes on mineral rights indeed impede mineral development, it can  adopt 
suitable legislative policies to impose limitations on the field of taxation.  
243. The legislative subject entrusted to the States to tax mineral rights rests upon the 
necessity of raising revenues. As discussed in the above segments, Parliament 
does not possess the legislative field to tax mineral rights either under Entry 54 
of List I, being a general entry, or under the residuary powers. The legislative 
domain to tax mineral rights vests with the State . The legislative power of 
Parliament to impose “any limitations” is traced to Article 246(1) read with Entry 
54 of List I. Parliament c an impose limitations, and not levy taxes on mineral 
rights itself. The subject of  taxing mineral rights continues to remain with the 
States. This understanding also  ensures that there is no overlap or conflict 
between the powers of Union and the taxing field of the States. 
244. As held in Jindal Stainless Steel  (supra),297 the Constitution understands the 
expression “limitations” as restrictions, conditions,298 or principles.299 However, 
does the expression “any limitations” include the power to prohibit States from 
taxing mineral rights? We are of the opinion that the answer must be in the 
affirmative. Under Entry 50 of List II, the Constitution specifically uses the phrase 
“any limitations”.  The framers of the Constitution intended to empower 
Parliament to impose “all” and “every” possible limitation on the taxing powers of 
the State in the interests of mineral development , which may include  even a 
 
297 Jindal Stainless Steel [626.3] 
298 Article 286(3) (omitted by Constitution (One Hundred and First Amendment) 2016 
299 Article 286(2), Constitution of India; Entry 35 of List II, Seventh Schedule, Constitution of India

Source PDF page 142

Open this page in the original PDF
PART H  
 142 
“prohibition.” It had become clear during the course of the hearings, that counsel 
on both sides largely agreed  that Parliament can impose “any limitations” 
including prohibiting the State legislatures from taxing minerals. 300 The crux of 
the issue pertained to the manner in which Parliament can impose the limitations, 
which we have already considered in the above segments. 
245. The overall scheme of Article 246 read with Entry 54 of List I and Entry 50 of List 
II makes it clear that Parliament, in the interests of mineral development, can 
impose “any limitations.” The purport of the expression “any limitations” is wide 
enough to include the imposition of restrictions, conditions, principles, as well as 
prohibition. Parliament has the constitutional power to determine whether and if 
so the manner in which limitations may be imposed. 
f. Impact of taxes on mineral rights on mineral development 
246. The respondents have contended that any levy of taxes on mineral rights by the 
States under Entry 50 of List II will be against mineral development. Minerals are 
necessary for economic development. Proper extraction and utilization of mineral 
resources fulfils the needs of both the domestic industry as well as the demands 
of the international market.
301 The Constitution requires the State to discharge  
an active role in promoting the development of minerals by adopting a slew of 
regulatory measures both at the Union and State level s. In other words, the 
constitutional endeavor of development of minerals proceeds on the basis of co-
operative federalism, where both the Union and the States have certain duties 
and responsibilities. These responsibilities take the form of development of 
infrastructure, facilitation of exploration and mining activities, conservation of 
 
300 Supreme Court of India, Record of Proceedings, Civil Appeal No. 4056-4064/1999 (14 March 2023) 54. 
301 National Mineral Policy 2019, 4

Source PDF page 143

Open this page in the original PDF
PART H  
 143 
minerals, and collection of taxes and fees. 302 The National Mineral Policy 2019 
recommends greater thrust on conservation of minerals, development of 
scientific methods of mining, human resource development, and protection of 
environment to meet the requirements of environmentally sustainable mining 
operations. 
247.  In India, mining activities are carried out by both the public and private sector s. 
The Government is required to raise revenues not only to meet the above-
mentioned objectives, but also to fund public sector undertakings, such as 
Mineral Exploration Corporation of India. Additionally, mining activities cannot be 
carried out without the existence of public order or the lack of a functioning legal 
system to ensure adherence to contractual obligations. In Jindal Stainless Steel 
(supra), one of us (Dr Justice D Y Chandrachud) observed that every law which 
imposes a tax cannot be regarded as a hindrance to trade, commerce, and 
intercourse. It was observed:  
“631. […] Neither trade nor commerce can flourish 
amidst violence, unrest and social disorder. Taxes 
provide revenue for the State to sustain manifold 
activities which are geared to providing conditions of 
social order. The State provides infrastructure both 
tangible and intangible. Tax revenues form an 
essential part of the requirements necessary for the 
States to govern. Taxes are required by Article 265 
to be imposed by a law enacted by Parliament or the 
State Legislatures. Without the power to raise 
revenues, the ability of the State to create conditions 
requisite for trade and commerce to exist would be 
denuded. Hence, as a matter of first principle it 
cannot be postulated that taxation in whatever form 
is a burden on trade, commerce and intercourse and 
that every tax necessarily hinders trade. Such a wide 
construction cannot be accepted simply because by 
raising revenues through means of taxation, the 
State provides a political and legal order based on 
 
302 ibid

Source PDF page 144

Open this page in the original PDF
PART H  
 144 
the rule of law where contractual transactions can be 
executed effectively. The extreme position that every 
law which imposes a tax is to be regarded as a 
hindrance to trade, commerce and intercourse is 
unsustainable.” 
248. It cannot be assumed that any tax levied by the State legislature under Entry 50 
of List II will be ipso facto  against mineral development. It is now a well -
established principle that an increase in the rate of tax on a particular commodity 
cannot per se be said to impede free trade and commerce in that commodity.303 
In his dissenting opinion in Kesoram (supra), Justice Sinha observed that a tax 
on minerals rights, which is over and beyond what is provided under the MMDR 
Act, will lead to an increase in the price of the mineral commodity making it 
unremunerative. The learned Judge observed that this defeats the purpose of 
the MMDR Act. The Union of India in its affidavit submitted: 
“A non-harmonized fiscal regime, with varied levies 
across States, would result in a scenario where 
industries located in States with lesser mineral 
deposits would be forced to procure mineral raw 
materials at higher prices from States endowed with 
rich mineral deposits, placing the latter category of 
States at a significant economic advantage that 
would come at the cost of the national interest in 
maximizing economic development from the nation’s 
mineral wealth […] Therefore a uniform levy of 
royalty presc ribed by the Govt. of India under the 
MMDRA levels the playing field, thereby promoting 
the domestic industry across the nation in a manner 
which is equitable, while at the same time ensuring 
revenue generation for the States.” 
It is true that uniformity of prices of mineral commodities ensures the objective of 
mineral development as envisaged under the MMDR Act. L evy of a tax on 
 
303 Vrajilal Manilal & Co. v. State of M P , 1986 Supp SCC 201 [20]; State of Kerala v. A B Abdul Kadir, (1969) 2 SCC 
363 [9]; Jindal Stainless Steel (supra) [634].

Source PDF page 145

Open this page in the original PDF
PART H  
 145 
mineral rights by the State legislatures may lead to an increase in the prices of 
the mineral commodity in India. There may arise a situation where a state having 
the highest reserves of a particular mineral decides to levy a high rate of tax on 
mineral rights. This may not only distort the market for that particular mineral, but 
have a cascading effect on allied industries. It is exactly to counteract any 
adverse impact on the development of minerals in India that the Constitution has 
empowered Parliament under Entry 50 of List II to impose limitations on the basis 
of which the State legislature can tax mineral rights. If this is the constitutional 
intendment, it is Parliament which has the responsibility to ensure that there is 
no adverse effect on development of mineral rights. The legislative powers 
granted to the State legislatures cannot be whittled down impliedly based on the 
presumption that all taxes on mineral rights imposed by the State will have 
adverse economic consequences on mineral development. The Constitution has 
with foresight visualized this and empowered Parliament to impose “any 
limitations” on the subject of taxing mineral rights under Entry 50 of List II. 
249. It was contended by the respondents that States already have multiple revenue 
streams arising from the mining and minerals sector. They are: (i) royalty and 
dead rent payable under Section 9 and 9A of the MMDR Act respectively; (ii) 
contributions to the District Mineral Foundation under Section 9B; and (iii) auction 
premium received from successful bidders for mineral blocks for mines allocated 
under the Mineral (Auction) Rules 2015. The above levies are statutorily 
collected and the revenue flows to the State as part of the regime for mineral 
development in place under the   MMDR   Act.  All   of   these levies,  which are 
statutory in nature, cannot impliedly limit the legislative power of the state 
legislature to levy a tax on mineral rights. The States have a constitutional and

Source PDF page 146

Open this page in the original PDF
PART I 
 146 
sovereign authority to exercise their tax ing powers, within the bounds of the 
Constitution, to raise adequate revenues for the welfare of the people.   
I. Scope of Entry 49 
i. Land System in India 
250. The issue is whether the State legislature s are competent to levy a tax on 
mineral-bearing land as a unit  under Entry 49 of List II . A connected issue is 
whether mineral produce or royalty can be used as the measure to tax mineral -
bearing lands.  
251. The general rule in England was that the rights of an owner of land extended to 
everything in, on, or over land. The position has been explained in Megarry & 
Wade on The Law of Real Property304: 
“There is an ancient maxim: cujus est solum, ejus est 
usque ad coelum et ad inferos , meaning that the 
owner of the soil is presumed to own everything “up 
to the sky and down to the centre of the earth.” It has 
been criticized, but it is a presumption that remains  
firmly part of English law “encapsulating, in simple 
language, a proposition of law which has 
commanded general acceptance.” Above the 
surface, the development of powered flight has 
made it impossible to apply the presumption literally. 
An owner’s rights in the airspace above the land 
extend only to such height as i s necessary for the 
ordinary use and enjoyment of the land and 
structures upon it. As regards right beneath the 
surface, the maxim applies and the owner is 
presumed to own the minerals beneath. For practical 
purposes the rights downwards are unlimited.”
“An owner can divide the land horizontally or in any 
other way. He or she can dispose of minerals under 
the surface, or top floor of a building, so as to make 
them separate properties. But unless some contrary 
 
304 Megarry and Wade, The Law of Real Property (9th edn, Sweet and Maxwell)

Source PDF page 147

Open this page in the original PDF
PART I 
 147 
intention is shown a grant will normally pass the 
owner’s whole interest in space above and below the 
land, so that, for example, a lease will give the tenant 
the right to the airspace above the land let.”  
The position under the common law in England is that the owner of land is entitled 
to all mines and minerals underlying the land which they own, subject to certain 
exceptions.305   
252. The colonial regime in India followed a pattern at variance to that prevailing under 
English law on land ownership and mineral rights . Initially, the colonial state 
asserted that the soil belonged to the sovereign.306 Acting on the view that it was 
the proprietor of the soil, the colonial state, under Lord Cornwallis  as Governor-
General, confirmed proprietary rights to soil, including mineral rights, to  the 
zamindars by way of a permanent settlement in territories under British control 
in India. For instance, the Madras Permanent Settlement Regulation XXV of 
1802 vested “the proprietary rights of the soil” in the zamindars and in their heirs 
and successors.
307 The regulations also allowed the zamindars to alienate or 
dispose of their proprietary rights in their zamindaris. 308 Colonial courts 
 
305 Megarry and Wade (supra). [ “Although prima facie a tenant in fee simple is entitled to all mines and minerals 
under the land, this is subject to some exceptions. Thus at common law, as modified by statute, the Crown is 
entitled to all gold and silver mines; and under the Petroleum Act 1998 petroleum existing in its natural condition in 
strata is vested in the Crown. Licences for extraction (including fracking) can be granted under the Petroleum Act 
1998. Under the Coal Act 1938 all interests in coal (except interests arising under a coal mining lease) were vested 
in the Coal Commission in return for compensation. These interests (including coal -mining leases) were vested 
subsequently in the National Coal Board, then in the British Coal Corporation, and finally, (following the privatization 
of coal industry) in the Coal Authority. That body has extensive powers to license coal-mining operations.”] 
306 S Sundararaja Iyengar, Land Tenures in the Madras Presidency (1921) 25 
307 Section 2, Regulation XXV of 1802. [ It read: 2. Assessment on all lands liable to revenue. Proprietary right 
vested in zamindars – In conformity to these principles, an assessment shall be fixed on all lands liable to pay 
revenue to the Government; and, in consequence of such assessment, the proprietary right of the soil shall become 
vested in the zamindars or other proprietors of land, and in their heirs and lawful successors for ever.”] 
308 Section 8, Regulation XXV of 1802. [It read: 8. Proprietors of land may transfer proprietary right in whole or part 
of their zamindaries. Restrictions under which such transfer is to be made –  Proprietors of land shall be at free 
liberty to transfer without the previous consent of the Government, or of any other authority, to whomever they may 
think proper, by sale, gift or otherwise, their proprietary right in the whole of in any part of their zamindaris; such 
transfers of land shall be valid and shall be respected by the Courts of Judicature and by the officers of the 
Government; provided they shall not be repugnant to the Muhammadan or to the Hindu laws, or to the regulations 
of the Government. But unless such sale, gift, or transfer shall have been regularly registered at the office of the 
Collector, and unless the public assessment shall have been previously determined and fixed on such separated 
portion of land by the Collector, such sale, gift, or transfer shall be of no legal force or effect, nor shall such 
transaction exempt a zamindar from the payment of any part of the public land-tax assessed on the entire zamindari

Source PDF page 148

Open this page in the original PDF
PART I 
 148 
recognized that the zamindars were presumed to be the owners of mineral rights 
in the absence of evidence that they had parted with them. 309 Similarly, in the 
case of inam lands, it was held that the right of the inamdars to the sub- soil 
minerals was to be inferred from the express words of the grants.310  
253. In 1813, the Court of Directors of the East India Company prohibited the 
government from introducing permanent settlement s any further and ordered 
introduction of the ryotwari system in all unsettled lands in the provinces. 311 
Thereafter, the colonial state introduced the ryotwari system of land settlement 
in India. Under it the ryots were treated as proprietors of land with attendant rights 
and liabilities such as payment of assessment directly to government. 312 The 
ryots were granted pattas which essentially served as evidence of the 
possession of the land. Thus, the pattadars used to hold lands on lease from the 
Government. 
254. S Sundararaja Iyengar in his treatise on Land Tenures in the Madras Presidency 
noted that in 1882 the Government declared that it had no proprietary right in the 
soil.
313 The conclusions drawn by the revenue after full enquiry  are instructive 
and are reproduced below: 
“(1) that the State cannot, without violating the rule 
and practice dating from time immemorial, assert in 
this Presidency an exclusive right to minerals in 
unoccupied lands, but that it is fully entitled to a 
share in such products as in any other produce of 
the land; (2) that subject to the payment of a stated 
 
previously to such transfer, but the whole zamindari shall continue to be answerable for the total land-tax, in the 
same manner as if no such transaction had occurred.”]  
309 See Durga Prasad Singh v. Braja Nath Bose, 1912 SCC Online PC 9. 
310 Secretary of State for India in Council v. Srinivasa Chariar, 1920 SCC OnLine PC 89; State of A P v. Duvvuru 
Balarami Reddy, 1962 SCC OnLine SC 182 [9] 
311 S Sundararaja Iyengar, Land Tenures in the Madras Presidency (1921) 120, 151 
312 Gopalan v. State of Madras, (1958) 2 MLJ 117; S Sundararaja Iyengar (supra) 153. [“The distinguishing feature 
of this system is that the state is brought into direct contact with the owner of the land and collects its revenues 
through its own servants without the intervention of an intermediate agent such the zemindar or farmer, and its  
object is the creation of peasant proprietors. All the income derived from extended cultivation goes to the state.”] 
313 S Sundararaja Iyengar (supra) 28.

Source PDF page 149

Open this page in the original PDF
PART I 
 149 
proportion of the produce to meet the necessities of 
the administration, the proprietary right of the ryot in 
the soil of his holding is absolute and complete; (3) 
that he is able to able to mortgage, sell, devise or 
otherwise alienate the land; (4) that, on these 
principles, property has been changing hands from 
time immemorial, and for the Government to put 
forward a claim now, which has never been asserted 
and which does not rest in law, practice or precedent, 
would undoubtedly raise a feeling or distrus t and 
discontent which would take long to allay; (5) that it 
would be straining the State’s privileges to attach the 
condition of recognition of any exclusive right to 
minerals on the terms on which lands may be newly 
occupied, although in the interests of  the general 
public, it may in particular instances be justifiable to 
do so, in view to the development of the ascertained 
mineral resources; and (6) that as regards the vast 
bulks of the land occupied or likely to be occupied for 
cultivation, such reservation would be absolutely 
objectless and would only have the effect of creating 
widespread distrust in the minds of the people.”
314 
255. The Board of Revenue recogni zed the rights of zamindars to the minerals , 
through Standing Orders. The Standing Orders also governed the rights of the 
ryotwari pattadars with respect to minerals. For example, Resolution No. 277 of 
1888
315 declared that the State “lays no claim to minerals” in estates held on 
sanads of permanent settlement, enfranchised inam lands, etc. Moreover, for 
ryotwari lands it was declared that the right of the State in minerals is limited “to 
share in the produce of the minerals worked, commuted in a money payment, if 
thought necessary, by Government, in like manner with and in addition to the 
land assessment.” Thus, the colonial state did not claim subsoil rights with 
respect to lands held under permanent settlements, and only a limited right in 
 
314 ibid. 
315 See Dalmia Cement (Bharat) Ltd. v. State of TN, (2014) 2 SCC 279 [30]

Source PDF page 150

Open this page in the original PDF
PART I 
 150 
lands held under ryotwari pattas . This system of law continued until 
Independence and even thereafter. 
256. The regulation of mines and mineral development before Independence was 
governed by executive rules. In 1913, Rules for the grant by local governments 
of licences to prospect for minerals and of mining leases in British India were 
made by Resolution No. 7552- 7581-121 dated 15 September 1913.
316 Under 
these Regulations, prospecting licenses317 could only be granted with respect to 
minerals which were owned by the Government. 318 The rules also required the 
licencee to pay royalty at a rate specified in Schedule A of the Regulations. The 
Madras Mining Manual of 1929 contained rules regarding mining and quarrying  
applicable to the Madras Presidency . Chapter V of the Madras Mining Manual 
stated that the State’s right to minerals varied according to the tenure on which 
the land was  held. The Madras Mining Manual  classified the land into three 
groups:  
Group A – Lands in which the State claimed no right to minerals. These included: 
(a) estates held on sanads of permanent settlement; (b) land held on title-deeds 
issued under the Waste Land Rules before 7
th October 1879 in which no 
reservation was made of the right of the State to minerals; and (c) lands held on 
inam tenure. 
Group B – Lands in which the State claimed a share in minerals which included: 
(a) lands occupied for agricultural purposes under the ryotwari grants; (b) private 
 
316 “1913 Regulations” 
317 Rule 13, 1913 Rules. [It read: “13. A licence to prospect for minerals, called hereinafter a prospecting licence, 
shall confer on the licensee the sole right, subject to the conditions contained in the licence, to mine, quarry, bore, 
dig and search for, win, work and carry away any specified minerals or, in the event of no minerals being specified, 
all minerals lying, or being within, under or throughout the land specified in the licence.”] 
318 Rule 14, 1913 Rules. [It read: “14. A prospecting licence shall be granted only in respect of land in which the 
mines or minerals are the property of the Government.”]

Source PDF page 151

Open this page in the original PDF
PART I 
 151 
janmam lands in Malabar and the Nilgiri; and (c) certain lands held under inam 
tenure. 
Group C – Lands in which the State claimed full rights in minerals which included 
unreserved lands and forest lands reserved under the Madras Forest Act 1882.  
257. The Dominion Legislature was aware of the above classification of land, which it 
loosely incorporated under the  Mineral Concession Rules 1949 enacted under 
Section 5 of the MMRD Act. Chapter III and VI of the Mineral Concession Rules 
1949 provided for the grant of prospecting licences and mining leases  
respectively in land in which the minerals belong ed to Government.  Chapter V 
dealt with the grant of mineral concessions by private persons. The Concession 
Rules of 1949 did not contain any provisions dealing with minerals, in respect of 
lands where the minerals were shared by both the Government and private 
persons by. The Mineral Concession Rules of 1949 left out lands occupied under 
ryotwari tenure from their purview.  
258. The Mineral Concession Rules 1960 adopted the categorization of land as in the 
Madras Mining Manual, namely, lands in which minerals vested in government; 
lands in which minerals vested in a person other than government; and lands in 
which minerals vest ed partly in government and partly in private persons. The 
first category mostly pertained to situations where the land vested with the state 
by virtue of it being unoccupied or land legislation vesting title to minerals with 
the State Government. The second category pertain ed to situations where the 
State Government had not divested the landowner of their rights in the sub- soil 
minerals. The third categor y applied to intermediary tenures such as ryotwari 
lands where the minerals we re shared by both the g overnment and private 
persons.

Source PDF page 152

Open this page in the original PDF
PART I 
 152 
259. In Raja Anand Brahma Shah v. State of U P,319 a Constitution Bench accepted 
that the English system of ownership of lands applied in India, observing that the 
owner of the surface of land is entitled ex jure to everything beneath the land. It 
was further observed that a transfer of the right to the surface conveys the right 
to the minerals underneath unless there is an express or implied  reservation in 
the grant of land. In Thressiamma Jacob v. Geologist, Department of Mining 
and Geology,320 a three-Judge Bench of this Court had to determine whether 
the holder of jenmon rights owned the mineral wealth lying beneath the soil. The 
Court traced the history of land tenures in India to hold  that the ownership of 
minerals normally follows the ownership of land, unless the owner is deprived of 
it by a valid legal process.  
260. The legislative power of States to enact land legislation can be traced to Entry 
18 of List II which empowers the State legislatures to legislate with respect to 
matters dealing with “land, that is to say, rights in or over land, land- tenures 
including the relation of landlord and tenant, and the collection of rents.” Similarly, 
Entry 42 of List III deals with “acquisition and requisitioning of property.”  
261. After Independence, the State legislatures enacted land reform legislation 
divesting land owners of their sub-soil rights, including rights in the minerals. For 
instance, Section 48 of the Maharashtra Land Revenue Code 1966 declared that 
the right to all minerals found either on the surface or underground vest in the 
State Government which shall have all powers necessary for the proper 
enjoyment of such rights.
321  
 
319 1966 SCC OnLine SC 89 [13] 
320 (2013) 9 SCC 725 
321 Section 48, Maharashtra Land Revenue Code 1966

Source PDF page 153

Open this page in the original PDF
PART I 
 153 
262. Many states also enacted laws divesting zamindars and inamdars of their 
proprietary rights. For example, the Uttar Pradesh Zamindari Abolition and Land 
Reforms Act 1950 vested all the rights of the proprietors in the sub-soil including 
mines and minerals with the State Government. 322 The Maharashtra Personal 
Inams Abolition Act 1953 abolished inam rights, but saved the rights of the 
inamdars and jagirdars to mines and minerals. I n 1985,  the State legislature 
enacted a law 323 vesting all the rights  of inamdars and jagirdars to mines and 
minerals in the State Government. The law sets out the following reasons behind 
divesting the inamdars and jagirdars of their mineral rights: 
“WHEREAS, pursuant to the national policy of bringing 
the actual cultivator into direct relation with the 
Government, series of land tenure abolition laws for 
abolition of the intermediary rights, Jagirs and inam 
tenures have had been enacted, the rights of 
Inamdars and Jagirdars to mines and minerals have 
had been specifically saved, thereby allowing such 
existing rights to survive particularly where the inams 
are grants of soil; 
A
ND WHEREAS, the mines and minerals available in 
these inam lands are being exploited in the State by 
such Inamdars for individual gains without being 
liable to pay any royalty to the State Government and 
in a manner highly detrimental and prejudicial to 
public interest; 
A
ND WHEREAS, with a view to prevent such 
exploitation of mines and minerals for individual 
gains by a few Inamdars and also to prevent the 
huge loss of royalty by the State Government and to 
give effect to the policy of the State Government 
towards securing that the ownership and control of 
the material resources of the community are so 
distributed as best to subserve the common good 
and that the operation of the economic system does 
 
322 Section 6, UP Zamindari Abolition and Land Reforms Act 1950 
323 Maharashtra Abolition of Subsisting Proprietary Rights to Mine and Minerals in Certain Lands Act 1985.

Source PDF page 154

Open this page in the original PDF
PART I 
 154 
not result in the concentration of wealth and means 
of production to the common detriment;” 
The above extract from the Preamble to the statute indicate s that the inamdars 
and jagirdars had title to the minerals granted to them under inam tenure until 
the State enacted a law to divest them of their mineral rights. Since the inamdars 
and jagirdars owned the minerals till 1985, they exploited them for their personal 
gain without paying royalty to the State Government. This also indicates that the 
rights to mines and minerals continued to remain vested in private landowners 
long after India gained Independence and the divesting of their  mineral rights 
happened in this case by the operation of legislation enacted by the State. 
263.  The decision in Thressiamma Jacob (supra) held that the MMDR Act does not 
declare the proprietary rights of the state in mineral wealth, nor does it contain a 
provision for divesting the owner of a mine of proprietary rights. 324 Rights in 
minerals generally follow ownership of the land. The right of an owner of land 
extends to the sub-soil, including the minerals found underneath the soil, which 
continues until the State deprives the owner by a valid legal process. Importantly, 
Section 16(1)(b) of the MMDR Act also recognizes that the rights to minerals 
does not automatically vest in the State Government.
325  
264. Article 297 vests the proprietary rights in minerals within the territorial waters and 
the continental shelf in the Union Government. The provision reads: 
“297. Things of value within territorial waters or 
continental shelf and resources of the exclusive 
economic zone to vest in the Union –  
 
324 Thressiamma Jacob (supra) [55]  
325 Section 16, MMDR Act.

Source PDF page 155

Open this page in the original PDF
PART I 
 155 
(1) All lands, minerals and other things of value 
underlying the ocean within the territorial waters, or 
the continental shelf, or the exclusive economic 
zone, of India shall vest in the Union and be held for 
the purpose of the Union. 
(2) All other resources of the exclusive economic 
zone of India shall also vest in the Union and be held 
for the purposes of the Union. 
(3) The limits of the territorial waters, the continental 
shelf, the exclusive economic zone, and other 
maritime zones, of India shall be such as may be 
specified, from time to time, by or under any law 
made by Parliament.” 
265. Parliament has enacted the Offshore Areas Mineral (Development and 
Regulation) Act 2002 326 to provide for development and regulation of mineral 
resources in the territorial waters, continental shelf, exclusive economic zone, 
and other maritime zones of India. Section 2 contains a legislative declaration to 
the effect that the Union is taking under its control the regulation of mines and 
mineral development in offshore areas to the extent provided under the statute. 
Similar to the MMDR Act, Chapter II of the OAMDR Act lays down general 
provisions for acquisition of operating rights in offshore areas. However, unlike 
the MMDR Act which empowers the State Governm ent to grant mineral 
concessions,
327 the OAMDR Act mandates the Central Government to grant the 
operating rights.328 This difference is a result of the fact that the subsoil minerals 
are statutorily vested in the States, while the Constitution mandates the vesting 
 
326 “OAMDR Act” 
327 Section 5, MMDR Act 
328 Section 6, OAMDR Act

Source PDF page 156

Open this page in the original PDF
PART I 
 156 
of offshore minerals in the Union. Section 16 of the OAMDR Act deals with 
payment of royalty to the Central Government. The provision reads as follows: 
“16. Royalty – (1) A lessee shall pay royalty to the 
Central Government in respect of any mineral 
removed or consumed from the area covered under 
his production lease, at the rate for the time being 
specified in the First Schedule in respect of that 
mineral. 
(2) The Central Government may, by notification in 
the Official Gazette, amend the First Schedule so as 
to enhance or reduce the rate at which royalty shall 
be payable in respect of any mineral with effect from 
such date as may be specified in the notification: 
Provided that the Central Government shall not 
enhance the rate of royalty in respect of any mineral 
more than once during any period of three years.”  
266. As held in the above segments, royalty is paid to the proprietor of the minerals 
for the exercise of mineral rights. Minerals found in offshore areas are 
constitutionally vested in the Central Government. Therefore, the Central 
Government can statutorily and contractually demand royalty from lessees for 
removal or consumption of such minerals. In comparison, subsoil minerals can 
either be legally vested in the States or continue to remain vested with private 
landowners. Resultantly, the payment of royalty under Section 9 of the MMDR 
Act is paid either to the State Government or private landowner, as the case may 
be.  
267. Section 3 of the Haryana Minerals (Vesting of Rights) Act 1973 allowed the State 
Government to acquire the rights to minerals in any land. In State of Haryana v.

Source PDF page 157

Open this page in the original PDF
PART I 
 157 
Chanan Mal,329 where the validity of Section 3 was assailed, it was argued that 
the State legislative power to enact the legislation was curtailed by the operation 
of the MMDR Act. This Court noted that in Section 16(1)(b) of the MMDR Act 
Parliament has contemplated legislation by the States for vesting of lands 
containing mineral deposits in the State Government. The Court held that the 
MMDR Act deals with the regulation of rights to mining without intending to 
“trench upon powers of State legislatures under Entry 18 of List II read with Entry 
42 of List III.”
330 Chanan Mal (supra) lays down the principle that the decision of 
the States to acquire title to minerals does not fall foul of the MMDR Act because 
the latter does not control the ownership of minerals.  
268. The above discussion leads to two conclusions. First, the owner of a land can be 
divested of sub-soil rights in minerals only through a valid process of law, which 
has generally taken the shape of land reform legislation enacted by   State 
legislatures. Second, the MMDR Act does not vest the ownership of minerals or 
mineral rights in the State. It regulat es the exercise of rights to minerals which 
may be owned either by Government, private persons, or by both the 
Government and private persons.  
ii. Tax on land and buildings 
269. Entry 42 of the Provincial Legislative List in the Government of India Act 1935, 
read as follows: 
“42. Taxes on lands and buildings, hearths and 
windows” 
 
329 (1977) 1 SCC 340 
330 Chanan Mal (supra) [38]

Source PDF page 158

Open this page in the original PDF
PART I 
 158 
The Draft Constitution prepared by Shri B N Rau, the Constitutional Adviser  
adopted the above provision in draft Entry 43 of the Provincial Legislative List.331 
The Expert Committee on Financial Provisions suggested the deletion of the 
words “hearths and windows” from draft Entry 43 of the Provincial Legislative List 
on the ground that such taxes were not likely to be levied. The Committee 
observed that they would anyway be covered by the word “buildings.” 332 The 
recommendation of the Expert Committee was accepted by the Drafting 
Committee.
333  
a. Principles governing ‘taxes on lands and buildings’ 
270. The interpretation of the word “ lands” has been considered by this Court in 
several decisions . In Raja Jagannath Baksh Singh  v. State of Uttar 
Pradesh,334 the provisions of the UP Large Land Holdings Tax Act 1957 were 
challenged for falling beyond the legislative competence of the State legislature. 
It was contended that the expression “lands” under Entry 49 of List II does not 
include agricultural land. Rejecting this contention, Justice P B Gajendragadkar 
(as the learned Chief Justice then was) speaking for the Constitution Bench held 
that the word “lands” is wide enough to include all lands, agricultural or otherwise. 
In Anant Mills Co. Ltd.  v. State of Gujarat ,
335 this Court held that the word 
“lands” includes not only the face of the earth, but everything under or over it, 
and has in its legal signification an indefinite extent upward and downward.  The 
above decisions are authority for the proposition that the ambit of the word 
 
331 B Shiva Rao, ‘The Framing of India’s Constitution: A Study’ (1966, Volume 3) 181 
332 B Shiva Rao (Volume 3) 269 
333 B Shiva Rao (Volume 3) 502 
334 (1963) 1 SCR 220  
335 (1975) 2 SCC 175

Source PDF page 159

Open this page in the original PDF
PART I 
 159 
“lands” under Entry 49 of List II comprises: (i) all types of lands; and (ii) covers 
everything under or over land.  
271. In Ajoy Kumar Mukherjee v. Local Board of Barpeta,336 the constitutionality of 
an annual tax levied by local boards for the use of land for the purpose of holding 
markets was challenged before a Constitution Bench. Speaking for the Bench, 
Justice K N Wanchoo held that the tax was on land  used for a market, and not 
on the market held on land. The Court held that the use to which the land is put 
can be taken into account while  imposing a tax on the land  within the meaning 
of Entry 49 of List II.337 Further, it was observed that the incidence of tax was on 
the owner or occupier of the land, and not any other person who may come to 
the market to transact. In conclusion, it was held that the tax was a tax on land, 
though its incidence depended upon the use of the land as a market.  In 
Government of A P v. Hindustan Machine Tools Ltd., 338 it was held that the 
State legislature can tax buildings as a unit under Entry 49 of List II, but not the 
machinery and furniture contained in the building. In Ahmedabad Municipal 
Corporation v. GTL Infrastructure Ltd., 339 this Court held that the word 
“buildings” has to be interpreted dynamically to extend to all ancillary and 
subsidiary matters. Consequently, it was held that the State legislature has the 
legislative power to tax mobile towers under Entry 49 of List II. The principle 
which emanates from the above decisions is that a tax levied on the activity or 
service rendered on or in connection with lands and buildings does not fall within 
the description of taxes on lands and buildings under Entry 49 of List II. However, 
 
336 (1965) 3 SCR 47 
337 Ajoy Kumar Mukherjee (supra) [4]; See Jalkal Vibhag Nagar Nigam v. Pradeshiya Industrial & Investment Corp, 
(2021) 20 SCC 657 [46] 
338 (1975) 2 SCC 274 [17] 
339 (2017) 3 SCC 545 [29]

Source PDF page 160

Open this page in the original PDF
PART I 
 160 
the legislature may take into account the use of land or buildings for determining 
the incidence or measure of tax levied under Entry 49 of List II. 
272. Further, it is now well-established that a levy of tax on lands and buildings is not 
concerned with the division of interest or ownership in the units of lands and 
buildings.340 In Sudhir Chandra Nawn v. WTO,341 a Constitution Bench which 
dealt with the constitutional validity of Wealth Tax Act 1957, explained the scope 
of Entry 49 of List II by observing that the tax on lands and buildings is directly 
imposed on lands and buildings or both as units, and bears a definite relation to 
it. The decision holds that the S tate legislature may adopt the annual or capital 
value of lands and buildings for determining the incidence of tax levied under 
Entry 49 of List II. 
273. In Second Gift Tax Officer, Mangalore v. D H Nazareth,
342 this Court dealt with 
whether Parliament was competent to enact the Gift Tax Act under its residuary 
powers. In that case, the owner of a coffee plantation had made a gift of coffee 
plantations by a registered gift deed to his sons. The government demanded gift 
tax on the transfer of land title. It was contended that taxes on lands and buildings 
under Entry 49 of List II also cover taxes in respect of gift on lands and buildings. 
It was further submitted that since the legislative power of taxing gift of land is 
traceable to Entry 49 of List II, Parliament could not have taken recourse to its 
residuary powers. Chief Justice M Hidayatullah, speaking for the Constitution 
Bench, held that the impugned levy was not a tax directly imposed upon lands 
and buildings, but a tax upon the transmission of titl e by gift. The value of lands 
 
340 Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd., (1969) 2 SCC 55; Shri Prithvi 
Cotton Mills Ltd. v. Broach Borough Municipality, (1969) 2 SCC 283 [5] 
341 (1968) 69 ITR 897 
342 (1970) 1 SCC 749 [10]

Source PDF page 161

Open this page in the original PDF
PART I 
 161 
and buildings was held to be a measure of the value of gifts. Therefore, it was 
held that Parliament was competent to enact the levy. 
274. In D G Gose and Co (Agents) Pvt Ltd  v. State of Kerala,343 the validity of the 
Kerala Building Tax Act 1975 was challenged on the ground of being a tax on the 
capital value of the assets of an individual under Entry 86 of List I . The  
Constitution Bench held that a tax on buildings was a direct tax on the assessee’s 
buildings as such, and was not a personal tax without reference to any particular 
property. It was further held that a State legislature while imposing a tax under 
Entry 49 of List II may decide how best to levy it. 
275. In view of the above discussion, we can summarize344 the following principles for 
a tax under Entry 49 of List II: 
(i) The expression “lands” means all kinds of lands irrespective of the use  to 
which the land is put; 
(ii) The expression “lands” includes not only the surface but everything under 
and over the surface; 
(iii) A tax on lands and buildings is a tax on lands and buildings as units; 
(iv) The expression ‘tax on lands and buildings as a unit’ is used to distinguish 
composite taxes which involve imposition of tax cumulatively on all assets 
such as under Entry 86 of List I;  
(v) The tax is not a tax on totality, that is, it is not a composite tax on the value 
of all lands and buildings;  
(vi) The tax is not concerned with the division of interest in the building or land; 
 
343 (1980) 2 SCC 410 
344 See Union of India v. H S Dhillon, (1971) 2 SCC 779 [74]

Source PDF page 162

Open this page in the original PDF
PART I 
 162 
(vii) A tax levied on the activity or service rendered on or in connection with lands 
and buildings does not fall within the description of taxes on lands and 
buildings under Entry 49 of List II;  
(viii) The use to which the land is put does not affect the competence of the State 
legislature to tax it; and 
(ix) The legislature may take into account the use of land for determining the 
measure of taxation under Entry 49 of List II. 
a. States can impose tax on mineral bearing land 
276. A state does not have to tax everything in order to tax something. The legislature 
has a wide discretion is selecting the persons or objects it wants to tax depending 
upon social, economic, and administrative considerations .345 This discretion 
flows from the fact that a legislature which is competent to levy a tax must 
inevitably be given full freedom to determine “which articles should be taxed i n 
what manner and at what rate.”
346 The power to levy a tax includes  ancillary 
powers such as the power to fix the rate, prescribe machinery for the recovery of 
tax, prevent tax evasion, appoint authorities for collecting taxes, and prescribe 
the procedure for determining the amount of taxes payable by any individual.
347 
This Court has generally adopted the approach of giving wide latitude to the 
legislature in matters of tax and economic regulations,
348 provided the law is 
reasonable349 and avoids clear and hostile discrimination against particular 
persons or classes.350  
 
345 East India Tobacco Company v. State of Andhra Pradesh, 1962 SCC OnLine SC 145; Hiralal Rattanlal v. State 
of U P , (1973) 1 SCC 216 [20]. 
346 Khyerbari Tea Co. Ltd. v. State of Assam, (1964) 5 SCR 975 [44] 
347 Khyerbari Tea Co. Ltd. (supra) [19]; Union of India v. A Sanyasi Rao, (1996) 3 SCC 465 [16] 
348 R K Garg v. Union of India, (1981) 4 SCC 675 [8] 
349 Mafatlal Industries Ltd. v. Union of India, (1997) 5 SCC 536 [343] 
350 Federation of Hotel & Restaurant Association of India v. Union of India, (1989) 3 SCC 634 [46]

Source PDF page 163

Open this page in the original PDF
PART I 
 163 
277. The power to levy a tax on lands necessarily entails the power to classify lands 
sought to be taxed depending upon their use and productivity. A flat tax on all 
lands, irrespective of their use or productivity, may place an unequal burden on 
owners and occupiers of land. The need to provide a reasonable classification of 
lands for the purposes of the  levy of taxes under Entry 49 of List II emanates 
from Article 265 of the Constitution which provides that the States shall not levy 
taxes except by “authority of law”. The expression “law” appearing in Article 265 
has been interpreted to mean a valid law which conforms to the other provisions 
of the Constitution, including Article 14.
351 Consequently, the legislature is 
competent to classify properties into categories and tax them differently. In 
adjudicating the validity of the taxing statutes, this Court has held that the power 
of the legislature to classify is of “wide range and flexibility” so that it can adjust 
its system of taxation in all proper and reasonable ways.
352  
278. The expression “lands” includes lands of every description. A land may be put to 
use for growing tea leaves or extracting minerals. But what Entry 49 of List II 
contemplates is the levy of tax on land as a unit, irrespective of the use to which 
it is put. Therefore, the State legislature is competent while designing the levy 
under Entry 49 of List II to tax lands which comprise of mines and quarries. In 
other words, mineral-bearing land also falls within the description of “lands” under 
Entry 49 of List II.   
279. The State legislature has wide discretion to classify lands and levy taxes on them 
under Entry 49 of List II . This is also evident from the decision of this Court in 
Spencer & Co.  v. State of Mysore ,353 where excess land appurtenant to a 
 
351 K T Moopil Nair v. State of Kerala, 1960 SCC OnLine SC 7 [7] 
352 Khandige Sham Bhat v. Agricultural Income Tax Officer Kasargod, 1962 SCC OnLine SC 15 [7] 
353 (1971) 2 SCC 217

Source PDF page 164

Open this page in the original PDF
PART I 
 164 
building was treated as a separate class . This was challenged. Although land 
appurtenant to a building such as gardens or grounds were treated as part of the 
building, any such land which exceed ed thrice the area of the building was 
treated as a separate class. Chief Justice S M Sikri, speaking for the Constitution 
Bench, held  that the State legislature has the right to classify lands  for the 
purpose of levying taxes: 
“13. […] It seems to us that in cities like Bangalore, 
where land is scarce, excessive use of land as 
gardens and grounds is not in the public interest and 
the Legislature can validly tax the excess land on a 
different and higher basis. It may in a particular case 
cause hardship but the Legislature cannot be denied 
the right to classify the lands in such a manner. 
Three times the area occupied by a building is not a 
small area and we are unable to hold that his figure 
is not reasonable.” 
280. In their natural state, minerals or ores are part of the earth and remain embedded 
there unless extracted. It is also established that “lands” include everything over 
and below the surface. Therefore, constitutionally speaking sub- soil minerals 
also form part of land.  The subject of taxation in Entry 49 of List II is land as a 
unit. The subject of tax in Entry 50 of List II is the mineral rights. Hence, there is 
a distinction between the legislative field in in the two entries. Ultimately, however 
it must be borne in mind that both Entries 49 and 50 fall within List II and are 
hence within the domain of the State legislatures. If the tax is relatable to Entry 
50 of List II, the tax on mineral rights must be consistent with any li mitations 
which Parliament imposes in a law relating to mineral development. The 
interrelationship between Entry 50 of List II with List I, particularly Entry 54 of that 
list has been examined in an earlier segment.

Source PDF page 165

Open this page in the original PDF
PART I 
 165 
281. The legislative competence of the States to tax lands under Entry 49 of List II will 
not be affected by the MMDR Act. In Western Coalfields Ltd. v. Special Area 
Development Authority,354 the vires of a  provision conferring powers on the 
Municipal Councils and Municipal Corporations to levy tax on lands and buildings 
was challenged. The provision was argued to be invalid because it allowed the 
municipalities to tax lands covered by coal mines, which w ere the subject of  
legislation by Parliament under the MMDR Act and the Coal Mines 
(Nationalisation) Act 1973355. Chief Justice Y V Chandrachud, speaking for the 
majority, rejected the contention on the ground that the tax on lands and buildings 
had “nothing to do with the development of mines” and, therefore, did not conflict 
with the power of the Central Government to regulate and develop mines under 
the Coal Mines Act. 356 In the context of the legislative declaration contained in 
Section 2 of the MMDR Act, the learned Chief Justice observed  that though “on 
account of that declaration, the legislative field covered by Entry 23 List II may 
pass on to Parliament by virtue of Entry 54 List I, the competence of the State 
Government to enact laws for municipal administration will remain unaffected by 
that declaration.” Significantly, the Court observed that the declaration in Section 
2 of the MMDR Act does no result in the invalidation of every State legislation 
relating to mines and minerals.  
282. The principle which emanates from Western Coalfield Ltd (supra) is that the 
legislative declaration under the MMDR Act will only affect the legislative power 
of the State with respect to Entry 23 of List II to the extent the P arliamentary 
legislation covers the subject -matter. The legislative powers of the State with 
 
354 (1982) 1 SCC 125 
355 “Coal Mines Act” 
356 Western Coalfields Ltd (supra) [28].

Source PDF page 166

Open this page in the original PDF
PART I 
 166 
respect to other subjects under List II, including taxes on lands and buildings, will 
not be affected or controlled by the MMDR Act. Therefore, the legislative powers 
of the States to levy a tax falling under Entry 49 of List II remains unaffected.  
iii. Measure of tax 
283. Among its elements a tax has to provide for the charge of tax, the incidence of 
tax, the measure of the tax and will contain provisions in the nature of the 
machinery for assessment and recovery.  In Rai Ramkrishna v. State of 
Bihar,357 a Constitution Bench of this Court observed as follows: 
“12. […] The objects to be taxed so long as they 
happen to be within the legislative competence of 
the legislature can be taxed by the legislature 
according to the exigencies of its needs, because 
there can be no doubt that the State is entitled to 
raise revenue by taxation. The quantum of tax levied 
by the taxing statute, the conditions subject to which 
it is levied, the manner in which it is sought to be 
recovered, are all matters within the competence of 
the legislature, […]”  
284. It now a well -settled principle that the determination of the principles for 
assessing the amount of tax is within the legislative domain.358 The quantification 
or measurement of liability is done on the basis of the procedures laid down by 
the competent legislature. 359 In situations where the legislature selects one 
method out of the many available for assessing tax, the courts should not strike 
down the levy on the ground that the legislature should have adopted another 
method unless the method is capricious, fanciful, arbitrary or clearly unjust.
360 
 
357 (1963) SCC OnLine SC 31 
358 S Kodar v. State of Kerala, (1974) 4 SCC 422 [10] 
359 Shaktikumar M Sancheti v. State of Maharashtra, (1995) 1 SCC 351 [3] 
360 Khandige Sham Bhat v. Agricultural Income Tax Officer, Kasargod, 1962 SCC OnLine SC 15 [10]

Source PDF page 167

Open this page in the original PDF
PART I 
 167 
Although the liability  may be quantified or measured in many ways, there is a 
clear distinction between the subject matter of a tax and the standard by which 
the amount of tax is measured.  
285. The pith and substance or  true nature and character of the legislation must be 
determined with reference to the legislative subject matter  and the charging 
section.361 The charging section levying a tax and defining the persons who are 
liable to pay the tax constitute the core of a tax ing statute.362 The distinction 
between the nature of tax and measure of tax can be gathered from the decision 
of this Court in Sainik Motors, Jodhpur v. State of Rajasthan.363 In that case, 
the petitioners challenged the levy of taxes on passengers and goods by the 
State legislature. The charging section provided that the tax was “in respect of 
all passengers carried and goods transported by motor vehicles at such rate not 
exceeding one-eight of the value of the fare or freight.” This Court held that the 
tax was on passengers and goods which could be traced to Entry 56 of List II of 
the Seventh Schedule. As regards the measure of the levy, it was held that that 
the measure was furnished by the amount of the fare and freight charged. 
286. It is a settled position that the measure of tax is not a true test of the nature of 
tax.
364 The standard adopted as a measure of tax may be a relevant 
consideration in determining the nature of tax, but is not conclusive.  In Sir 
Byramjee Jeejeebhoy v. The Province of Bombay,365 the Bombay Provincial 
Legislature levied ‘urban immovable property tax’ at ten percent of the annual 
letting value of lands and buildings. The Bombay High Court upheld the validity 
 
361 Federation of Hotel & Restaurant Association of India v. Union of India, (1989) 3 SCC 634 [37] 
362 B Shama Rao v. Union Territory of Pondicherry, 1967 SCC OnLine SC 29 
363 (1962) 1 SCR 517 
364 R R Engineering Co. v. Zilla Parishad, Bareilly, (1980) 3 SCC 380 [16] 
365 1942 SCC OnLine Bom 30

Source PDF page 168

Open this page in the original PDF
PART I 
 168 
of the levy. Justice Broomfield observed that the power to impose taxes on lands 
and buildings meant the power to impose taxes on persons, owners, or occupiers 
as the case may be in respect of these properties. Justice Harilal Kania (as the 
learned Chief Justice then was) observed that the adoption of the annual letting 
value as the standard for fixing the tax rate did not necessarily make it a tax on 
income. The learned Judge further observed that the standard on which the tax 
is levied does not determine the nature of the tax. 
287. In Ralla Ram  v. The Province of East Punjab,
366 the issue that fell for 
consideration of the Federal Court was whether the provisions of the Punjab 
Urban Immoveable Property Tax Act 1940 were ultra vires the legislative powers 
of the Provincial Legislature. Section 3 of the legislation levied a tax on lands and 
buildings at a rate not exceeding twenty percent of the annual value. It was 
contended that the levy was in substance a tax on income since the measure 
adopted, that is the annual value of lands and buildings, was also used to 
calculate income from property. Justice Fazl Ali observed that annual value is not 
necessarily actual income, but only a standard by which income may be 
measured. The learned Judge analyzed the substance of the impugned levy to 
observe that the legislation used  annual value merely for the purpose of 
determining the value of the property to be taxed. The Court observed that if a 
tax is levied on property, it would not be irrational to correlate it to the value of 
the property and to make some kind of annual value the basis of the tax without 
intending to tax income. The levy was held to be in pith and substance a tax on 
land and buildings even though the basis of the tax was similar to the  one 
adopted to measure income.  
 
366 1948 SCC OnLine FC 9

Source PDF page 169

Open this page in the original PDF
PART I 
 169 
288. From the above discussion, we can derive the following principles: (i) the 
incidence of a tax on lands and buildings will likely be on the owner or occupier, 
as the case may be; (ii) the legislature may adopt a suitable measure for levying 
the tax on lands and buildings  under Entry 49 of List II ; and (iii) the measure 
adopted by legislature does not determine the nature of the tax. 
289. In recent decades, this Court has held that there ought to be a “nexus” between 
the nature of tax and the measure of tax. In Union of India  v. Bombay Tyre 
International Ltd.,
367 the issue before a three -Judge Bench of this Court was 
whether the value of an article for the purposes of excise duty must be 
determined exclusively with reference to the manufacturing cost and 
manufacturing profit of the manufacturer or the entire wholesale price368 charged 
by the manufacturer. The assesses contended that only the measure of 
manufacturing cost and profit create a direct and immediate nexus between the 
levy and the manufacturing activity. It was further urged that the post -
manufacturing expenses and profits ought to be necessarily exc luded to 
preserve the nexus between the nature of tax and the assessment of tax. This 
Court traced the line of precedent on the measure of tax to observe that a broad 
standard of reference may  be adopted for the purpose of determining the 
measure of the levy. It was held that any standard which maintains a nexus with 
the essential character of the levy can be regarded as a valid basis for the 
measure of the levy. In CCE v. Grasim Industries Ltd.,
369 a Constitution Bench 
reiterated that there must be a “reasonable nexus” between the nature of tax and 
 
367 (1984) 1 SCC 467 [14] 
368 The wholesale price actually charged by the manufacturer consisted of not merely the manufacturing costs and 
manufacturing profit but included , in addition, a whole range of expenses and an element of profit (conveniently 
referred to as “post-manufacturing expenses” and “post-manufacturing profit”) arising between the completion of 
the manufacturing process and the point of sale by the manufacturer. 
369 (2018) 7 SCC 233

Source PDF page 170

Open this page in the original PDF
PART I 
 170 
the measure of the levy. It was further observed that the measure cannot be 
controlled by the rigors of the nature of tax.  
290. The discussion above indicates that the nexus between the measure and levy of 
tax need not be “direct and immediate”. The nexus has to be “reasonable” and 
must have some relationship with the nature of levy.  The reasonability of the 
nexus will largely depend upon the nature of the tax and the means available 
with the legislature to design the measure of the tax. Since the measure of the 
levy is a matter of legislative policy and convenience, 370 the reasonability of the 
nexus between the measure and tax has to be determined by the courts on a 
case-to-case basis. While doing so, the Court will bear in mind the fundamental 
principle that the legislature possesses a broad discretion in matters of fiscal 
levies.  
a. Taxing mineral-bearing land 
291. The tax on lands and buildings  under Entry 49 of List II is often  measured with 
respect to the income derived from the land or building sought to be taxed. The 
income derived from land or building is normally measured in terms of the annual 
value. Section 23 of the Income Tax Act provides that the annual value of property 
shall be deemed to be the sum for which the property might reasonably be 
expected to let from year to year.
371 Thus, where a land or building is let, the 
valuation is based on the rent at which it is let.372  
292. In K T Moopil Nair v. State of Kerala,373 Chief Justice B P Sinha observed that 
a tax on land or land revenue is assessed on the actual or potential productivity 
 
370 Express Hotels (P) Ltd. v. State of Gujarat, (1989) 3 SCC 677 [25] 
371 Section 23, I T Act 1961 
372 Patel Gordhandas Hargovindas v. Municipal Commissioner, 1963 SCC OnLine SC 57 [10] 
373 1960 SCC OnLine SC 7 [8]

Source PDF page 171

Open this page in the original PDF
PART I 
 171 
of the land sought to be taxed. The decision noted that a tax has reference to the 
income actually made or which could have been made. Thus, the principle 
emanating from this decision is that a tax under Entry 49 of List II may be levied 
on the actual or potential productivity of the land. In State of Kerala v. Haji K 
Kutty Naha,374 there was a challenge to the Kerala Buildings Act 1961 which 
levied tax on buildings in the state based on the floor area. This Court observed 
that the legislature did not take into consideration factors such as the class to 
which the building belonged, the nature of construction, the purpose for which it 
was used, its situation and capacity for profitable user and other relevant 
circumstances which had a bearing on matters of taxation. It was held that the 
statute was unconstitutional for treating dissimilar objects similarly. Haji K Kutty 
Naha (supra) recognized that a tax on lands and buildings must be measured by 
taking into consideration relevant factors related to the use of the lands or 
buildings.
375  
293. In Spencer & Co. (supra), the validity of a property tax assessed at 0.4 percent 
of the market value was challenged before this Court. It was urged that the levy 
of the property tax on vacant lands was unconstitutional because it wa s levied 
without any relation to the actual or potential income of the land. The Constitution 
Bench rejected the contention on the grounds that the market value of the land 
always bears a “ definite relationship” to the actual or potential income being 
derived or derivable from the land.  
294. The measure for taxing land may bear a reasonable relationship to the actual or 
potential productivity of land.  Measures such as annual value or market value 
provide a proximate basis to measure the income derived from land. If the State 
 
374 (1969) 1 SCR 645  
375 Also see New Manek Chowk Spg. & Wvg. Mills v. Ahmedabad Municipality, 1967 SCC OnLine SC 116 [13]

Source PDF page 172

Open this page in the original PDF
PART I 
 172 
legislature utilizes the income derived from the land as a measure to quantify a 
tax on land, it does not trench upon the legislative domain of Union to tax income. 
The income merely serves as the measure to calculate the levy of taxes on 
land.
376 Having looked at the general principles relating to the measure of tax on 
land, we now look at specific decisions pertaining to taxation of mineral -bearing 
land.  
295. In H R S Murthy  (supra), the validity of a land cess under the Madras District 
Boards Act 1920 was in issue. The cess was levied on the annual rent value of 
all occupied lands and the tax was measured on the basis of “two annas in the 
rupee of the annual rent value of all such lands in the district.”  In case of lands 
held direct ly from the Government, the annual rent value was defined as the 
assessment, lease amount, royalty  or other sum payable to Government. 
Justice N Rajagopala Ayyangar, speaking for the  Constitution Bench  
distinguished the decisions in Hingir-Rampur (supra) and M A Tulloch (supra) 
on the ground that the land cess: (i) was not concerned with the development of 
mines and minerals; (ii) was not collected for development of mining areas, but 
for the safety, health, convenience, and education of the inhabitants in the local 
area; and (iii) there was nothing in common between the impugned levy and the 
MMDR Act. Therefore, it was held that the operation of MMDR Act did not 
exclude the legislative competence of the State to levy the cess.  
296.  The petitioners argued in H R S Murthy  (supra) that (i) the cess was payable 
only when the mining lessee paid royalty to the lessor; (ii) when no minerals were 
extracted, no royalty was payable; and (iii) the cess in effect was a tax on mineral 
rights. These contentions were rejected because: (i) the levy was in nature and 
 
376 Ahmedabad Municipal Corporation v. GTL Infrastructure Limited, (2017) 3 SCC 545 [19]

Source PDF page 173

Open this page in the original PDF
PART I 
 173 
substance a tax on land; (ii) the levy had  a remote relationship to mining and to 
the mineral won from the mine under a contract by which royalty was payable on 
the quantity of mineral extracted, which  did not make it a tax on either the 
extraction of mineral or on the mineral rights; and (iii) the rent value of a land held 
under lease is calculated on the basis of the lease amount. In case of a land held 
under a mining lease, the rent value will include the surface rent, dead rent as 
well as the royalty payable by the lessee or occupier for the use of the property. 
The decision in H R S Murthy (supra) supports the position that royalty can be 
used as a measure to tax mineral bearing land.  
297. The issue of taxing mineral bearing land under Entry 49 of List II also came up 
before this Court in India Cement  (supra). To recap, in India Cement  (supra) 
local cess levied by the State legislature was measured with respect to the land 
revenue payable to the Government. The definition of land revenue included 
royalty. Therefore, the issue before the seven-Judge Bench was whether the levy 
of cess on royalty was valid. Speaking for the majority, Justic e Sabyasachi 
Mukharji observed that the cess was not on land but on royalty . The conclusion 
rested on the following reasons: (i) since royalty is income arising from land, it is 
not directly connected to the land; (ii) if royalty is the basis of taxation, no tax can 
be levied if no mining activities are carried on; and (iii) royalty cannot be used as 
a measure under Entry 49 of List II because it is exclusively relatable to Entry 50 
of List II. Justice Mukharji held that H R S Murthy  (supra) was “not a correct 
approach” to the issue. The decision in India Cement (supra) was followed by a 
three-Judge Bench in Orissa Cement (supra). 
298. In Orissa Cement (supra), Section 5(1) of the Orissa Cess Act 1962 provided 
that the cess shall be assessed on the annual value of all lands calculated in the

Source PDF page 174

Open this page in the original PDF
PART I 
 174 
manner as provided. Section 5(2) provided for the levy of cess in case of mineral 
bearing land thus: 
“5. (2) The rate per year at which such cess shall be 
levied shall be –  
In case of lands held for carrying on mining 
operations in relation to any minerals, such per 
centum of the annual value as the State Government 
may, by notification, specify from time to time in 
relation to such mineral;” 
The “annual value” was defined in Section 7. And sub-section 3 provided that in 
case of lands held for carrying on mining operations, annual value shall be the 
royalty or as the case may be, the dead rent payable by the person carrying on 
mining operations to the government, or the Pit’s mouth value wherever it has 
been determined. 
299. Speaking for the three-Judge Bench, Justice S Ranganathan observed that there 
is a difference in principle between a tax on royalties derived from land and a tax 
on land measured by reference to the income derived from land. The Court 
observed that the levy was not measured by income derived by the assessee 
from land, as was the case with lands other than mineral lands, but by royalty 
paid in respect of the land by the assessee to the lessor. The Court relied on 
India Cement (supra) to hold that royalty cannot be used as a measure to tax 
mineral-bearing land: 
“33. […] But the question, what is it that is really 
being taxed by the legislature? So far as mineral -
bearing lands are concerned, is the impact of the tax 
on the land or on royalties? The change in the 
scheme of taxation under Section 7 in 1976; the 
important and magnitude of the revenue by way of 
royalties received by the State; the charge of the

Source PDF page 175

Open this page in the original PDF
PART I 
 175 
cess as a percentage and, indeed, as multiples of 
the amount of royalty; and the mode and collection 
of the cess amount along with the royalties and as 
part thereof are circumstances which go to show that 
the legislation in this regard is with respect to royalty 
rather than with respect to land.” 
300. In Federation of Mining Associations of Rajasthan v. State of Rajasthan,377 
a three- Judge Bench relied on India Cement  (supra) and Orissa Cement  
(supra) to declare that the State legislature  did not have competence to a levy 
tax on mineral bearing land on the basis of the royalty derived from the land.  
301. In the aftermath of the decision in Orissa Cement (supra), the State legislature 
of Orissa enacted the Orissa Rural Employment, Education and Production Act 
1992 to increase the income of the State and compensate the loss faced by the 
exchequer. The legislation levied a cess on “all lands”. Land was defined to mean 
“land of whatever description […] and includes all benefits to arise out of lands.” 
In Mahanadi Coalfields (supra) this Court held that since ‘minerals’ are benefits 
arising out of land, the char ging section imposed a tax on minerals.
378 The levy 
was held in substance to be on mineral rights  under Entry 50 of List II . It was 
observed that since the MMDR Act provides for “all kinds of taxation on minerals 
and mineral rights,” the State legislature was not competent to levy the tax under 
Entry 50 of List II.   
302.  The decisions rendered in above judgments, ranging from India Cement (supra) 
to Mahanadi Coalfields (supra), proceed on two premises: first, the MMDR Act, 
by providing for all levies with respect to taxation of minerals and mineral rights, 
completely excludes the legislative competence of the State s to tax mineral -
 
377 1992 Supp (2) SCC 239 [5] 
378 Mahanadi Coalfield Ltd. (supra) [19]

Source PDF page 176

Open this page in the original PDF
PART I 
 176 
bearing land; and second, royalty is not directly connected to land and cannot be 
used as a measure to tax mineral -bearing land. The first premise has been 
answered in the earlier segments of this judgment. The  MMDR Act does not 
serve as a limitation on the legislative competence of the States to tax mineral 
rights under Entry 50 of List II. Moreover, as held in Special Areas Development 
Authority (supra), the MMDR Act does not impede the legislative competence 
of the States with respect to legislative entries under List II, including the power 
to levy taxes on  mineral-bearing lands under Entry 49 of List II . The second 
assumption is also wrong for the reasons we will discuss in the ensuing 
segments. 
b. Goodricke  
303. Apart from income, the quantum of yield or produce of the lands may also be 
used to measure the amount of tax. In Buxa D ooars Tea Co. Ltd. v. State of 
West Bengal,
379 the levy of ‘rural employment cess’ on tea estates under the 
West Bengal Rural Employment and Production Act 1976 was challenged. 380 
The measure of tax of the levy was based on the quantity of tea dispatched from 
the estate. The issue before a two- Judge Bench was whether the levy was in 
respect of tea estates or on the dispatch of tea. The Court held that the measure 
of the levy defined in terms of the weight of the tea dispatched fr om the estate 
had no nexus with the nature of the tax, that is, a tax on land estates. Therefore, 
it was held that what the legislation really contemplated was a levy on dispatches 
of tea.  
 
379 (1989) 3 SCC 211 
380 “1976 Act”

Source PDF page 177

Open this page in the original PDF
PART I 
 177 
304. In view of Buxa D ooars Tea (supra), the State legislature enacted the West 
Bengal Taxation Laws (Second Amendment) Act 1989 to amend the Act of 1976. 
The amendment provided that the rural employment cess would be levied 
annually on a tea estate at a rate of twelve paise for each ki logram of green tea 
leaves produced at the estate. In comparison with the previous provision which 
measured the tax on the basis of the quantity of tea dispatched, the measure of 
the cess in the amended provision was the production of green leaves.  
305. The amended provision was challenged before this Court in Goodricke Group 
Ltd v. State of West Bengal.
381 The primary issue before this Court was whether 
the impugned levy was a levy on lands within the meaning of Entry 49 of List II 
of the Seventh Schedule. Justice B P Jeevan Reddy, speaking for the three-
Judge Bench, observed that the income or yield of a land or building can be taken 
as a measure of the tax on land and buildings. Hence, the measure of the tax 
based on the yield from the land was held to be valid: 
“20. […] In the case before us, the cess is no doubt 
calculated on the basis of the yield –  for every 
kilogram of tea leaves produced in a tea estate, a 
particular cess is levied. But that is a well -accepted 
mode of levy of tax on land. The tax is upon the land 
– upon the “tea estate” which is classified as a 
separate category, as a separate unit, for the 
purpose of levy and assessment of the said cess 
quantified on the basis of the quantum of produce of 
the tea estate. It cannot be characterised as a tax on 
production for that reason. […]”  
 
381 1995 Supp (1) SCC 707

Source PDF page 178

Open this page in the original PDF
PART I 
 178 
306. In Goodricke (supra), the petitioners relied on India Cement (supra) and Orissa 
Cement (supra) to urge that there has to be a direct connection between the land 
and the levy.  The two decisions were distinguished on the following rationale: 
“21. […] The basis of the judgment – and the ratio of 
the decision – in our respectful opinion is that it was 
case where the tax was measured not with reference 
to or on the basis of the income or yield of the land 
but with reference to the amount of royal ty payable 
by the lessee to his lessor. It was for this reason that 
the tax was held to be not upon the land. Royalty is 
a matter of agreement between the lessor and the 
lessee; it may also be determined by a statutory 
provision. But royalty is not a produce of the land; 
royalty is not the income of the land nor is the royalty 
the yield of the land – and that is the distinction.” 
307. It is important to note the above observation to the effect that royalty is not the 
produce, income, or yield of the land. Royalty is paid by a lessee to the lessor as 
consideration for the exercise of mineral rights. However, does this preclude the 
State legislature from using royalty as a measure of taxes on mineral -bearing 
land? We will deal with this issue in greater detail in a later part of the judgment.  
308. Another argument which was addressed in Goodricke (supra) was that no land 
cess can be levied if there is no yield from the tea estate. Justice Jeevan Reddy 
negatived this contention by observing that a tea estate will not yield produce if 
it is not properly tended and nurtured. However, an ordinary prudent owner or 
occupier of a tea estate would take care to properly nurture of the estate. When 
tax is measured on the basis of the quantum of production, there is a probability 
that the tax collected would vary depending upon the amount produced. 
However, the learned Judge observed that  uniformity of taxation is not an 
essential condition. Goodricke  (supra) adopted the standard of an ordinary 
prudent person to infer that the tea estate will generally be properly nurtured.

Source PDF page 179

Open this page in the original PDF
PART I 
 179 
When the yield from land is used as a measure of the tax on land, the tax is 
essentially assessed on the actual or potential productivity of the land. The 
majority in Kesoram (supra) approved Goodricke (supra). We will deal with the 
relevance of the reasoning in Goodricke  (supra) in the context of mineral -
bearing land in the following segment. 
309. The other issue in Goodricke (supra) was the effect of the declaration in Section 
2 of the Tea Act 1953 on the competence of the State legislature to levy the land 
cess. Parliament had enacted the Tea Act in pursuance of Entry 52 of List I of the 
Seventh Schedule. Section 2 declares that the Union is taking under its control 
the tea industry in the public interest. Section 25 imposes a duty of excise on all 
tea produced in India at a rate not exceeding fifty paise per kilogram as the 
Central Government may notify.
382 The proviso to Section 25(1) empowers the 
Central Government to prescribe different rates of cess for different varieties or 
grades of tea. The issue was whether the levy under Section 25 (which is 
measured on the basis of the quantum of tea produced) den uded the State 
legislature of the competence to impose a cess on land adopting the same 
measure. 
310. The Court observed that both the levies are different – while excise duty is on 
the produce of the land, land cess is a tax on land.  Section 25 of the Tea Act 
 
382 Section 25, Tea Act 1953. [It reads:  
“25. Imposition of cess on tea produced in India – (1) There shall be levied and collected as a cess for the purposes 
of this Act a duty of excise on all tea produced in India at such rate not exceeding fifty paise per kilogram as the 
Central Government may, by notification in the Official Gazette, fix: 
Provided that different rates may be fixed for different varieties or grades of tea having regard to the location of, 
and the climatic conditions prevailing in, the tea estates or garden producing such varieties or grades of tea and 
any other circumstances applicable to such production. 
(2) The duty of excise levied under sub-section (1) shall be in addition to the duty of excise leviable on tea under 
the Central Excises and Salt Act, 1944 (1 of 1944), or any other law for the time being in force. 
(3) The provisions of the Central Excises and Salt Act, 1944 (1 of 1944), and the rules made thereunder, including 
those relating to refund and exemption from duty, shall, so far so may be, apply in relation to the levy and collection 
of the duty of excise under this section as they apply in relation to the levy and collection of the duty of excise on 
tea under the said Act.”]

Source PDF page 180

Open this page in the original PDF
PART I 
 180 
enacted by Parliament was held not to deprive the State legislature of its power 
to levy a tax on lands comprised in a tea estate. The declaration in Section 2 of 
the Tea Act was held not to affect the legislative competence of the State 
legislature to levy land cess since it did not seek to control the cultivation of tea 
but sought to tax tea estates. The land cess was construed not to be on the tea 
industry, but a cess on land comprised in tea estates. 
311. The decision indicates that the field reserved to the States under Entry 49 of List 
II is to impose a tax on land as a unit, without seeking to control the activity or 
use taking place on the land which is taxed. Similarly, a tax on mineral -bearing 
land is a tax on the land as a unit; it does not seek to control the mining activity 
which takes place on the land. Therefore, there is no conflict between the taxing 
field of the States under Entry 49 of List II to levy a on tax mineral -bearing land 
and the power of Union to regulate mines and mineral development under the 
legislative head of Entry 54 of List I.  
iv. Measure of tax on mineral-bearing land 
a. Decoupling of minerals from land 
312. The respondents contend that the value of minerals cannot be used as a 
measure of tax on land because minerals are effectively decoupled from mineral-
bearing lands by land reform legislation enacted by the States. It was submitted 
that the decoupling occurred when the minerals were legally vested in the State. 
Consequently, it was submitted that since the right to minerals vests with the 
State, the value of minerals cannot be used as a measure to tax land. Another 
interesting point of submission on behalf o f the respondents was that when the 
State transfers the mineral rights to the lessee under a mining lease, the lessee

Source PDF page 181

Open this page in the original PDF
PART I 
 181 
acquires the right to the minerals only upon their extraction and payment of 
royalty. 
313. The petitioners rebut the above submissions of the respondents by arguing that 
there is no provision under the MMDR Act providing for notional segregation of 
minerals from land. It was contended that the land and minerals remain legally 
and naturally intertwined until the minerals are extracted from the land in exercise 
of mineral rights. The decoupling occurs only when a lessee exercises their 
mining rights to work the mines and win the sub- soil minerals. Moreover, it was 
submitted that under a mining lease, the lessee is granted a lease of the demised 
area along with the mineral rights. The logical corollary to the petitioners’ 
argument is that the lessee acquires the rights to the minerals at the signing of 
the mining lease and therefore, the value of minerals can be validly used as a 
measure for taxing mineral bearing land. 
314.  In view of the above submissions, the first issue that we need to address is 
whether a mining lease also comprises a lease of land along with the mineral 
rights. Section 3(ac)  of the MMDR Act  defines “leased area” to mean the area 
specified in the mining lease within which the mining operations can be 
undertaken and includes the non- mineralised area required and approved for 
activities falling under the definition of “mine”. There are other provisions under 
the MMDR Act which also deal with mineral bearing land. Section 6 prescribes 
the maximum area with respect to which a mineral concession may be granted. 
Thus, determination and ascertainment of land area is the first step towards the 
grant of a mineral concession.
383 Section 9 fixes the rate of royalty in respect of 
 
383 See Kaviraj Basudevanand v. Mahant Harihar Gir, (1974) 2 SCC 514 [9]. [This Court held that the mining lease 
will have to conform to the provisions of Section 6 of the MMDR Act regarding the maximum area for which the 
mining leave will have effect.]

Source PDF page 182

Open this page in the original PDF
PART I 
 182 
any mineral removed or consumed by the lessee or their agent from the leased 
area. Section 9-A envisages the payment of dead rent “for all the areas included 
in the instrument of lease.” Thus, dead rent is relatable to the area specified in 
the mining leas e. Section 11(10) requires the holder of a composite licence to 
submit a report to the State Government specifying the area required for mining 
lease and the State Government shall grant mining lease for such area. The 
above provisions indicate that the leased area forms an integral part of a mining 
lease. However, the position becomes clearer when we look at the provisions of 
the Mineral Concession Rules. 
315. Rule 31 of the Mineral Concession Rules requires a mining lease to be executed 
in terms of Form K or in a form as near thereto as circumstances of each case 
may require. The preamble to Form K grants and demises unto the lessee all 
“those the mines beds/veins seams” with respect to the specified mineral situated 
lying and being in or under the lands referred to in Part I. Part I details the area 
of the lease and its description. The mining lease makes it evident that the 
demise is for the minerals and not t he area of land in which the minerals are 
found. There may arise situations where the lands may be owned by private 
individuals, but the minerals are vested in the State. To remedy such situations, 
Rule 72 of the Mineral Concession Rules mandates the holder of a mining lease 
to pay annual compensation to the occupier of the surface rights. The provision 
states that in case of agricultural land, the amount of annual compensation shall 
be worked out on the basis of the average annual net income from the cultivation 
of similar land for the previous three years. In case of non- agricultural land, the 
amount of annual compensation shall be worked out on the basis of the average 
annual letting value.

Source PDF page 183

Open this page in the original PDF
PART I 
 183 
316. Under the scheme of the MMDR Act, the mining lease holder is required to obtain 
the surface rights where the land is not owned by them. For instance, Rule 22 of 
the Mineral Concession Rules deals with the applications for grant of mining 
leases. Rule 22(3)(h) requires the applicant for grant of mineral rights to submit 
a statement in writing stating that they have obtained surface rights over the area 
or have obtained the consent of the owner for starting mining operations in case 
the lessee is not the owner.
384 A similar pre-condition has been laid down with 
respect to the grant of a prospecting licence. 385 Further, Rule 27(1)(t) requires 
the mining lessee to pay to the occupier of the surface of the land such 
compensation as may become payable under the Mineral Concession Rules. 
Importantly, Rule 36 states that the boundaries of the area covered by a mining  
lease shall run vertically downwards below the surface towards the centre of the 
earth. Thus, the sub-soil activities are spatially restricted by the surface area. 
317. The government can acquire surface rights for public purposes, including mining, 
and lease it to the lessee. The acquisition of surface rights by the Government 
takes place in accordance with the land acquisition legislations. For example, the 
Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation 
and Resettlement Act 2013 empowers the Government to acquire land in any 
area for any public purpose.
386 In case the owner is a private person, the surface 
right could be granted to the mining lessee by virtue of a separate lease deed. 
 
384 Rule 22(3)(h), Mineral Concession Rules 1960. It reads: “(h) a statement in writing that the applicant has, where 
the land is not owned by him, obtained surface rights over the area or has obtained the consent of the owner for 
starting mining operation. 
Provided further that the consent of the owner for starting mining operations in the area or part thereof may be 
furnished after the execution of the lease deed but before entry into the said area; 
Provided also that no further consent would be required in the case of renewal where consent has already been 
obtained during grant of the lease.” 
385 Rule 9(2)(g), Mineral Concession Rules 1960. 
386 See Sections 11 and 12, Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and 
Resettlement Act 2013.

Source PDF page 184

Open this page in the original PDF
PART I 
 184 
The rights to the surface will generally be concomitant with the rights to the 
minerals. 
318. The issue of severance between surface rights and mineral rights came up 
before a Constitution Bench of this Court in Burrakur Coal Co. Ltd. v. Union of 
India387 in the context of the Coal Bearing Areas (Acquisition and Development) 
Act 1957.388 The Coal Bearing Areas Act was enacted by Parliament to establish 
public control over the coal mining industry and its development by providing for 
the acquisition by the State of unworked land containing or likely to contain coal 
deposits or of rights in or over such land. Section 4 allows the Central 
Government to issue a preliminary notification giving notice of its intention to 
prospect for coal with respect to a particular land in any locality. Once the 
notification is issued under Section 4, any pros pecting licence or mining lease 
with respect to that land ceases to have effect. Sections 7 and 9 empower the 
Central Government to acquire whole or part of any lands in which coal is 
obtainable. On the publication of the declaration of acquisition under S ection 9, 
the land or the rights in or over the land vest absolutely in the Central 
Government free from all encumbrances.
389 Section 13 pertains to the grant of 
compensation for cessation of prospecting licenses and acquisition of mining 
leases by the Central Government under Section 4. Thus, under the Coal 
Bearing Areas Act, the Central Government acquires the surface rights t o the 
coal bearing lands. 
319. In Burrakur Coal (supra), the petitioners challenged a notification issued by the 
Central Government under Section 4 of the Coal Bearing Area Act for violation 
 
387 AIR 1961 SC 954 
388 “Coal Bearing Areas Act” 
389 Section 10, Coal Bearing Areas (Acquisition and Development) Act 1957

Source PDF page 185

Open this page in the original PDF
PART I 
 185 
of fundamental rights. The main thrust of the petitioner’s submissions was that a 
notification under Section 4 cannot be issued with respect to mines which have 
been ‘worked’ by the lessees. The petitioners also contended that since Section 
13 does not provide for compensation for minerals lying underground, Parliament 
could not have enacted the law for acquiring the mines which are being worked 
or already worked in the past. Speaking for the Bench, Justice J R Mudholkar 
addressed the petitioner’s contentions as follows: 
“17. […] According to Mr. Das if we have understood 
him right, when a person has acquired land either as 
an owner or as a lessee carrying with it the right to 
win minerals and has opened in that land mines 
which he worked for sometime, there takes place a 
severance between the right to the surface and right 
to the minerals and that consequently such person 
will thereafter be holding the minerals as a separate 
tenement, that is, something apart from the land 
demised and this separate tenement cannot be 
acquired under the terms of the present Act or, if it 
can be so acquired, it has to be specifically 
compensated for. Reference to the several 
provisions of the Act and in particular to those of 
Section 13 indicates, according to the learned 
counsel, the limited scope of the Act. It is difficult to 
appreciate the contention that merely because 
the owner or lessee of a land had opened mines 
on that land, a severance is effected between the 
surface and the underground minerals. It may be 
that a trespasser by adverse possession for the 
statutory period can acquire rights to 
underground minerals. It may also be that if that 
happens the surface rights would become 
severed from the mineral rights as a result of 
which the minerals underground would form a 
separate tenements. It is, however, difficult to 
see how the owner or the lessee of land who has 
right to win minerals can effect such severance 
between the mineral rights and surface rights by 
opening and operating the mines of that land. 
For, even while he is carrying on mining 
operations he continues to enjoy the surface 
rights also. We cannot, therefore, accept the 
contention that there was any severance of the

Source PDF page 186

Open this page in the original PDF
PART I 
 186 
mineral rights and surface rights in either of 
these two cases.” 
                                                                                       (emphasis added) 
320. A mining lease contemplated under the MMDR Act relates to the mining rights 
and mineral rights. It does not grant surface rights to the mining lessee. However, 
surface rights are essential to begin any mining operations. In fact, obtaining of 
the surface rights by a mining lessee over the area where mining operations will 
be conducted is a prerequisite condition for grant of both a prospecting licence 
as well as a mining lease. The lessee requires access to the surface rights to 
effectively exercise their mining rights and privileges enumerated under Part II of 
Form K. Moreover, as held in Burrakur Coal (supra), the mining lessee requires 
enjoyment of surface rights to effectively carry out the mining operations. There 
cannot be any severance between the two during the continuance of the mining 
operations.  
321. The more important question is when do the mineral rights transfer to the lessee? 
Since Independence, State legislatures have enacted a spate of land reform laws 
vesting the right to mines and minerals in the State Government.
390 Through the 
instrument of a mining lease, the State Government transfers its rights in the sub-
soil minerals to the lessee for the period of the lease. The nature of the leasehold 
rights accruing to the lessee can be determined on the basis of the Transfer of 
Property Act. A right to carry on mining operations in land to extract a specified 
mineral and to remove and appropriate that mineral is a “right to enjoy 
immoveable property” within the meaning of Section 105 of the Transfer of 
 
390 Gujarat Land Revenue Code 1879, Section 69A; Madhya Pradesh Land Revenue Code 1959, Section 247; 
Chhattisgarh Land Revenue Code 1959, Section 247, Goa, Daman and Diu Land Revenue Code 1968, Section 
36.

Source PDF page 187

Open this page in the original PDF
PART I 
 187 
Property Act. 391 In case of a mining lease, the property can be enjoyed by 
working the mine as indicated in Section 108 of the Transfer of Property Act. 
322. Section 110 of the Transfer of Property of Act deals with the exclusion of the day 
on which the term of the lease commences. It provides that where the time limited 
by a lease of immoveable property is expressed as commencing from a particular 
day, in computing that time such day shall be excluded. It further provides that in 
situations where the lease does not mention the day of commencement, the time 
limited by the lease commences from the day of the making of the lease. The 
model mining lease under Form K specifies the day from which the mineral rights 
are granted and demised unto the lessee. Thus, the transfer of right to enjoy the 
property under a mining lease commences from the specified day of 
commencement. Resultantly, the rights and interests in the minerals specified in 
the mining lease are transferred from the State Government to the lessee on the 
specified day of the commencement of the lease deed. 
323. Once the interest in the minerals is transferred under a mining lease, the lessee 
acquires the right to work the mine and win the minerals. It is through this process 
of working the mine and winning of minerals that minerals are extracted or 
obtained from the earth irrespective of whether such activity is carried out on the 
surface or in the bowels of the earth.
392 Although the title to minerals vests in the 
State Government, the mining lease transfers the interest in the mineral from the 
State Government to the mining lessee. During the whole process, the minerals 
continue to remain embedded in the earth, either ov er or above. Thus, there is 
no decoupling of minerals from land. It is well established that tax on land can 
also be imposed on an occupier. When a mining lease is granted, the lease 
 
391 Sri Tarkeshwar Sio Thakur Jiu (supra) [37] 
392 Sri Tarkeshwar Sio Thakur Jiu (supra) [15]

Source PDF page 188

Open this page in the original PDF
PART I 
 188 
holder necessarily has to occupy the surface rights of the area specified in the 
lease. Resultantly, the leaseholder has rights to both the minerals and surface 
during the subsistence of the mining lease. 
324. We do not agree with the respondent’s submission that the mineral rights are 
transferred from the State to the mining lessee only upon the extraction of 
minerals. Once the lease deed is signed, the interest in the minerals is 
transferred from the State Gov ernment (in case the minerals vest in the State 
Government) to the lessee. The interest of the lessee in the minerals continues 
until the determination of the lease deed. It is only upon the exercise of mineral 
rights by the lessee, that is removal or cons umption of minerals, that the lessee 
is required to pay royalty. Thus, the transfer of interest in the minerals is distinct 
from the exercise of the mineral rights. In view of the above discussion, it is clear 
that minerals are “decoupled” from land only upon the exercise of mineral rights 
by the lessee.   
b. Minerals as measure of tax on land 
325. Entry 49 of List II enumerates taxes on lands and buildings in the legislative field 
of the State legislatures. As mentioned in the above segments, the word “lands” 
is a comprehensive term which includes mineral bearing land. If the State can 
tax mineral bearing land, the concomitant issue pertains to the measure of the 
tax. One of the arguments which directly or indirectly flows from the respondents 
is that since royalty is measured on the basis of the quantity of minerals produced 
or mineral value, the St ate cannot be allowed  to use minerals produced as the 
measure to tax mineral-bearing land.

Source PDF page 189

Open this page in the original PDF
PART I 
 189 
326. To understand the practice of valuation of mineral -bearing land, a reference to 
the English law is useful. In England, a rate has been historically assessed on 
the occupier of lands for beneficial occupation. Rating is a tax on the occupation 
of lands and is levied on the basis of the value of the occupation of the 
hereditament (the single unit of rateable property).
393 The standard or the 
measure is the means of finding out the value of the occupation for the purposes 
of assessment.
394 The rateable value of hereditaments is statutorily determined 
as the amount equal to the rent at which it is estimated that the hereditament 
might reasonably be expected to let from year to year. The object is to ascertain 
the rent which might reasonably be expected for the hereditament on a statutory 
basis.
395 In case of mineral hereditaments, royalty payment constitutes evidence 
of rental value for rating purposes.396 Mineral royalties are regarded as rents for 
the purpose of assessing mineral hereditaments.    
327. Royalty is not a tax but a statutory consideration payable by the lessee to the 
lessor for the exercise of mineral rights. The specification of rates of royalty with 
respect to major minerals under the MMDR Act limits the powers of the State 
Government in terms of Entry 54 of List I read with Entry 23 of List II. However, 
Entry 49 of List II is not restricted or subjected in its operation by any other entry 
– the State legislature can tax any lands including mineral bearing lands. If the 
Constitution does not impose any express limitations on the taxing powers of the 
State to tax mineral bearing lands, it would not be constitutionally permissible for 
the Court to read in an implied restriction. The power of taxation is plenary and 
exclusive. The division of legislative powers between the Union and States 
 
393 Peter Brown and Patrick Bond, ‘Rating Valuation: Principles and Practice) (3rd edn, Elsevier) 13. 
394 Assessment Committee of the Metropolitan Borough of Poplar v. Roberts, [1922] 2 AC 93 
395 Peter Brown and Patrick Bond (supra n 393) 284. 
396 Section 5, Non-Domestic Rating (Miscellaneous Provisions) Regulations 1989.

Source PDF page 190

Open this page in the original PDF
PART I 
 190 
represents the essence of fiscal federalism. Reading any implied limitation or 
restriction on the legislative power of the State legislature to tax mineral bearing 
land under Entry 49 of List II will be against the grain of the Constitution. 
328.  After the decision in Goodricke (supra) in particular, it is now well established 
that the income or yield of land can be adopted as a measure of tax. The 
assessment of tax on land depends upon the actual or potential productivity of 
the land sought to be taxed. In case of tea estates, the productivity is measured 
on the basis of the quantity of tea leaves produced. As a corollary, the productivity 
of mineral bearing land can be measured on the basis of the minerals 
produced.
397 In Goodricke (supra), this Court observed that royalty is a matter 
of agreement between the lessor and the lessee or determined by a statutory 
provision. Further, it was observed that “royalty is not the produce of the land; 
royalty is not the income of the land nor is  the royalty yield of the land.” In this 
segment, we analyze whether royalty could be used as a measure to tax mineral-
bearing land.  
329. The rates of royalty are generally calculated on per tonnage basis or ad valorem 
basis on the basis of the laid down formula. In case of the former, royalty is 
determined on the basis of the following formula –  
Royalty = quantity of mineral removed or dispatched * specified rate of royalty 
in rupees  
 
 
 
 
 
397 Union of India v. Pramod Gupta, (2005) 12 SCC 1 [75]. [In this case, Justice S B Sinha, writing for a two-Judge 
Bench, observed that “[m]ineral bearing land, thus, contain mineral as the product of nature.”]

Source PDF page 191

Open this page in the original PDF
PART I 
 191 
The formula for calculation of royalty on minerals on ad valorem basis is as 
follows: 
Royalty = sale price of mineral (grade wise and State -wise) published by the 
Indian Bureau of Mines * Rate of royalty (in percentage) * total quantity of 
mineral grade produced or dispatched 
 
330. The above formula shows that royalty is calculated on the basis of the quantity 
of minerals extracted or removed. 398 The yield from mineral bearing land is 
nothing but the quantity of mineral produced. Royalty is per se not the yield from 
a mineral bearing land, but the yield (mineral produced) is the important factor in 
determination of the rate of royalty. Moreover, royalty can be considered as an 
income if it is paid to a private landowner.
399 In case the minerals are vested in 
the State, the royalty is paid to the State Government, and hence assumes the 
form of non- tax revenues. Therefore, royalty is relatable to the yield of the 
mineral-bearing land as well as the income in case the minerals vest in a private 
person. To this extent, we clarify the reasoning of this Court in Goodricke 
(supra). 
331.  In India Cement (supra), it was held that royalty cannot be a measure for tax on 
land because it is indirectly connected with land.
400 In our opinion, this holding is 
not correct in view of the fact that royalty is directly relatable to the yield of the 
mineral bearing land. Royalty is calculated on the basis of the output of the 
mineral produced. Since the yield of the land is directly connected to the land, a 
rate fixed on the basis of the yield cannot be said to be indirectly connected to 
 
398 Indian Bureau of Mines, ‘Mineral Royalties’ (2011) 4. 
399 H M Seervai, Constitutional Law of India, Volume 3 (4th edn.) 2468. 
400 India Cement (supra) [23]

Source PDF page 192

Open this page in the original PDF
PART I 
 192 
the land. Similarly, Orissa Cement  (supra) held that since royalty is not an 
income derived from land, it cannot be used to measure the tax on land. 401 
Royalty may not be an income in all aspects, but it is directly relatable to the yield 
of the land. The yield can be adopted as the basis for levy of tax on land. The 
decision in Orissa Cement  (supra) has followed a narrow approach to the 
concept of royalty. Therefore, we hold that the yield of a mineral bearing land, 
either in terms of the quantity of mineral produced, or in terms of the rates of 
royalty, can be used as a measure to tax the mi neral bearing land under Entry 
49 of List II.  
332. The next submission of the respondents is that a tax measured on the basis of 
the minerals produced or mineral value is covered by Entry 50 of List II and not 
under Entry 49 of List II. It is a settled principle of law that Entry 49 of List II 
contemplates a levy of tax on lands and buildings as units. Once the legislature 
classifies a particular category of land as a separate unit for the purposes of the 
levy of tax on land, the yield comprised in such unit can validly constitute the 
basis for the levy and  assessment.
402 Resultantly, if the State legislature has 
classified mineral bearing land as a separate unit for the purposes of levy of tax 
on land, the minerals produced or any other measure directly connected to the 
minerals produced can be used as a measure to quantify the tax. 
333. In Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic 
Co. Ltd,
403 the Madras Urban Land Tax Act 1966 levied a tax on urban land on 
the basis of the market value of the land. One of the contentions of the assesses 
was that the legislation was in substance a tax on the capital value of the assets 
 
401 Orissa Cement (supra) [30] 
402 Goodricke Group Ltd. (supra) [32] 
403 (1969) 2 SCC 55

Source PDF page 193

Open this page in the original PDF
PART I 
 193 
under Entry 86 of List I and hence beyond the legislative competence of the State 
legislature. The Court held that Entry 86 of List I does not prohibit the State 
legislature from taxing capital value of lands and buildings under Entry 49 of List 
II. It was  further held that: (i) the tax under Entry 86 of List I proceeds on the 
principle of aggregation of assets and is imposed on the totality of the value of 
all assets bearing no definable relationship to lands and buildings which may or 
may not form a component of the total assets of the assessee; and (ii) Entry 49 
of List II contemplates a levy which is a tax directly on lands and buildings as 
units. The Court held: 
“4. […] For the purpose of levying tax under Entry 
49, List II the State Legislature may adopt for 
determining the incidence of tax the annual or the 
capital value of the lands and buildings. But the 
adoption of the annual or capital value of lands and 
buildings for determining tax liability will not make 
the fields of legislation under two entries 
overlapping. The two taxes are entirely different in 
their basic concept and fall on different subject -
matters.”   
Thus, a measure which is relatable to another taxing entry in List I or List II can 
also be used as a measure to tax lands under Entry 49 of List II, provided there 
is a reasonable nexus between the measure and the levy. The mere fact that the 
legislature uses mineral rights or mineral produced as a measure of taxation 
under Entry 49 of List II does not give such tax the color of taxes on mineral rights 
or mineral produced. It still continues to remain a tax on mineral-bearing land as 
a unit.  
334. It is true that the rate of royalties will vary with the output of minerals. In such a 
situation, it might be argued, there is a possibility that if royalty is a measure of 
tax on land, no tax can be levied if no mining activities is carried on. As discussed

Source PDF page 194

Open this page in the original PDF
PART I 
 194 
in the above segments, royalty is directly related to the mineral output and is an 
indicator of the actual productivity of a mineral bearing land. It is ordinarily 
expected that a prudent holder of a mining lease will exercise their mineral rights 
to the fullest extend in accordance with the terms and conditions of the mining 
lease. The machinery selected by the legislature to assess the tax cannot 
determine the true nature of the tax. The issue of selecting the appropriate 
measure of tax is a matter of fiscal policy.
404 Sometimes, the method selected by 
the legislature to measure a tax may be imperfect, but that does not imply 
unconstitutionality. 
335. It was further contended that since Entry 50 of List II is a special entry, the use 
of minerals produced or mineral value as a measure of tax under Entry 49 of List 
II will lead to overlap between the two entries. The issue for consideration is 
whether the limitations imposed by Parliament in a law relating to mineral 
development, which bears on the legislative field under Entry 50 of List II would 
also impact the field reserved to the State legislature under Entry 49 of List II.  
336. The respondents have relied on a three-Judge Bench decision in State of Bihar 
v. Indian Aluminium Company ,
405 to strongly contend that a tax on lands 
cannot include tax on removal or excavation of land. In that case, the State 
Government levied a tax called the Bihar Restoration and Improvement of 
Degraded Forest Land Tax on excavational activities. The amount of  tax was 
relatable to the extent to which the land was ‘voided’. The impugned legislation 
defined “void” to mean any area of leftover forest land from where soil, mineral 
or rock or anything being fastened with the earth has been removed for non-
forest purpose, transported or dumped at a place other than the place from where 
 
404 P M Ashwathanarayana Setty v. State of Karnataka, 1989 Supp (1) SCC 696 [84] 
405 (1997) 8 SCC 360

Source PDF page 195

Open this page in the original PDF
PART I 
 195 
the same was taken. This Court relied on Orissa Cement (supra) and Mahanadi 
Coalfields (supra) to hold that the tax was outside the ambit of Entry 49 of List 
II. It was held: 
“15. Applying the ratio of the aforesaid decisions to 
the facts of the present case we find that the position 
is no different. Entry 49 of List II has been interpreted 
to mean the levy of tax directly on land as a unit. The 
land has been regarded as meaning the land on 
surface and also below the surface. Therefore, in 
order that a tax can be levied under Entry 49 of 
List II it is essential that ‘land’ as a unit must exist 
on which the tax is imposed. In the instant case 
the tax is, in effect, being levied n ot on land but 
on the absence of land.  The levy is on the void 
which has been created. The forest land which is 
being used is not subjected to tax. The Schedule to 
the Act itself shows that the assessment of tax is on 
excavation and use of forest land for non- forest 
purpose. The Schedule further says that the rate of 
tax to be levied, in the case of mining or excavation 
varies with the extent of the land voided. In case the 
land has been rehabilitated no tax is to be levied. 
The tax is levied in effect on the activity of the 
removal or excavation of land. In other words the 
tax is squarely on the activity of mining because 
it is under the mining lease that mechanized and 
non-mechanized excavation as well as 
underground excavation takes place and this is 
what is referred to in column 1 of the Sch edule 
to the Act while determining the amount of tax 
leviable. Levy in other words is on the activity of 
removal of earth and not on the land itself and is, 
therefore, outside the ambit of Entry 49 of List II.” 
                                                                                        (emphasis added) 
337. The tax in Indian Aluminium Company  (supra), was held not to be a tax on 
land, but a tax on the absence of land. It was further observed that since the levy 
was not a tax on land, Goodricke  (supra) had no application because in that 
case the levy was on tea estates as a unit.

Source PDF page 196

Open this page in the original PDF
PART I 
 196 
338.  The true nature of a tax has to be gathered from the charging section. In Indian 
Aluminium Company (supra), the charging section provided that the tax was 
levied “for mechanical and biological reclamation of forest land and for 
rehabilitation so that the land is reclaimed as far as possible.” Importantly, the 
provision further provided that “every occu pier responsible for creating void/ 
voids by indulging in any developmental activities including mining” shall be liable 
to pay the tax. The charging section clearly indicates that the object of the levy 
was to tax the activity by the occupier  of “creating void/voids”. The measure of 
the tax, therefore, was based on the area of the land voided. It was not a tax on 
lands as a unit. Thus, this Court held that the levy was not a tax on land under 
Entry 49 of List II, but rather on the activity of ext raction. However, this decision 
is not relevant for our purposes because the true nature of the levy in that case 
did not pertain to taxes on lands.  
339. Both the entries 49 and 50 of List II deal with distinct subject matters. Both the 
entries operate in different fields without any overlap. The fact that mineral value 
or mineral produced is used as a measure under Entry 50 of List II does not 
preclude the legislature from using the same measure for taxing mineral bearing 
land under Entry 49 of List II. As Justice Ayyangar observed in H R S Murthy  
(supra), using royalty as a measure of tax on lands “does not stamp it as a tax 
on either the extraction of the mineral or on the mineral right.” The doctrine of 
generalia specialibus non derogant  has no application in the instant case 
because Entries 49 and 50 of List II operate in different fields. Though Parliament 
can limit the taxing field entrusted to the State under Entry 50 of List II through a 
law relating to mineral development, the limitation operates on the field of taxing 
mineral rights. Such a limitation cannot operate on Entry 49 of List II because

Source PDF page 197

Open this page in the original PDF
PART I 
 197 
there is no specific stipulation under the Constitution to that effect. The nature of 
taxes under both the entries, that is Entries 49 and 50 of List II, are distinct. The 
Constitution envisages the imposition of limitations by Parliament on the 
legislative field of the state of taxes on mineral rights, and not taxes on lands.  
340. There may arise situations where two taxes levied under different legislative 
entries may be based on the same measure. In Federation of Hotel & 
Restaurant Association of India v. Union of India,
406 it was held that the fact 
that two different taxes use the same measure does not make them identical.  
341. In view of the above discussion, we conclude that mineral value or mineral 
produce could be used as a measure of the tax on land under Entry 49 of List II. 
The fact that Entry 50 of List II pertains to taxes on mineral rights would not 
preclude the State l egislature to use the measure of mineral value or mineral 
produce under Entry 49 of List II. The State legislature has legislative discretion 
to determine the appropriate measure for the purposes of quantifying taxes, so 
long as there is a reasonable nexus between the measure and the nature of the 
tax. The measure does not determine the nature of the tax. The words “lands” 
under Entry 49 of List II includes mineral bearing land. The mineral produce is 
the yield from a mineral bearing land. Since royalty is determined on the basis of 
the mineral produce, royalty can also be used as a measure to determine the tax 
on royalty. The fact that the State legislature uses mineral produce or royalty as 
a measure does not overlap with Entry 50 of List II. 
 
 
 
406 (1989) 3 SCC 634

Source PDF page 198

Open this page in the original PDF
PART J  
 198 
J. Conclusions 
342. In view of the above discussion, we answer the questions formulated in the 
reference in terms of the following conclusions: 
a. Royalty is not a tax. Royalty is a contractual consideration paid by the mining 
lessee to the lessor for enjoyment of mineral rights. The liability to pay royalty 
arises out of the contractual conditions of the mining lease. The payments made 
to the Government cannot be deemed to be a tax merely because the statute 
provides for their recovery as arrears;  
 
b. Entry 50 of List II does not constitute an exception to the position of law laid 
down in M P V Sundararamier  (supra). The legislative power to tax mineral 
rights vests with the State legislatures. Parliament does not have legislative 
competence to tax mineral rights under Entry 54 of List I, it being a general 
entry. Since the power to tax mineral rights is enumerated in Entry 50 of List II, 
Parliament cannot use its residuary powers with respect to that subject-matter;  
c. Entry 50 of List II envisages that Parliament can impose “any limitations” on the 
legislative field created by that entry under a law relating to mineral 
development. The MMDR Act as it stands has not imposed any limitations as 
envisaged in Entry 50 of List II; 
d. The scope of the expression “any limitations” under Entry 50 of List II is wide 
enough to include the imposition of restrictions, conditions, principles, as well 
as a prohibition;

Source PDF page 199

Open this page in the original PDF
PART J  
 199 
e. The State legislatures have legislative competence under Article 246 read with 
Entry 49 of List II to tax lands which comprise of mines and quarries.  Mineral -
bearing land falls within the description of “lands” under Entry 49 of List II; 
 
f. The yield of mineral bearing land, in terms of the quantity of mineral produced 
or the royalty, can be used as a measure to tax the land under Entry 49 of List 
II. The decision in Goodricke (supra) is clarified to this extent; 
 
g. Entries 49 and 50 of List II deal with distinct subject matters and operate in 
different fields. Mineral value or mineral produce can be used as a measure to 
impose a tax on lands under Entry 49 of List II; 
 
h. The “limitations” imposed by Parliament in a law relating to mineral 
development with respect to Entry 50 of List II do not operate on Entry 49 of 
List II because there is no specific stipulation under the Constitution to that 
effect; and 
 
i. The decisions in India Cement (supra), Orissa Cement (supra), Federation 
of Mining Associations of Rajasthan  (supra), Mahalaxmi Fabric Mills  
(supra), Saurashtra Cement  (supra), Mahanadi Coalfields  (supra), and P 
Kannadasan (supra) are overruled to the extent of the observations made in 
the present case.

Source PDF page 200

Open this page in the original PDF
PART J  
 200 
343. The Registry is directed to take administrative directions from Hon’ble Chief 
Justice of India for placing the matters before an appropriate Bench.  
 
 
..….…….……………………………………CJI  
[Dr Dhananjaya Y Chandrachud] 
 
 
 
..….…….………………………………………J  
[Hrishikesh Roy] 
 
..….…….………………………………………J  
[Abhay S Oka] 
 
 
…….……………………………………………J  
[J B Pardiwala] 
 
 
 
…….……………………………………………J  
                                                             [Manoj Misra] 
 
 
…….……………………………………………J  
                           [Ujjal Bhuyan] 
 
 
 
…….……………………………………………J  
                                     [Satish Chandra Sharma] 
 
 
 
…….……………………………………………J  
                                      [Augustine George Masih] 
 
New Delhi; 
July 25, 2024

Source PDF page 201

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 1 of 193 
 
REPORTABLE 
 
IN THE SUPREME COURT OF INDIA 
CIVIL APPELLATE/ORIGINAL JURISDICTION 
CIVIL APPEAL NOS.4056-4064 OF 1999  
MINERAL AREA DEVELOPMENT AUTHORITY  
& ANOTHER                 …APPELLANTS 
   VERSUS 
STEEL AUTHORITY OF INDIA  
& ANOTHER ETC.                 …RESPONDENTS 
 
WITH 
 
CIVIL APPEAL NO.7937 OF 2019 
WRIT PETITION (CIVIL) NO.512 OF 2018 
CIVIL APPEAL NO.7938 OF 2019 
CIVIL APPEAL NO.7936 OF 2019 
CIVIL APPEAL NO.6221 OF 2008 
CIVIL APPEAL NO.5250 OF 2019 
WRIT PETITION (CIVIL) NO.729 OF 2019 
WRIT PETITION (CIVIL) NO.1029 OF 2019 
SPECIAL LEAVE PETITION (CIVIL) NO.16028 OF 2021

Source PDF page 202

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 2 of 193 
 
 
 
CIVIL APPEAL NO.4286 OF 2023 
CIVIL APPEAL NO.5682 OF 2007 
CIVIL APPEAL NO.1295 OF 2008 
CIVIL APPEAL NO.874 OF 2013 
CIVIL APPEAL NOS.8269-8271 OF 2013 
CIVIL APPEAL NO.8268 OF 2013 
CIVIL APPEAL NO.8267 OF 2013 
CIVIL APPEAL NO.6135 OF 2013 
CIVIL APPEAL NO.8272 OF 2013 
CIVIL APPEAL NO.9458 OF 2013 
SPECIAL LEAVE PETITION (CIVIL) NO.18600 OF 2013 
CIVIL APPEAL NO.4332 OF 2013 
CIVIL APPEAL NO.5329 OF 2002 
CIVIL APPEAL NO.4993 OF 2006 
CIVIL APPEAL NO.8273 OF 2013 
CIVIL APPEAL NO.8274 OF 2013 
CIVIL APPEAL NO.3869 OF 2014

Source PDF page 203

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 3 of 193 
 
CIVIL APPEAL NO.2632 OF 2013 
CIVIL APPEAL NO.14685 OF 2015 
CIVIL APPEAL NO.6784 OF 2014 
WRIT PETITION (CIVIL) NO.376 OF 2015 
CIVIL APPEAL NO.10082 OF 2016 
CIVIL APPEAL NO.886 OF 2017 
CIVIL APPEAL NO.4588 OF 2017 
CIVIL APPEAL NO.205 OF 2017 
CIVIL APPEAL NOS.5728-5729 OF 2018 
CIVIL APPEAL NOS.4722-4724 OF 1999 
CIVIL APPEAL NO.5333 OF 2002 
CIVIL APPEAL NOS.5335-5336 OF 2002 
CIVIL APPEAL NO.5332 OF 2002 
CIVIL APPEAL NO.1352 OF 2005 
CIVIL APPEAL NO.1883 OF 2006 
TRANSFER PETITION (CIVIL) NO.722 OF 2006 
CIVIL APPEAL NO.4745 OF 2006 
CIVIL APPEAL NO.4990 OF 2006 
CIVIL APPEAL NO.5599 OF 2006

Source PDF page 204

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 4 of 193 
 
 
 
CIVIL APPEAL NO.5649 OF 2006 
CIVIL APPEAL NO.378 OF 2007 
CIVIL APPEAL NO.665 OF 2007 
CIVIL APPEAL NO.1180 OF 2007 
TRANSFER PETITION (CIVIL) NO.481 OF 2007 
TRANSFER PETITION (CIVIL) NO.906 OF 2007 
CIVIL APPEAL NO.3401 OF 2008 
CIVIL APPEAL NO.3400 OF 2008 
CIVIL APPEAL NO.3402 OF 2008 
CIVIL APPEAL NO.8311 OF 2011 
CIVIL APPEAL NO.4293 OF 2012 
CIVIL APPEAL NO.2055 OF 2009 
TRANSFER PETITION (CIVIL) NO.951 OF 2006 
CIVIL APPEAL NO.4991 OF 2006 
CIVIL APPEAL NO.4992 OF 2006 
SPECIAL LEAVE PETITION (CIVIL) NO.763 OF 2007 
SPECIAL LEAVE PETITION (CIVIL) NO.15900 OF 2007 
CIVIL APPEAL NO.3403 OF 2008

Source PDF page 205

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 5 of 193 
 
 
 
CIVIL APPEAL NO.98 OF 2009 
TRANSFER PETITION (CIVIL) NO.613 OF 2009 
TRANSFER PETITION (CIVIL) NO.626 OF 2009 
CIVIL APPEAL NO.4479 OF 2010 
CIVIL APPEAL NO.4478 OF 2010 
CIVIL APPEAL NO.3643 OF 2011 
CIVIL APPEAL NOS.4710-4721 OF 1999 
CIVIL APPEAL NO.2174 OF 2009 
CIVIL APPEAL NO.6497 OF 2008 
CIVIL APPEAL NO.6498 OF 2008 
CIVIL APPEAL NO.6137 OF 2008 
CIVIL APPEAL NO.7397 OF 2008 
CIVIL APPEAL NO.96 OF 2009 
CIVIL APPEAL NO.6499 OF 2008 
CIVIL APPEAL NO.97 OF 2009 
SPECIAL LEAVE PETITION (CIVIL) NO.26160 OF 2008

Source PDF page 206

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 6 of 193 
 
J U D G M E N T 
NAGARATHNA, J. 
 
Table of Contents 
 
01. Constitutional Framework .............................................. 14 
02. Interpretation of Legislative Entries ................................ 19 
03. Scheme of The MMDR Act, 1957 .................................... 29 
04. Hingir-Rampur ............................................................... 53 
05. M.A. Tulloch ................................................................... 59 
06. Baijnath Kedia................................................................ 63 
07. HRS Murthy ................................................................... 66 
08. India Cement .................................................................. 69 
09. Laddu Mal ...................................................................... 83 
10. Laxminarayana Mining Co. ............................................. 88 
11. Orissa Cement ................................................................ 95 
12. Mahalaxmi Fabric Mills .................................................. 97 
13. Mahanadi Coalfields ..................................................... 100 
14. Saurashtra Cement. ..................................................... 101 
15. Goodricke ..................................................................... 101 
16. Kesoram ....................................................................... 107 
17. Kannadasan ................................................................. 124 
18. Entries 49 And 50 – List II ............................................ 151 
19. Effect of Overruling India Cement ................................. 165 
20. Federalism in India ....................................................... 170 
21. Sarkaria Commission Report on Centre-State Relations 173 
22. Conclusions ................................................................. 181

Source PDF page 207

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 7 of 193 
 
 I have perused the comprehensive opinion authored by 
Hon’ble the Chief Justice of India Dr  Dhananjaya Y 
Chandrachud on the questions referred to th is nine-judge 
Bench. I respectfully dissent with the said opinion and express 
my reasons therefor. 
1.1   The sum and substance of all the questions referred to 
this Bench could be crystallised to the short point for 
consideration, namely, whether royalty as envisaged under 
Section 9 of the Mines and Minerals (Development and 
Regulation) Act, 1957 (for short “MMDR Act, 1957 ”) is a tax or 
an exaction. At this stage itself , it must be made clear that the 
concept of royalty is being considered from the perspective of 
Section 9 of the MMDR Act, 1957 and not from any other 
context. My short answer is that viewed from the statutory 
framework of the MMDR Act, 1957 passed by the Parliament on 
the strength of Entry 54 – List I of the Seventh Schedule of the 
Constitution of India and having regard to Section 2 of the said 
Act, royalty is in the nature of a “tax” or an “exaction”. Further, 
Section 9 of the MMDR Act, 1957 is a limitation within the

Source PDF page 208

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 8 of 193 
 
meaning of Entry 50 – List II of the Seventh Schedule of the 
Constitution and the State s have no legislative competence to 
levy any other tax, impost or fee on the exercise of mineral 
rights. Entry 49 – List II is also not applicable to mineral 
bearing lands. Therefore, India Cement Limited vs. State of 
Tamil Nadu, (1990) 1 SCC 12 : AIR 1990 SC 85, (“India 
Cement”), has been correctly decided by a seven -judge Bench 
of this Court and that the majority judgment in State of West 
Bengal vs. Kesoram Industries Limited, (2004) 10 SCC 201 
(“Kesoram”), is incorrect and therefore, ought to be overruled. I 
propose to discuss in detail the reasons for the aforesaid view. 
2. The genesis of this controversy insofar as the reference to 
the nine -judge Bench is concerned, emanates from the 
judgment of the seven-judge Bench of this Court in India 
Cement. The said judgment authored by Sabyasachi Mukh arji, 
J. (as His Lordship then was) held that royalty is a tax and 
therefore, any levy of a tax/cess on royalty is impermissible  in 
law, having regard to the constitutional framework , particularly 
the relevant Entries of List I and II of the Seventh Schedule to

Source PDF page 209

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 9 of 193 
 
the Constitution of India. The said dictum of the seven -judge 
Bench was doubted in Kesoram, by a majority of the five-judge 
Bench (Si nha, J. dissenting) .  The majority judgment was 
penned by Lahoti, J. (as His Lordship then was). Consequently, 
the judgment of a two-judge Bench in State of M adhya 
Pradesh vs. Mahalaxmi Fabric Mills Ltd., 1995 Sup p (1) 
SCC 642 (“Mahalaxmi Fabric Mills”) following India Cement 
was overruled and it was observed that the matter require d 
consideration by a larger Bench.  
3.  A similar view was expressed by a three-judge Bench in 
Mineral Area Development Authority vs. Steel Authority of 
India, (2011) 4 SCC 450 , (“Mineral Area Development 
Authority”) wherein this Court was of the view that the matter 
has to be considered by a Bench of nine Judges and hence, the 
following questions of law were raised: 
“1. Whether “royalty” determined under Sections 9/15(3) of 
the Mines and Minerals (Development and Regulation) Act, 
1957 (67 of 1957, as amended) is in the nature of tax? 
2. Can the State Legislature while levying a tax on land 
under List II Entry 49 of the Seventh Schedule of the 
Constitution adopt a measure of tax based on the value of 
the produce of land? If yes, then would the constitutional

Source PDF page 210

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 10 of 193 
 
position be any different insofar as the tax on land is 
imposed on mining land on account of List II Entry 50 and 
its interrelation with List I Entry 54? 
3. What is the meaning of the expression “Taxes on mineral 
rights subject to any limitations imposed by Parliament by 
law relating to mineral development” within the meaning of 
Schedule VII List II Entry 50 of the Constitution of India? 
Does the Mines and Minerals (Development and Regulation) 
Act, 1957 contain any provision which operates as a 
limitation on the field of legislation prescribed in List II 
Entry 50 of the Seventh Schedule of the Constitution of 
India? In particular, whether Section 9 of the 
aforementioned Act denudes or limits the scope of List II 
Entry 50? 
4. What is the true nature of royalty/dead rent payable on 
minerals produced/mined/extracted from mines? 
5. Whether the majority decision in  State of 
W.B. v. Kesoram Industries Ltd.  [(2004) 10 SCC 201] could 
be read as departing from the law laid down in the  seven-
Judge Bench  decision in  India Cement Ltd.  v. State of 
T.N. [(1990) 1 SCC 12] ? 
6. Whether “taxes on lands and buildings” in List II Entry 
49 of the Seventh Schedule to the Constitution contemplate 
a tax levied directly on the land as a unit having definite 
relationship with the land? 
7. What is the scope of the expression “taxes on mineral 
rights” in List II Entry 50 of the Seventh Schedule to the 
Constitution? 
8. Whether the expression “subject to any limitations 
imposed by Parliament by law relating to mineral 
development” in List II Entry 50 refers to the subject -matter 
in List I Entry 54 of the Seventh Schedule to the 
Constitution? 
9. Whether List II Entry 50 read with List I Entry 54 of the 
Seventh Schedule to the Constitution constitute an 
exception to the general scheme of entries relating to 
taxation being distinct from other entries in all the three

Source PDF page 211

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 11 of 193 
 
Lists of the Seventh Schedule to the Constitution as 
enunciated in  M.P.V. Sundararamier & Co.  v. State of 
A.P. [AIR 1958 SC 468 : 1958 SCR 1422] [AIR p. 494 : SCR 
at p. 1481 (bottom)]? 
10. Whether in view of the declaration under Section 2 of 
the Mines and Minerals (Development and Regulation) Act, 
1957 made in terms of List I Entry 54 of the Seventh 
Schedule to the Constitution and the provisions of the said 
Act, the State Legislature is denuded of its power under List 
II Entry 23 and/or List II Entry 50? 
11. What is the effect of the expression “… subject to any 
limitations imposed by Parliament by law relating to 
mineral development” on the taxing power of the State 
Legislature in List II Entry 50, particularly in view of its 
uniqueness in the sense that it is the only entry in all the 
entries in the three Lists (Lists I, II and III) where the taxing 
power of the State Legislature has been subjected to “any 
limitations imposed by Parliament by law relating to 
mineral development”?.” 
 
That is how the questions have been placed for 
consideration of this nine-judge Bench. 
4. His Lordship, the Chief Justice of India, while holding that 
royalty is not a tax , has overrule d the following dict a of this 
Court: (i) India Cement; (ii) Orissa Cement Limited vs. State 
of Orissa , 1991 Supp (1) SCC 430  (“Orissa Cement ”); (iii) 
Mahalaxmi Fabric Mills ; (iv) Saurashtra Cement & 
Chemicals Industries Ltd. vs. Union of India , (2001) 1 SCC       
91, (“Saurashtra Cement ”), and (v) State of Orissa vs.

Source PDF page 212

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 12 of 193 
 
Mahanadi Coalfields Ltd., 1995 Supp. (2) SCC 686 
(“Mahanadi Coalfields”) . While coming to the aforesaid 
conclusion, three significant judgments of this Court in Hingir-
Rampur Coal Co. Ltd. vs. State of Orissa, (1961) 2 SCR 537 
(“Hingir-Rampur”); State of Orissa vs. M.A. Tulloch, (1964) 
4 SCR 461 (“M.A. Tulloch”) and Baijnath Kedia vs. State of 
Bihar, (1969) 3 SCC 838  (“Baijnath K edia”) have been 
discussed.   
5. Since the Entries under discussion are in their respective 
Lists of the Seventh Schedule of the Constitution, it would be 
unnecessary to refer to them as being part of “the Seventh 
Schedule of the Constitution” in the following discussion. 
6. On enumerat ing the questions for opinion of this nine -
judge Bench, five issues have been encapsulated in paragraph 
5 of the judgment  of the learned Chief Justice of India which 
read as under: 
“5.  During the course of the hearing, counsel for the 
petitioners and respondents agreed that the main 
questions that fall for determination by this Court 
could be reframed in the following terms:

Source PDF page 213

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 13 of 193 
 
a.  What is the true nature of royalty determined under 
Section 9 read with Section 15(1) of the MMDR Act?  
Whether royalty is in the nature of tax. 
b.  What is the scope of Entry 50 of List II of the 
Seventh Schedule? What is the ambit of the 
limitations imposable by Parliament in exercise of its 
legislative powers under Entry 54 of List I?  Does 
Section 9, or any other provision of the MMDR Act, 
contain any limitation with respect to the field in 
Entry 50 of List II? 
c. Whether the expression “subject to any limitations 
imposed by Parliament by law relating to mineral 
development” in Entry 50 of List II pro tanto subjects 
the entry to Entry 54 List I, which is a non -taxing 
general entry?  Consequently, is there any departure 
from the general scheme of distribution of legislative 
powers as enunciated in M.P.V. Sundararamier 
(supra)? 
d.  What is the scope of Entry 49 of List II and whether 
it covers a tax which involves a measure based on 
the value of the produce of land?  Would the 
constitutional position be any different qua mining 
land on account of Entry 50 of List II read with 
Entry 54 of List I? 
e.  Whether Entry 50 of List II is a specific entry in 
relation to Entry 49 of List II, and would 
consequently subtract mining land from the scope of 
Entry 49 of List II?” 
 
7. As the learned Chief Justice has recorded the submissions 
of the respective parties in detail, I need not be repetitive except 
highlighting the fact that the learned senior counsel and 
counsel for the appellants have contended that “royalty is not a

Source PDF page 214

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 14 of 193 
 
tax” while the learned senior counsel and counsel for the 
respondents including  the Attorney General and Solicitor 
General for the Union of India have submitted that “royalty is a 
tax or an exaction” and therefore, the States are denuded of 
their power to levy any other  levy, impost, tax or cess  on 
royalty. Therefore, the question which arises is , whether, 
payment made for exercise of mineral rights  being royalty, is a 
tax or an exaction. 
Constitutional Framework: 
 
8. Article 265 of the Constitution mandates that no tax shall 
be levied or collected except by authority of law. Article 36 6 is a 
definition clause and it states that in th e Constitution, unless 
the context otherwise requires, the expression s mentioned 
therein have the meanings thereby respectively assigned to 
them.  For the purpose of this case, Article 366(28) is relevant 
and the same reads as under: 
“(28) “taxation” includes the imposition of any tax or 
impost, whether general or local or special and “tax” shall 
be construed accordingly.”

Source PDF page 215

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 15 of 193 
 
The aforesaid definition of ‘taxation’ is not exhaustive but 
inclusive in nature to include not only any tax in the usual 
understanding of the said expression  or tax stricto sens o but 
also any levy akin to a tax . There can be no cavil to the 
proposition that before any tax or impost could be levied or 
collected, it must have the authority of law vide Article 265.  
8.1  Article 246 of the Constitution deals with distribution of 
legislative powers between the Parliament and State 
Legislatures.  It reads as under: 
“246. Subject-matter of laws made by Parliament and by 
the Legislatures of States. —(1) Notwithstanding anything 
in clauses (2) and (3), Parliament has exclusive power to 
make laws with respect to any of the matters enumerated in 
List 1 in the Seventh Schedule (in this Constitution referred 
to as the "Union List"). 
  
(2) Notwithstanding anything in clause (3), Parliament and 
subject to clause (1), the Legislature of any State also, have 
power to make laws with respect to any of the matters 
enumerated in List III in the Seventh Schedule (in this 
Constitution referred to as the "Concurrent List"). 
 
(3) Subject to clauses (1) and (2), the Legislature of any 
State has exclusive power to make laws for such State or 
any part thereof with respect to any of the matters 
enumerated in List II in the Seventh Schedule (in this 
Constitution referred to as the 'State List'). 
 
(4)  Parliament has power to make laws with respect to any 
matter for any part of the territory of India not included in a

Source PDF page 216

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 16 of 193 
 
State notwithstanding that such matter is a matter 
enumerated in the State List.” 
  
  With regard to the allocation of subjects under the three 
Lists, it may be useful to refer to the Devolution rules drawn 
under the Government of India Act, 1919 and thereafter, to the 
Government of India Act, 1935 which are the precursors to the 
distribution of legislative powers between the Union and the 
States as per the three Lists of the Seventh Schedule. Some of 
the salient aspects concerning the distribution of the legislative 
powers between Parliament and State Legislature as per the 
three Lists in the backdrop of provisions could be alluded to. 
Article 246 of the Constitution deals with the distribution of 
legislative powers between the Union and the States. The said 
Article has to be read along with the three Lists, namely, the 
Union List, the State List and the Concurrent List. The taxing 
powers of the Union as well as the States are also demarcated 
as separate Entries in the Union List as well as the State List 
i.e. List I and List II respectively. The Entries in the Lists are 
fields of legislative powers conferred under Article 246 of the 
Constitution. In other words, the Entries define the areas of

Source PDF page 217

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 17 of 193 
 
legislative competence of the Union and  the State Legislature. 
(vide: State of Karnataka vs. State of Meghalaya, (2023) 4 
SCC 416 para 56), (“State of Karnataka”).  
8.2  The legislative power to impose a tax or impost can be 
traced to either List I - Union List or List II - State List. List III - 
Concurrent List which gives powers to both Union as well as 
the States to legisla te does not contain any taxation Entry. 
Entry 47 - List III states that fees in respect of any of the 
matters in that List but not including fees taken in any Court 
could be levied and collected by an authority of law either by 
the Union or the State Legislature. Similarly, Entry 66 - List II 
states that fees in respect of any of the matters in List II but not 
including fees taken in any Court could be collected by the 
State Legislature. In a similar vein, Entry 96 - List I gives power 
to levy fee in respect of subjects enumerated in List I but not 
including fees taken in any Court.  It is nobody’s case that 
royalty is a fee  and therefore no further discussion on that 
aspect is necessary . However, the conundrum to be unravelled 
by this nine -judge Bench is, whether royalty is a tax or a levy

Source PDF page 218

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 18 of 193 
 
akin to a tax or an exaction in the context of exercise of mineral 
rights.   
8.3  In order to understand the foundation of this controversy, 
it is necessary to consider  Article 246 of the Constitution and  
the relevant Entries of the two Lists vis-à-vis regulation of 
mines and mineral development, as the controversy has arisen 
in this particular context, which can be usefully extracted as 
under: 
“List I – Union List 
Entry 54  : Regulation of mines and mineral 
development to the extent to which such regulation 
and development under the control of the Union is 
declared by Parliament by law to be expedient in the 
public interest.  
List II – State List 
Entry 23  : Regulation of mines and mineral 
development subject to the provisions of List I with 
respect to regulation and development under the 
control of the Union. 
xxx      xxx       xxx 
Entry 49 : Taxes on lands and buildings. 
Entry 50  : Taxes on mineral rights subject to any 
limitation imposed by Parliament by law relating to 
mineral development.”

Source PDF page 219

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 19 of 193 
 
Interpretation of Legislative Entries: 
 
8.4  On the aspect of interpretation of legislative Entries in the 
three Lists, the following principles are apposite as discussed in 
State of Karnataka.  
8.4.1    The power to legislate which is dealt with under Article 
246 has to be read in conjunction with the Entries in the three 
Lists which define the respective areas of legislative competence 
of the Union and State Legislatures. While interpreting these 
Entries, they should not be viewed in a narrow or myopic 
manner but by giving the widest scope to their meaning, 
particularly, when the vires of a provision of a statue is 
assailed. In such circumstances, a liberal construction must be 
given to the Entry by looking at the substance of the legislation 
and not its mere form. However, while interpreting the Entries 
in the case of an apparent conflict, every attempt must be made 
by the Court to harmonise or reconcile them. Where there is an 
apparent overlapping between two Entries, the doctrine of pith 
and substance is applied to find out the true character of the 
enactment and the Entry within which it would fall. The

Source PDF page 220

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 20 of 193 
 
doctrine of pith and substance, in short, means, if an 
enactment substantially falls within the powers expressly 
conferred by the Constitution upon the legislature which 
enacted it, the same  cannot be held to be invalid merely 
because it incidentally encroaches on matters assigned to 
another legislature. Also, in a situation where there is 
overlapping, the doctrine has to be applied to determine to 
which Entry, a piece of legislation could be related. In order to 
examine the true character of enactment or a provision thereof, 
due regard must be had to the enactment as a whole and to its 
scope and objects. It is said that the question of invasion into 
another legislative territory has to be determined by substance 
and not by degree. 
8.4.2     In case of any conflict between Entries in List I and List 
II, the power of Parliament to legislate under List I will 
supersede when, on an interpretation, the two powers cannot 
be reconciled. But if a legislation in pith and substance falls 
within any of the Entries of List II, the State Legislature's 
competence cannot be questioned on the ground that the field

Source PDF page 221

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 21 of 193 
 
is covered by Union list or the Concurrent list vide Prafulla 
Kumar Mukherjee vs. Bank of Commerce, Khulna , AIR 
1947 P.C. 60  (“Prafulla Kumar Mukherjee ”). According to 
the pith and substance rule, if a law is in its pith and 
substance within the competence of the Legislature which has 
made it, it will not be invalid because it incidentally touches 
upon the subject lying within the competence of another 
Legislature vide State of Bombay vs. FN Balsara , AIR 1951 
SC 318 (“FN Balsara”). 
8.4.3     Once the legislation is found to be ‘with respect to’ the 
legislative Entry in question , unless there are other 
constitutional prohibitions, the power would be unfettered. It 
would also extend to all ancillary and subsidiary matters which 
can fairly and reasonably be said to be comprehended in that 
topic or category of legislation (vide United Provinces vs.  
Atiqa Begum, AIR 1941 FC 16 (“Atiqa Begum”)).  
8.4.4     Another important aspect while construing the Entries 
in the respective Lists is that every attempt should be made to 
harmonise the contents of the Entries so that interpretation of

Source PDF page 222

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 22 of 193 
 
one Entry should not render the entire content of another 
Entry nugatory (vide Calcutta Gas Company vs. State of 
West Bengal , AIR 1962 SC 1044  (“Calcutta Gas 
Company”)). This is especially so when some of the Entries in a 
different List or in the same List may overlap or may appear to 
be in direct conflict with each other. In such a situation, a duty 
is cast on the Court to reconcile the Entries and bring about a 
harmonious construction. Thus, an effort must be made to give 
effect to both Entries and thereby arrive at a reconciliation or 
harmonious construction of the same. In other words, a 
construction which would reduce one of the Entries nugatory 
or a dead letter, is not to be followed. 
8.4.5     The sequitur to the aforesaid discussion is that if the 
Legislature passes a law which is beyond its legislative 
competence, it is a nullity ab-initio. The Legislation is rendered 
null and void for want of jurisdiction or legislative competence 
vide RMDC vs Union of India, AIR 1957 SC 628 (“RMDC”). 
8.4.6     In short, t he Entries in the different Lists should be 
read together without giving a narrow meaning to any of them.

Source PDF page 223

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 23 of 193 
 
The powers of the Union and the State Legislatures are 
expressed in precise and definite terms. Hence, there can be no 
broader interpretation given to one Entry than to the other. 
Even where an Entry is worded in wide terms, it cannot be so 
interpreted as to negate or override another Entry or make 
another Entry meaningless. In case of an apparent conflict 
between different Entries, it is the duty of the Court to reconcile 
them in the first instance.  In case of an apparent overlapping 
between two Entries, the doctrine of pith and substance has to 
be applied to find out the true nature of a legislation and the 
Entry within which it would fall.  Where one Entry is made 
“subject to” another Entry, all that it means is that out of the 
scope of the former Entry, a field of legislation covered by the 
latter Entry has been reserved to be specially dealt with by the 
appropriate legislature. When one item is general and another 
specific, the latter will exclude the former on a subject of 
legislation. If, however, they cannot be fairly reconciled, the 
power enumerated in List II must give way to List I.

Source PDF page 224

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 24 of 193 
 
 8.4.7 On a close perusal of the Entries in the three Lists, it 
is discerned that the Constitution has divided the topics of 
legislation into the following three broad categories: 
(i)  Entries enabling laws to be made; 
(ii)  Entries enabling taxes to be imposed; and 
(iii)  Entries enabling fees and stamp duties to be 
collected. 
   
 Thus, the Entries on levy of taxes are specifically 
mentioned. Therefore, as such , there cannot be a conflict of 
taxation power of the Union and the State. Thus, in substance 
the taxing power can be derived only from a specific taxing 
Entry in an appropriate List . Such a power has to be 
determined by the nature of the tax and not the measure or 
machinery set up by the statute. 
8.5  Entry 54 - List I read with Entry 23 - List II deals with 
regulation of mines and mineral development. Since both the 
Entries deal with regulation of mines and mineral development 
and they are in List I and List II, Entry 23 - List II expressly 
states that any regulation of mines and mineral development is 
subject to the provisions of List I with respect to regulation and

Source PDF page 225

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 25 of 193 
 
development under the control of the Union (i.e. Entry 54 - List 
I). 
8.6  However, what is pertinent to be considered in this case 
is, Entry 50 - List II in juxtaposition with Entry 54 - List I.  As 
already noted, Entry 50 - List II is a taxation Entry which 
empowers a State Legislature to impose tax on mineral rights.  
However, this power of the State Government is not an absolute 
power inasmuch as Entry 50 - List II itself states that the power 
of the State Legislature to impose tax on mineral right is 
“subject to any limitations imposed by Parliament by law 
relating to mineral development”.  In other words, if there is any 
limitation imposed by the Parliament by law relating to mineral 
development then that would have an impact on the legislative 
competence of the State Legislature to impose a tax on mineral 
rights. The key expressions of Entry 50 - List II are “taxes on 
mineral rights” and “subject to any limitations imposed by the 
Parliament by any law on mineral development”. Thus, the 
Parliament can impose any limitation on the State’s right to 
impose a tax on mineral rights by way of a law relating to

Source PDF page 226

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 26 of 193 
 
mineral development. Thus, while Entry 50 - List II speaks of 
taxes on mineral rights and is a taxation Entry empowering 
States to impose taxes on mineral rights, the same is not 
unbridled or absolute but is subject to any limitation to be 
imposed by Parliament by law relating to mineral development. 
In other words, if Parliament intends to regulate mineral 
development in the country, it can do so by a law made as per 
Entry 54 - List I and to that extent the taxation Entry in Entry 
50 - List II could be limited and the State’s right to impose a tax 
on mineral rights by a law would be affected. Thus, a taxation 
Entry in Entry 50 - List II can be affected by Entry 54 - List I in 
the interest of mineral development by Parliament imposing a 
limitation on the State’s right to tax mineral rights. In other 
words, if the Union has by a law taken control of , inter alia , 
mineral development with the Parliament passing a law, then 
the State’s power to impose any tax on mineral rights would, to 
that extent, be denuded, if the Parliamentary or Central law 
creates a limitation to impose such a tax, if it relates to mineral

Source PDF page 227

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 27 of 193 
 
development. It is in the above backdrop that the controversy 
must be considered. 
8.7  Exercise of mineral rights have to be consistent with 
mineral development in the country, which would embrace, 
inter alia , uniformity in mineral development throughout the 
country having regard to several factors which would otherwise 
come in the way of such development. Hence, the framers of the 
Constitution introduced Entry 50 - List I enabling a limitation 
being imposed on Entry 50 - List II although that is a taxation 
Entry giving powers to the States to impose taxes on mineral 
rights. It is subject to any limitation imposed by Parliament 
under Entry 54 - List I. 
8.8  The golden thread which runs through Entry 54 - List I 
and Entry 23 - List II is that the Entries deal with regulation of 
mines and mineral development. Thus, any aspect of regulation 
of mines and mineral development taken under the control of 
the Union by a declaration made by the Parliament by a law, 
denudes the State Legislature of its legislative competence to 
pass any law to that extent. If a Parliamentary law such as

Source PDF page 228

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 28 of 193 
 
MMDR Act, 1957 is enacted and deals with certain aspects of 
mineral development, to that extent the State Legislature would 
be denuded of its competence to pass any law on the said 
aspect. The legislative competence vested with the State 
Legislature is, therefore, not an absolute one but is subject to a 
Parliamentary law enacted as per Entry 54 - List I dealing with 
mineral development.    
 9. The precise question before this Court being, whether, 
imposition of royalty envisaged under Section 9 of the MMDR 
Act 1957, which is a parliamentary legislation passed by virtue 
of Entry 54 - List I, acts as a limitation  imposed by Parliament 
by law relating to mineral development and therefore, the State 
Legislature is denuded of its powers to impose any other tax or 
impost on mineral rights. Whether royalty, which is paid by a 
lessee to a lessor i.e. the State while exercising mineral rights is 
a limitation imposed on State’s power to impose any other 
impost, cess or tax on exercise of mineral rights while 
undertaking a mining operation and extracting minerals by a 
lessee, is the precise question to be answered in the context of

Source PDF page 229

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 29 of 193 
 
the constitutional framework, the parliamentary law, namely, 
the MMDR Act, 1957 and the judgments of this Court.   
Scheme of the MMDR Act, 1957: 
 
10.  Having analysed the relevant constitutional Entries which 
have a bearing on the controversy, it is necessary to refer to the 
scheme of and salient provisions of the MMDR Act, 1957  which 
has been enacted by Parliament pursuant to Entry 54  - List I.  
This is apparent on a reading of Section 2 of the said Act which 
reads as under: 
“2.  Declaration as to the expediency of Union 
control,— It is hereby declared that it is expedient in the 
public interest that the Union should take under its control 
the regulation of mines and the development of minerals to 
the extent hereinafter provided.” 
 
 
The expression in Entry 54  - List I “to the extent to which” 
is also significant inasmuch as Section 2 of the  MMDR Act, 
1957 also uses the expression “to the extent hereinafter 
provided”. The two expressions have the same content and are 
consistent with each other.

Source PDF page 230

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 30 of 193 
 
10.1     The MMDR Act, 1957 which is a successor to MMRD 
Act, 1948, can be briefly considered by referring to various 
provisions of the Act . The Preamble of the MMDR Act, 1957 
states that the Act is to provide “for the development and 
regulation of mines and minerals under the control of the 
Union”. Earlier, it read as  “for regulation of mines and the 
development of minerals” but by Section 2 (Act 38 of 1999), the 
above amendment was made.  
10.2    The relevant provisions of the MMDR Act, 1957 could be 
adverted to at this stage. The expression ‘minerals’ in Section 
3(a)(d) includes all minerals except mineral oils.  Section 3(e) 
defines ‘minor minerals’ to mean building stones, gravel, 
ordinary clay, ordinary sand other than sand used for 
prescribed purposes, and any other mineral which the Central 
Government may, by notification in the official gazette, declare 
to be a minor mineral. ‘Notified minerals’ is defined under 
Section 3(ea) to mean any mineral specified in the Fourth 
Schedule, such as, bauxite, iron ore, limestone, manganese ore. 
Further, ‘mineral concession’ is defined in Section 3(ae) of the

Source PDF page 231

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 31 of 193 
 
said Act to mean either a reconnaissance permit, prospecting 
licence, mining lease, composite licence or a combination of any 
of these and the expression “concession” shall be construed 
accordingly.  Section 3(c) defines “mining lease” to mean a lease 
granted for the purpose of undertaking mining operations and 
includes a sub -lease granted for such purpose. Section 3(d) 
defines “mining operations” to mean any operation undertaken 
for the purpose of winning any mineral. Section 3(h) defines 
“prospecting operations” to mean any operations undertaken 
for the purpose of exploring, locating or proving mineral 
deposits.  Section 3(ha) defines “reconnaissance operations” to 
mean any operation undertaken for preliminary prospecting of 
a mineral through regional, aerial, geophysical or geochemical 
surveys and geological mapping, but does not include pitting, 
trenching, drilling (except drilling of boreholes on a grid 
specified from time to time by the Central Government) or sub -
surface excavation.   
10.3    It is observed that the MMDR Act, 1957  specifies the 
twin purposes of the Act , namely, (1) the regulation of mines ,

Source PDF page 232

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 32 of 193 
 
and (2) the development of minerals, both under the control of 
the Union. Sections 4 to 10  of the Central Act  form a group 
headed ‘General Restrictions on Undertaking Prospecting and 
Mining Operations’ and relate to the rules and regulations 
under which prospecting licences and mining leases might be 
granted; the period for which they may be granted or renewed ; 
the royalties and fees that would be payable on them etc. The 
next group of Sections, namely, Sections 10 to 12 deal with the 
procedure for obtaining prospecting licences or mining leases in 
respect of land in which minerals vest in the Government. 
Sections 13 to 17 are grouped under a caption which reads  - 
“Rules for regulating the grant of Prospecting Licences and 
Mining Leases”. Section 13 empowers the Central Government, 
by notification, to make rules for regulating the grant of 
prospecting licences and mining leases in respect of minerals 
and for purposes connected therewith. Sub -section (2) specifies 
in particular the matters for which such rules may provide and 
among them is (i) the fixing and collection of fees for mineral 
concession, surface rent, security deposit, fines, other fees or

Source PDF page 233

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 33 of 193 
 
charges and (ii) the time within which and the manner in which 
the dead rent or royalty shall be payable, and rules regarding  
prospecting licences and mining leases.  
10.4      Section 18 deals with the mineral development. Section 
18(1) states that it shall be the duty of the Central Government 
to take all such steps as may be necessary for the conservation 
and development of minerals in India and for that purpose the 
Central Government may, by notification in the Official Gazette, 
make such rules as it thinks fit.  Section 18(2) talks of rules 
providing for the development of mineral resources in any area . 
Section 25 provides for the recovery of any rent, royalty, tax or 
other sum due to the Government under this Act or the rules 
made thereunder and that they are to be recovered in the same 
manner as arrears of land revenue. 
10.5     Section 9 of the MMDR Act, 1957  with which we are 
concerned deals with royalty while Section 9A deals with dead 
rent.  The said provisions can be usefully extracted as under:

Source PDF page 234

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 34 of 193 
 
“9.  Royalties in respect of mining leases. ―(1) The 
holder of a mining lease granted before the commencement 
of this Act shall, notwithstanding anything contained in the 
instrument of lease or in any law in force at such 
commencement, pay royalty in respect of any mineral 
removed or consumed by him or by his agent, manager, 
employee, contractor or sub -lessee from the leased area 
after such commencement, at the rate for the time being 
specified in the Second Schedule in respect of that mineral.  
 
(2) The holder of a mining lease granted on or after the 
commencement of this Act shall pay royalty in respect of 
any mineral removed or consumed by him or by his agent, 
manager, employee, contractor or sub -lessee from the 
leased area at the rate for the time being specified in the 
Second Schedule in respect of that mineral. 
 
(2A) The holder of a mining lease, whether granted before or 
after the commencement of the Mines and Minerals 
(Regulation and Development) Amendment Act, 1972 shall 
not be liable to pay any royalty in respect of any coal 
consumed by a workman engaged in a colliery provided that 
such consumption by the workman does not exceed one -
third of a tonne per month.  
 
(3) The Central Government may, by notification in the 
Official Gazette, amend the Second Schedule so as to 
enhance or reduce the rate at which royalty shall be 
payable in respect of any mineral with effect from such date 
as may be specified in the notification:  
 
Provided that the Central Government shall no t enhance 
the rate of royalty in respect of any mineral more than once 
during any period of three years. 
 
9A. Dead rent to be paid by the lessee.― (1) The holder of 
a mining lease, whether granted before or after the 
commencement of the Mines and Minerals ( Regulation and 
Development) Amendment Act, 1972, shall notwithstanding 
anything contained in the instrument of lease or in any 
other law for the lime being in force, pay to the State 
Government, every year, dead rent at such rate, as may be

Source PDF page 235

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 35 of 193 
 
specified, for the time being, in the Third Schedule, for all 
the areas included in the instrument of lease:  
   
Provided that where the holder of such mining lease 
becomes liable, under section 9, to pay royalty for any 
mineral removed or consumed by him or by his agent, 
manager, employee, contractor or sub -lessee from the 
leased area, he shall be liable to pay either such royalty, or 
the dead rent in respect of that area, whichever is greater.  
 
(2) The Central Government may, by notification in the 
Official Gazette, amend the Third Schedule so as to 
enhance or reduce the rate at which the dead rent shall be 
payable in respect of any area covered by a mining lease 
and such enhancement or reduction shall take effect from 
such date as may be specified in the notification:  
 
Provided that the Central Government shall not enhance 
the rate of the dead rent in respect of any such area more 
than once during any period of three years.” 
 
 Section 9 speaks of royalty to be paid by a holder of a 
mining lease while Section 9A deals with dead  rent to be paid 
by a lessee.  Dead rent is payable by a lessee, when the lessee - 
a holder of a mining lease, becomes liable to pay under Section 
9 royalty of any mineral removed or consumed by him. The 
holder of a mining lease conducts mining operations for the 
purpose of winning any mineral. Thus, a mining operation is an 
exercise of a mineral right and therefore, is covered under the 
provisions of the MMDR Act, 1957 and particularly having 
regard to Section 2 thereof, as a declaration has been made by

Source PDF page 236

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 36 of 193 
 
the Union to take under its control the regulation of the mines 
and minerals development, which is expedient in public 
interest.  Reconnaissance, prospecting operations or mining 
operations are all aspects which are taken under the control of 
the Union, in view of the declaration under Section 2 of the 
MMDR Act, 1957.  
10.5.1    For the exercise of mineral rights, royalty has to be 
paid by the holder of the mining lease in terms of Section 9 or 
dead rent in terms of Section 9A of the said Act, as per the 
conditions mentioned therein. Royalty is paid in exercise of a 
mineral right as a consideration for conducting a mining 
operation, which is undertaken for the purpose of winning any 
mineral. A mining lease is granted only for the purpose of 
undertaking a mining operation. Therefore, royalty has to be 
paid by the holder of a mining lease to the lessor who executes 
the lease deed i.e. the State Government. For this reason , 
Section 25 states that any rent, royalty, tax, fee or other sum 
due to the Government under the Act or the Rules made 
thereunder or under the terms and conditions of any mineral

Source PDF page 237

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 37 of 193 
 
concession shall be recovered in the same manner as arrears of 
land revenue.  
10.6     By way of abundant caution, Section 25 of the said Act 
uses the expression “rent, royalty, tax, fee or other sum” due to 
the Government under the provisions of the said Act.   
Section 25 of the said Act reads as under:  
“25. Recovery of certain sums as arrears of land 
revenue.― (1) Any rent, royally, tax, fee or other sum due to 
the Government under this Act or the rules made 
thereunder or under the terms and conditions of any 
mineral concession may, on a certificate of such officer as 
may be specified by the State Government in this behalf by 
general or special order, be recovered in the same manner 
as an arrear of land revenue.  
(2) Any rent, royalty, tax, fee or other sum due to the 
Government either under this Act or any rule made 
thereunder or under the terms and conditions of any 
mineral concession may, on a certificate of such officer as 
may be specified by the State Government in this behalf by 
general or special order, be recovered in the same manner 
as if it were an arrear of land revenue and every such sum 
which becomes due to the Government after the 
commencement of the Mines and Minerals (Regulation and 
Development) Amendment Act, 1972, together with the 
interest due thereon shall be a first charge on the assets of 
the holder of the mineral concession, as the case may be.” 
 
10.7    Under the scheme of the Act, royalty shall be payable in 
respect of mining leases. The statutory basis for the same may

Source PDF page 238

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 38 of 193 
 
be found in Section 9 of the Act, which prescribes that royalty 
shall be payable by holders of mining lease, whether such lease 
be granted before or after commencement of the Act. The event 
that triggers payment of royalty is the removal and/or 
consumption of mineral. The rates of royalty are prescribed 
under the second schedule to the Act and are generally 
expressed as a percentage of the average sale price of the 
respective mineral, and the same is to be paid on ad valorem 
basis. It is clarified at this juncture that the payment of royalty 
in respect of mining leases, shall be notwithstanding any 
stipulation contained under the instrument of lease or any 
other law in force at the time of execution of the lease.  
10.8     Section 9A of the Act provides that the holder of a 
mining lease shall pay dead rent to the State Government, 
annually, at such rate specified in the third schedule to the Act. 
Dead rent is to be paid for such area included in the 
instrument of lease. However, since the holder of a mining lease 
is also liable to pay royalty under Section 9 of the Act, it is 
clarified under Section 9A that the liability shall be limited to

Source PDF page 239

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 39 of 193 
 
either dead rent or royalty, whichever is greater. Since royalty is 
payable on ad valorem basis, the holder of a mining lease would 
be liable to pay the same only depending on the value of the 
mineral won/removed/consumed. That is, when mining activity 
is not conducted, liability of royalty would be nil. However, dead 
rent is payable for such area covered under the instrument of 
lease, on an annual basis, regardless of whether any mining 
activity is undertaken on such land. The Third Schedule to the 
Act prescribes the dead rent payable per hectare, per annum. 
The amount of dead rent payable also depends upon the nature 
of the minerals available on the land in question  - medium 
value minerals, high value minerals or precious metals and 
stones. The Act also prescribes the manner in which rent and 
royalty payable, may be recovered. Section 25 of the Act 
provides that any sum due to the Government under the 
provisions of the Act, including rent and royalty, may, on a 
certificate of such officer as may be specified by the State 
Government in this behalf by general or special order, be 
recovered in the same manner as arrears of land revenue.

Source PDF page 240

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 40 of 193 
 
 
10.8.1 Section 13(1) of the Act enables the Central 
Government to make rules for regulating the grant of mineral 
concession in respect of minerals and for purposes connected 
therewith. Without prejudice to the generality of the power 
prescribed under Section 13(1), Section 13(2) lists the specific 
subjects that may be regulated by framing Rules. Section 
13(2)(e) enables the Central Government to make rules to 
prescribe the authority by which mineral concession in respect 
of land in which the minerals vest in the Government  may be 
granted. Section 13(2)(f) on the other hand, relates to the rule 
making power to prescribe the procedure for obtaining a 
mineral concession in respect of any land in which the minerals 
vest in a person other than the Government , and the terms on 
which and conditions subject to which such a permit, license or 
lease may be granted or renewed.  
10.8.2 In exercise of the rule -making power under Section 
13 of the Act, the Central Government has enacted the Mineral 
Concession Rules, 1960, to provide, inter-alia, for the procedure 
for obtaining mineral concessions in respect of various

Source PDF page 241

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 41 of 193 
 
categories of lands, the terms on which and conditions subject 
to which such a permit, license or lease may be granted or 
renewed.  
10.8.3 Chapter IV of the Rules governs all matters 
connected with grant of mining leases in respect of land in 
which minerals vest in the Government. Applications for mining 
lease is to be made to the State Government in the manner 
prescribed under Rule 22. Rule 22(4) prescribes the manner in 
which the State Government is to act upon receipt of an 
application for grant of mining license. First, the State 
Government is required to take a decision as to the precise area 
for the said purpose and communicate such decision to the 
applicant. On receipt of communication from the State 
Government of the precise area to be granted, the applicant 
shall submit a mining plan within a period of six months or 
such other period as may be allowed by the State Government, 
to the Central Government for its approval. Thereafter, the 
applicant shall submit the mining plan, duly approved by the 
Central Government or by an officer duly authorised by the

Source PDF page 242

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 42 of 193 
 
Central Government, to the State Government to grant mining 
lease over that area. The procedure for approval of mining 
plans, by the Central or State Government, as the case may be, 
has been detailed under Rule 22BB.  
10.8.4 Rule 31 provides that where, on an application for 
the grant of a mining lease, an order has been made for the 
grant of such lease, a lease deed in Form K is required to be 
executed by the State Government within six months of the 
order granting lease. The State Government may, after giving an 
opportunity of being heard and for reasons to be recorded in 
writing and communicated to the applicant, also refuse, in the 
manner specified under Rule 26, to grant a mining lease over 
whole or part of the area applied for.  
10.8.5 Rule 27 prescribes the general conditions to which 
mining leases, in respect of land in which minerals vest in the 
Government, shall be subject to. The relevant portion of said 
Rule is extracted hereinunder for easy reference:

Source PDF page 243

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 43 of 193 
 
“27. Conditions : - (1) Every mining lease shall be subject 
to the following conditions :-  
xxx        xxx        xxx 
(c) the lessee shall pay, for every year, except the first year 
of the lease, such yearly dead rent at the rates specified in 
the Third Schedule of the Act and if the lease permits the 
working of more than one mineral in the same area the 
State Government shall not charge separate dead rent in 
respect of each mineral:  
Provided that the lessee shall be liable to pay the dead rent 
or royalty in respect of each mineral whichever be higher in 
amount but not both;  
(d) the lessee shall also pay, for the surface area used by 
him for the purposes of mining operations, surface rent and 
water rate at such rate, not exceeding the land revenue, 
water and cesses assessable on the land, as may be 
specified by the state Government in the lease;  
xxx        xxx        xxx 
(t) the lessee shall pay to the occupier of the surface of the 
land such compensation as may become payable under 
these rules;  
 
(u) the lessee shall comply with the Mineral Conservation 
and Development Rules framed under section 18;”  
 
10.8.6 While the aforesaid provisions contained in Chapter 
IV relate to mining leases in respect of land in which minerals 
vest in the Government, Chapter V prescribes the procedure for 
obtaining a mining lease in respect of land in which minerals 
vest exclusively in a person other than the Government. Rule 
45 pronounces the conditions of a mining lease. It is pertinent

Source PDF page 244

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 44 of 193 
 
to note that the said provision adopts the conditions prescribed 
under clauses (b) to (l) and (p) to (u) of sub -rule (1) of Rule 27 
which relate to mining leases in respect of land in which 
minerals vest in the Government, and makes the said 
conditions applicable to mining leases in respect of land in 
which minerals vest exclusively in a person other than the 
Government, with the modification that in clauses (c) and (d) for 
the words "State Government" the word "lessor" shall be 
substituted. Further, in addition to the aforesaid conditions 
that are statutorily prescribed, Rule 45 (iii) permits the parties 
to set down and mutually agree upon such other conditions in 
the instrument of lease, so long as such additional conditions 
are not inconsistent with the provisions of the Act and the 
Rules. Rule 45 (iv) enjoins upon the lessor, the duty to give 
notice to the lessee requiring him to pay royalty due under 
Section 9 of the Act, on failure of the lessee to remit the same 
as required. Should the lessee not act upon such notice and 
duly make the payment of royalty within sixty days from the

Source PDF page 245

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 45 of 193 
 
date of receipt of notice, the lessor shall be bound to determine 
the lease.  
10.8.7 Chapter VI pertains to grant of mining leases in 
respect of land in which the minerals vest partly in the 
Government and partly in private persons. Rule 53 provides 
that the provisions of Chapter IV shall apply to mining leases in 
respect of minerals which vest partly in the Government and 
partly in a private person as they apply in relation to the grant 
of prospecting licences and mining leases in respect of minerals 
which vest exclusively in the Government. The proviso to Rule 
53 clarifies that the dead rent and royalty payable in respect of 
mineral which partly vest in the Government and partly in a 
private person shall be shared by the Government and by that 
person in proportion to the shares they have in the minerals.  
10.8.8 The pertinent provisions prescribing the liability of a 
lessee to pay royalty and dead rent in respect of mining leases 
over different categories of lands as described under Chapters

Source PDF page 246

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 46 of 193 
 
IV, V and VI of the Rules, have been summarised and presented 
in the following tabular statement:  
Sl. No.  Category of 
land over 
which mining 
lease is 
granted:  
Procedure for 
grant of lease 
and 
Conditions of 
mining lease 
prescribed 
under:  
Liability to pay 
Royalty and Dead 
Rent prescribed 
under:  
 
1.  
 
Mining lease in 
respect of land 
in which 
minerals vest in 
the 
Government 
Chapter IV of 
the Rules: 
Rule 27 - 
Conditions 
Royalty:  
Section 9 of the Act, 
r/w Second 
Schedule to the Act 
which prescribes 
the rate of royalty;   
Rule 27 (1) (c) and 
the proviso thereto;  
Part V of Form K of 
the Rules;  
Dead Rent:  
Section 9A of the 
Act, r/w Third 
Schedule to the Act 
which prescribes 
the amount of dead 
rent payable per 
hectare of land;   
Rule 27 (1) (c) and 
the proviso thereto;  
Part V of Form K of 
the Rules.

Source PDF page 247

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 47 of 193 
 
Sl. No.  Category of 
land over 
which mining 
lease is 
granted:  
Procedure for 
grant of lease 
and 
Conditions of 
mining lease 
prescribed 
under:  
Liability to pay 
Royalty and Dead 
Rent prescribed 
under:  
Surface rent:  
Payable in terms of 
Rule 27(1)(d), at the 
rate specified by the 
State Government 
in the lease.  
2.  Mining lease in 
respect of land 
in which 
minerals vest 
exclusively in a 
person other 
than the 
Government 
Chapter V of 
the Rules: 
Rule 45 - 
Conditions of 
mining lease 
[Conditions 
stipulated 
under Rule 27 
have been 
adopted with 
modification to 
substitute 
‘State 
Government’ 
as appearing 
under Rule 
27(1)(c) and (d) 
with the word 
‘lessor’.]  
In addition to 
the conditions 
statutorily 
prescribed, 
Royalty and Dead 
rent: 
Royalty and dead 
rent are payable in 
terms of Section 9 
and 9A of the Act, 
respectively, read 
with  Rule 27 (1) (c) 
of the Rules.  
Surface rent:  
Payable in terms of 
Rule 27(1)(d), as 
substituted in 
terms of Rule 45, at 
the rate specified by 
the lessor in the 
lease.

Source PDF page 248

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 48 of 193 
 
Sl. No.  Category of 
land over 
which mining 
lease is 
granted:  
Procedure for 
grant of lease 
and 
Conditions of 
mining lease 
prescribed 
under:  
Liability to pay 
Royalty and Dead 
Rent prescribed 
under:  
Rule 45 (iii) 
permits the 
parties to set 
down and 
mutually agree 
upon such 
other 
conditions in 
the 
instrument of 
lease, so long 
as such 
additional 
conditions are 
not 
inconsistent 
with the 
provisions of 
the Act and 
the Rules.  
3.  Mining leases 
in respect of 
land in which 
the minerals 
vest partly in 
the 
Government 
and partly in 
private persons 
Chapter VI of 
the Rules: 
The procedure 
and conditions 
prescribed 
under Chapter 
IV to apply 
mutatis 
mutandis 
Royalty and Dead 
rent: 
Royalty and dead 
rent are payable in 
terms of Section 9 
and 9A of the Act, 
respectively, read 
with  Rule 27 (1) (c) 
of the Rules.

Source PDF page 249

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 49 of 193 
 
10.9     Section 9 of the MMDR Act, 1957  categorically deals 
with royalty.  It has to be read with the Second Schedule  which 
deals with rates of royalty in respect of minerals listed therein. 
Therefore, there can be no cavil that royalty is an aspect within 
the scope and ambit of the Parliamentary law which is intended 
to take under the control of the Union by a declaration ( vide 
Section 2 of the said Act) vis-à-vis regulation of the mines and 
mineral development which is declared to be expedient in the 
public interest. When the imposition of royalty on a mining 
lease in terms of lease-deed as envisaged in Form -K of the 
MMDR Act, 1957 is considered in light of Entry 54  - List I read 
with Section 2 of the MMDR Act, 1957, it is clear that royalty is 
a matter coming under the control of the Union . If payment of 
royalty, which is a consideration for exercise of mineral rights is 
expressly covered under Section 9 of the MMDR Act, 1957, can 
the same be a basis for  any other exaction by a State either by 
imposing another tax/cess based on royalty or by imposing any 
other tax on mineral bearing land? This is the question which 
has fallen for consideration in several cases before this Court as

Source PDF page 250

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 50 of 193 
 
well as before several High Courts. As noted above, royalty is a 
consideration imposed by a lessor on a lessee o f a mining lease 
for the grant of the mining lease, which in sum and substance 
is a requisite  consideration for exercise of a mineral right. 
Royalty and dead rent  as envisaged under the scheme of 
Sections 9 and 9A of the MMDR Act, 1957 have been imposed 
by the Parliament in the interest of mineral development in the 
country. The fact that under Section s 9 as well as 9A, payment 
of royalty  and dead rent a s respectively envisaged as per the 
conditions stated in the said Sections, would clearly indicate 
that having regard to development of any particular mineral, 
the rate of royalty has been fixed under the Second Schedule to 
the MMDR Act, 1957. Therefore, it is in the interest of mineral 
development that a lessor is bound to collect royalty and dead 
rent from a lessee in terms of what is envisaged in Sections 9 
and 9A read with Second Schedule to the Act.  The payment of 
royalty is to the lessor which is the State which executes the 
lease deed in terms of the Form K of Mineral Concession Rules, 
1960. Thus,  having regard to the statutory scheme envisaged

Source PDF page 251

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 51 of 193 
 
under Sections 9 and 9A of the Act read with the Second 
Schedule to the MMDR Act, 1957, any exercise of mineral right 
by a lessee is subject to the payment of royalty  to the State 
Government. The exaction of royalty is, therefore, statutory in 
nature.    
10.10 In Govind Saran Ganga Saran vs. Commissioner 
of Sales Tax, (1985) Supp SCC 205 (“Govind Saran Ganga 
Saran”), the components which enter into the concept of tax 
were discussed by this Court in paragraph 6 which reads as 
under: 
“6. The components which enter into the concept of a tax 
are well known. The first is the character of the imposition 
known by its nature which prescribes the taxable event 
attracting the levy, the second is a clear indication of the 
person on whom the levy is imposed and who is obliged to 
pay the tax, the third is the rate at which the tax is 
imposed, and the fourth is the measure or value to which 
the rate will be applied for computing the tax liability. If 
those components are not clearly and definitely 
ascertainable, it is difficult to say that the levy exists in 
point of law. Any uncertainty or vagueness in the legislative 
scheme defining any of those components of the levy will be 
fatal to its validity.”

Source PDF page 252

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 52 of 193 
 
The four components could be understood as: 
(i) the character of the tax which is determined by its nature 
which prescribes the taxable event attracting the levy; 
(ii) a clear indication of the person on whom the levy is 
imposed and who is obliged to pay the tax; 
(iii) rate at which the tax is imposed; and 
(iv) the measure or value to which the tax will be applied for 
computing the taxing liability. 
If the aforesaid components are applied to the present case, it is 
clear that –  
(i) Section 9 of the MMDR Act, 1957 deals with payment of 
royalty in respect of any mineral removed or consumed; 
(ii) by a holder of mining lease who is obliged to pay the 
royalty; 
(iii) at the rate specified in the Second Schedule to MMDR Act, 
1957; and

Source PDF page 253

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 53 of 193 
 
(iv) a percentage of the average sale price on ad valorem basis. 
For instance, in respect of Iron Ore : (CLO, lumps, fines 
and concentrates all grades) fifteen per cent of average sale 
price on ad valorem basis. 
Although, Section 9 of the MMDR Act, 1957 is not worded 
in the manner a charging section in a taxation statute is 
normally worded, nevertheless, its import must be understood 
in the sense of it being a taxation provision.  For the aforesaid 
reasons, I hold that royalty is the nature of a tax or an exaction.  
I now move on to the judgments of this Court as well as 
High Courts on the nature of exaction in the form of royalty 
under the provisions of the MMDR Act, 1957 as the controversy 
centres around various decisions of this Court and certain High 
Courts. 
Hingir-Rampur:  
11.   In Hingir-Rampur, a Constitution Bench of this Court 
presided over by P.B. Gajendragadkar, J. was considering the 
validity of the Orissa Mining Areas Development Fund Act, 
1952 (hereinafter referred to as, “Act of 1952”). In December,

Source PDF page 254

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 54 of 193 
 
1952, the State of Orissa passed the Act of 1952. In pursuance 
of the rule-making power conferred on it by the impugned Act, 
respondent No.1 purported to make the rules called the Orissa 
Mining Areas Development Act Rules, 1955 (hereinafter referred 
to as, “1955 Rules”). The liability for the payment of cess under 
the impugned Act was notified against the first petitioner’s 
Rampur colliery  therein.  Since a demand was made for the 
payment of cess, there was a challenge made to the same by 
filing the writ petition under Article 32 of the Constitution 
before this Court. According to the petitioners, cess levied 
under the impugned Act was not a fee but 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 was beyond the 
legislative competence of the Orissa legislature. Alternatively, it 
was urged that even if the levy imposed by the impugned Act is 
a fee relative to Entries 23 and 66 - List II, it would nevertheless 
be ultra vires having regard to the provisions of Entry 54 - List I 
read with Central Act 53 of 1948  (MMRD Act, 1948). According 
to the respondent -the State of Orissa, the levy imposed by the

Source PDF page 255

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 55 of 193 
 
impugned Act was a fee relatable to Entries 23 and 66  - List II 
and its validity was not affected either by Entry 54 read with 
Act 53 of 1948 or by Entry 52 read with Act 65 of 1951. In the 
alternative, it was 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 - List II 
and as such the legislative competence of the State legislature 
to impose the same cannot be successfully challenged. 
11.1     The scheme of the impugned Act was considered in 
paragraph 15 of the judgment and it was observed by this 
Court that the object of the Act was for the purpose of 
development of mining areas in the State. That the method in 
which the fee is recovered is a matter of convenience that by 
itself cannot fix upon the levy the character of duty of excise 
though the method in which an impost is levied may be 
relevant in determining its character, its significance and effect. 
Therefore, it was observed that under the impugned Act, the 
mere fact that the levy imposed by the impugned Act ha d 
adopted the method of determining the rate of the levy with 
reference to the minerals produced by the mines would not by

Source PDF page 256

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 56 of 193 
 
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; 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. Therefore, it 
was held that cess in question was neither a tax nor a duty of 
excise but a fee. 
11.2     If the cess was held to be a fee relatable to Entries 23 
and 66 - List II, its validity was 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.  
11.3     According to this Court, o n a combined reading of two 
Entries, namely, Entry 2 3 - List II and Entry 54  - List I, what 
emerged was that the jurisdiction of the State legislature under 
Entry 23  - List II is subject to the limitation imposed by the

Source PDF page 257

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 57 of 193 
 
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 Union, to 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  - List I , 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 Entry 23  - List II is a 
limitation on the legislative competence of the State legislature 
itself and this position was not in dispute. It was urged that the 
field covered by the impugned Act was already covered by the 
Mines and Minerals (Regulation and Development) Act, 1948, 
(53 of 1948) and in view of the declaration made by Section 2 of 
the Act, the impugned Act was ultra vires. Section 2 of the  said 
Act contained a declaration as to the expediency and control by 
the Central Government. This Court opined that if it was held

Source PDF page 258

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 58 of 193 
 
that this Act contained the declaration referred to in Entry 23  - 
List II , there would be no difficulty in holding that the 
declaration covered 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 - List II, 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 - 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, then it would not be competent of the 
State legislature to pass an Act in respect of the subject -matter 
covered by the said declaration. In such a case, the test must 
be whether the legislative declaration covers the field or not. It 
was observed that field covered by the impugned Act was 
covered by the Central Act 53 of 1948. 
11.4     Wanchoo, J. (as His Lordship then was) gave a separate 
opinion in the said case by stating that cess levied on all 
extracted minerals from any mine in any mining area at a rate

Source PDF page 259

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 59 of 193 
 
not exceeding five per centum of the value of the minerals at 
the pit’s mouth by the Orissa State legislature under Section 4 
of the Act of 1952 (Act 27 of 1952) was a fee properly so called 
and not a duty of excise.  
11.5     The next contention considered by Wanchoo, J. was 
that if the cess is not justified as a fee, it is a tax under Item 50 
of List II. Item 50 List II provides for taxes on mineral rights 
subject to any limitations imposed by Parliament by law 
relating to mineral development. The question was as to what 
are taxes on mineral rights. It was held by Wanchoo, J. that 
taxes on mineral rights would be confined to taxes on leases of 
mineral rights and on premium or royalty.  Taxes on such 
premium and royalty would be taxes on mineral rights while 
taxes on the minerals actually extracted would be duties of 
excise.  Consequently, the writ petition was dismissed. 
M.A. Tulloch: 
12.  In M.A. Tulloch , also before a Constitution Bench, the 
question was with regard to the validity of the imposition of the 
Orissa Mining Areas Development Fund Act, 1952 (Orissa Act

Source PDF page 260

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 60 of 193 
 
27 of 1952) and cancellation of the notices of demand issued.  
The High Court had allowed the petition of the respondents 
therein by observing that the Orissa Act had been rendered 
ineffective or suppressed by a Central Act, namely, MMDR Act, 
1957, w.e.f. 01.06.1958. Considering Entry 23 - List II and 
Entry 54 - List I, the High Court held that the Orissa Act ceased 
to be operative by reason of the withdrawal of legislative 
competence by force of the Entry in the State List being subject 
to the Parliamentary declaration and the law enacted by 
Parliament. Therefore, w.e.f. 01.06.1958 the Orissa Act was 
deemed to be non-existent as there was lack of power to enforce 
and realise the demands for the payment of the fee at the time 
when the demands were issued and were sought to be enforced.  
The correctness of this judgment was considered by a 
Constitution Bench of this Court.    
12.1     It was observed that to the extent to which the Union 
Government had taken under “its control” “the regulation and 
development of minerals” so much was withdrawn from the 
ambit of the power of the State legislature under Entry 23 - List

Source PDF page 261

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 61 of 193 
 
II and the legislation of the State which had rested on the 
existence of power under that Entry would, to the extent of that 
“control”, be superseded or be rendered ineffective.  This was 
because there was a denudation of State legislative power by 
the declaration which Parliament was empowered to make and 
had made (vide Section 2 of MMDR Act, 1957). It was observed 
that the States would lose legislative competence only to the 
“extent to which regulation and development under the control 
of the Union had been declared by Parliament to be expedient 
in the public interest”.  The crucial enquiry had therefore to be 
directed to ascertain this “ extent” for, beyond it, the legislative 
power of the State remained unimpaired.   
12.2     Thus, the scheme of Orissa Act, which was a 1952 Act, 
was considered in juxtaposition of the MMDR Act, 1957, also 
called as ‘Central Act’. The question considered was “whether 
the extent of control and regulation” provided by the Central 
Act took within its fold the area or the subject covered by the 
Orissa Act. The test was if the entire field of mineral 
development was taken over by the Central Act that would

Source PDF page 262

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 62 of 193 
 
include the provision of amenities to workmen employed in the 
mines which was necessary in order to stimulate or maintain 
the working of mines. The test was, therefore, if under power 
confirmed by Section 18(1) of the Central Government had 
made rules providing for the amenities for which provision was 
made by the Orissa Act and if the Central Government had 
imposed a fee to defray the expenses of the provision of these 
amenities, would such rules be held to be ultra vires the Central 
Act, particularly, when taken in conjunction with the matters 
for which rules could be made under Section 13 to which 
reference has been made.  
12.3     The Court observed that in Hingir-Rampur case, the 
Orissa Act was a post -Constitution enactment (1952 Act), 
whereas the Central Act of 1948 was a pre -Constitution law 
and under Entry 54 - List I “Parliament” had not made the 
requisite declaration.  The previously existing Central law was 
held not to be within the terms of Entry 54 - List I and 
therefore, the State enactment was held to continue to be 
operative. But later when the Central law i.e. MMDR Act, 1957

Source PDF page 263

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 63 of 193 
 
contains the requisite declaration by the Union Parliament 
under Entry 54 - List I and that Act covers the same field as the 
Act of 1948 (Central Act) in regard to mines and mineral 
development, it was observed that unless there were any 
material differences between the scope and ambit of the Central 
Act 53 of 1948 and that of the Act of 1957,  the matter was 
concluded. Consequently, the writ petition was dismissed. 
Baijnath Kedia: 
13.   A Constitution Bench of this Court had the occasion to 
consider the provisions of the MMDR Act, 1957 in light of the 
Bihar Land Reforms Act and the amendment thereto.  In 
Baijnath Kedia , it was the contention that amendment of 
Section 10 of the Bihar Land Reforms Act was ultra vires the 
Constitution and that Rule 20(2) did not legally entitle recovery 
of the dead rent, royalty, etc. as mentioned in the Schedules to 
the Bihar Minor Mineral Concession Rules, 1964. The dispute 
arose on account of the appellant s therein receiving letters to 
the effect that in view of the amendment to Section 10 of the 
Bihar Land Reforms Act, 1950 and all leases for minor minerals

Source PDF page 264

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 64 of 193 
 
having stood statutorily substituted by the corresponding terms 
and conditions by the Bihar Minor Mineral Concession Rules, 
1964, the rent and royalty etc. in respect of minor minerals in 
the State (irrespective of the date on which the lease was 
granted) were to be paid as per the aforesaid Rules with effect 
from 27.10.1964.  The appellant therein denied their liability to 
pay.  The State of Bihar submitted that the terms of the original 
lease having being validly altered by the operation of the second 
proviso to Section 10(2) of the Bihar Land Reforms Act , 1950 in 
addition to Section 10A of the said Act , the State Government 
was entitled to collect dead rent, royalty etc. from the lessee s 
who had been granted lease so long as there was a lease 
subsisting on the date of the commencement of the 
amendment.   
13.1    M. Hidayatullah, C.J. speaking for the Bench traced the 
history of the legislation on the subject of mines and minerals 
by referring to Entry 36 of the Federal Legislative - List I and 
Entry 23 of the Provincial Legislative - List II of the Seventh 
Schedule of the Government of India Act, 1935 and also made

Source PDF page 265

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 65 of 193 
 
reference to Entry 54 - List I - Union List, Entry 23 – List II - 
State List.  That the Mines and Minerals (Regulation and 
Development) Act, 1948, (“MMRD Act, 1948”) had a declaration 
under Section 2 to the same effect as the declaration under 
Section 2 of the MMDR Act, 1957. This Court held that once the 
MMDR Act, 1957 was enacted by the Parliament, the Union had 
taken all the powers to itself and had authorise d the State 
Government to make Rules for the regulation of leases. By the 
declaration and the enactment of Section 15 of the MMDR Act, 
1957, the whole of the field relating to minor minerals came 
within the jurisdiction of Parliament and no scope was left for 
the enactment of the second proviso to Section 10 (2) in the 
Bihar Land Reforms Act. The enactment of the proviso was, 
therefore, without jurisdiction. Consequently, the appeals were 
allowed and the State of Bihar was restrained from enforcing 
the second proviso to Section 10(2) added to the Bihar Land 
Reforms (Amendment) Act, 1964.

Source PDF page 266

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 66 of 193 
 
HRS Murthy:  
14.   HRS Murthy vs. Collector of Chittoor, AIR 1965 SC 
177 (“HRS Murthy”)  is also a decision of the Constitution 
Bench. In this case, the validity of notices of demand for the 
payment of land cess under the Madras District Boards Act, 
1920 (‘Madras Act’, for short) and the legality of the procedure 
for the recovery of the amount of the said cess was questioned. 
The impugned notices made a demand also for education cess 
which was merely a proportion of the land-cess. 
14.1     In the year 1953, t he appellant's father therein had 
obtained a mining lease from the Government of Madras under 
which he was permitted to work and win iron ore in a tract of 
land in a village in Chittoor district. On separation of State of 
Andhra from State of Madras a demand was made upon the 
father of the appellant therein for the payment of land cess 
calculated in accordance with the provisions of Sections 78 and 
79 of the aforesaid Act.  The notices issued were questioned 
before the Madras High Court and thereafter by way of a 
Special Leave Petition the matter was heard by this Court along

Source PDF page 267

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 67 of 193 
 
with a Writ Petition also filed by the very same appellant. One 
of the contentions raised was with regard to the meaning of the 
expression royalty under Section 79(1) of the Madras Act. Did it 
include the royalty payable under a mining lease on the ore 
won by the lessee? On the meaning of the word, royalty, it was 
contended that the said expression under Section 79(1) of the 
Madras Act was something other than the return to the lessor 
or licensor and it connotes the payment made for the materials 
or minerals won from the land. The expression royalty under 
Section 79(1) of the said Act did not signify royalty as 
commonly understood but was confined to the rent payable for 
beneficial use of the surface of the land. This contention was 
rejected and it was observed that royalty which follows the 
expression lease-amount is something other than the return to 
the lessor or licensor for the use of the land surface and 
represents, as it normally connotes, the payment made for the 
materials or minerals won from the land. 
14.2     The judgments in Hingir-Rampur and M.A. Tulloch 
were considered.  It was observed that the power to impose the

Source PDF page 268

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 68 of 193 
 
cess was not available after the Central Acts of 1948 and 1957 
came into force. It was contended that since the cess was 
payable only in the event of the mining lessee winning the 
mineral and no royalty was paid when no minerals were 
extracted, it was in effect a tax on the minerals won and, 
therefore, on mineral rights. However, this argument was not 
accepted. It was observed that when a question arises as to the 
precise head of legislative power under which a taxing statute 
has been passed, the subject for enquiry is, what in truth and 
substance, is the nature of the tax. It was observed that, no 
doubt, cess has a remote connection to the mineral won but 
that does not stamp it as a tax on either the extraction of 
minerals or on the mineral right s. The Court found it 
unnecessary for the purpose of this case to examine the 
question, as to what exactly is a tax on mineral rights seeing 
that such a tax is not leviable by Parliament but only by the 
State and the sole limitation on the State's power to levy the tax 
is that it must not interfere with a law made by Parliament as 
regards mineral development.  It was observed that there was

Source PDF page 269

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 69 of 193 
 
no law enacted by Parliament which was contrary to the State 
power to levy the tax and in effect the cess under Sections 78 
and 79 of the Madras Act was a “tax on lands” within Entry 49 
- List II. In the circumstances, it was observed that the cess 
was lawfully imposed upon land and hence, the appeals and 
writ petitions were dismissed. 
14.3     This Court , in India Cement held at para 34 that 
royalty is a tax and did not approve the dictum in HRS Murthy.  
It is the above conclusion which was doubted by a five -judge 
Bench in Kesoram and other cases which has led to the 
constitution of this nine -judge Bench in order to consider the 
correctness of the aforesaid verdicts. Therefore, it is necessary 
to consider the facts and the reasoning in India Cement.   
India Cement: 
15.   In India Cement, Section 115 of Madras Panchayats Act, 
1958 as amended by the Madras Act, 1964 came up for 
consideration. The demand of a local cess on royalty on exercise 
of a mineral right was questioned. The appellant therein was 
engaged in mining operations and on execution of the lease

Source PDF page 270

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 70 of 193 
 
deed had paid royalties, dead rents and other amounts payable 
on the said deed. The imposition of the local cess was with 
retrospective effect along with local cess surcharge under 
Section 116 of the aforesaid Act. The contention of the 
appellant therein was that the cess on royalty could not be 
levied. According to the seven -judge Bench, the question which 
fell for consideration and determination was whether cess on 
royalty could be a valid levy imposed by the State of Tamil 
Nadu.  
15.1     Under Section 115(1) of the amended Act a local cess at 
the rate of 45 paisa on every rupee of land revenue payable to 
the Government in respect of any land for every fasli was 
envisaged. An Explanation to the said Section was added and 
was deemed always to have been incorporated by the Tamil 
Nadu Panchayats (Amendment and Miscellaneous Provisions) 
Act, 1964 (Amending Act) which provided as under: 
“Explanation- In this section and in Section 116, “ land 
revenue” means public revenue due on land and includes 
water cess payable to the Government for water supplied or 
used for the irrigation of land, royalty, lease amount or 
other sum payable to the Government in respect of land

Source PDF page 271

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 71 of 193 
 
held direct from the government on lease or licence , but 
does not include any other cess or the surcharge payable 
under Section 116, provided that land revenue remitted 
shall not be deemed to be land revenue payable for the 
purpose of this section.” 
(emphasis by me) 
 
Sub-section 2 of Section 115 of the amended Act provided 
that the local cess shall be deemed to be a public revenue due 
on all the lands in respect of which a person is liable to pay 
local cess and all the buildings upon the said land and their 
products shall be regarded as security for the local cess.  
Section 116 of the amended Act reads as follows: 
“116. Every panchayat union council may levy on every 
person liable to pay land revenue to the government in 
respect of any land in the panchayat union  a local cess 
surcharge at such rate as may be considered suitable as an 
addition to the local cess levied in the panchayat 
development block under Section 115 provided that the rate 
of local cess surcharge so levied shall not exceed two rupees 
and fifty paise on every rupee of land revenue payable in 
respect of such land.” 
(emphasis by me) 
15.2     A writ petition was filed in the Madras High Court by 
the appellant therein, which was dismissed by a learned Single 
Judge holding that cess levied under Section 115 of the 
amended Act was a tax on land and as such, fell under Entry

Source PDF page 272

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 72 of 193 
 
49 - List II -State List and was within the competence of the 
State legislature. Reliance was placed on a decision of this 
Court in HRS Murthy. Against the order of the learned Single 
Judge, a writ appeal was filed before the Division Bench of the 
High Court, which was also dismissed by holding that local cess 
authorised by Section 115 of the amended Act “was not land 
revenue but is a charge on the land itself and Section 115 
merely qualified the basis of quantum of the land revenue.”  The 
Division Bench of the Madras High Court held that the meaning 
of the Explanation added to Section 115 was that the cess was 
levied as a tax on land and was measured with reference to land 
revenue which also meant, royalty, lease amount etc., as 
mentioned in the Explanation. The Division Bench of the High 
Court also relied on the decision of this Court in HRS Murthy 
and held that it was not possible to accept the contention of the 
appellant therein that Section 115 of the said Act read with the 
Explanation contravened in any manner Section 9 of the MMDR 
Act, 1957.

Source PDF page 273

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 73 of 193 
 
15.3     In the said case, this Court at the outset observed that 
under the Second Schedule of the MMDR Act, 1957 rates have 
been provided with regard to the payments of royalty to the 
Government under the lease deed. Thus, t here was an 
obligation o n the lessee to pay rent and other charges 
mentioned under the clauses of the lease deed and all other 
Central and State Government dues “except demands for land 
revenue”. The question which was framed by the seven -judge 
Bench of this Court was whether cess on royalty was a demand 
of land revenue or additional royalty.  
15.4     As already noted, the aforesaid Explanation added to 
Section 115 of the said Act by virtue of the Amended Act was to 
include “royalty, lease amount and other sums payable to the 
government” in the definition of “land revenue” and also to 
validate the levy and collection of the cess and surcharge by 
giving the Explanation a retrospective effect. As a result, the 
said amendment was intended to bring royalty payable on a 
mining lease as per Section 9 of the MMDR Act, 1957 within the

Source PDF page 274

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 74 of 193 
 
Explanation which was the definition of “land revenue” 
applicable to Section 115 as well as Section 116 of the said Act.   
15.5     This Court noted that the appellant, India Cement 
Limited, was paying royalty which was prescribed under the 
lease deed as fixed under MMDR Act, 1957 and as per the Rules 
made thereunder, the same being a Parliamentary Act by which 
the control of mines and minerals has been taken over by the 
Union. That the MMDR Act, 1957 is an Act for the regulation of 
mines and development of the minerals under the control of the 
Union of India. It was noted that Section 2 of the Act declares 
that it is expedient in the public interest that the Union of India 
should take under its control the regulation of mines and the 
development of the minerals to the extent provided in the Act. 
Section 9 of the MMDR Act, 1957 deals with payment of royalty 
in respect of mining leases. This Court observed that the MMDR 
Act, 1957 was passed by virtue of the power of the Parliament 
under Entry 54 - List I. Since the control of mines and the 
development of minerals were taken over by Parliament, the 
question whether the impugned levy or the impost by the State

Source PDF page 275

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 75 of 193 
 
Legislature, under the provision of the State Legislation referred 
to above, could be justified or sustained either under Entries 
49, 50 or 45 - List II was considered.  In paragraph 19 of India 
Cement, this Court considered Guruswamy & Co., vs. State 
of Mysore, AIR 1967 SC 1512, (“Guruswamy”) to indicate 
what a cess is. On analysing Sections 115 and 116 of the 
Madras legislation referred to above, this Court observed that 
the expression royalty in the Explanation could not be included 
in the definition of “land revenue” properly called or 
conventionally known, which is separate and distinct from 
royalty. 
15.6     Reference was also made to the Judgments of the 
Mysore High Court in M/s Laxminarayana Mining Co., 
Bangalore vs. Taluk Development Board, AIR 1972 Mys 299 
(“Laxminarayana Mining Co.”)  and Patna High Court in 
Laddu Mal vs. The State of Bihar, AIR 1965 Pat 491, 
(“Laddu Mal”) and the Judgment of this Court in HRS Murthy. 
It was observed that in the latter case attention of this Court 
was not invited to the provisions of MMDR Act, 1957 and

Source PDF page 276

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 76 of 193 
 
Section 9 thereof and the Second Schedule to the said Act. 
Under the above provisions, there was a clear bar on the State 
legislature taxing royalty payable under Section 9 of the said 
Act so as to in effect amend the Second Schedule of the said 
Act. Therefore, it was held that tax on royalty can be a tax on 
land or called land revenue. Even if it is a tax, which falls within 
Entry 50 - List II it will be ultra vires the State legislative power 
in view of Section 9(3) read with Section 2 of MMDR Act, 1957, 
which is a Parliamentary law. In the above legislative 
background, this Court held that royalty was a tax or “land 
revenue” under the Explanation clause referred to above, which 
could not be the basis for levy of cess as, by that, cess on 
royalty payable would not be in consonance with what is 
stipulated under Section 9(3) of the MMDR Act, 1957 but would 
exceed the amount so stipulated which would not be within the 
legislative competence to levy in view of Section 2 of MMDR Act, 
1957 read with Entry 50 - List I.  
15.7      This Court further referred to the judgments of 
Rajasthan, Punjab, Gujarat and Orissa High Courts, which had

Source PDF page 277

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 77 of 193 
 
held that royalty is not a tax, namely, Bherulal vs. State of 
Rajasthan, AIR 1956 Rajasthan 161, (“Bherulal”) ; Dr. 
Shanti Saroop  vs. State of Punjab, AIR 1969 P & H 79, 
(“Dr. Shanti Saroop ”); Saurashtra Cement and Chemical 
Industries Ltd. Ranavav vs. Union of India, AIR 1979 Guj 
180 (“Saurashtra Cement and Chemical Industries”);  and 
Laxmi Narayan  Agarwalla vs. State of Orissa, AIR 1983 
Ori 210, (“ Laxmi Narayan  Agarwalla”) but did not find it 
necessary to discuss the same in the view it was taking and 
having regard to there being no discussion of the constitutional 
provisions in the aforesaid cases.  
15.8     The contention of the State of Tamil Nadu in India 
Cement was that the State has a right to tax minerals and that 
in Entry 50 - List II, there was no limitation to the taxing power 
of the State. This was not accepted and it was held that in view 
of Section 9(2) of the MMDR Act, 1957 the field was fully 
covered by the said Act which is a Central legislation. In 
paragraph 33, it was further observed that royalty is directly 
relatable only to the minerals extracted and on the principle

Source PDF page 278

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 78 of 193 
 
that the general provision is excluded by the special one, royalty 
would be relatable to Entry 50 - List II and not Entry 49 - List 
II. That as the field is covered by the Central legislation i.e. the 
MMDR Act, 1957, the impugned provisions of the State 
legislation cannot be upheld. Ultimately in paragraph 34 of the 
Judgment of this Court, it is observed as under: 
“34. In the aforesaid view of the matter, we are of the 
opinion that royalty is a tax, and as such a cess on royalty 
being a tax on royalty, is beyond the competence of the 
State legislature because Section 9 of the Central Act covers 
the field and the State legislature is denuded of its 
competence under Entry 23 of List II. In any event, we are 
of the opinion that cess on royalty cannot be sustained 
under Entry 49 of List II as being a tax on land. Royalty on 
mineral rights is not a tax on land but a payment for the 
user of land.” 
 
A reading of paragraph 34 would indicate as follows: 
(i)  Cess on royalty being a tax on royalty, is beyond 
the competence of the State legislature because 
Section 9 of the Central Act ie., MMDR Act, 1957, 
covers the field. 
(ii) As a result, the State Legislature is denuded of its 
competence under Entry 50 - List II to impose any

Source PDF page 279

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 79 of 193 
 
cess on royalty which is collected under Section 9 
of the MMDR Act, 1957. 
(iii) Cess on royalty cannot be sustained under Entry 
49 - List II as being a tax on land. 
(iv) Royalty on mineral rights is not a tax on land but a 
payment for the user of land.  
(v) However, under the Tamil Nadu legislation , royalty 
paid under the provisions of MMDR Act, 1957 was 
construed to be “land revenue” on which cess was 
levied, which was beyond the competence of the 
State Government as royalty  is paid by a holder of 
a mining lease under the MMDR Act, 1957, a 
Central Act as a tax. 
(vi)  Thus, royalty is a tax.   
15.9     The aforesaid conclusion was so arrived, inter alia , 
because the Explanation to Section 115 of the aforesaid 
amended Tamil Nadu Act defined ‘land revenue’ to include 
royalty, lease amount or any other sum payable to the 
Government in respect of land held direct from the Government

Source PDF page 280

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 80 of 193 
 
on lease or licence. Local cess on every rupee of “land revenue” 
was payable as per the above definition which meant royalty. 
This meant that on royalty payable on mining leases in respect 
of mineral bearing lands in the State of Tamil Nadu, which was 
included in the definition of land revenue, a further local cess 
was payable. Therefore, payment of royalty on a mining activity 
in exercise of a mineral right was construed to be “land 
revenue” and the basis for imposing a local cess. The payment 
of cess was in addition to payment of royalty under the 
provisions of the MMDR Act, 1957, which is a Central 
enactment. Thereby the payment to be made by a holder of a 
mining lease was a local cess to be paid under the Tamil Nadu 
Act in addition to royalty being paid under the MMDR Act, 
1957. Moreover, under Section 116 of the Tamil Nadu Act, a 
Panchayat Union Council could also levy a local cess surcharge 
on every person liable to pay land revenue to the State 
Government in respect of any land in the Panchayat Union. The 
levy of local cess and local cess surcharge on the payment of 
royalty by a holder of a mining lease would inevitably increase

Source PDF page 281

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 81 of 193 
 
the price of minerals extracted in the State of Tamil Nadu over 
and above what is otherwise the price that could be fixed which 
would include, inter alia , only the royalty charges. Therefore, 
the increase in the price of a particular mineral extracted in the 
Tamil Nadu by virtue of the local cess and surcharge on local 
cess would not be in the interest of mineral development as it 
would lead to price escalation in the State of Tamil Nadu. This 
is not in the interest of mineral development as this would lead 
to every State imposing local cesses/imposts/tax on the 
minerals extracted in the respective States over and above 
royalty payable under the MMDR Act, 1957 which is a 
structured levy in the form of a tax to be determined only by the 
Central Government in order to maintain uniformity in the 
price of a mineral extracted throughout the country. But if over 
and above payment of royalty by a holder of a mining lease, 
local cesses and surcharges are also imposed based on the 
royalty paid, it would be contrary to Entry 54 - List I and the 
declaration made under Section 2 of the MMDR Act, 1957 and

Source PDF page 282

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 82 of 193 
 
the scheme of the said Act which envisages only payment of 
royalty on the minerals extracted. 
15.10 Further, royalty could not be the basis for levy of 
cess construed as “land revenue” by the Tamil Nadu Act as this 
would make royalty a tax on land and cess on royalty would 
make it a tax which a State is not permitted to levy on mineral 
bearing land in view of Section 9 of the MMDR Act, 1957. 
Having regard to the provisions of MMDR Act, 1957, it was held 
that royalty is a tax. The same cannot be included within the 
definition of “land revenue” which itself is a tax which a State 
cannot make as the basis for imposing a cess or a surcharge on 
cess. Therefore, in paragraph 34 of the Judgment in India 
Cement, the seven -judge Bench of this Court held that royalty 
is a tax and therefore cess on royalty being a tax on royalty was 
beyond the competence of the State legislature. This was having 
regard to the scheme of MMDR Act, 1957 and the Rules made 
thereunder as discussed above. Further, Entry 49 - List II could 
not be relied upon by the State Government to impose a cess on 
royalty by treating it as a land revenue and as a tax on land.

Source PDF page 283

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 83 of 193 
 
This was because payment of royalty was under Section 9 of the 
MMDR Act, 1957 as a tax on exercise of mineral rights. Hence, 
it was observed in paragraph 34 itself that “Royalty on mineral 
rights is not a tax on land but a payment for the use of land.” It 
is in the above legal framework of the Tamil Nadu Act and the 
Entries in List I and List II and having regard to the object and 
scheme of MMDR Act, 1957 and the Rules made thereunder 
that the conclusion in paragraph 34 was arrived at. Ultimately, 
it was held that the levy of cess and surcharge on cess on the 
royalty payable was ultra vires the power of the State 
Legislature. As a result, the appeals filed by the appellant in 
India Cement, were allowed.  
As already noted, reference was made in detail to two 
decisions of the Patna and Mysore High Courts in arriving at 
the above conclusion by this Court which could be discussed at 
this stage. 
Laddu Mal: 
16.    In Laddu Mal, notices issued to the brick -layers by the 
Assistant Mining Officer, Purnea, Bihar calling upon them to

Source PDF page 284

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 84 of 193 
 
pay royalty were assailed. The petitions challenged the notices 
mainly on the ground that what were being used by them for 
manufacture of bricks , which were minor minerals and 
therefore, the Bihar State Government had no authority in law 
to impose any royalty in respect of minor minerals. In the said 
case, the High Court considered the definition of “taxation” 
under Article 366(28) of the Constitution of India to include the 
imposition of any tax or impost and observed that the 
expression royalty is used in a secondary sense to signify that 
part of the reddendum which is variable and depends upon the 
quantity of minerals taken out.  It is a payment made to the 
land owner by the lessee of the mine, in return of the privilege of 
working which is different from rent.  Royalty is a levy in 
proportion to the minerals worked.  Royalty is an impost by the 
Government and was in the nature of tax because it was a 
compulsory exaction recoverable, in the event of non -payment, 
as if it was arrears of land revenue. That royalty on mines and 
minerals is not a fee but a levy which is in the nature of a tax. 
Article 265 of the Constitution provides that no tax shall be

Source PDF page 285

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 85 of 193 
 
levied or collected except by authority of law and the State 
Government had no authority to impose and demand royalty for 
mines and minerals.   
16.1     With reference to Entry 54 - List I and Entry 23 - List II, 
it was observed that the area of operation of the two Entries has 
been kept separate and distinct. Anything beyond what is 
declared by Parliament to be expedient in the public interest to 
be kept under the control of the Union, will be under the 
legislative ambit of the State in regard to mines and mineral 
development in the State. The MMDR Act, 1957 is an enactment 
of the Parliament for the regulation of mines and the 
development of minerals under the control of the Union. 
Referring to various provisions of the MMDR Act, 1957 such as 
Section 3(a) which defines “minerals” to include all minerals 
except mineral oils; “mining lease” in Section 3(c) and ”mining 
operations” in Section 3(d) and the definition of ‘minor minerals” 
in Section 3(e) of the said Act, it was observed that Section 2 of 
the said Act declared that it was expedient in public interest 
that the Union should take under its control the regulation of

Source PDF page 286

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 86 of 193 
 
mines and the development of minerals to the extent provided.  
Further, on a reading of Sections 4 to 13 of the said Act, it was 
clear that the Parliament gave control of all mines and minerals 
except mineral oil, to the Union Government.  However, in 
Sections 14 and 15, an exception was carved with regard to 
minor minerals. Therefore, Entry 54 - List I gave the power to 
the Union Government to regulate all mines and development in 
minerals except oils thereby leaving no area for legislation in 
that respect to the State Legislature.  That, insofar as ‘minor 
minerals’ are concerned, the State Governments were 
authorised to make rules for regulation of grant of prospective 
licenses and mining leases and for purposes connected 
therewith and it is also a delegated authority given to the State 
Government and not the State Legislature.  
16.2     Taking into consideration Entry 50 - List II, which deals 
with taxes on mineral rights subject to any limitation imposed 
by the Parliament by law relating to mineral development, it was 
observed that in view of the limitation imposed by the 
Parliament under the MMDR Act, 1957, it was doubtful if any

Source PDF page 287

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 87 of 193 
 
legislative competency has been left for the State Legislature to 
impose any tax on mineral rights.  Discussing Section 9 of the 
MMDR Act, 1957, it was observed that the same mandates 
payment of royalty by the holder of a mining lease in respect of 
any mineral removed by him after the commencement of the Act 
at a rate specified in the Second Schedule thereof. The Union 
Government had been empowered to enhance or reduce such 
rate, subject to certain conditions.  That the Parliament had 
given power to the Union Government to modify the rates of 
royalty for all minerals except for minor minerals in respect of 
which the matter was left to the States. Insofar as minor 
minerals are concerned, imposition of royalty was within the 
power of the State Government by way of rules. Also, rules 
made by the State Government prior to the enforcement of the 
MMDR Act, 1957 continued to be operative till fresh rules were 
enforced, being the Bihar Minor Mineral Concession Rules, 
1984. It was reasoned that, Entry 54 - List I uses the expression 
“mines and minerals” which includes (i) regulation of mines and 
(ii) mineral development. Therefore, widest possible meaning

Source PDF page 288

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 88 of 193 
 
should be given to the said expression considering the question 
in the context of the Bihar Minor Minerals Concession Rules, 
1954 and the impugned notices demanding royalty.  
Consequently, the notices issued by the Assistant Mining 
Officer calling upon the petitioners to pay royalty on account of 
brick-earth were quashed.   
Laxminarayana Mining Co.: 
17.   Reference was made to the judgment of the Mysore High 
Court in Laxminarayana Mining Co. authored by 
Venkataramiah, J. (as His Lordship  then was), in India 
Cement.  In the said case it was observed that on a combined 
reading of Entries 23 and 50 - List II and Entry 54 - List I it 
established that as long as the Parliament did not make any 
law in exercise of its power under Entry 54 - List I the powers of 
the State Legislature in Entries 23 and 50 - List II would be 
exercisable by the State Legislature. But once the Parliament 
makes a declaration by law that it is expedient in the public 
interest to make regulation of mines and development of 
minerals under the control of the Union, to the extent to which

Source PDF page 289

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 89 of 193 
 
such declaration is made, such regulation and development is 
undertaken by law made by Parliament and the powers of the 
State Legislature under Entries 23 and 50 - List II are denuded.  
17.1     In this case, the Mysore Village Panchayats and Local 
Boards Act, 1959, (‘State Act’, for short) by enacting Sections 
143 and 144 intended to confer power on the Taluk Board to 
levy a licence fee on the mining of manganese ore, iron ore etc 
carried on by persons holding mineral concessions i.e. on the 
activity of mining.  
17.2     By Notification issued under the aforesaid provisions, 
persons engaged in mining of manganese iron ore, etc. with the 
help of machinery or without the help of machinery, as the case 
may have been, under Entries 62 and 63 of the Schedule to the 
aforesaid State Act had to pay a licence fee. Aggrieved by the 
notices of demand and the Notification issued under Sections 
143 and 144 of the aforesaid State Act, the petitioners therein 
had filed the writ petition seeking quashing of the notices of 
demand and the Notification in so far as they levied licence fee

Source PDF page 290

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 90 of 193 
 
under the aforesaid provisions. Further, Sections 143 and 144 
of the State Act provided for regulation of certain trades and the 
relevant part of Schedule II of the State Act, on the basis of 
which the impugned Notification was issued which provided for 
the levy of a licence fee on any purpose or the doing in the 
course of any industrial process, which, in the opinion of the 
Taluk Board, was likely to be dangerous to human life, or 
health or property or was likely to create or cause a nuisance.    
The following three main contentions were urged by the 
petitioners therein: -  
(i)  that the State Legislature could not have made a law 
authorising the imposition of the impugned levy after the 
Mines and Minerals (Regulations and Development) Act, 
1957 (Central Act LXVII of 1957) came into force; 
(ii)  that the Notification in so far as it levied licence fee on the 
mining activities carried on by the petitioners therein was 
outside the scope of Sections 143 and 144 of the State Act; 
and

Source PDF page 291

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 91 of 193 
 
(iii)  that the licence fee in question which was in the nature of a 
tax and could not have been levied because Sections 143 
and 144 of the State Act did not confer power on the Taluk 
Development Board to levy a tax. 
17.3      The respondent-State of Mysore had sought to contend 
that the demand notices as well as the Notification were rightly 
issued and that the licence fee demanded by the them was in 
the nature of a tax and that the Taluk Development Board had 
the competence to levy the same as the State Legislature was 
authorised by Entry 23 - List II to make law with respect to 
regulation of mines and mineral development subject to the 
provisions of List I with respect to regulation and development 
under the control of the Union. It was further contended that 
Entry 50 – List II of the same list authorised the State 
Legislature to levy tax on mineral rights subject to any 
limitations imposed by Parliament by law relating to mineral 
development.  
17.4     After referring to the scheme of the MMDR Act, 1957 as 
well as the Mineral Concession Rules, 1960, the High Court

Source PDF page 292

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 92 of 193 
 
reasoned that the State enactment was passed in the year 1959 
whereas the MMDR Act, 1957 was passed in the year 1957. 
Section 143 of the State Act dealt with regulation of certain 
trades. The notification issued under Sections 143 and 144 of 
the aforesaid State Act had mandated that the owner or 
occupier of a place for the purpose of mining of manganese ore 
or iron ore etc. with the help of machinery or without the help of 
machinery had to pay a licence fee for the use of such place. 
Relying upon Hingir-Rampur and M.A. Tulloch , and 
distinguishing HRS Murthy , it was observed that this Court 
had in unequivocal terms had held that in respect of matters 
dealt with by the Central Act, i.e. MMDR Act, 1957, the State 
Legislature had no authority to make any law.  
17.5     It was also observed that this Court in Hingir-Rampur 
or in  HRS Murthy did not decide the question as to what 
meaning should be given to the expression ‘tax on mineral 
rights’ appearing in Entry 50 – List II. It was further reasoned in 
paragraphs 17 and 18 as under:

Source PDF page 293

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 93 of 193 
 
“17.  Entry 50 in List II which authorises the levy of tax on 
mineral rights is subject to limitations imposed by 
Parliament by law relating to mineral development made in 
exercise of its power under Entry 54 of List I. It was 
contended on behalf of the respondents that in the instant 
case the tax was not on mineral rights, but on the activity 
of mining carried on in certain areas. We find it difficult to 
accept the said contention. As observed by the Supreme 
Court in State of Orissa  v. M.A. Tulloch, AIR 1964 SC 1284 
by making a declaration under Section 2 and enacting 
Section 18 of the Central Act, the intention of the 
Parliament to cover the entire field of mineral development 
including tax on mineral rights is made clear. The levy of 
royalty under Section 9 of the Central Act and the provision 
for making rules with regard to the fixation and collection of 
dead rent, fines and fees or other charges and the collection 
of royalties on prospecting licence and mining lease and the 
provisions of Section 25 of the Central Act authorising the 
recovery of any tax payable under the Central Act as arrear 
of land revenue, clearly shows that the Parliament intended 
that the power to legislate with regard to taxation on 
mineral rights also should be assumed by it to the 
exclusion of the State Legislatures. The expression ‘royalty’ 
is used differently in different contexts. Sometimes it is 
used as equivalent to a tax also and in some other cases it 
is used as representing the amount payable by a lessee in 
respect of minerals removed by the lessee even though the 
lessor is not the sovereign Government we are of the 
opinion that the expression ‘royalty’ in Section 9 which 
requires payment of royalty to the State Government as 
prescribed in the II Schedule connotes the levy of a tax. 
Vide Laddu Mal v. The State of Bihar , AIR 1965 Pat 491. It 
is a levy falling outside the scope of Entry 84 in List I which 
provides for levy of excise duty by Parliament but within the 
scope of the expression ‘tax on mineral rights’ within the 
meaning of that expression in Entry 50 of List II. To us it 
appears the expression ‘tax on mineral rights’ includes 
within its scope the royalty payable on minerals extracted.

Source PDF page 294

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 94 of 193 
 
Mineral rights and mining activity carried on in exercise of 
those mineral rights appear to us to be indistinguishable in 
the above context. That appears to be the true intendment 
of the declaration contained in Section 2 of the Central Act 
and that it is so enacted in order to see that throughout the 
‘Indian Union, the rents, royalties and other taxes payable 
in respect of mining and minerals are uniform. It may be 
recalled here that in  Hingir Rampur Coal Company's case , 
AIR 1961 SC 459 the Supreme Court has stated that the 
scope of the Central Act is wider than the scope of the 
Central Act LIII of 1948 which by Section 6(2) provided for 
making rules regarding levy and collection of royalties fees 
or taxes on minerals mined, quarried or excavated (vide 
paragraph 24 of the judgment). 
18. We are, therefore, of the opinion that by the enactment 
of the Central Act, the State Legislature lost its legislative 
power under Entries 23 and 50 of List II to the extent 
indicated in the Central Act. Hence, we cannot accept the 
contentions of the respondents that even after the passing 
of the Central Act, the State Legislature by enacting Section 
143 of the State Act intended to confer power on the 
respondents to levy tax on the mining activities carried on 
by persons holding mineral concessions. It follows that levy 
of tax on mining by respondents as Per the impugned 
notification is Unauthorised and is liable to be set aside. … 
… What is however liable to be set aside is the notification 
issued by respondent 1 in exercise of its power under 
Section 143 of the State Act to the extent it levies a tax on 
mining of manganese or iron ore.” 
 
  The Mysore High Court held that royalty under Section 9 
of the MMDR Act, 1957 is in the nature of a tax. Therefore, the 
levy of a licence fee on mining activity by the Taluk Board as 
per the impugned notification issued under the aforesaid

Source PDF page 295

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 95 of 193 
 
provision was unauthorised and was set aside  as there was no 
power vested under Entry 50 – List II after the enforcement of 
MMDR Act, 1957. This was because Section 9 was a limitation 
imposed by Parliament on Entry 50 – List II.  
17.6     This judgment is instructive inasmuch as it put into 
perspective what was required to be decided , i.e. whether 
royalty is a tax within the scope and meaning of Section 9 and 
other relevant provisions of the MMDR Act, 1957 and not from 
any other perspective.   
Orissa Cement: 
18.   Subsequent to the judgment in India Cement , the 
validity of the levy of a cess, based on the royalty derived from 
mining lands, by the States of Bihar, Orissa and Madhya 
Pradesh was challenged in Orissa Cement  in the respective 
appeals filed by the State. On discussing the legislative Entries 
and earlier decisions of this Court and having regard to Section 
2 of the MMDR Act, 1957 and the various State enactments 
under which cess on royalty was sought to be levied, this Court 
raised two questions as under:

Source PDF page 296

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 96 of 193 
 
“(1)  Can the cess be considered as “land revenue” under 
Entry 45 or as a “tax on land” under Entry 49 or as a “tax 
on mineral rights” under Entry 50 of the State List? 
(2)  If the answer to question (1) is in the negative, can 
the cess be considered to be a fee pertaining to the field 
covered by Entry 23 of the State List or has the State been 
denuded of the legislative competence under this Entry 
because of Parliament having enacted the MMRD Act, 
1957?” 
 
After a detailed discussion, in paragraph 37 of Orissa 
Cement, it was observed by this Court that if royalty were to be 
regarded as a tax, it can perhaps be described properly as a tax 
on mineral rights and has to conform to the requirements of 
Entry 50 - List II.  If the cess is taken as a tax, then, unless it 
can be described as land revenue or a tax on land or a tax on 
mining rights, it cannot be upheld under Entry 45, 49 or 50 - 
List II.  It was further observed that the question whether 
royalty is a tax or not does not assist much in furnishing an 
answer to the two questions posed in the case. 
18.1      Considering the Scheme of the MMDR Act, 1957 and 
the Rules made thereunder, it was opined that levy of tax had 
to be struck down insofar as the Bihar Act was concerned.  As 
far as the Madhya Pradesh Act was concerned, the levy of cess

Source PDF page 297

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 97 of 193 
 
was not on land in general but only on land held in connection 
with mineral rights, which, in the State of Madhya Pradesh is 
principally in regard to coal and limestone. Reiterating that cess 
is not referrable either under Entry 49 or 50 - List II, the State’s 
petition was dismissed.  It was held that the State legislature 
had no competence to impose the cess.  The same reasoning 
was also applied insofar as the levy of cess in the State of 
Orissa was concerned. 
Mahalaxmi Fabric Mills: 
19.   In Mahalaxmi Fabric Mills , two questions fell for 
consideration in the said appeals – firstly, whether Section 9(3) 
of the MMDR Act, 1957 was ultra vires the Constitution; and, 
secondly, whether the notification dated 01.08.1991 issued by 
the Central Government under Section 9(3) of the Act was ultra 
vires, illegal and inoperative in law. This Court followed the 
earlier dicta in India Cement as well as Orissa Cement  and 
was observed that the contention of the Central Government 
that prices of minerals for exports were fixed and could not be 
escalated with the enhancement of the royalties by different

Source PDF page 298

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 98 of 193 
 
States as their working would become impossible. Therefore, 
the Parliament had placed an embargo on enhancement of the 
royalty directly or indirectly except by the Union and in the 
manner specified under the MMDR Act, 1957.  In paragraph 20 
of the judgment, it was observed that enhancing uniformly the 
rates of royalty for the entire country even though minerals 
might be extracted from different States is necessary for having 
a uniform pattern of price of minerals and that has a direct 
linkage with the development of minerals. Further, regulating 
the rates of royalty on extraction of minerals  also has an 
important role to play in opening up new mining areas for 
winning minerals. In this connection, Section 18 of the Act 
which deals with mineral development was referred to and it 
was observed that fixation of royalty rates is in the realm of 
development of minerals as envisaged by Section 18 of the 
MMDR Act, 1957 and the contrary submission to the above was 
not accepted.  
19.1     Referring to  the definition clause which defines, inter 
alia, ‘minerals and minding operations’, it was observed that

Source PDF page 299

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 99 of 193 
 
‘mining operation’ means any operation undertaken for the 
purpose of winning any mineral. It was obvious that 
development of mineral as envisaged by Section 18 of the 
MMDR Act, 1957 and even by Entry 50 - List II necessarily 
would mean extraction of mineral from the earth or from the 
crust of the earth by mining operations. Therefore, the term 
development of minerals has a direct linkage with mining 
operation. Without that, minerals cannot develop by 
themselves.  Therefore, it was held that regulation of mines and 
development of minerals are interconnected concepts.  This was 
because minerals hidden in the earth by themselves cannot 
yield profit to anyone and they become minerals only when they 
are brought out on the surface of the earth by mining 
operations.  Therefore, imposition of royalty is in the context of 
development of minerals on a uniform pattern throughout the 
country. It was further observed that the original writ 
petitioners had failed to show how the enhanced rate of royalty 
as per the impugned notification had become unreasonable or

Source PDF page 300

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 100 of 193 
 
confiscatory in nature. Consequently, the appeals were 
dismissed.  
Mahanadi Coalfields: 
20.   The main controversy in this case was with regard to levy 
of tax under the Orissa Rural Employment, Education and 
Production Act, 1992, on coal -bearing lands.  The Division 
Bench of the High Court of Orissa held that the State 
Legislature did not have the competence to levy the tax on coal -
bearing lands and had struck down Section 3(2)(c) of the said 
Act as well as the Schedule appended to the said Act.  The High 
Court took the view that the levy was hit by Section 9 -A of the 
MMDR Act, 1957 and was also discriminatory and hit by Article 
14 of the Constitution. On discussing the earlier judgments of 
this Court in light of the constitutional Entries in Lists I and II 
and the Scheme of the MMDR Act, 1957 as well as the 
combined effect of the proposed levy, the civil appeals were 
disposed of by concurring with the conclusions of the High 
Court of Orissa to the effect that the State had no legislative 
competence to levy the cess under the aforesaid Act of 1992.

Source PDF page 301

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 101 of 193 
 
Saurashtra Cement.:  
21.   In this case, the interesting question was regarding the 
constitutional validity of Section 9(3) of the MMDR Act, 1957, 
inter alia, on the ground that the levy of royalty on minerals is a 
tax and the Union Legislature did not have the power under 
Entry 54 - List I to enact such a law which denudes the right of 
the State Legislature to levy tax on minerals right under Entry 
50 - List II.  The Gujarat High Court followed the dicta in India 
Cement and Mahalaxmi Fabric Mills and disposed of the writ 
petitions. 
Goodricke: 
22.   In Goodricke Group Ltd. vs. State of West Bengal, 
1995 Supp. (1) SCC 707 (“Goodricke”), the validity of the levy 
of education cess and rural employment cess created by the 
West Bengal Taxation Laws (Second Amendment) Act, 1989 was 
called in question by way of writ petitions preferred by several 
tea estates in West Bengal. The first question considered was, 
whether, the impugned levy was a levy upon the lands within 
the meaning of Entry 49 - List II.  In this case, the judgment of

Source PDF page 302

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 102 of 193 
 
this Court in India Cement  was considered and it was 
observed that what was of crucial relevance in India Cement 
was that the levy of cess was not upon the land or upon its 
yield (or its income) but upon the royalty amount payable to the 
lessor, which was included within the definition of “land 
revenue” under the Madras Panchayats Act. The question  in 
India Cement, therefore, arose whether such cess levied with 
reference to or calculated on the basis of amount of royalty can 
be called a tax on land.  It was held that it could not be so. It 
was pointed out that the royalty varies according to the 
particular mineral quarried in a given year and if no mineral 
was quarried, no royalty would be payable. However, the basis 
of the judgment was that it was a case where tax was measured 
not with reference to or on the basis of the income or yield of 
the land but with reference to the amount of royalty payable by 
the lessee to his lessor. It was for this reason that the cess was 
held to be not upon the land. Royalty is a matter of agreement 
between the lessor and the lessee. It may also be determined by 
a statutory provision. But royalty is not the produce of the land;

Source PDF page 303

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 103 of 193 
 
royalty is not the income of the land nor is royalty the yield of 
the land and that is the distinction. In India Cement , the 
petitioners’ contention was that the impugned measure being a 
tax not on the share of the produce of the land but on “royalty” 
payable, the levy of cess was bad. This contention was upheld. 
It was held that cess on royalty cannot be sustained under 
Entry 49 - List II as being a tax on land. It was observed that 
the cess impugned in India Cement was “an additional charge 
on royalty” which was impermissible as it was not a tax on land 
but an impost on royalty paid for exercising mineral rights.  
22.1     The aforesaid reasoning in India Cement was therefore 
distinguished in Goodricke.  Similarly, Orissa Cement  was 
also distinguished. It was observed that the levy should not be 
an indirect levy on land like the one in India Cement wherein it 
was on the royalty but not on land itself.  However, levy on land 
quantified on the basis of its yield could be treated as direct 
levy upon the land.  Therefore, in Goodricke, it was observed 
that the mere fact that the tax was measured with reference to

Source PDF page 304

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 104 of 193 
 
the yield of the land did not make it any the less tax upon the 
land directly and within the scope of Entry 49 - List II.  
22.2     In my view, the aforesaid distinction brought out in    
Goodricke between the levy of cess on royalty and levy of cess 
on yield from land, clearly indicates that in India Cement, the 
cess was struck down as not coming within the scope and 
ambit of Entry 49 - List II as the cess was not on land directly. 
Cess was on a payment of royalty by a lessee conducting a 
mining operation which is not a cess directly on the land but on 
exercising a mineral right which aspect was under the control 
of the Union by virtue of the MMDR Act, 1957.   
22.3      However, in Goodricke, it was observed that tax 
imposed on land measured with reference to or on the basis of 
its yield, is certainly a tax directly on the land. Apart from 
income, yield or produce, there can perhaps be no other basis 
for levy. Merely, because a tax on land or building is imposed 
with reference to its income or yield, it does not cease to be a 
tax on land or building. The income or yield of the 
land/building is taken merely as a measure of the tax; it does

Source PDF page 305

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 105 of 193 
 
not alter the nature or character of the levy. It remains a tax on 
land or building. The aforesaid reasoning would not apply to 
the present case. The payment of royalty on exercise of mineral 
right is itself a tax and the royalty being considered as a 
measure for the purpose of payment of tax on land within the 
scope and ambit of Entry 49 – List II would not arise in view of 
there being a separate Entry 50 – List II.  
22.4     Moreover, in Goodricke, what was considered was 
Entry 52 – List I and not Entry 54 – List I. Entry 50 – List I 
which is subjected to Entry 54 – List I and the same being a 
unique Entry, would not apply while considering Entry 49 – List 
II in the context of Entry 52 – List I. This is because Entry 52 – 
List I does not impose any limitation on Entry 49 – List II and if 
the tax on exercise of mineral right squarely falls within the 
ambit of Entry 50 – List II then the limitation in the context of 
Entry 54 – List I would have to be borne in mind before the 
State can embark upon levying any further tax on the basis of 
royalty as a measure.

Source PDF page 306

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 106 of 193 
 
22.5      Having noted this sui generis relationship above, I may 
observe the difficulty in drawing any further analogy 
between Goodricke and the instant case.  Every facet 
concerning minerals, whether it be taxation, regulation, or 
development, is without an iota of doubt an important question 
of national concern for , it has ramifications on the stability of 
national economy, environmental degradation, labour laws, 
rights of tribal communities, etc. That the aforesaid sentiment 
was shared and acted upon by our Constitutional framers is 
explicit vide insertion of a unique and special apparatus in the 
Constitution through Entry 54 - List I, Entry 23 – List II and 
Entry 50 – List II. In my opinion, it would be incongruous with 
the constitutional intent to hold that the conscious provision 
for Union supremacy through the insertion of aforesaid 
apparatus, specifically through insertion of Entry 50 – List II, 
denudes the States’ power to use mineral rights or royalty 
levied upon them as a measure to tax land. To do so would 
simply render Entry 50 – List II nugatory.

Source PDF page 307

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 107 of 193 
 
22.6      The contention that land cannot be decoupled from 
mineral rights is attractive at first blush. But, on closer 
examination, this proposition goes against the cardinal rule of 
interpreting Entries in the Lists. It is settled law that there 
must be a reasonable nexus between the nature of tax and the 
measure of tax. In  India Cement , this Court had noted that 
royalty is only indirectly connected with land and cannot be 
said to be a tax directly on land as a unit. In my opinion, this 
finding requires no second look. The contention that royalty can 
be used a measure to tax land under Entry 49 – List II would, 
in my opinion, inevitably lead to conflation with the nature of 
tax that is reserved for Entry 50 – List II subject to any 
limitations imposed by Parliament by law relating to mineral 
development.  
Kesoram: 
23.   The dictum in India Cement by a seven-judge Bench and 
subsequent decisions which followed it was doubted by a 
majority of a five-judge Bench of this Court in Kesoram. It 
would be useful to highlight the relevant portions of the said

Source PDF page 308

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 108 of 193 
 
judgment as the real controversy stems from this Judgment. In 
the said case, three sets of matters arose from West Bengal, 
which, for the sake of convenience, were called as (A) “coal 
matters” (B) “tea matters” and (C) “brick earth matters”.  The 
other set of matters which arose from the State of Uttar Pradesh 
was (D) “minor mineral matters”.  
23.1     In the coal matters, the constitutional validity of the 
amendment made to the Cess Act, 1880 and West Bengal Rural 
Employment and Production Act, 1976 by which the expression 
“coal-bearing land” was defined to mean holding or holdings of 
land having one or more seams of coal comprising the area of a 
coal mine, given effect to from 01.04.1992, was successfully 
impugned before the High Court. Therefore, the State of West 
Bengal had filed the appeal before this Court.  The High Court 
had placed reliance on the judgments of this Court in India 
Cement and Orissa Cement wherein the levy of cess impugned 
therein was struck down as unconstitutional. The Calcutta High 
Court had held that the levy was without legislative competence 
of the State and hence, was liable to be struck down. The High

Source PDF page 309

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 109 of 193 
 
Court had also concluded that the Cess cannot be said to be on 
land so as to be covered by Entry 49 - List II.  
23.2     A similar cess was levied by the State Legislature of 
Orissa as the Orissa Rural Employment, Education and 
Production Act, 1992 on land -bearing coal and other minerals. 
A challenge to the constitutional validity of such cess was 
successfully laid before this Court and the  Section 3(2)(c) of the 
Orissa legislation was struck down as unconstitutional as ultra 
vires the competence of the State Legislature in Mahanadi 
Coalfields.  
23.3     Insofar as the cases arising from the Allahabad High 
Court concerning constitutional validity of a cess on mineral 
rights levied under Section 35 of the Uttar Pradesh Special Area 
Development Authorities Act, 1986  read with Rule 3 of Shakti 
Nagar Special Area Development Authority (Cess on Mineral 
Rights) Rules, 1997  (“the SADA Act” and “the SADA Cess 
Rules”, respectively), the challenge was to the imposition of cess 
on mineral rights at such rates as may be prescribed, subject to 
any limitations imposed by Parliament by law relating to

Source PDF page 310

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 110 of 193 
 
mineral development. The SADA Cess Rules as well as Section 
35 of the SADA Act were challenged on the ground that MMDR 
Act, 1957 having been enacted, containing a declaration under 
Section 2 thereof as contemplated by Entry 54 - List I and the 
Act being applicable to the State of Uttar Pradesh as well, the 
State legislature was denuded of its power to enact the 
impugned law and levy impugned cess. It was contended that 
the impugned cess would have the impact of adding to the 
royalty already being paid and thereby increase the same, which 
was ultra vires the power of the State Government as that power 
could only be exercised by the Central Government. The 
Allahabad High Court held that SADA Act and SADA Rules and 
the levy of cess thereunder was within the competence of the 
State Legislature with reference to Entry 5 0 - List II. Since this 
Court, through a three -judge Bench, had noted a conflict of 
decisions, the matters were placed before Hon’ble the Chief 
Justice for appropriate directions. Thereafter, the matters were 
listed before a five-Judge Constitution Bench.

Source PDF page 311

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 111 of 193 
 
23.4     The Constitution Bench in Kesoram noted the question 
of constitutional significance centring around Entries 52, 54 
and 97 - List I and Entries 23, 49, 50 and 66 - List II, as also 
the extent and purport of the residuary power of legislation 
vested in the Union of India. In Paragraph 52 of the judgment, 
this Court noted the questions which arose in India Cement 
and encapsulated the ratio of the said judgment.  
23.5     In India Cement , the judgment of the Mysore High 
Court in Laxminarayana Mining Co. was cited with approval. 
As already noted, the Mysore High Court had struck down as 
violative of the MMDR Act, 1957 imposition of a licence fee on 
mining manganese, iron ore, etc., under a State legislation by 
issuance of a notification. In Kesoram, while considering the 
ratio of the judgment of the Division Bench of the Mysore High 
Court in Laxminarayana Mining Co. , which had held that, 
licence fee was a step trenching upon the field of regulation and 
mineral development, was liable to be struck down on that 
ground alone, in paragraph 55, observed as under:

Source PDF page 312

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 112 of 193 
 
“55. In our view, the decision by the Mysore High Court 
cannot be read so widely as laying down the law that the 
Union's power to regulate and control results in depriving 
the States of their power to levy tax or fee within their 
legislative competence without trenching upon the field of 
regulation and control. There is a distinction between power 
to regulate and control and power to tax, the two being 
distinct and that difference has not been kept in view by the 
Mysore High Court.”  
 
  In substance, this Court observed that Union’s power to 
regulate and control is distinct from the State's power to levy 
tax and the distinction between the two had not been borne in 
mind by the Mysore High Court which aspect shall be discussed 
later.  
23.6     Moving further in paragraph 56, this Court in Kesoram 
observed as under: 
“(A diversion from the main issue) Royalty, if tax? 
 
56. We would like to avail this opportunity for pointing out 
an error, attributable either to the stenographer's devil or to 
sheer inadvertence, having crept into the majority judgment 
in India Cement Ltd. case  [(1990) 1 SCC 12 : 1989 Supp (1) 
SCR 692 : AIR 1990 SC 85] . The error is apparent and only 
needs a careful reading to detect. We feel constrained — 
rather duty -bound — to say so, lest a reading of the 
judgment containing such an error — just an error of one 
word — should continue to cause the likely embarrassment 
and have adverse effect on the subsequent judicial 
pronouncements which would follow  India Cement Ltd. 
case [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 1990 
SC 85] , feeling bound and rightly, by the said judgment

Source PDF page 313

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 113 of 193 
 
having the force of pronouncement by a seven -Judge 
Bench. Para 34 of the Report reads as under: (SCC p. 30) 
 
“34. In the aforesaid view of the matter, we are of the 
opinion that  royalty is a tax , and as such a cess on 
royalty being a tax on royalty, is beyond the 
competence of the State Legislature because Section 9 
of the Central Act covers the field and the State 
Legislature is denuded of its competence under Entry 
23 of List II. In any event, we are of the opinion that 
cess on royalty cannot be sustained under Entry 49 of 
List II as being a tax on land.  Royalty on mineral rights 
is not a tax on land but a payment for the user of land.” 
 
23.7      In paragraph 57, this Court made its inferences on 
what was observed by the seven -judge Bench of this Court in 
paragraph 34 (extracted above) of India Cement as under:  
“57. In the first sentence the word “royalty” occurring in 
the expression “royalty is a tax”, is clearly an error. What 
the majority wished to say, and has in fact said, is “cess on 
royalty is a tax”. The correct words to be printed in the 
judgment should have been “cess on royalty” in place of 
“royalty” only. The words “cess on” appear to have been 
inadvertently or erroneously omitted while typing the text of 
the judgment. This is clear from reading the judgment in its 
entirety. Vide paras 22 and 31, which precede para 34 
abovesaid, Their Lordships have held that “royalty” is not a 
tax. Even the last line of para 34 records “royalty on 
mineral rights is not a tax on land but a payment for the 
user of land”. The very first sentence of the para records in 
quick succession “… as such a cess on royalty being a tax 
on royalty, is beyond the competence of the State 
Legislature….” What Their Lordships have intended to 
record is “… that cess on royalty is a tax, and as such a 
cess on royalty being a tax on royalty, is beyond the 
competence of the State Legislature …”. That makes correct 
and sensible reading.  A doubtful expression occurring in a

Source PDF page 314

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 114 of 193 
 
judgment, apparently by mistake or inadvertence, ought to 
be read by assuming that the Court had intended to say 
only that which is correct according to the settled position 
of law, and the apparent error should be ignored,  far from 
making any capital out of it, giving way to the correct 
expression which ought to be implied or necessarily read in 
the context, also having regard to what has been said a 
little before and a little after. No learned Judge would 
consciously author a judgment which is self -inconsistent or 
incorporates passages repugnant to each other.  Vide para 
22, Their Lordships have clearly held that there is no entry 
in List II which enables the State to impose a tax on royalty 
and, therefore, the State was incompetent to impose such a 
tax (cess). The cess which has an incidence of an additional 
charge on royalty and not a tax on land, cannot apparently 
be justified as falling under Entry 49 in List II.” 
(underlining by me) 
 
23.8     Thereafter, this Court discussed the meaning and 
content of the expression royalty from various dictionaries and 
other authorities and referred to the judgments of the High 
Courts of Orissa, Punjab and Haryana, and Gujarat High Court 
and in paragraph 64 observed as under: 
“64. We need not further multiply the authorities. Suffice it 
to say that until the pronouncement in  India 
Cement [(1990) 1 SCC 12 : 1989 Supp (1) SCR 692 : AIR 
1990 SC 85] nobody doubted the correctness of “royalty” 
not being a tax.” 
(underlining by me)

Source PDF page 315

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 115 of 193 
 
And ultimately in paragraph 69, it was inferred as under: 
“69. In India Cement [(1990) 1 SCC 12 : 1989 Supp (1) SCR 
692 : AIR 1990 SC 85] (vide para 31, SCC) decisions of four 
High Courts holding “royalty is not tax” have been noted 
without any adverse comment. Rather, the view seems to 
have been noted with tacit approval. Earlier (vide para 21, 
SCC) the connotative meaning of royalty being “share in the 
produce of land” has been noted. But for the first sentence 
(in para 34, SCC) which we find to be an apparent error, 
nowhere else has the majority judgment held royalty to be a 
tax.” 
(underlining by me) 
 
23.9     The inference being that there is an apparent error in 
holding that “royalty to be a tax”, whereas “royalty is not a tax”. 
However, the above inference loses sight of the fact  that in 
paragraph 34 of the India Cement  it has been observed that 
“Royalty on mineral rights is not a tax on land , but a 
payment for the user of the land” .  This has been held to be 
a contradiction in Kesoram. However, what was actually meant 
in India Cement  was that royalty is a tax on mineral rights.  
The majority in Kesoram thereafter noted how the matter was 
dealt with in  Mahalaxmi Fabrics Mills and Saurashtra 
Cement and made observations therein, as noted in paragraph 
70 of the judgment. Ultimately, in paragraph 71, it was

Source PDF page 316

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 116 of 193 
 
observed that royalty is not a tax  and royalty cannot be a 
tax and that even in India Cement it was not the finding of the 
Court that royalty is a tax.  
23.10 With regard to decisions post  India Cement , the 
majority expressed its dissent with that part of the judgment in 
Mahalaxmi Fabrics Mills , which stated that there was “no 
typographical error” in India Cement . The reasoning in 
Mahanadi Coalfields was also not subscribed to in Kesoram 
and it was held that the said case was not correctly decided 
inasmuch as they applied India Cement and Orissa Cement 
and therefore, it was over-ruled.  
23.11 With great respect to the majority in Kesoram, the 
aforesaid strong observations were in fact premised on a 
“typographical error” in para 34 of the judgment in India 
Cement when there was none. The entire reasoning in 
paragraph 57 of Kesoram extracted above proceeded on the 
basis that a typographical error was inadvertently or 
erroneously committed while typing the correct text of the

Source PDF page 317

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 117 of 193 
 
judgment and therefore, what was a “sensible reading” was 
supplied by the majority to make an omission or error, namely, 
“cess on royalty” instead of “royalty” only. 
23.12 With respect, I find that the aforesaid understanding 
by the majority in Kesoram is incorrect, a departure from all 
precedents right from the judgment of this Court in Hingir-
Rampur and contrary to the scheme of Entry 54 – List I and 
Entry 50 – List II and the  architecture of the MMDR Act, 1957 
enacted pursuant to Entry 54 - List I and particularly, having 
regard to Section 2 of the said Act. Therefore, there was no 
necessity to doubt the proposition that royalty is a tax. On a 
non-appreciation of what exactly the import of the judgment in 
the India Cement was, this doubt expressed by the majority in 
Kesoram has ultimately led to the constitution of this nine -
judge Bench to answer eleven points for reference which, in my 
view, was wholly unnecessary. This aspect would become more 
clear if the judgment of this Court in P. Kannadasan vs. 
State of Tamil Nadu, (1996) 5 SCC 670 (“Kannadasan”)  is 
perused which is discussed later.

Source PDF page 318

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 118 of 193 
 
23.13 By contrast, Sinha J., in his dissenting opinion in 
Kesoram at paragraph 309, has appreciated the controversy in 
the following words:  
“309. The decisions of the Privy Council in  Governor 
General in Council  v. Province of Madras  [1945 FCR 179 : 
AIR 1945 PC 98] on the question of interpretation as 
regards conflicting legislative entries in general and tax 
entries in particular may not be apposite in the instant case 
inasmuch as herein we are concerned with only one 
question, namely, whether the field of taxation of mines and 
minerals which are extracted and cease to be a part of the 
surface, is wholly covered or not. One of the principles for 
reconciling conflicting tax entries is to ascertain as to 
whether a person, thing or activity is the subject -matter of 
tax and the amount of the tax to be levied. The question 
which has to be answered on the basis of the 
aforementioned principle is, is it a tax on land or tax on 
mineral. If having regard to the nature of tax and keeping in 
view the history of the legislation to the effect that the State 
of West Bengal has all along been trying to impose tax on 
minerals as opposed to tax on land, is taken into 
consideration, it will be noticed that endeavours have been 
made to continue to impose “cess” on mineral and mineral 
rights in the garb of “land tax”.” 
   (underlining by me) 
 
23.14 Therefore, the pith and substance of the controversy 
being, whether in the garb of imposition of impugned land tax on 
the strength of Entry 49 - List II, the State has the power to 
impose cess on royalty, or, in other words, cess on mineral and 
mineral rights was rightly identified. This is because royalty is a

Source PDF page 319

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 119 of 193 
 
payment for the exercise of mineral rights and not a tax on land 
and if cess is levied on royalty, then the same is an imposition 
on the exercise of mineral rights, which is covered under 
Section 9 of the MMDR Act, 1957.  It is in the aforesaid context 
that Sinha, J.  also referred to Section 25 of the MMDR Act, 
1957 which states that any rent, royalty, tax, fee or other 
impost under the said Act or the Rules made thereunder can be 
recovered as arrears of land revenue. Therefore, in paragraph 
321, it was opined by Sinha, J. as under: 
“321. Section 25 of the MMRD Act, 1957 by necessary 
implication refers to the taxing power of Parliament. 
Imposition of taxes on mineral rights would affect the 
development of mines and minerals. Parliament's authority 
to regulate and control mineral development would be 
seriously impaired and affected if it is held that the matter 
relating to imposition of tax on minerals is also vested in 
the State. The vires of Sections 9 and 9 -A of the 1957 Act 
has not been questioned. In fact, they have been held to be 
intra vires in  State of M.P.  v. Mahalaxmi Fabric Mills 
Ltd. [1995 Supp (1) SCC 642] ,  Saurashtra Cement and 
Chemical Industries Ltd.  v. Union of India  [(2001) 1 SCC 91] 
and South Eastern Coalfields Ltd.  [(2003) 8 SCC 648 : 
(2003) 7 Supreme 539] Unless power to levy compulsory 
impost is held to be ultra vires the Constitution, it cannot 
be held that Parliament has encroached upon the States' 
power of taxation.” 
(underlining by me)

Source PDF page 320

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 120 of 193 
 
The aforesaid observations are significant in light of the 
history of legislation as regards regulation of mines and 
development of minerals and the logical corollary would be that 
in the field of levy of tax, fee or other charges, the Parliament by 
virtue of Section 9 read with Section 25 of the MMDR Act, 1957 
has covered the field of legislation which act as a limitation on 
the State's power under Entry 23 - List II of the Constitution. 
Therefore, Sinha, J. rightly observed that once it is held that 
the entire field of mines and minerals is covered by the MMDR 
Act, 1957 the impugned levy by way of cess on coal -bearing 
land is nothing but an imposition of tax on exercise of mineral 
rights which is barred having regard to the field being covered 
by the provisions of the MMDR Act, 1957.  
24.   What is of significance is that in India Cement , the 
seven-judge Bench of this Court considered the judgments of 
the Patna High Court in Laddu Mal and that of the Mysore 
High Court in Laxminarayana Mining Co.  and approved the 
same. However, there was a reference made to four other 
judgments of the High Courts of Punjab and Haryana, Gujarat,

Source PDF page 321

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 121 of 193 
 
Orissa and Rajasthan. The criticism by the majority in 
Kesoram is that there was no discussion on those judgments  
in India Cement.  The reasons for there being no necessity for 
discussion of the said judgments are not far to see. The 
judgments of the Patna and Mysore High Courts considered at 
length the concept of royalty in the context of the constitutional 
Entries in Lists I and II, as discussed above and in light of the 
declaration made in Section 2 and the scheme of the MMDR 
Act, 1957. It was observed by the Patna and Mysore High 
Courts that having regard to the constitutional scheme vis-à-vis 
the legislative fields, in the context of making laws on mineral 
rights and mineral development and Section 2 of the MMDR 
Act, 1957 payment of royalty on a mining lease being covered 
under the Parliamentary Act, i.e. MMDR Act, 1957, the same 
acted as a limitation imposed by the Parliament by law relating 
to mineral development on the States’ competence to also tax 
on exercise of mineral rights by levying a cess or any other 
impost on royalty. Therefore, by a logical deduction, it was held 
that royalty is a tax within the meaning of Entry 50 - List II.

Source PDF page 322

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 122 of 193 
 
Consequently, any cess on royalty or any other impost on 
royalty or royalty being a basis for a further tax or impost being 
levied by a State Government was impermissible. In other 
words, the MMDR Act 1957 insofar as and to the extent dealt 
with the aspect of royalty being payable by a holder of a mining 
lease imposed a limitation on the States’ right to levy any other 
impost/tax on mineral rights as royalty was payable for 
exercise of mineral rights resulting from a mining operation and 
extraction of minerals. It was in this context that it was 
reasoned that royalty is a tax. Also, royalty could not be a basis 
for levy of any other tax on mineral bearing land as land 
revenue.  
24.1     On the other hand, the judgments of four other High 
Courts, namely, Punjab and Haryana, Orissa, Rajasthan  and 
Gujarat did not consider the controversy from the perspective of 
the constitutional Entries and Section 2 of the MMDR Act, 
1957.  The said judgments proceeded on the dictionary 
meaning of ‘royalty’ under various types of transactions under 
which royalty has to be paid and concluded that royalty was

Source PDF page 323

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 123 of 193 
 
not an impost or tax, which approach was also adopted by the 
majority in Kesoram. Thereby, Entry 54 - List I and Entry 50 - 
List II as well as Section 2 of the MMDR Act, 1957 was given a 
complete go -by while arriving at such a conclusion. 
Consequently, the said judgments and also the majority in 
Kesoram concluded that the States have the legislative 
competence to tax mineral rights or make royalty a basis for 
any other exaction such as cess etc. This was contrary to the 
view expressed in India Cement  by this Court. Therefore, it 
was unnecessary for the seven-judge Bench in India Cement to 
have discussed the judgments of the High Courts of Punjab and 
Haryana, Gujarat, Orissa and Rajasthan referred to above.  In 
fact, in my view, the judgments of the aforesaid High Courts 
were impliedly overruled in India Cement , which aspect has 
not been noticed by the majority in Kesoram. 
25.    Insofar as the judgment of this Court in the case of 
Mahalaxmi Fabric Mills is concerned, the said judgment  
followed India Cement. However, it was overruled in Kesoram. 
So also, the judgments in Saurashtra Cement and other

Source PDF page 324

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 124 of 193 
 
cases. Reference was made to Mahanadi Coalfields wherein 
the levy by the State Legislature was a tax of Rs.32/ - per 
thousand acre on coal -bearing lands. The attack on the 
legislation was that the provision was one on mineral lands and 
mineral rights and the Parliament had enacted the MMDR Act, 
1957 and the field was entirely covered and the State 
Legislature was incompetent to levy the tax. The three -judge 
Bench concluded that the charging Section of the impugned Act 
imposed a tax on the minerals also and was not confined to a 
levy on land or surface characteristic of the land. This was 
because non-mineral-bearing lands and non-coal-bearing lands 
were left out of the levy. The levy was struck down as the levy 
was not a tax on land, but on minerals and mineral rights. 
Kannadasan: 
26.   In this context, it is significant to refer to another 
judgment of this Court in  Kannadasan wherein this Court, by 
following the observations in India Cement  and Orissa 
Cement, held that the States are denuded of the power to levy 
any tax on minerals and therefore, the State enactment s were

Source PDF page 325

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 125 of 193 
 
declared to be lacking in legislative competence  as in the  
aforesaid cases, insofar as they pertained to levy of tax/cess on 
royalty paid on  minerals extracted. It was observed t hat t he 
denudation of the State s’ powers was not partial but total and 
the States cannot levy any tax on mining and minerals, so long 
as the declaration in Section 2 of the MM DR Act, 1957 stands. 
Once the denudation is total, there is no occasion or necessity 
for any further declaration of denudation, or for that matter, for 
repeated declarations of denudation.  Kannadasan was 
partially overruled by a three -judge Bench in District Mining 
Officer vs. Tata Iron and Steel Company, (2001) 7 SCC 358 
(“Tata Iron and Steel ”), but on a different question  which I 
shall also advert to later.   
26.1     However, what is relevant for the purposes of this 
reference could be discussed  in the first instance . In 
Kannadasan, the appellants therein had challenged the 
validity of the Cess and Other Taxes on Minerals (Validation) 
Act, 1992  (“Validation Act” for short)  enacted by Parliament. 
The High Court had rejected the writ petitions. The background

Source PDF page 326

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 126 of 193 
 
of the said Act was that in India Cement, this Court had held 
that  (i) the levy could not  be sustained under  and with 
reference to Entry 49 - List II as a tax on land; (ii) the levy was a 
levy on minerals and was relatable to Entries 23 and 50  - List 
II; (iii) that on account of the declaration made by Parliament 
contained in Section 2 of the MMDR Act, 1957 , the State 
Legislatures ha d been denuded of the power to levy tax on 
minerals. That r egulation of mines and mineral development 
takes within its purview the levy of tax on minerals. This Court 
held that Sections 9 and 9A of the MMDR Act, 1957  provides 
for levy of royalty/dead rent on minerals. The State Legislatures 
cannot, therefore, impose any tax on minerals  or exercise of 
mineral rights  and HRS Murthy  was wrongly decided. Having 
so declared, this Court in India Cement, however, directed that 
the said decision shall only have  a prospective effect. This was 
for the reason that the States ha d been levying and collecting 
the cess es on the basis of the decision of this Court in  HRS 
Murthy. The decision in  India Cement  was rendered on 
25.10.1989.

Source PDF page 327

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 127 of 193 
 
26.2     Thereafter, a three -judge Bench in Orissa Cement  
declared identical levies imposed by the States of Orissa, Bihar 
and Madhya Pradesh as being lacking in legislative competence. 
The Bench again directed that the said decision shall be 
operative prospectively with effect from the date of the said 
judgment i.e., 04.04.1991 in the case of State of Bihar, with 
effect from 22.12.1989 in the case of State of Orissa and with 
effect from 28.03.1989 in the case of State of Madhya Pradesh. 
In view of the States not having the competence to make the 
said levies, the Union had to step in and  promulgated the Cess 
and other Taxes on Mineral (Validation) Ordinance, 1992 on 
15.02.1992 and thereafter replaced  it by a Parliamentary 
enactment called the Cess and other Taxes on Minerals 
(Validation) Act, 1992 with effect from 04.04.1992. The Act was 
enforced in order to validate the imposition and collection of 
cesses and certain other taxes on minerals under certain State 
laws. The Act was deemed to come into force on 04.04.1991. 
Under the said Act, a person could claim refund of any cess or 
tax paid by him in excess of the amount due from him under

Source PDF page 328

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 128 of 193 
 
any such State law. The Schedule to Section 2 named the Acts 
of various States  which were validated . For immediate 
reference, Section 2 of the Validation Act is extracted as under: 
“2. Validation of certain State laws and actions taken 
and things done thereunder. - (1) The laws specified in 
the Schedule to this Act shall be, and shall be deemed 
always to have been, as valid as if the provisions contained 
therein relating to cesses or other taxes on minerals had 
been enacted by Parliament and such provisions shall be 
deemed to have remained in force up to the 4th day of 
April, 1991. 
(2) Notwithstanding any judgment, decree or order of any 
court, all actions taken, things done, rules made, 
notifications issued or purported to have been taken, done, 
made or issued and cesses or other taxes on minerals 
realised under any such laws shall be deemed to have been 
validly taken, done, made, issued or realised, as the case 
may be, as if this section had been in force at all material 
times when such actions were taken, things were done, 
rules were made, notifications were issued, or cesses or 
other taxes were realised, and no suit or other proceeding 
shall be maintained or continued in any court for the 
refund of the cesses or other taxes realised under any such 
laws. 
(3) For the removal of doubts, it is hereby declared that 
nothing in sub -section (2) shall be construed as preventing 
any person from claiming refund of any cess or tax paid by 
him in excess of the amount due from him under any such 
laws.” 
Section 2 was the validation clause stating that the laws 
specified in the Schedule to the Act shall be, and shall be 
deemed always to have been, as valid as if the provisions

Source PDF page 329

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 129 of 193 
 
contained therein relating to cesses or other taxes on minerals 
had been enacted by Parliament and such provisions shall be 
deemed to have remained in force up to 04.04.1991. The Act 
was deemed to have come into force on 15.02.1992 , which was 
the date on which the Ordinance was promulgated by the 
President. According to this Court, t he Parliament adopted the 
device of legislation by incorporation as a result of which all the 
relevant provisions  of the Scheduled Acts  (State Acts ) were 
deemed to have been  enacted by Parliament and read into 
Section 2(1) of the Validation Act.  As a corollary, all the taxes 
which were set aside by this Court and the High Courts  were 
deemed to be the taxes/levies of the Parliament itself.  This was 
on the clear understanding that the power of Parliament to levy 
such taxes was not in dispute and States had no power to levy 
such cesses or taxes. This was also on the acceptance of the 
judgment in India Cement.  The provisions of the Act were 
declared to be in force up to 04.04.1991  though the law was 
enforced from 04.04.1992, which was unique by itself.

Source PDF page 330

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 130 of 193 
 
26.3     The validity of the Validation Act was questioned before 
this Court on several counts  by the private parties  and 
defended by the Union of India. This Court observed that t he 
object and purpose of enacting the MMDR Act, 1957 was to 
bring about , inter alia , a  uniformity in taxes and royalties 
throughout the country  in the interest of mineral development 
in the country  for which only the Union or the Central 
Government could impose a levy such as royalty or any other 
tax.  There is  not a precondition to a law made by Parliament 
under Entry 54  - List I nor is there a limitation upon 
Parliament’s power. If Parliament has enunciated the principle, 
it can also create an exception thereto in appropriate 
circumstances or to meet an exigency. The Validation Act was 
in order to meet  such an exigency. The said Act was both an 
addition to as well as  an exception to Section 9 of the MMDR 
Act, 1957. With regard to Section  9 of the MMDR Act, 1957, it 
was reasoned that in light of the decision s of this Court in 
India Cement  and Orissa Cement,  the States were totally 
denuded of the power to levy any taxes on minerals. The

Source PDF page 331

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 131 of 193 
 
denudation of the State is not partial ; it is total insofar as the 
levy of any tax  or cess on mineral is concerned . So long as the 
declaration in Section 2 stands , it is unnecessary to have a 
fresh declaration to be made by Parliament whenever the Union 
increases the rate of royalties.  
26.4     It was further observed that what was sought to be 
levied under the impugned enactment was a tax/cess and not a 
fee and therefore, the Parliament was not bound to utilize the 
taxes realized under the impugned Act , i.e., the Validation Act , 
only for the purpose of regulation of mines and mineral 
development. That even in the matter of fees, it is not necessary 
that an element of quid pro quo should be established in each 
and every case as fees can be both regulatory and 
compensatory and that in the case of regulatory fees, the 
element of quid pro quo is totally irrelevant vide Corporation of 
Calcutta vs. Liberty Cinema, AIR 1965 SC 1107 , (“Liberty 
Cinema”).

Source PDF page 332

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 132 of 193 
 
26.5     It was further observed that the Validation Act though a 
temporary statute did not have an expiry date , in the sense it 
was deemed to come into force on 15.02.1992 and validate d all 
imposts up to 04.04.1991 and not thereafter . By this, it didn’t 
mean that the statute itself expire d on 04.04.1991 as it was 
deemed to come into force  on a later date , i.e. on 15.02.1992. 
The Validation Act was also not a temporary statute. It was 
observed that t he duration of the levy validated under the Act 
and the life of the Act are two different things which are not 
necessarily coextensive. The Validation Act would remain in 
force till Parliament chooses to repeal it. Therefore, the 
argument that the Validation Act being a temporary statute was 
not effective from 04.04.1991, was rejected by this Court. It was 
observed that levies were validated by the Validation Act 
notwithstanding the cessation of levy after 04.04.1991  and the 
machinery created to recover and refund the said cesses/taxes 
was kept alive. 
26.6     The judgment of this Court in Kannadasan is a clear 
indication of the fact that it was the Parliament , by enacting a

Source PDF page 333

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 133 of 193 
 
legislation in the year 1992 in the form of a Validation Act  
which had to step in to support the States for validation of the 
States’ incompetent levies, namely, cesses or taxes on royalty 
which had been set aside over decades by this Court. This 
legislation was also in the interest of mineral development and 
in exercise of powers  and relatable to Entry 54  - List I. But for 
the Validation Act enacted by the Parliament, the levies being 
declared invalid by this Court as well as the High Courts, it was 
the bound en duty of the States to have refunded the levies 
collected in the form of cesses or surcharge on cesses on 
royalties as directed by this Court which would have been a 
drain o n the States ’ exchequers. Realising the financial 
predicament in which the States were, the Parliament , in 
exercise of its unitary powers and as the Union of the States , 
came to rescue all the States by passing  the Validation Act so 
that till 04.04.1991, by a fiction the States’ levies in the form of 
cesses or other taxes on royalty were validated as if the State 
laws were enacted by Parliament itself. Therefore, all judgments 
which had struck down the levies imposed by the State on

Source PDF page 334

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 134 of 193 
 
mineral rights discussed above if had directed to refund the 
levies collected by them  would now not have been necessary . 
Further, all such State levies being validated, arrears  till 
04.04.1991 could be collected by the States.  Such an Act was 
passed by way of an abundant caution as in certain other 
judgments of this Court, there could be directions to refund the 
taxes or lev ies collected and attend ed complications on the 
refund of the said incompetent levies or in order to collect the 
arrears till 04.04.1991 . These aspects  constrained the 
Parliament to pass the Validation Act. In the circumstances, the 
appeals and the writ petitions were dismissed. 
26.7     The judgment in Kannadasan clearly establishe d the 
fact that the Parliament has supremacy over the regulation of 
mines and development of minerals  in view of Entry 54  - List I 
read with Section 2 and the other provisions of MMDR Act, 
1957, as Entry 23 – List II is also subject to Entry 54 – List I. 
That levying of a uniform impost in the form of royalty and dead 
rent imposed under Sections 9 and 9A of the MMDR Act, 1957 
throughout the length and breadth of the country , insofar as a

Source PDF page 335

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 135 of 193 
 
particular mineral is concerned , without letting any State to 
impose any other levy over and above  royalty is in the interest 
of mineral development. Thus, Sections 9 and 9A are an 
embargo and a limitation on the power of the State to impose 
any tax on exercise of mineral rights. This is because royalty is 
paid on exercise of mineral rights. It is a statutory exaction 
under the MMDR Act, 1957  and is compulsory for every holder 
of a mining lease to pay royalty to the State Government which 
executes the lease deed in the status of a lessor. Payment of 
royalty being compulsory by the holder of a mining lease, it 
makes it a tax as the rate of royalty is fixed by the Central 
Government as per Section 9 of the MMDR Act, 1957 and as 
notified in the Second Schedule to the aforesaid Act. Thus, 
royalty being a tax could be collected as arrears of land revenue 
in the event of non -payment. Such being the construction and 
interpretation of the provisions of MMDR Act, 1957 in light of 
the Entries in the Lists, royalty as a compulsory exaction has   
met all the parameters of a tax and hence the provisions 
regarding  collection  of   royalty  under  the   MMDR  Act, 1957

Source PDF page 336

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 136 of 193 
 
and the Rules made thereunder acted as a limitation under 
Entry 50 – List II. Hence, the States are denuded of their power 
to impose a cess or any other levy on royalty or define it as a 
land revenue which could be imposed by the States  under 
Entry 49 – List II. Such State levies on royalty is against the 
interest of mineral development in the country and therefore 
the State levies on the basis of royalty was struck down by this 
Court and certain High Courts.  The validation Act also 
established the fact that the Parliament by passing such an Act 
did so in the interest of mineral development in the country and 
to save the States from losing the  revenue collection made  
though under incompetent levies prior to 04.04.1991. 
Therefore, the States were not  required to refund the illegal 
levies collected by them  and continued to collect the same till 
04.04.1991. The sustaining of the Validation Act by this Court 
is also significant. Thus, as a result of the Validation Act, the 
decades’ old controversy between States ’ attempts to levy taxes 
on royalty and the High Courts and this Court striking down 
the  same     by     holding      that   it  was  the  Parliament

Source PDF page 337

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 137 of 193 
 
only which could do so by a law, brought down the curtains on 
the said controversy till its revival in Kesoram.  
26.8     Justice Jeevan Reddy speaking for the Bench in 
Kannadasan cleared any lurking doubts  about States having  
any power to levy any cess, tax or other impost on exercise of 
mineral rights; it was only the Parliament which could impose 
such a levy either by way of royalty or in any other form.  
26.9     Thereafter, in Tata Iron and Steel , the controversy 
arose from the Patna High Court, in the context of the 
Validation Act, 1992  wherein it was  held that the said Act did 
not authorise recovery of any tax or cess after 04.04.1991, even 
if the liability was incurred under the validated laws before 
04.04.1991 and consequently, it restrained the State of Bihar 
from taking any steps to realise such demands.  However, by 
then this Court in Kannadasan had upheld the right of the 
State to demand and collect  levies which were collectable up to 
04.04.1991. The decision of the Patna High Court to the extent

Source PDF page 338

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 138 of 193 
 
it restrained the State from realising the demand was 
challenged before this Court by the State of Bihar.  
26.10     The matter was considered by a three -judge Bench as 
Kannadasan was decided by a two -judge Bench. It was 
observed that the Validation Act had validated the levy of taxes 
by eleven States upto 04.04.1991. That the Validation Act 
fictionally held that the Parliament had in fact imposed the cess 
and other taxes on minerals by keeping those provisions of 
State Act, which had been struck -down, alive till 04.04.1991. 
Although, Parliament never in fact re -enacted the eleven Acts 
mentioned in the Schedule to the Validation Act but it merely 
provided legislative competence for those Acts which related to 
cesses or taxes on minerals. This was done owing to the 
judgments of this Court in India Cement and Orrisa Cement 
that had led the to a situation that required a Validation Act to 
save the State from refunding the incompetent levies already 
collected. This was to all ay the apprehension of the State 
Government that the incompetent levies already collected would 
have to be refunded. Therefore, Parliament , being also of the

Source PDF page 339

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 139 of 193 
 
same opinion , t hrough a legislative device of providing 
legislative competence in respect of the certain provisions of the 
States’ laws and by validating the levies which could be 
collected up  to 04.04.1991 i.e. the date on which this Court 
delivered the judgment in Orissa Cement  case, had enacted 
the Validation Act.  
26.11     The controversy, however, revolved on the expression 
“imposition and collection” under Section 2(1) of the Validation 
Act. Whether it related to only imposition and collection already 
made under certain State laws or conferred further right of 
imposition and collection of cesses on the minerals extracted 
upto 04.04.1991. In Kannadasan this Court had interpreted 
the provisions to the effect that the Validation Act would confer 
a right on the State Government to make fresh levy and 
collection of dues which were collectable upto 04.04.1991. This 
interpretation was, however, not accepted by three -judge 
Bench. It was observed that the Validation Act could not be 
construed to confer a right to make a  levy or collection of the 
cess and taxes on the minerals which were collected upto

Source PDF page 340

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 140 of 193 
 
04.04.1991, as was held in Kannadasan. It merely validated 
the collections already made so that the State will not be 
burdened with the liability of refunding the amount, already 
collected under void law. Therefore, the contrary view expressed 
in Kannadasan was held to be not correct.  
26.12     With reference to Article 265 of the Constitution, it 
was observed that the State laws which stood expired on 
various dates prior to 04.04.1991 and on 04.04.1991 did not 
authorise imposition and collection of taxes and cess on 
minerals after 04.04.1991 in respect of minerals extracted till 
04.04.1991, on which the cess was collectable.  It was observed 
that object of the Validation Act was only to confer the life to 
void statutes by fictional re -enactment and granting legislative 
competence for limited purpose so that the State would not be 
called upon to refund the cess already collected under such 
void law. Thus, the void laws never existed after 04.04.1991 
and consequently, there was no right with the State to make 
any levy or collection of the cess, which was collectable up to 
04.04.1991. Only past actions had been sought to be validated ,

Source PDF page 341

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 141 of 193 
 
that too , by a fictional enactment of the State laws by 
Parliament, keeping it alive till 04.04.1991. Even if imposition 
of levy had been made but not collected, the same could not be 
collected after 04.04.1991  as the Validation Act had not  
provided any provision permitting State to levy or collection 
after 04.04.1991.  Therefore, it was held that the States cannot 
be conferred a right to levy or collection after 04.04.1991.  
Therefore, to that extent Kannadasan’s observations were not 
approved.  
26.13  The overruling of certain observations made in 
Kannadasan by the three-judge Bench in Tata Iron and 
Steel does not touch upon the question whether imposition of 
cess and other taxes on the basis of royalty or in addition to 
royalty by a State legislature is competent. The judgment in 
Tata Iron and Steel  on the other hand proceeds on the 
premise that India Cement  and Orissa Cement  were rightly 
decided. The Validation Act had been passed by the Parliament 
and there being a confusion with regard to the actual collection 
of the levies by the States on or after 04.04.1991 and in

Source PDF page 342

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 142 of 193 
 
Kannadasan, this Court having held that it could be so in the 
form of arrears and dues , to that extent , disapproved 
Kannadasan. 
26.14    I do not find any inconsistency between the judgments 
in Kannadasan and Tata Iron and Steel  on the questions of 
whether royalty is a tax and whether the States had no 
competency to levy any tax on exercise of mineral rights. On the 
other hand, what is common to both Kannadasan and Tata 
Iron and Steel is the fact that they proceeded on the basis that 
this Court, having set aside the incompetent levies imposed by 
the States and the Parliament , coming forward to support the 
States vis-à-vis their apprehension regarding refund to be made 
on the basis of the principle of unjust enrichment , enacted the 
Validation Act. The challenge to the said Act otherwise failed in 
Kannadasan. The contention of the assessee was only with 
regard to levies to be collected up to 04.04.1991 under the 
Validation Act  and not after that date.  This aspect was 
answered by the three -judge Bench in Tata Iron and Steel by 
holding that the Validation Act was in  fact a temporary statute

Source PDF page 343

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 143 of 193 
 
which neither gave  the State the right to levy any tax es or 
cesses etc. which were struck -down by this Court as being 
incompetent nor could the States collect arrears  of such 
taxes/cesses after 04.04.1991.  
26.15     In view of the aforesaid judicial and legislative history, 
can this Court once again confer powers on the States to levy 
taxes, etc. on the exercise of mineral rights in addition to 
royalty by way of a cess or a surcharge on cess or 
independently on the basis of royalty as a measure for imposing 
such taxes? The majority judgment in Kesoram has attempted 
to do that. This is by holding that royalty imposed under 
Section 9 of MMDR Act, 1957 is not a tax and therefore, the 
States can levy taxes on minerals rights either under Entry 50 
or Entry 49 – List II.   
Thus, the legal quagmire has not ended but continued. 
27.  In my view, the majority judgment in Kesoram is liable to 
be overruled  for holding that royalty is not a tax for the 
following reasons:

Source PDF page 344

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 144 of 193 
 
Firstly, because the doubt expressed in the said 
judgment by the majority  was premised on a 
“typographical error” in paragraph 34 of  the main 
judgment in India Cement by failing to appreciate the  
entire reasoning of the seven-judge Bench. It also failed 
to notice that in the case of India Cement , Oza, J. 
penned a separate but concurring opinion and arrived 
at a conclusion that royalty is in the nature of a tax by 
separate reasoning. The majority in Kesoram did not 
find any “typographical error” in Oza, J.’s opinion. 
Secondly, the majority in Kesoram came to the 
conclusion that royalty is not a tax based on the 
definition of royalty in dictionary meanings, etc. 
without reference to the constitutional Entries, 
particularly, Entry 50 - List II being limited by Entry 54 
- List I and a Parliamentary law MMDR Act, 1957 being 
made under the latter Entry  and the declaration made 
in Section 2 thereof . In this regard, it would be useful 
to refer to the observation s of this Court in State of

Source PDF page 345

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 145 of 193 
 
Orissa vs. Titaghur Paper Mills Company Limited, 
1985 Supp. SCC 280 (“Titaghur Paper Mills”), 
wherein this Court discussed the scope and ambit of 
the expression royalty and it was observed that while 
understanding the meaning of an expression, the 
dictionary meaning of a word cannot be looked at 
where that word has been statutorily defined or 
judicially interpreted  (in light of the constitutional 
Entries in the Lists).  Where there is no such definition 
or interpretation, the Court may take the aid of 
dictionaries to ascertain the meaning of a word in 
common parlance, bearing in mind that a word is used 
in different senses according to its context and a 
dictionary gives all the meanings of a word  in several 
contexts. The Court has therefore to select the 
particular meaning which would be relevant to the 
context in which it has to interpret that word.  
Thirdly, the judgment in the India Cement  was 
doubted even in the absence of their being a conflict of

Source PDF page 346

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 146 of 193 
 
the judgment with any other seven -judge Bench 
decision. No doubt, at the Highest Court, one cannot 
really be bogged down by the Bench strength no r does 
the doctrine of stare decisis would apply strictly to this 
Court when a judgment of a larger Bench is questioned 
by a Bench of similar or smaller strength. But for that, 
there must be  present a flagrant violation of law , a 
patent error or a  blatantly erroneous approach in the 
matter so as to enable a Bench of a similar  or smaller 
strength to doubt the correctness or otherwise of the 
decision of a larger Bench. There could also be a 
situation where a judgment is per incuriam  or the 
doctrine of sub silentio would apply.  
   For instance, a two -judge Bench of this Court 
doubted the correctness of a five -judge Bench decision 
in A.R. Antulay vs. R.S. Naik, 1986 Supp SCC 510  
(“A.R. Antulay”) which led to the constitution of a 
seven-judge Bench by Hon’ble the Chief Justice of 
India. By a majority of 5:2 , the seven -judge Bench in

Source PDF page 347

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 147 of 193 
 
the aforesaid case answered the questions raised by the 
two-judge Bench and thereby set aside the judgment of 
the five -judge Bench. The circumstances as, they 
occurred in the case of A.R. Antulay did not present 
themselves in Kesoram so as to doubt India Cement.  
Fourthly, in my view, the opinion of the majority in the 
Kesoram is per incuriam  as it fail ed to follow the 
dictum in India Cement  on the basis of a 
“typographical error” in paragraph 34 thereof where 
there was none. Judgments of larger Benches cannot 
be questioned by smaller Benches on the basis of an 
imagined “typographical error” ! The entire judgment 
must be read and understood including its under 
currents before negating it for what it stands. A 
judgment of a Court of law is not a piece of legislation 
but one p regnant with reasoning and it becomes the 
duty of a succeeding Bench considering a precedent to 
be cautious in opining something contrary on the 
premise of a “typographical error” in a judgment of a

Source PDF page 348

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 148 of 193 
 
larger Bench by failing to understand the import of the 
reasoning. 
Fifthly, Kesoram also failed to note that the Parliament 
enacted the Validation Act, 1992 on the defin ite 
premise that the State s did not have the legislative 
competence to levy the impugned levies which were 
rightfully set aside by this Court  in a series of 
judgments starting from Hingir-Rampur.  
Sixthly, I may observe that the Validation Act, 1992 
clearly established that the dicta of this Court in India 
Cement, Orissa Cement  and other cases which 
followed the said judgment are correct and  were 
accepted by the Parliament  which acted on it by 
passing the Validation Act.  
Seventhly, in Kannadasan, the validity of the 
Validation Act, 1992 was upheld. This clearly 
established the fact that the State’s levies which were 
quashed and set aside by this Court in India Cement

Source PDF page 349

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 149 of 193 
 
and other cases were not relatable to Entry 49  - List II. 
If that was so , then Parliament could not have enacted 
the Validation Act, 1992  as only States can levy taxes 
on lands and buildings under the Entry 49 – List II. 
Eighthly, the actual basis for the majority in Kesoram 
doubting the judgment in India Cement  is on the 
premise that there is a distinction between the power to 
regulate and control and the power to tax, the two 
being distinct and different. It was held that  the 
taxation Entry i.e. Entry 50 – List II could not be 
controlled by Entry 54 – List I which is a regulatory 
Entry which is meant for regulation for mines and 
mineral development under the control of the Union. 
That may be so in the case of many  other Entries, 
however, Entry 50 – List II is unique inasmuch as the 
taxation Entry namely, the power to impose taxes on 
mineral rights is itself subject to any limitations 
imposed by Parliament by law relating to mineral 
development. In the context of mineral development,

Source PDF page 350

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 150 of 193 
 
limitations could be imposed by Parliament by law vis-
à-vis the power to impose taxes on mineral rights which 
is evident on a reading of Entry 50 – List II. The reason 
being, exercise of mineral rights is related to mineral 
development which is a subject under Entry 54 – List I. 
This coalescing of the subjects in Entry 50 – List II with 
Entry 54 – List I has not been noticed whereas in India 
Cement as well as in Laddu Mal  and in 
Laxminarayana Mining Co., this aspect has been the 
foundation of the reasoning. 
28.   In view of the aforesaid discussion, I differ from the 
judgment of  Hon’ble the Chief Justice of India, and hold that 
India Cement, Orissa Cement, Mahalaxmi Fabric Mills, 
Saurashtra Cement , Mahanadi Coalfields , Kannadasan 
excluding to the extent overruled in Tata Iron and Steel , and 
Tata Iron and Steel have been correctly decided and therefore, 
are binding precedent and cannot be overruled.

Source PDF page 351

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 151 of 193 
 
Entries 49 and 50 – List II: 
29.   The second aspect of this case which also requires 
consideration is with regard to interplay of Entr ies 49 and 50 - 
List II in the context of mineral bearing lands. 
30.   In the judgment proposed by Hon’ble the Chief Justice of 
India, it has been concluded as under: 
“e.  The State legislatures have legislative competence 
under Article 246 read with Entry 49 of List II to tax 
lands which comprise of mines and quarries.  Mineral -
bearing land falls within the description of “lands” 
under Entry 49 of List II; 
f.  The yield of mineral bearing land, in terms of the 
quantity of mineral produced or the royalty, can be 
used as a measure to tax the land under Entry 49 of 
List II.  The decision in Goodricke (supra) is clarified 
to this extent; 
g.  Entries 49 and 50 of List II deal with distinct subject 
matters and operate in different fields.  Mineral value 
or mineral produce can be used as a measure to 
impose a tax on lands under Entry 49 of List II; and 
h.  The “limitations” imposed by Parliament in a law 
relating to mineral development with respect to Entry 
50 of List II does not operate on Entry 49 of List II 
because there is no specific stipulation under the 
Constitution to that effect.” 
 
31.    In India Cement, the State of Tamil Nadu  mainly 
contended that impugned levy , namely, imposition of cess on 
royalty under Entry 49 - List II as taxes on lands and buildings

Source PDF page 352

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 152 of 193 
 
and therefore defining “land revenue”, as including royalty on 
mineral bearing land in exercise of mineral rights by the holder 
of a mining lease was justifiable.  In this regard, reference was 
made by the State of Tamil Nadu to Raja Jagannath Baksh 
Singh vs. State of U.P., (1963) 1 SCR 220 (“Raja Jagannath 
Baksh Singh”) , wherein it was indicated that the expression 
“lands” in Entry 49  - List II  is wide enough to include 
agricultural as well as non -agricultural land.  But this 
contention was repelled by this Court by observing that ‘royalty’ 
being that which is payable on the extraction of minerals f rom 
land and ‘cess’ being an additional charge on the  basis of  
royalty cannot be considered to be a tax on  mineral land under 
Entry 49 – List II . It was observed that there was a clear 
distinction between tax directly on land and tax on income 
arising from land  such as from minerals extracted from the 
land.   
31.1     In fact, this Court in New Manek Chowk Spinning & 
Weaving Mills Co. Ltd. v s. Municipal Corporation of the 
City of Ahmedabad, (1967) 2 SCR 679  (“New Manek Chowk

Source PDF page 353

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 153 of 193 
 
Spinning & Weaving Mills”) , had observed that Entry 49 - 
List II only permitted levy of tax on lands and buildings and not 
on machinery contents in or situated on the building s even 
though the machinery was there for the use of the building s for 
a particular purpose.  Also construing the said Entry, this 
Court in  Sudhir Chandra  Nawn v s. Wealth Tax Officer , 
Calcutta, (1969) 1 SCR 108 (“Nawn”), observed that Entry 49 
- List II contemplated a levy on land as a unit and the levy must 
be directly imposed on land and must bear a definite 
relationship to it.  The aforesaid decision was affirmed in 
Assistant Commissioner of Urban Land Tax vs. The 
Buckingham & Carnatic Co. Ltd., (1970) 1 SCR 268  (“The 
Buckingham & Carnatic Co.”) .  Similarly, in Second Gift 
Tax Officer, Mangalore v s. D.H. Nazareth, (1971) 1 SCR 
195 (“D.H. Nazareth”), it was held that a tax on the gift of land 
is not a tax imposed directly on land but only  for a particular 
act, namely, the transfer of land by way of gift.  In Union of 
India vs. Harbhajan Singh  Dhillon, (1971) 2 SCC 779

Source PDF page 354

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 154 of 193 
 
(“Harbhajan Singh Dhillon”), the aforesaid two decisions were 
approved.   
31.2     Further, it was observed in India Cement that royalty 
which is indirectly connected with land cannot be said to be tax 
directly on land as a unit. The cess impugned could not be 
levied if there was no mining activity carried on  as no royalty 
was payable as payment of cess was on royalty .  Hence, it was 
manifest that cess on royalty was not relatable to land as a unit 
which is the only method of valuation of land under Entry 49  - 
List II but was relatable to minerals extracted , i.e. royalty was 
payable on a proportion of the minerals extracted  based on the 
rate fixed under the Second Schedule to MM DR Act, 1957 .  
Therefore, the impugned cess on royalty  was held in pith and 
substance to be a tax on royalty and not a tax on land.  Hence, 
royalty could not be included within the definition of “land 
revenue” for the purpose of imposition of a cess on land 
revenue, which means cess on royalty, when royalty is itself a 
tax paid by a holder of mining lease for exercise of his mineral 
rights, which is in the interest of mineral development.

Source PDF page 355

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 155 of 193 
 
31.3     It was further observed  in India Cement that Entry 23 
- List II deals with regulation of mines and mineral development 
subject to the provisions of List I, i.e. Entry 54  - List I. Even 
though the subject  mineral rights are part of the State List, 
taxes on mineral rights  are treated separately and hence, the 
principle that the specific excluded the general must be applied. 
Therefore, it was observed that  the word “lands” in Entry 49  - 
List II cannot include mineral bearing lands. In this connection, 
it was further observed that the extent to which regulation of 
mines and mineral development under the control of the Union 
is declared by Parliament by law to be expedient in the public 
interest (Entry 54 – List I) , must be noted as , to that extent, 
denuding the State Legislation of its power under Entry 50 - 
List II. It was further observed that in view of the Parliamentary 
legislation under Entry 54  - List I , namely, the MMDR Act, 
1957, and the declaration made under Section 2 and the 
provisions of Section 9 thereof, the State ’s power  would be 
overridden to that extent.

Source PDF page 356

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 156 of 193 
 
31.4     Further, in India Cement, reliance was placed by State 
of Tamil Nadu  on the judgment of this Court on HRS Murthy 
wherein it was observed that land cess paid on royalty has a 
direct relation to the land and only a remote relation with 
mining.  This was  held to be  an incorrect  approach in the 
matter by the seven -judge Bench in India Cement . In 
paragraph 30 of India Cement, it was further clarified that in 
HRS Murthy, attention of this Court was not invited to the 
provisions of Section 9 of the MMDR Act. It was also observed 
that Section 9(3) of the MMDR Act,  1957 in terms states that 
royalties payable under the Second Schedule of the said Act 
shall not be enhanced more than once during a period of three 
years. Therefore, this create d a clear bar on the State 
Legislatures taxing royalty  in any manner  so as to in effect 
amend Second Schedule of the MMDR Act  as additional taxes 
on royalty imposed by the States  would vary the tax structure 
from State to State leading to variance in the price of a 
particular mineral in the country which is not in the interest of 
mineral development . Therefore, it was observed that tax on

Source PDF page 357

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 157 of 193 
 
royalty can not be a tax on land . This is ultra vires the State 
legislative power particularly in view of Section 9(3) of the 
MMDR Act, 1957. It was  also observed in India Cement that 
under Section 9 of the MMDR Act,  1957 the field was fully 
covered by the Central legislation  and that  royalty is directly 
relatable only to the minerals extracted. Hence, royalty was 
found relatable only to Entry 50 - List II and not Entry 49 - List 
II.  As the field is covered by the MMDR Act, 1957,  Entries 23 
and 50 - List II will be subject to the declaration made under 
Section 2 of the MMDR Act, 1957 which has been enacted as 
per Entry 54 - List I.  
32.   In view of the above, the reasoning in the proposed 
judgment of the learned Chief Justice of India, in paragraph 
339 that “though Parliament can limit the taxing field entrusted 
to the State under Entry 50  - List II through a law relating to 
mineral development, the limitation operates on the field of taxing 
mineral rights. Such a limitation cannot operate on Entry 49 - List 
II because there is no specific stipulation under the Constitution 
to that effect.  The nature of taxes under both the Entries, that is

Source PDF page 358

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 158 of 193 
 
Entries 49 and 50 - List II, are distinct. The Constitution 
envisages the imposition of limitations by Parliament on the 
legislative field of the state of taxes on mineral rights, and not 
taxes on lands … Therefore, we are of the opinion that the 
doctrine of generalia specialibus non derogant has no application 
in the instant case because Entries 49 and 50 of List operate in 
different fields”  in my view is contrary to what has been 
reasoned by the seven -judge Bench in India Cement and also 
the scheme of Entry 54 - List I and  Entries 23 and 50  - List II 
as well as the object , intent and scheme of Parliament in 
making a declaration under Section 2 of the MMDR Act, 1957.  
Further, the Validation Act passed by the Parliament on the 
strength of Entry 54 – List I would have been wholly 
unnecessary if Entry 49 – List II was applicable to mineral 
bearing lands. 
33.   In view of what has been discussed above, in my view, 
Entry 49 - List II is an Entry of the widest amplitude.  Taxes on 
lands and buildings would include taxes on agricultural land, 
non-agricultural land, etc. But insofar as mineral -bearing land

Source PDF page 359

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 159 of 193 
 
is concerned, there cannot be a tax on such land per se to be 
levied by the State Legislature as well as  tax on mineral right s 
exercised on such land which is based on the value of the 
minerals produced under a Central Act . The reasons for saying 
so are as follows:  
(i) Firstly, royalty as a tax on the value of the minerals 
extracted is paid by the lessee or the person who 
would exercise mineral rights to the State or lessor, 
as the case may be, under the provisions of MMDR 
Act, 1957 which is a Parliamentary law. Whereas, a 
tax or cess on land is paid by the owner  or the 
occupier of the land  as the case may be as  per 
particular statute or by an agreement between the 
owner and the occupier.   
(ii) Secondly, on a reading of the lease-deed executed 
in terms of Form -K appended to the Mineral 
Concession Rules, 1960 , which are Central Rules, 
in light of Section 9 of the MMDR Act , 1957  and 
the Second Schedule  thereof, it is clear that the

Source PDF page 360

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 160 of 193 
 
lessee is under an obligation to pay royalty to the 
Government on the mineral extracted which is in 
exercise of his mining rights as per the provisions 
of MMDR Act, 1957, which is a Parliamentary 
legislation enacted in terms of Entry 54  - List I for 
regulation of mines and mineral development  
uniformly throughout the country.  
(iii) Thirdly, the royalt y is paid as a tax as a tax  in 
respect of mineral s removed or consumed by the 
holder of a mining lease from the leased area at the 
rate for the time being specified in the Second 
Schedule to MMDR Act, 1957  in respect of that 
mineral. There is no payment of royalty on the 
basis of a private negotiation between the lessor or 
lessee. The rate at which royalty has to be paid is 
prescribed in the Second Schedule of the MMDR 
Act, 1957 mineral wise.  Only the Central 
Government by notification in the official gazette 
can amend the Second Schedule so as to enhance

Source PDF page 361

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 161 of 193 
 
or reduce the rate at which the royalty shall be 
payable in respect of any mineral with effect from 
the date as may be specified in the notification . 
Provided that the Central Government shall not 
enhance the rate of royalty in respect of any 
mineral more than once during any period of three 
years. This power is reserved only with the Central 
Government, which is in the interest of mineral 
development in a uniform manner  throughout the 
country.  
(iv) Fourthly, there is no value that can be attached to 
a mineral bearing land so as to impose tax on such 
land minus the minerals. Insofar as extraction of 
minerals is concerned, being an  exercise of a 
mineral right, royalty is payable by a holder of a 
mining lease and when no mining activity is carried 
on, dead rent is payable by such a person. Thus, 
royalty being a tax or an exaction , there cannot be 
another tax imposed by the State under Entry 49  -

Source PDF page 362

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 162 of 193 
 
List II on such mineral bearing land . Such land is  
valuable because of the mining activity that is 
carried thereon and the minerals are extracted. 
Such land is not the same as agricultural or non -
agricultural land or land on which buildings are 
constructed that is subjected to tax under Entry 49 
- List II by a State Government.  
(v) Fifthly, to reiterate, when the value of minerals 
extracted is the basis of payment of royalty under 
the scheme of the MMDR Act, 1957, which is a 
Parliamentary legislation, such land cannot be 
construed to be falling within the scope and ambit 
of Entry 49 - List II also so as to be subjected to a 
tax imposed by the State . In other words, t here 
cannot be a tax on mineral bearing land  twice over 
by the State Government : one, under Entry 49  - 
List II as land per se and another, under Entry 50 - 
List II which is subject to any limitation being 
made by Parliament by law i.e. MM DR Act, 1957

Source PDF page 363

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 163 of 193 
 
made pursuant to Entry 50  - List I and more 
particularly, Section 2 read with Section 9 of the 
said Act. If , for instance, Section 9 of the MM DR 
Act, 1957 is repealed and the Parliament leaves it 
to the wisdom of State legislatures to impose 
royalty, then , there cannot be a duplication of 
taxes on mineral bearing land : one under Entry 49 
- List II and another under Entry 50 - List II. A tax 
on mineral bearing land  cannot fall under two 
Entries of the same List. Taxation Entries are 
mutually exclusive from each other in a particular 
List, the State List – List II in the instant case , 
unless they are made subject to an Entry in 
another List i.e., Union List - List I as in the instant 
case, Entry 50 - List II is subject to  Entry 54 - List 
I.  
34.  In view of the aforesaid discussion, I also observe that  
mineral value or mineral produce cannot be used as a measure 
to tax mineral bearing land under Entry 49  - List II; also, the

Source PDF page 364

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 164 of 193 
 
word “land s” under Entry 49 - List II can not include mineral 
bearing land as well. This would amount to “double taxation” so 
to say imposed by two different Legislatures: one, by the State 
Legislature on the mineral bearing land under Entry 49 - List II 
and again for conducting a  mining operation which is for 
exercise of a mineral right under Section 9 of MMDR Act, 1957, 
which is a Parliamentary law  also paid to the State 
Government.  This  is impermissible having regard to the 
constitutional intent and scheme of Entries in the Lists . 
Therefore, royalty cannot  also be a measure to impose tax on 
mineral bearing land. Hence, the State Legislature using royalty 
on mineral produce as a measure to impose a cess under Entry 
49 - List II on mineral bearing land would indeed overlap Entry 
50 - List II. This is because minerals are extracted by virtue of 
mining activity which is in exercise of a mineral right and taxes 
on mineral rights are envisaged under Entry 50 – List II subject 
to any limitation imposed by the Parliament. Therefore, Entry 
50 - List II would have to be viewed distinctly from Entry 49  - 
List II. If so view ed, it becomes subject to Parliament ary law in

Source PDF page 365

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 165 of 193 
 
the form of MMDR Act, 1957 and the rules made thereunder  
which would be a limitation on the power of the State to tax 
under Entry 50 – List II. Hence to get over the rigour of Entry 
50 – List II, the States cannot resort to Entry 49 – List II. 
Effect of Overruling India Cement: 
35.   A survey of cases on the aspect as to whether royalty is a 
tax or not would reveal that Hingir-Rampur, M .A. Tulloch, 
Baijnath Kedia, India Cement  and the two judgments of 
Patna High Court and Mysore High Court have clearly held that 
royalty is a tax coming within the scope and ambit of Article 
366(28) of the Constitution. There are other judgments which 
have followed India Cement.  This is having regard to the 
interpretation of the Entries namely, Entry 50 – List II in light 
of Entry 54 – List I and the declaration made in Section 2 of the 
MMDR Act, 1957 and the scheme of the provisions of the said 
Act. On the other hand, in HRS Murthy and Kesoram, it has 
been held by this Court that royalty is not a tax.  
35.1     What is significant is between India Cement  and the 
cases that have followed the said dictum and Kesoram is the

Source PDF page 366

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 166 of 193 
 
judgment of this Court in Kannadasan which marks a 
watershed in the entire controversy and in fact had put a 
closure to the same.  The circumstance which led to the 
Parliament enacting the Validation Act was to validate all the 
incompetent levies imposed in the form of cesses and surcharge 
on cesses, licence fee, etc. on royalty which had been set aside 
by this Court. Parliament was constrained to enact the 
Validation Act having regard to Entry 54 – List I and Section 2 
of the MMDR Act, 1957. This significant aspect has not been 
appreciated by the majority in Kesoram. Instead the judgment 
in Kesoram proceeded on an imagined “typographical error” in 
paragraph 34 of India Cement  without appreciating the 
reasoning therein for holding that royalty is a tax.  
35.2     Apart from questioning the verdict of a larger Bench on 
the premise that there was a “typographical error”, the majority 
in Kesoram lost sight of the implication and the adverse impact 
that its view would have on mineral development in the 
country. If royalty is not held to be a tax and the same being 
covered under the provisions of the MMDR Act, 1957, it would

Source PDF page 367

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 167 of 193 
 
imply that despite Entry 54 – List I and the declaration made in 
Section 2 of the MMDR Act, 1957  and Section 9, 9A and other 
provisions thereof, taxes on mineral rights could be imposed by 
the States over and above payment of royalty on a holder of a 
mining lease. This would also mean that the limitation that the 
Parliament has made by law  on the taxing power of a State 
explicitly stated in Entry 50 – List II would be given a go by. 
This would  further imply  that despite such a Parliamentary 
limitation, the State s could pass laws imposing taxes, cesses, 
surcharge on cess, etc. on the basis of royalty  which is  in 
addition to payment of royalty. Further, that such levies could 
also be imposed under Entry 49 – List II thereby making Entry 
50 – List II redundant is not acceptable. As a sequitur, this 
would result in mineral development in the country in a n 
uneven and haphazard manner and increase competition 
between the States and engage them into what has been termed 
by Louise Tillin in a ‘race to the bottom’ in a nationally sensitive 
market. There would be unhealthy competition between the 
States to derive additional revenue and consequently, the steep,

Source PDF page 368

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 168 of 193 
 
uncoordinated and uneven increase in cost of minerals would 
result in the purchasers of such minerals coffing up huge 
monies, or even worse, would subject the national market being 
exploited for arbitrage. The steep increase in prices of minerals 
would result in  a hike in prices of all industrial and other 
products dependent on minerals as a raw material or for other 
infrastructural purposes. As a result, the overall economy of the 
country would be affected adversely which may result in certain 
entities or even non -extracting States resorting to importing 
minerals which would hamper foreign exchange reserves of the 
country. There would lead to a breakdown of the federal system 
envisaged under the Constitution in the context of mineral 
development and exercise of mineral rights. It could also lead to 
a slump in mining activity  in States  which have mineral 
deposits owing to huge levies that have to be met by holders of 
mining licences. Further, another impact of this would be a 
unhealthy competition to obtain mining leases in States which 
have the mineral deposits and who do not wish to impose any 
other   levy  apart  from   royalty.    It is, therefore,

Source PDF page 369

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 169 of 193 
 
necessary to realise why the framers of the Constitution took a 
clue from the Government of India Act, 1935 in order to 
distribute the legislative powers between the Union and the 
State List insofar as regulation of mines and minerals is 
concerned.  
35.3      At this juncture, I must also observe the overruling the 
judgment in India Cement  would mean that all judgments 
which are akin to the ratio of India Cement whether prior to or 
subsequent thereto, stand overruled irrespective of whether 
they are the judgments of the High Courts or this Court. 
Consequently, all States would once again start levying taxes 
on mineral rights under Entry 49 - List II and thereby bypass 
Entry 50 - List II so as to not be bound by any limitation that 
the Parliament had imposed by law on the power of the States 
to levy taxes on mineral rights. The circle would come around 
when Parliament would have to again step in to bring about a 
uniformity in the prices of minerals and in the interest of 
mineral development so as to curb the States from imposing 
levies, taxes, etc. on mineral rights. Why should that happen

Source PDF page 370

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 170 of 193 
 
again? There would then be legal uncertainty which would 
cause adverse economic consequences including on mineral 
development in India. For the above reason also, the majority 
judgment in Kesoram is not a good law and ought to be 
overruled to the extent that it holds that royalty is not a tax. 
Federalism in India: 
36.    According to Louise Tillin, in her article “Building a 
National Economy : Origins of Centralized Federalism in India” 
published by the Oxford University Press in 2021, India’s  post-
colonial Constitution introduced a new approach to federalism 
which has departed from the principle that federal and regional 
governments should each have independence in their own 
sphere of authority. According to Tillin, “the distinctive 
elements of Indian federalism were shaped at their foundations 
by the desire to boost industrial development and lay the 
foundation for a national welfare state in a post -colonial future 
by preventing the consolidation of ‘‘race to the bottom’’ 
dynamics arising from unregulated inter -provincial economic 
competition.” According to her, Indian federalism was

Source PDF page 371

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 171 of 193 
 
influenced by emerging debates taking place within India and in 
the international fora established alongside the League of 
Nations after the First World War, about the regulation of 
economic competition and the development of the twentieth 
century welfare State. According to her, the distinctive element 
of Indian federalism is the combination of a strong Centre and a 
substantial sphere of shared Centre -State jurisdiction. This 
thinking was shaped by nationalist politicians, industrialists, 
and labour leaders in the decades prior to India’s Independence 
and the significant political and economic factors that 
influenced the constitutional design of federalism in India.   
36.1     According to certain  scholars, India’s founding fathers 
opted for Parliamentary supremacy with a strong centre to 
prevent further secessionist movements. That, Jawaharlal 
Nehru’s preference was for a centralized model of federalism 
was to hold together the fledgling Union and concerted efforts to 
foster a national, civic identity rather than parochial 
identification with local or linguistic identities. Therefore, the 
Constitution uses the word “Union” instead of “Federation”.

Source PDF page 372

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 172 of 193 
 
36.2     Nehru, who was the Chairman of the Union Powers 
Committee of the Constituent Assembly, was of the view that “it 
would be injurious to the interests of the country to provide for a 
weak central authority which would be incapable of ensuring 
peace, of coordinating vital matters of common concern and of 
speaking effectively for the whole country in the international 
sphere.” (Nehru cited in M.P. Jain, Nehru and the Indian 
Federalism, Journal of the Indian law Institute, Vol.19, No.4, 
1977, p.408). 
36.3     The Government of India Act, 1935 was the first 
comprehensive blueprint for legislative division of power in 
India between federal, provincial and concurrent spheres which 
resolved residuary powers to rest with the Federal Government. 
Though there are apparent similarities between the Government 
of India Act, 1935 and the Indian Constitution, yet factors, 
such as, regulation of economic competition and the 
development of twentieth century welfare States guided the 
constitutional blueprint for a model of federalism in which

Source PDF page 373

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 173 of 193 
 
provincial initiative should not preclude national coordination, 
particularly, in the fields of socio-economic spheres. 
36.4     According to Tillin, “in the case of India, political 
economy considerations intersect with the accommodation of 
diversity in shaping the resulting forms of federalism”.  The 
question of a desirable balance between Central and the State 
Governments has to be viewed in the context of the country 
continuing to confront the need to promote economic growth 
while upholding and expanding social rights.  
Sarkaria Commission Report on Centre-State Relations: 
37.   Resolved to study and reform the existing arrangements 
between the Union and the States in an evolving socio-
economic scenario , the Ministry of Home Affairs vide Order 
dated 09.06.1983 constituted a Commission under the 
Chairmanship of Justice R.S. Sarkaria with Shri B. Sivaraman 
and Dr. S.R. Sen  having due regard to the framework of the 
Constitution. At this stage, reference to Section 5, Chapter II – 
Legislative Relations of the Report of the Sarkaria Commission  
(“Sarkaria Commission Report”) may be of assistance:

Source PDF page 374

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 174 of 193 
 
“2.5.21 In every Constitutional system having two levels of 
government with demarcated jurisdiction, contents respecting 
power are inevitable. A law passed by a State legislature on 
a matter assigned to it under the Constitution though 
otherwise valid, may impinge upon the competence of the 
Union or vice versa. Simultaneous operation side -by-side of 
two inconsistent laws, each of equal validity, will be an 
absurdity. The rule of Federal Supremacy is a technique to 
avoid such absurdity, resolve conflicts and ensure harmony 
between the Union and State laws. This principle, therefore, 
is indispensable for the successful functioning of any federal 
or quasi-federal Constitution. It is indeed the kingpin of the 
federal; system.  “Draw it out, the entire system falls to 
pieces” 
2.5.22 If the principles of Union Supremacy are excluded 
from Articles 246 and 254, it is not difficult to imagine its 
deleterious results. There will be every possibility of our two -
tier political system being stultified by internecine strife, legal 
chaos and confusion caused by a host of conflicting laws, 
much to the bewilderment of the common citizen.  Integrated 
legislative policy and uniformity on basic issues of common 
Union-State concern will be stymied. The federal principle of 
unity in diversity will be very much a casualty.  The extreme 
proposal that the power of Parliament to legislate on a 
Concurrent topic should be subject to the prior concurrence of 
the States, would, in effect, invert the principle of Union 
Supremacy and convert it into one of State Supremacy in the 
Concurrent sphere. The very object of putting certain matters 
in the Concurrent List is to enable the Union Legislature to 
ensure uniformity in laws on their main aspects throughout 
the country. The proposal in question will, in effect, frustrate 
that object. The State Legislatures because of their 
territorially limited jurisdictions, are inherently incapable of 
ensuring such uniformity. It is only the Union, whose 
legislative jurisdiction extends throughout the territory of 
India, which can perform this pre-eminent role. The argument 
that the States should have legislative paramountcy over the 
Union is basically unsound. It involves a negation of the 
elementary truth that the 'whole' is greater than the 'part'.” 
(emphasis supplied)

Source PDF page 375

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 175 of 193 
 
As the paragraphs extracted above elucidate, the 
Commission was of the firm view that the principles of Union 
Supremacy cannot be undermined from Articles 246 and 254. 
While the immediate paragraph is concerned with legislative 
actions taken under the List III - Concurrent List, they provide 
us a beneficial lens to both the importance of Union supremacy 
in matters that demand national uniformity and the 
Commission’s following discussion on “Mines and Minerals ” in 
Chapter XIII. 
37.1    As the extract hereunder reflects, the Commission noted 
that the tug -of-interpretation between Centre and States was 
causing adverse impact on prices of petroleum which is 
necessarily not in the interest of national conformity and 
uniformity. It reads as under: 
“13.5.10 …….We are informed by the government of India 
that one State has levied mineral rights tax, approximately 
300 percent of royalty on coal and lime -stone and 100 
percent of royalty on other minerals. The Union Government, 
while conceding the States rights under Entries 49 and 50 
(subject to such limitation as may be imposed by Parliament), 
has pointed out the need for the States to exercise  restraint 
on imposition of such levies, so as not to affect uniformity or 
competitiveness.…… 
xxx

Source PDF page 376

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 176 of 193 
 
13.5.12 The controversy, is therefore, not of legal 
interpretation of their respective jurisdiction, but one  of 
evolving an understanding in regard to the extent to which 
these sources of revenue can be exploited  keeping in view 
the overall national interest. Such issues can best be sorted 
out through consultation and  consensus. We are of the view 
that the NEDC proposed by us will be the best forum for this 
purpose. It is, however, quite clear that the issues are inter -
linked. Mutual trust and confidence can be built up only if, on  
the one hand, the Union Government promptly revises 
royalty rates at reasonable intervals and on the other, the 
States abstain from arbitrary action in levy of cesses, etc. 
Parochial considerations must yield to the  larger interests of 
the nation in such matters.” 
 
However, till the above situation is achieved constitutional 
courts would have to adjudicate by way of judicial review. 
37.2     One has to also appreciate the pragmatic solution -
oriented approach coupled with the acknowledgment that the 
subject matter of this lis-taxation on minerals -which are 
natural resources, should be exploited for the development of 
the country as a whole . Therefore, it is only Union legislation 
which can ensure the same successfully. The Report further 
states as under: 
“13.5.15 Exploitation of mineral resources will continue to 
increase. There is general agreement that minerals are 
national resources and they should be exploited and 
developed for the benefit of the country as  a whole. Only 
Union legislation can ensure such regulation and

Source PDF page 377

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 177 of 193 
 
development of minerals.  The States have  been given an 
unrestricted field in respect of 'minor minerals' which have 
little all -India implications. There is, however, need for 
periodic review of the First Schedule to the MMRD Act, in 
consultation with the States, say after every three years, as 
there is a possibility that a particular mineral, not included in 
the Schedule, may become a matter of national concern or 
vice versa. Any amendment of the Act should normally be 
preceded by consultation in the NEDC.” 
(emphasis supplied) 
 
38.  However, the controversy in this case would demonstrate 
how a State with substantial mineral reserves manages, 
regulates and taxes its resources without hurting the national 
interest and the development of the country in the context of 
mineral development.  It is with the above background that the 
distribution of legislative powers between the Union and the 
States were thought of in a manner that would give an upper 
hand to Parliamentary supremacy, so to say, over the legislative 
power of the State.  Therefore, the respective Entries in Lists I 
and II, namely, the Union List and the State List respectively, 
have been so drafted in order to ensure that there is overall 
mineral development in the country as a whole, rather than 
particular States possessing the mineral wealth acting contrary

Source PDF page 378

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 178 of 193 
 
to the overall welfare of the  country and against the economic 
interest of the other States.   
39.    In view of the aforesaid discussion, I find that the 
learned Attorney General is right in contending that the MMDR 
Act, 1957 contemplates all manner of levies, charges, impost or 
demands that could be provided for having a nexus with 
mineral rights. Therefore, the Act itself has to be construed as a 
limitation on the power of the States to demand or impose 
levies to the extent to which is stated in the Act. Although, 
Entry 50 – List II is a taxing Entry, it will be subject to the 
limitations enacted by the Parliament by law under Entry 54 – 
List I. The answer to the question raised by learned Solicitor 
General, whether the States can impose levies under Entry 50 – 
List II over and above the amount of royalty received by them 
under the MMDR Act, 1957, is in the negative. The submission 
that Entry 50 – List II is sui generis  because it is the only 
legislative Entry which limits the taxing powers of the State 
legislatures by reference to a general law, is a correct 
submission made by Sri Harish Salve, learned senior counsel.

Source PDF page 379

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 179 of 193 
 
Therefore, the expression “mineral development” found in Entry 
50 – List II has to be traced to the entire architecture of the 
MMDR Act, 1957 which serves as limitation of the taxing power 
of the State legislature under Entry 50 – List II. To read it 
otherwise would lead to destruction of the federal balance, as 
rightly contended by Sri Salve. Further, tax on mineral right 
would also include royalty as envisaged under Section 9 and 
the other Sections of the MMDR Act, 1957 which is in the 
nature of sovereign exaction and every holder of mining lease is 
bound to pay royalty in terms of Section 9 read with Second 
Schedule to the said Act. In that sense, royalty is in the nature 
of a tax on mineral rights which has to be compulsorily paid by 
the holder of a mining lease irrespective of who the owner of the 
mineral bearing land is.  
39.1   Also the MMDR Act, 1957 and the Rules made 
thereunder is a complete Code on the regulation of mineral 
development and royalty paid by a holder of a mining lease is in 
the nature of a tax paid on mineral rights, the State legislature 
cannot, on the basis of royalty paid, levy any other tax, cess or

Source PDF page 380

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 180 of 193 
 
surcharge on cess. The States can only levy tax on sale of 
mineral as per Entry 54 – List II which is not a tax on mineral 
rights, as rightly contended by Sri Datar, learned senior 
counsel. Moreover, Entry 50 – List II is a recognition of 
parliamentary superiority via imposition of a limitation, as 
rightly argued by Dr. Singhvi, learned senior counsel. 
39.2    Consequently, the contention of learned senior counsel 
Sri Rakesh Dwivedi for the appellants-States to the effect that 
value of the minerals could be used as a measure to tax mineral 
bearing land under Entry 49 – List II cannot be accepted. It is 
also not right to contend that the Parliament has only fixed the 
amount of royalty payable under Section 9 which cannot be a 
limitation on the taxing power of the State legislature under 
Entry 50 – List II. Moreover, the expression “any limitation” 
used in Entry 50 – List II can be construed to mean even a 
prohibition apart from a restriction.

Source PDF page 381

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 181 of 193 
 
Conclusions: 
40.   What follows are my answers to the conclusions reached 
on the issues raised in  the judgment of Hon’ble the Chief 
Justice of India, which read as under: 
Question Issues My Conclusions 
a. What is the true nature 
of royalty determined 
under Section 9 read 
with Section 15(1) of the 
MMDR Act?  Whether 
royalty is in the nature 
of tax? 
The true nature of royalty 
determined under Section 
9 read with Section 15(1) 
of the MMDR Act, 1957 is 
that it is in the nature of a 
tax coming within the 
scope and ambit of Article 
366(28) of the 
Constitution which 
defines taxation to include 
the imposition of any tax 
or impost, whether 
general or local or special 
and the word “tax” is to be 
construed accordingly. 
b. What is the scope of 
Entry 50 - List II of the 
Seventh Schedule?  
What is the ambit of the 
limitations imposable by 
Parliament in exercise of 
its legislative powers 
under Entry 54 - List I?  
Does Section 9, or any 
other provision of the 
MMDR Act, contain any 
limitation with respect 
Entry 50  - List II of the 
Seventh Schedule is, no 
doubt, a taxation Entry 
which deals with taxes on 
mineral rights . But this 
Entry is  subject to any 
limitations imposed by 
Parliament by law relating 
to mineral development. 
The use of the word “any” 
means the limitation 
could be in any form

Source PDF page 382

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 182 of 193 
 
Question Issues My Conclusions 
to the field in Entry 50 - 
List II? 
which can be imposed 
only by the Parliament by 
law relating to mineral 
development. In view of 
the use of the expression 
“any limitations”, it must 
be given the widest 
possible meaning to 
include a limitation in the 
form of Sections 9 and 9A, 
25 or any other provision 
of the MMDR Act, 1957  
and Rules made 
thereunder which act as a 
limitation to Entry 50 - 
List II. 
c. Whether the expression 
“subject to any 
limitations imposed by 
Parliament by law 
relating to mineral 
development” in Entry 
50 - List II pro tanto 
subjects the Entry to 
Entry 54 - List I, which 
is a non -taxing general 
Entry?  Consequently, 
is there any departure 
from the general 
scheme of distribution 
of legislative powers as 
enunciated in MPV 
Sundararamier 
(supra)? 
 
The expression “subject to 
any limitations imposed 
by Parliament by law 
relating to mineral 
development” in Entry 50  
- List II pro tanto subjects 
the Entry  to Entry 54  - 
List I. The use of the 
expression “any 
limitations” would mean 
that the taxing Entry 
would be subject to a non-
taxing or general Entry 
such as in Entry 54  - List 
I which could also be 
termed as a regulatory 
Entry. Consequently, 
there is a departure from 
the general scheme of 
distribution of legislative

Source PDF page 383

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 183 of 193 
 
Question Issues My Conclusions 
powers as enumerated in 
MPV Sundararamier 
insofar as Entry 50  - List 
II read with Entry 54  - 
List I is concerned  which 
is unique to Entry 50 – 
List II . This is having 
regard to the significance 
of Entry 54 – List I which  
also overrides Entry 23 – 
List II. 
d. What is the scope of 
Entry 49 - List II and 
whether it covers a tax 
which involves a 
measure based on the 
value of the produce of 
land?  Would the 
constitutional position 
be any different qua 
mining land on account 
of Entry 50 - List II read 
with Entry 54 - List I? 
Entry 49 - List II deals 
with taxation of lands and 
buildings. It does not 
cover tax es on mineral 
bearing lands. The 
constitutional position is 
different qua mineral 
bearing lands on account 
of Entry 50  - List II read 
with Entry 54  - List I and 
Section 2 of the MMDR 
Act, 1957. Consequently, 
any imposition on the 
basis of royalty by a State  
Legislature or involving 
royalty as a measure o f 
the value of the minerals 
extracted from the land is 
impermissible. 
e. Whether Entry 50 - List 
II is a specific Entry in 
relation to Entry 49 - 
List II, and would 
consequently subtract 
Yes, Entry 50 - List II is a 
specific Entry in relation 
to Entry 49  - List II and 
would consequently 
subtract mining lands

Source PDF page 384

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 184 of 193 
 
Question Issues My Conclusions 
mining land from the 
scope of Entry 49 - List 
II?” 
from the scope of Entry 49 
- List II. This is 
particularly so having 
regard to Entry 50 - List II 
to be read with Entry 54  - 
List I and Section 2 of the 
MMDR Act, 1957. 
 
41.   Consequently, the following conclusions are arrived at by 
me: 
a. I hold that royalty is in the nature of a tax or an 
exaction. It is not merely a contractual payment 
but a statutory levy under Section 9 of the Act 
(Section 9A relating to dead rent). The liability to 
pay royalty does not arise purely out of the 
contractual conditions of a binding lease. The 
payment of royalty to the Government is a tax in 
view of Entry 50  - List II being subject to any 
limitations imposed by Parliament by law in the 
context of Entry 54  - List I read with Section 2 of 
the MMDR Act, 1957.

Source PDF page 385

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 185 of 193 
 
b. Entry 50 - List II is an exception to the position of 
law laid down in MPV Sundararamier vs. State of 
Andhra Pradesh, AIR 1958 SC 468 (“MPV 
Sundararamier”). Moreover, in the said case, the 
scope and ambit as well the implication of Entry 54 
– List I on Entry 50  - List II was not considered at 
all. Therefore, the principle stated  in MPV 
Sundararamier is foreign to the instant case  and 
the ratio of the said decision does not apply to the 
present case. No doubt, the legislative power to tax 
mineral rights vest s with the State legislature but 
Parliament, though may not have an express power 
to tax mineral rights under Entry 54  - List I, it 
being a general Entry, Parliament can, nevertheless 
on the strength of Entry 54  - List I read with 
Section 2 of the MMDR Act, 1957, impose any 
limitation on the power of the States to tax mineral 
rights under Entry 50 - List II. Sections 9 and 9A of 
the MMDR Act, 1957 are two such instances of

Source PDF page 386

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 186 of 193 
 
limitations imposed by the Parliament on the 
taxing power of the State under Entry 50  - List II. 
This is a unique Entry and must be given its true  
and complete  meaning and while interpreting the 
same one cannot be swayed by the principle s laid 
down in MPV Sundararamier as the same do not 
apply in the instant case . At the cost of repetition, 
it is stated that Entry 50  - List II never came for 
consideration in the aforesaid case. 
c. Parliament is not using its residuary power with 
respect to imposing any limitation on the taxing 
power of the State under Entry 50 – List II. In fact, 
even the Validation Act, 1992 enacted by 
Parliament was upheld having regard to Entry 54  - 
List I read with Section 2 of the MMDR Act, 1957 
and not Entry 97 - List I. 
d. Entry 50 - List II envisages that Parliament can 
impose “any limitations” on the legislative field

Source PDF page 387

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 187 of 193 
 
created by that Entry under a law relating to 
mineral development. The MMDR Act, 1957 has 
imposed the limitations as envisaged in Entry 50 - 
List II in Sections 9, 9A and 25, etc.  on the 
strength of Entry 54 – List I. 
e. I, however, concur with the learned Chief Justice 
that the scope of the expression “any limitations” 
under Entry 50  - List II is wide enough to include 
the imposition of restriction, conditions, principles 
as well as a prohibition by Parliament by law. 
f. The State legislatures have legislative competence 
under Article 246 read with Entry 49 - List II to tax 
lands and buildings but not lands which comprise 
of mines and quarries  or have mineral deposits  as 
mineral bearing land s do not fall within the 
description of lands (under Entry 49 - List II).  
Similarly, States can tax such mineral bearing 
lands which are not covered within the scope of

Source PDF page 388

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 188 of 193 
 
MMDR Act, 1957 i.e., minor minerals, under Entry 
50 – List II and not under Entry 49 – List II as tax 
on exercise of mineral rights. Thus, mineral 
bearing lands cannot be taxed under Entry 49 – 
List II. 
g. Further, the yield of mineral bearing land s, in 
terms of quantity of mineral produced or royalty  
paid cannot also be used as a measure to tax such 
lands under Entry 49  - List II. In my view, the 
decision in Goodricke does not apply to the 
present case  and hence does not require any 
clarification. 
h. Entries 49 and 50 - List II, no doubt, operate in 
different fields. Entry 49  - List II deals with taxes 
on lands and buildings but Entry 50  - List II deals 
with taxes on mineral rights subject to any 
limitations imposed by Parliament by law relating 
to mineral development. There is no  constitutional

Source PDF page 389

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 189 of 193 
 
limitation on the competence of the State 
legislature to tax lands and buildings. However, the 
State’s competence to tax mineral rights is subject 
to any limitations imposed by the Parliament by 
law relating to mineral development. Entry 49 - List 
II and Entry 50  - List II are distinct and operate in 
distinct ways. Entry 49 - List II does not apply to 
mineral bearing lands as such lands are taxed in 
the form of royalty or dead rent in the context of 
exercise of mineral rights. Exercise of mineral 
rights is the basis for payment of royalty or dead 
rent. Consequently, value o f mineral produced 
cannot be used as a measure to  once again impose 
a tax on mineral bearing land under Entry 49 - List 
II. If so, Entry 50 – List II would be rendered 
redundant. 
i. As Entry 49  - List II does not apply to mineral 
bearing land, the limitations imposed by 
Parliament by law relating to mineral development

Source PDF page 390

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 190 of 193 
 
with respect to Entry 50  - List II would restrict the 
power of the State legislature to impose tax on 
mineral right s under the latter Entry. Thus, the 
power of the State legislature to impose tax under 
Entry 50  - List II is subject to the Parliament 
imposing any limitation by law relating to mineral 
development. 
42.   In view of the above discussion, the eleven questions 
referred to this Bench are accordingly answered. In particular, I 
hold that:  
(i) Sections 9, 9A and 25  of the MMDR Act, 1957 
denude or limit the scope of Entry 50 - List II; 
(ii) the majority decision in Kesoram is a serious 
departure from the law laid down by the seven -
judge Bench in India Cement  which was wholly 
unwarranted and therefore, in my view, the said 
majority judgment is liable to be overruled and is 
overruled to the extent of holding that royalty is not 
a tax;

Source PDF page 391

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 191 of 193 
 
 
(iii) taxes on lands and buildings under Entry 49  - List 
II contemplates a tax levied directly on the land as 
a unit having a defined relationship with the land  
and does not include mineral bearing lands within 
its scope; 
(iv) in view of the declaration under Section 2 of the 
MMDR Act, 1957 made in terms of Entry 54 - List I 
and to the extent of the provisions of the said Act, 
the State legislature is denuded of its powers under 
Enry 50 - List II; and 
(v) Entry 50 - List II is a unique Entry because it is the 
only taxation Entry in Lists I and II where the 
taxing power of a State legislature has been 
subjected to “any limitations imposed by 
Parliament by law relating to mineral 
development”. The dictum in MPV Sundararamier 
has not di scussed on Entry 50 – List II and hence 
the said decision has no bearing as such on the

Source PDF page 392

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 192 of 193 
 
present controversy. The conclusion that ‘royalty’ is 
a ‘tax’ is the only exception to the position of law 
laid down in MPV Sundararamier. Of course, the 
scope of expression “any limitations” in Entry 50 - 
List II is wide enough to include the imposition of 
restrictions, conditions, principles as well as a 
prohibition. 
43.   In the result, in my view, the judgments in India 
Cement, Orissa Cement,  Mahalaxmi Fabric Mills, 
Saurasthra Cement ,  Mahanadi Coalfields , Kannadasan 
excluding to the extent overruled in Tata Iron and Steel , and 
Tata Iron and Steel  are correct  and therefore are binding 
precedent and cannot be overruled. On the other hand, the 
majority judgment in Kesoram, is overruled  to the extent it 
holds that royalty is not a tax. 
44.    The Registry is directed to place these matters before 
Hon’ble the Chief Justice of India for directions on listing the 
matters before the appropriate Bench.

Source PDF page 393

Open this page in the original PDF
 
 
 Civil Appeal Nos.4056-4064 of 1999 Etc.                                    Page 193 of 193 
 
 I must place on record my sincere appreciation to the 
learned Attorney General, learned Solicitor General and their 
teams, learned senior counsel appearing for the respective 
parties, learned instructing counsel and learned counsel for the 
respective parties for their valuable assistance to this Bench. 
 
 
………………………………J. 
                                                      (B.V. NAGARATHNA) 
 
New Delhi; 
July 25, 2024.