THE HINGIR-RAMPUR COAL CO., LTD. AND OTHERS versus THE STATE OF ORISSA AND OTHERS

2 S.C.R. SUPREME COURT REPORTS

THE HINGIR"RAMPUR COAL CO., LTD. AND OTHERS v.

THE STATE OF ORISSA AND OTHERS

(P. B. GAJENDRAGADKAR, A. K. SARKAR, K. SUBBA RAO, K. N. WANCHOO and J. R. MuDHOLKAR, JJ.)

Mining Areas, Development of--Enactment by State Legisla-ture authorising constitution of mining areas and development fund-Imposition of cess-Constitutional validity-Competency of State Legislature-Orissa Mining Areas Development Fund Act, z952 (Orissa XXV II of I952), s. 4-Constitution of India, Art. 372, Seventh Schedule, List II, Entry 23, 66, List I, Entries 52, 54, 84-Adaptation of Laws Order, z950, els. z6, 2I.

The petitioners challenged the constitutional validity of the Orissa Mining Areas Development Fund Act, 1952, which by s. 3 empowered the State Government to constitute mining areas for the purpose of providing them with certain amenities after hearing objections from the lessees, by s. 4 to impose and collect cess not exceeding 5 % of the valuation of the minerals at the pit's mouth and by s. 5 created fund to which the cess was to be credited. The petitioners' case, inter alia, was that the impugned Act and the rules made thereunder were ultra_vires the powers of the State Legislature, the cess levied thereunder was not fee but duty of excise on coal within Entry 84 of List I of the Seventh Schedule to the Constitution and repugnant to Coal Mines Labour Welfare Fund Act, 1947 (Act XXXll of 1947), and, alternatively, even supposing it was fee relatable to En-tries 23 and 66 of List II, it was hit by Entry 54 of List I read with the Mines and Minerals (Regulation and Development) Act 1948 (Act Lill of 1948), or. by Entry 52 of List I read with the Industries (Development and Regulation) Act •. 1951 (Act LXV of 1951). It was urged on behalf of the State, inter alia, that the cess was fee and not duty of excise and the competence of the State Legislature to levy it was not affected by the Central Acts.

Held (per Gajendragadkar, Sarkar, Subba Rao and Mudhol-kar, JJ.), that the cess imposed by the Act was fee relatable to Entries 23 and 66 of List II of the Seventh Schedule to the Constitution and the Constitutional validity of the impugned Act was beyond question.

Although there. can be no generic difference between tax and fee since both are compulsory exactions of money by public 11[u~horities, ][there ][is ][this ][distinction ][between ][them ][that ][whereas ]a tax is imposed for public purposes and requires no considera-tion to support it, fee is levied essentially for services rendered and there must be an element of quid pro quo between the person

November 111.

z960 who pays it and the public authority that imposes it. While tax invariably goes into the consolidated fund, fee is earmark-Th• Hingir-ed for the specified services in fund created for the purpose. Rampur Coal Co .. Whether cess is one or the other would naturally depend on Lid. &- Others the facts of each case. If in the guise of fee, the Legislature v. imposes tax, it is for the Court on scrutiny of the scheme of The Slat• of the levy, to determine its real character. The distinction is Orissa ..S- Olhers recognised by the Constitution which while empowering the appropriate Legislatures to levy taxes under the Entries in the three lists refers to their power to levy fees in respect of any such matters, except the fees taken in court, and tests have been laid down by this Court for determining the character of an im-pugned levy.

Matthews v. Chicory Marketing Board, 60 C.L.R. 263, The Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, [1954] S.C.R. 1005, Mahant Sri ]agannath Ramanuj Das & Anr. v. The State of· Orissa, [1954) S.C.R. 1046, and Ratilal Panachand Gandhi v. The State of Bombay, [r954] S.C.R. 1055, referred to.

P. P. Kutti Keva & Ors. v. The State of Madras, A.LR. 1954 Mad. 621, Attorney-General for British Columbia v. Esquimalt and Nanaimo Railway Co., (1950) A.C. 87 and Parton & Anr. v. Mils Board (Victoria). (1949) 80 C.L.R. 229, considered and held in-applicable.

In determining whether levy is fee the true test must be whether its primary and essential purpose is to render specific services to specified area or class, it being of no consequence that the State may ultimately and indirectly be benefited by it.

So judged, the scheme of the impugned Act leaves no man-ner of doubt that the levy authorised by it is fee and not tax.

The amount of the levy must depend on the extent of the services sought to be rendered and if they are proportionate, it would be unreasonable to say that since the impost is high it must be duty of excise. The rate specified by s. 4(2) of the Act, therefore, cannot by itself alter the character of the levy and constitute trespass by the State Legislature on the legis-lative powers of the Parliament under Entry 84 of tb.e List I.

Nor can the method prescribed by the Legislature for re-covering the levy by itself alter its character. The method is matter of convenience and, though relevant, has to be tested in the light of other relevant circumstances. It is not permissible to challenge tb.e vires of statute relatable to an Entry in List II solely on the ground that the method adopted for the reco-very of the impost can . and generally is adopted in levying duty of excise.

Ralla Ram v. The Province of East Punjab, [1948] F.C.R. 207, Byramjee ] eejeebhoy v. The Province of Bombay & Anr. I.L.R.

1940 Born. 58 and Governor-General in Council v. Province of Madras, (1945) L.R. 72 I.A. 91, considered.

I96o . . The H•ngir-Rampur Coal Ltd. cS- Others v. Th• Stal• [[0]]1

The limitation imposed by the latter part of Entry 23 of The H•ngir-List II is limitation on the legislative competence of the State Rampur Coal Co. Legislature itself and the test whether statute passed by the Ltd. cS- Others State Legislature thereunder was ultra vires would be whether v. the requisite declaration under Entry 54, List I, has been made Th• Stal• [[0]]1 by Parliament by law :covering the same field or not; it is not Orissa cS- Others necessary in order to make the declaration effective that rules should also be made and enforced.

Although by operation of Art. 372 of the Constitution Act LIU of 1948 was an existing Act substantially covering the same field as covered by the impugned Act, there was no adapta-tion of s. 2'of that Act whereby declaration implied by it could be said to have been adapted to declaration by Parliament. Clause 16 of the Adaptation of Laws Order, 1950, properly con-strued, cannot be held to refer to the Dominion Legislature and equate it with the Parliament. It can be resorted to only where the existing law expressly refers to some authority that c.an be equated with the :corresponding new authorities. Since the Dominion Legislature was not so referred to, its competence under the Constitution Act of 1935, repealed by the Constitution of India, was 'clearly outside the clause. Nor can cl. 21 of the order be of any help to the petitioners.

Consequently, in the absence of the requisite Parliamentary declaration, the competence of the Orissa State Legislature under Entry 23 read with Entry 66 of the List II was not impaired and the imp11gned Act must be deemed to have repeal-ed the Central Act, so far as that State was concerned.

This case incidentally discloses that in regard to the requisite Parliamentary declaration prescribed by Entry 54 in List I in its application to the pre-constitution Acts under corresponding Entry 36 in List I of the Cpnstitution Act of 1935, there is lacuna which has not been covered by any clauses of the Adap-tation of Laws Order, 1950.

Nor was the impugned Act ultra vires the State Legislature by operation of Entry 52 of List I read with s. 2 of the Industries (Development and Regulation) Act, 1951 (LXV of 1951). That Act, in pith and substance, deals more directly with the co11trol of certain specified industries including the coal industry, while the impugned Act is concerned with the development of the mining areas notified under it. The field covered by the two Acts was not, therefore, the same.

Per Wanchoo, J.-In order to determine whether levy is tax or fee, what has to be considered is the pith and sub-stance of the levy. Where the levy in pith and substance is not essentially different from tax, it cannot be converted into fee by crediting it to special fund and attaching certain ser-vices to it.

I960 The Commissiontr, Hindu Religious Endowments, Madras, v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mull, [1954] The Hingir-S.C.R. 1005, Mahant Sri Jagannath Ramanuj Das v. The State of Rampur Coal Co., Orissa, [1954] S.C.R. rn46 and Ratilal Panachand Gandhi v. The Ltd. & Others State of Bombay, [1954] S.C.R. rn55, discussed.

Ltd. & Others v. The State of

v. duty of excise in pith and substance is primarily duty The State of levied on manufacturer or producer in respect of the commo-Orissa <!>Others dity manufactured or produced. It is different and distinct from sales tax and in law they do not overlap.

Governor-General in Councilv. Province of Madras, 72 I.A. 91, referred to.

What the impugned Act did was to provide for the levying of the cess on the goods produced at rate not exceeding five per centum of the value at ·the pit's mouth. The cess was, therefore, in pith and substance duty of excise falling within Entry 84 of List I, which the State legislature could not levy.

It was not correct to say that the method employed by the impugned Act for realising the cess was mere method of quanti-fication and did not affect its character which was that of fee. In the present case the very mode of the levy of the cess is nothing other than the levy of duty of excise, and, therefore, the principle of quantification for purposes of fee could not be so extended as to convert what was in pith and substance tax into' fee.

Sri Byramjee Jeejeebhoy v. The Province of Bombay, I.L.R. 1940 Born. 58, Municipal Corporation, Ahmedabad v. Patel Gor-dhandas Horgovandas, I.L.R. 1954 Born. 41 and Ralla Ram v. The Province of East Punjab, [1948] F.C.R. 207, considered.

K. C. Gajapati Narayan Deo v. The State of Orissa, [1954] S.C.R. l, referred to. .

The cess levied under s. 4 of the Act could not be justified as tax on mineral rights under Entry 50 of List II of the Seventh Schedule and the impugned Act was in effect colour-able piece of legislation.

ORIGINAL JURISDICTION: Petition No. 87 of 1959.

Petition under Art. 32 of the Constitution of India for enforcement of Fundamental Rights.

M. P. Amin, Dara P. Mehta, P. lJf. Amin, S. N. Andley, J.B. Dadachanji, Rameshwar Nath and P. L. Vohra for the petitioners.

A. V. Viswanatha Sastri, R. Ganapathy Iyer, P. Ke-

sava Pillai and T. M. Sen, for the respondents.

H. N. Sanyal, Additional Solicitor-General of India,

B. Sen and R. H. Dhebar, for the Intervener.

1960. November, 21. The Judgment of P. B.

Gajendragadkar, A. K. Sar~ar, K. Subba R~o and The Hingfr-J. R. Mudholkar, JJ., was delivered by P. B. GaJendra- Rampur Coal Co., gadkar J., K. N. W anchoo, J., delivered a. separate Ltd. &- Another .:-... ..J,.. ......... __ .... JUU!::;ll.lt'11~. v.

The State of of GAJENDRAGADKAR, J.-This is petition filed Orissa &- Others under Art. 32 of the Constitution in which the validity of the Orissa Mining Areas Development ]'und Act, Gajendragadkar ]. 1952 (XXVII of 1952), is challenge'd. The first peti-tioner is public limited company which has its regis-tered office at Bombay. large majority of its share-holders are citizens of India; some of them are them-selves companies incorporated under the Indian Com-panies Act. Petitioners Nos. 2 to 7 are the Directors of Petitioner No. 1, the second petitioner being the Chairman of its Board of Directors. These petitioners are all citizens of India. At all material times the first petitioner carried on and still carries on the busi-ness of producing and selling coal excavated from its collieries at Rampur in the State of Orissa. Two leases have been executed in its favour; the first was execut-ed on October 17, 1941, by the Governor of Orissa whereby all that piece or parcel of land in the regis-tration district of Samba.lpur admeasuring about 3341. 79 acres has been demised for period of 30 years commencing from September 1, 1939, in conside-ration of the rent reserved thereby and subject to the covenants and conditions prescribed thereunder; and the second is surface lease executed in its favour by M.r. Mohan Brijraj Singh Deo on April 19, 1951, in relation to land admeasuring approximately 211.94 acres for like period of 30 years ·commencing from .February 4, 1939, in consideration of the rent and subject to the terms and conditions prescribed by it. Pursuant to s. 5 of the Orissa Estates Abolition Act, 1951, all the right, title and interest of the Zamindar of Rampur in the lands demised to the first petitioner under the second lease vested in respondent 1,. the State of Orissa. Since then the first p~titioner has duly paid the rent reserved, by the said lease to the appropriate authorities appointed by respondent 1, ~ .

r96o ·and has observed and performed all the conditions and Th w . convenants of the said lease. In exercise of its rights Ramp'.., ';0~;-co. under the said two leases the first petitioner entered Ltd. & Others 'upon the lands demised and has been carrying on the v. J::irrsinesg of excavating and producing coal at its collie-Th• state of ries at Rampur. at Rampur. Rampur.

Th• state of ries at Rampur. at Rampur. Rampur. Onssa & Others In December, 1952, the Legislature of the State of Ga 1 -..a:::-:a""' 1. Orissa passed the impugned Act.; and it received the assent of the Governor of Onssa on December 10, 1952. It was, however, not reserved for the conside-ration of the President of India nor has it received his assent. In pursuance of the rule-making power conferred on it by the impugned Act respondent 1 has purported to make rules called the Orissa Mining Areas Development Act Rules, 1955; these rules have been duly notified in the State Gazette on January 25, 1955.

Subsequently, the Administrator, respondent 2,

appointed under the impugned Act issued notifica-tion on June 24, 1958, whereby the first petitioner's Rampur colliery has been notified for the purpose of liability for the payment of cess under the impugned Act. The area of this colliery has been determined at 3341 ·79 acres. In its appeal filed under rule 3 before the Director of Mines the first petitioner object-ed to the issue of the said notification, inter alia, on the ground that the impugned Act and the rules framed under it were ultra vires and invalid; no action has, however, been taken on the said appeal presum-ably because the authority concerned could not enter-tain or deal with the objections about the vires of the Act and the rules.

Thereafter on March 26, 1959, the Assistant Ad-

ministrative Officer, respondent 3, called upon the first petitioner to submit monthly returns for the assessment of the cess. The first petitioner then represented that it had filed an appeal setting forth its objections against the notification, and added that until the said appeal was disposed of no returns would be filed by it. In spite of this representation respon-dent 3, by his letter of May 6, 1959, called upon the

first petitioner to submit monthly returns in the pres-

cribed form and issued the warning that failing com-Th H" i;;;;-co. . pliance the first petitioner would be prosecuted under Ramp;., i;;;;-co. s. 9 of the impugned Act. similiar demand was Lid. <?>-Other$ <?>-Other$ made and similar warning issued by respondent v. 3 by his letter dated June 6, 1959. It is under The State of these circumstances that the present petition has been Orissa & Others filed. · a-elk J

Th H" i;;;;-co. . Lid. <?>-Other$ <?>-Other$ '

· a-elk J a;en raga ar •

· The petitioners contend that the impugned Act and a;en raga the rules made thereunder are ultra vires the powers of the Legislature of the State of Orissa, or in any event they are repugnant to the provisions of an existing law. According to the petition the cess levied under the impugned Act is not fee but is in reality and in substance levy in the nature of duty of excise on the coal produced at the first petitioner's Rampur col-liery, and as such is beyond the legislative competence of the Orissa Legislature. Alternatively it is urged that even if the levy imposed by the impugned Act is' fee relatable to Entries 23 and 66 in List II of the Seventh Schedule, it would nevertheless be ultra vires having regard to the provisions of Entry 54 in List I read with Central Act LUI of 1948. The petitioners further allege that even if the said levy is held to be fee it would be similarly ultra vires having regard to Entry 52 in List I read with Central Act LXV of 1951. According to the petitioner,s the impugned Act is really relatable to Entry 24 in List III, and since it is repugnant with Central Act XXXII of 1947 relatable to the same Entry and covering the same field the impugned Act is invalid to the extent of the said repugnancy under Art. 254. On these allegations the petitioners have applied for writ of mandamus or writ in the nature of the said writ or any other writ, order or direction prohibiting the respondents from enforcing any of the provisioil.s of the impugned Act against the first petitioner; similar writ or order is claimed against respondent 3 in respect of the letters addressed by him to the 1st petitioner on March 3, 1959 and June 6, 1959.

This petition is resisted by respondent 1 on several grounds. It is urged on its behalf that the levy

196° imposed by the impugned Act is fee relatable to En-T H" . tries 23 and 66 in List II and its validity is not affected Ram;:, Ltd. ~ ";;';"c01:, .. 0 "Entry either by 52 read Entry with 54 read with Act Act LXV of 1951. LIII In of the 1948 alterna-or by v. · tive It is contended fo;;t if the a;;,id levy is held to be Th• s1a1e ?f tax and not fee, it would be tax relatable to Orissa & Others Entry 50 in List II, and as such the legislative com-G a1en [• ][d-dk ]raga ar 1 . cannot [petence ]b success u y enge . Respondent [of ][the ][State ]f ll [Legislature ]h JI [to ][impose the same ]1 dis-. putes the petitioner's contention that the impugned Act is relatable to Entry 24 in List III; and so, accord-ing to it, no question of repugnancy with the Central Act XXXII of 1947 arises.

After this appeal was fully argued before us Mr. Amin suggested-and Mr. Sastri did not object-that we should hear the learned Attorney-General on the question as to whethe.r even if the levy imposed by the impugned Act is fee relatable to Entries 23 and 66 in List II of the Seventh Schedule, it would neverthe-less be ultra vires having regard to the provisions of Entry 54 in List I read with Central Act LIII of 1948. Accordingly we directed that notice on this point should be served on the learned Attorney-General and the case should be set down for hearing on that point again. For the learned Attorney-General the learned Additional Solicitor-General appeared before us in response to this notice and we have ha~ the benefit of hearing his arguments on the point in question.

The first question which falls for consideration is whether the levy imposed by the impugned Act amo-unts to fee relatable to Entry 23 read with Entry 66 in List II. Before we deal with this question it is necessary to consider the difference between the con-cept of tax and that of fee. The neat and terse definition of tax which has been given by Latham, C. J., in Matthews v. Chicory Marketing Board(1) is often cited as classic on this subject. "A tax", said Latham, C. J., "is compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered". In bringing out the essential features of tax this defini-(1) (1938) 6o C.L.R. 263, 276.

tion also assists in distinguishing tax from fee. It 1960 is true that between tax and fee there is no generic . . dluerence. [·cc ]B o th are compu sory exac l t' 10ns o money R The P Hingir-Co 1 0by public authorities; but whereas tax is imposed for a~d~~ ot:ers " public purposes and is not, and need not, be supported v. by any consideration of service rendered in r~turn, The State of fee is levied essentially for services rendered and as _orissa & Othm such there is an elenient of quid pro quo between the . d-dk. 1 person who pays the fee and the public authority aJtn raga ar which imposes it. If specific services are rendered to specific area or to specific class of persons or trade or business in any local area, and as condition pre-cedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from tax and is described as fee. Tax recovered by' public authority invariably goes into the consolidat-ed fund which ultimately is utilised for all public pur-poses, whereas cess levied by way of fee is not intend-ed to be, and does not become, part of the consolidat-ed. fund. It is earmarked and set apart for th-e purpose of services for which it is levied. There is, however, an element of compulsion in the imposition of both tax and fee. When the Legislature decides to render specific service to any area or to any.class of per-sons, it is not open to the said area or to the said class of persons to plead that they do not want the service and therefore they should be exell).pted from the pay-ment of the cess. Though there is an element of quid pro quo between the tax-payer and the public autho-rity there is no option to the tax-payer in the matter of receiving the service determined by public autho-rity. In regard to fees there is, and must always be, co-relation between the fee collected and the service intended to be rendered. Cases may arise where under the guise of levying fee Legislature may attempt to impose tax; and in the case of such colourable exercise of legislative power courts would have to scrutinise the scheme of the levy very carefully and determine whether in fact there is co-relation bet, ween the service and the levy, or whether the levy is either not co-related with service or is levied to such an

The State of & Othm . d-dk. 1 aJtn raga ar •

i96o excessive extent as to be pretence of fee and not Th ingit'-[. ]. fee in reality. I 1 · In other words, whether t or not " parti-Rampu' coal co. cu ar cess evie y s atute amounts to iee or tax Ltd. o;. Others 'would always be question of fact to be determined in v. the circumstances of each case. The distinction bet-The State of ween tax and fee is, however, important, and it is Orissa & Othm recognised by the Qonstitution. Several Entries in the Gajma,.gadka' 1. Three Lists empower the appropriate Legislatures to levy taxes; but apart from the power to levy taxes thus conferred each List specifically refers to the power to levy fees in respect of any of the matters covered in the said List excluding of course the fees taken in any Court.The question about the distinction between tax and fee has been considered by this Court in three decisions in 1954. In The Commissioner, Hindu Reli-gious Endowments, Mailras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt(') the vires of the Madras Hindu Religious and Charitable Endowments Act, 1951 (Madras Act XIX of 1951), came to be examined. Amongst the sections challenged was s. 76(1). Under this section every religious institution had to pay to the Government annual contribution not exceeding 5% of its income for the services rendered to it by the said Government; and the argument was that the con-tribution thus exacted was not fee but tax and as such outside the competence of the State Legislature. In dealing with this argument Mukherjee, J., as he then was, cited the definition of tax given by Latham, C.J., in the case of Matthews('), and has elaborately considered the distinction between tax and fee. The learned . judge examined the scheme of the Act and observed that "the material fact which negatives the theory of fees in the present case is that the money raised by the levy of the contribution is not earmarked or specified for defraying the expense that the Government has to incur in performing the ser-vices. All the collections go to the consolidated fund of the State and all the expenses have to be met not out of those collections but out of the general revenues by proper method of appropriation as is done in the (t) [1954] S.C.R. 1005. (2) (1938) 60 C.L.R. 263.

2 S.C.R. SUPREME COURT REPORTS

case of other Government expenses". The learned

judge no doubt added that the said circumstance was Th H" . not conclusive and pointed out that in fact there was Ramp:, ~::~'~0., total absence of any co-relation between the expenses Ltd. c;. Others incurred by the Government and the amount raised by v. contribution. That is whys. 76(1) was struck down T.h• State of as ultra vires. Orissa s. Others

The same point arose before this Court in respect of Gajendragadkar J.

the Orissa Hindu Religious Endowments Act, 1939, as amended by amending Act II of 1952 in Mahant Sri Jagannath Ramanuj Das v. The State of Orissa ([1]). Mukherjea, J.; who again spoke for the Court, upheld the validity of s. 49 which impose¢!. the liability to pay the specified contribution on every Mutt or temple having an a~nual income exceeding Rs. 250 for ser-vices rendered by the State Government. The scheme of the impugned Act was examined and it was noticed that the collections made under it are not merged in the general public revenue and are not appropriated in the manner laid down for appropriation of expenses for other public purposes. They go to constitute fund which is contemplated by s. 50 of the Act, and this fund to which the Provincial Government contributes both by way of loan and grant is specifically set apart for the rendering of services involved in carrying out the provisions of the Act. The same view was taken by this Court in regard to s. 58 of the Bombay Public Trust Act, 1950 (Act XXIX of 1950) which 'imposed similar contribution for similar purpose in Ratilal PanacharuL GaruLhi v. The State of Bombay ([2]). It would thus be seen that the tests whfoh have to be applied in determining the character of any impugned levy have been laid down by this Court in these three deci-sions; and it is in the light of these tests that we have to consider the merits of the rival contentions raised before us in the present petition.

On behalf of the petitioners Mr. Amin has relied on three other decisions which may be briefly considered. In P. P. Kutti Keya v. TM State of Madras ([8]), the Madras High Court was called upon to consider, inter (1) [1954) S.C.R. 1046. (2) [1954) S.C.R. 1055.

(S) A.I.R. 1954 Mad. 621,

x96o alia, the validity of s. 11 of the Madras Commercial Th H' . Crops Markets Act 20 of 1933 and Rules 28(1) and 28(3) Ramp:, i;:;;·Co., framed thereunder. Section 11(1) levied fee on the Ltd. & Othm sales of commercial crops within the notified area and v. s. 12 provided that the amounts collected by the Mar. The State of ket Committee shall be constituted into Market Orissa & Others Fund which would be utilised for acquiring site for Gajendragadkar J. the market, constructil}g building, maintaining the market and meeting the expenses of the Market Com-mittee. The argument that these provisions amounted to services rendered to the notified area and thus made the levy fee and not tax was not accepted by the Court. Venkatarama Aiyar, J., took the view that the funds raised from the merchants for construction of market in substance amounted to an exaction of tax. Whether or not the construction of market amounted to service to the notified area it is un-necessary for us to consider. Besides, as we have al-ready pointed out we have now three decisions of this Court which have authoritatively dealt with this mat-ter, and it is in the light of the said decisions that the present question has to be considered.

In Attorney-General for British Columbia v. Esqui-malt and Nanaimo Railway Go. ([1]), the Privy Council had to deal with the validity of forest protection im-post levied by the relevant section of the Forest Act R. S. B. C. 1936. The lands in question were statu. torily exempted from taxation, and it was urged against the validity of the impost that the levy of the said impost was not service charge but tax; and since it contravened the exemption from taxation granted to the land it was invalid. This plea was up-held by the Privy Council. The Privy Council did consider two circumstances which were relevant; the first that the levy was on defined class of interested individuals, and the second that the fund raised did not fall into the general mass of the proceeds of taxa-tion but was applicable for special and· limited pur-pose. It was conceded that these consideratfons were relevant but the Privy Council thought that the weight to be attached to them should not be exagge-(1) (1950) A.C. 87.

2 S.C.R. SUPREME COURT REPORTS

rated. In appreciating the weight of the said relevant 1960 f: circumstances act t t th an s 1 the Privy lll [. ]ques ion iorme Council was impressed t" £ an important . by the Rampur 1[.h ]e H1ngir· Coal . . Co part of the national wealth of the Province and their Ltd. W-Anothe• ·• proper administration, including in particular protec-v. tion against fire, is matter of high public_conci!'lrn as ~he State of well as one of particular interest to individuals. In Onssa .s. Othm other words, the effect of the impugned p_rovisio:i;i WaSGajendragadhar ]. that the expenses of what was the public serv10e of the greatest importance for the Province as whole had been divided between the general body of tax-payers and those individuals who had special inte-rest in having their property protected. It would thus appear that this decision proceeded on the basis that what was claimed to be special service to the lands · in question was in reality an item in public service itself, and so the element of quid pro quo was absent. It is true that when the Legislature levies fee for ren-dering specific services to specified ij.rea or to specifi~ ed class of persons or trade or business, in the last analy-sis such services may indirectly form part of services to the public in general. If the special service rendered is distinctly and primarily meant for the benefit of specified class or area the fact that in benefitting the specified class or area the State as whole may ulti-mately and indirectly be benefitted would not detract from the character of the levy as a, fee. Where, how· ever, the specific service is indistinguishable from pub-lic service, and in essence is directly part of it, diffe~ rent considerations may arilile. In such case it is necessary to enquire what is the primary object of the levy and the essential purpose which it is intended to achieve. Its primary object and the essential purpose must be distinguished from its ultimate or incidental results or consequences. That is the true test in rleter-mining the character of the levy.

In Parton v. Mille Board (Victoria) (1), the validity of the levy imposed on dairymen and owners of milk depots bys. 30 of the Milk Board Act of 1933 as amended by subsequent Acts of 1936-1939 wa.e (I) (1949) So C.L.R. az9.

550 , SUPREME COURT REPORTS

challenged, and it was held by Dixon, J., that the levy

of the said contribution a.mounted to the imposition of Ra!;:~~:~~~o., duty of excise. This decision was substantially based Lid . .s. Others on the ground that the statutory boa.rd "performs no v. particular service for the dairyman or the owner of Th• Slate of milk depot for which his contribution may be con-o,issa .s. Others sidered as fee or recompense"; that is to say the • d-dk element of quid pro quo was absent qua the persons on 1 •J•n raga ar ·whom the levy had been imposed. Therefore none of the decisions on which Mr. Amin has relied can assist his case.

Let us now examine the scheme of the impugned

Act. As the preamble shows it has been passed because it was thought expedient to constitute mining areas and Mining Areas Development Fund in the State of Orissa. It consists of 11 sections. Section 3 of the Act provides for the constitution of mining area whenever it appears to the State Government that it is necessary and expedient to provide amenities like communications, water-supply and electricity for the better development of any area in the State of Orissa. wherein any mine is situated, or to provide for the welfare of the residents or to workers in any such areas within which persons employed in mine or a. group of mines reside or work. Under this section the State Government has to define the limits of the area. and is given the power to include within such area. any local area. contiguous to the same or to exclude from such area any local area. comprised therein; that is the effect of s. 3(1). Section 3(2) empowers the owner or a. lessee of a. mine or his duly constituted representa-tive in the said area to file objections in respect of any notification issued under s. 3(1) within the period spe-cified, and the State Government is required to take the said objection into consideration. After consider-ing objections received the State Government is autho-rised to issue notification constituting mining area under s. 3(3). Section 4 deals with the imposition and collection of cess. The rate of the levy authorised shall not exceed 5 per centum of the valuation of the minerals at the pit's mouth. Section 5 provides for the constitution of the Orissa Mining Areas Development

2 S.C.R. SUPREME COURT REPORTS

Fund. This fund vests in the State Government z96o a.nd ha.a to be ~ministered by such officer or ?fficers The Hingir-a.s ma.y be a.ppomted by the State Government m that Rampur coal co. behalf. Section 5(2) requires that t~ere shall be pa.id Lttl • .s. 011t#r1 ' to the credit of the· said fund the proceeds of th.e cess v. recovered under s. 4 for ea.ch mining area. during the T_he State of quarter after deducting expenses, if any, for collectiqn Orissa .s. Otlim and recovery. Section 5(3) contemplates tha.t to theGajentlragailllar 1. credit of the said fund shall be pla.ced all collections of ceBB under s. 5(2) as well as a.mounts from State Go~ vernment and the local authorities and public subscrip-tions specifically given for any of the purposes of Lhe fund. Section 5(4) deals with the topic of the a.ppli-ca.tion of the said fund. The fund has to be utilised to meet expenditure incurred in connection with such measures which in the opinion of the State Govern-ment a.re necessary or expedient for providing ameni-ties like communications, water supply and electricity, for the better development of the mining areas, and to meet the welfare of the la.hour and other persons resi-ding or working in the mining areas. Section 5(5) lays down that without prejudice to the generality of the foregoing provisions the fund may be utilised to de-fray any of the purposes specified in els. (a) to (e). Un-der s. 5(6) the State Government is given the power to decide whether any particular expenditure is or is not debitable to the fund and their decisjon is ma.de final; and s. 5(7) imposes on the State Govemm~nt an obli-gation to publish annually in the gazette report of the activities fin11inced from the fund together with an estimate of receipts a.nd expenditure of the fund a.nd statement of account. Section 6 prescribes the mode of constituting a.n advisory committee. It has to con-sist of such number of members and .chosen in such manner as ma.y be prescribed, provided however that ea.ch committee shall include representatives of mine-owners a.nd workmen employed in mining industry. The names of ·the members of the committee a.re required to be published in the gazette. Section 7 dea~ with the appointment and functions of .the· s~tu-·. tory authorities to carry out the purpose of the Ao~ while ·s. 8 confot.s on the State· Gove:tnm~nt power to

r96o make rules. Section 9 prescribes penalties and pro-. . vides for prosecutions; and s. 10 gives protection to the Ramp Ltd~~ T he H1ng11· co 01:.,,°" 1 done or intended spe01 •fi au th on •t• ies to be or done o cers m respec o a.nyt ffi by . them in good faith t h. mg in v. pursuance of the Act or any rules or order ma.de Th• SW• of thereunder. Section 11, which is the last section, con-Orissa .s. Olhm fers on the State Government the power to do any. . ,-dk thing which may appear to them to be necessary for 411 '" rag• ar ·the purpose of removing difficulties in giving effect to the provisions of the Act.

The scheme of the Act thus clearly shows that it has been passed for the purpose of the development of mining areas in the State. The basis for the opera-tion of the Act is the constitution of a. mining area., and it is in regard to mining areas thus constituted that the provisions of the Act come into play. It is not difficult to appreciate the intention of the State Legislature evidenced by this Act. Orissa is an under-developed State in the Union of India. though it has lot of mineral wealth of great potential value. Un-fortunately its mineral wealth is located generally in areas sparsely populated with bad communications. Inevitably the exploitation of the minerals is handi-capped by lack of communications, and the difficulty experienced in keeping the labour force sufficiently healthy and in congenial surroundings. The mineral development of the State, therefore, requires that pro-vision should be ma.de for improving the communica-tions by constructing good roads and by providing means of transport such as tramways; supply of water and electricity would also help. It would also be necessary to provide for amenities of saruta.tion and education to the labour force in order to attract work-men to the area.. Before the Act was passed it appears that the mine-owners tried to put up small-length roads and tramways for their own individual purpose, but that obviously could not be as effective as roads constructed by the State and tramway service provid-ed by it. It is on a. consideration of these factors that the State Legislature decided to take an active pa.rt in unsystematic development of its mineral areas which would help the mine-owners in moving their

2 S.C.R. SUPREME COURT REPORTS

minerals quickly through the shortest route and

would attract labour to assist the excavation of the n H" . minerals. Thus there can be no doubt mary and the principal object of the Act is to develop that the pri- R a':id~~ ;e ;;c·;~ 0~=ers 0~=ers ~=ers 0the mineral areas in the State and to assist more v. efficient and extended exploitation of its mineral Tha Stata of wealth. . . Orissa & Others

a':id~~ n ;e H" ;;c·;~ 0~=ers 0~=ers ~=ers . 0' v.

Tha Stata of Orissa & Others

The constitution of the advisory committee as pres- . d-dk 1 cribed by s. 4 emphasises the fact that the policy of a;en raga ar the Act would be to carry out with the assistanee of the mine-owners and their workmen. Thus after mining area is notified an advisory committee is con-stituted ~n respect of it, and the task of carrying out the objects of the Act is left to the care of the said advisory committee subject to the provisions of the Act. Even before an area is notified the mine-owners are allowed an opportunity to put forward their ob-jections. These features of the Act are also relevant in determining the question as to whether the Act is intended to render service to the specified area and to the class of persons who a.re subjected to the levy of the cess.

Section 5 shows that the cess levied does not be-

come part of the consolidated fund and is not sub-ject to an appropriation in that behalf; it goes into the special fund earmarked for carrying out the purpose of the Act, and thus its existence establishes co-relation between the cess and the purpose for which it is levied. It was probably felt that some additions should be made to the special fund, and so s. 5(3) con-templates that grants from the State Government and local authorities and public subscriptions may be col-lected for enriching the said fund. Every year re-port of the activities financed by the fund has to be published together with an estimate of receipt and expenditure and statement of accounts. It would thus be clear that the administration of the fund would be subject to public scrutiny and person!> who are called upon to pay the levy would have an oppor-tunity to see whether the cess collected from them has been properly utilised for the purposes for which it is intended to be used. It is not alleged by the petitioners

z960 that the levy imposed is unduly or unreasonably Th H" . excessive so as to make the imposition coloura.ble Ramp:, i;;::;-co., exercise of legislative p~wer. Indeed the fact that the Ltd.<!> Others accounts have to be published from year to year affords v. an indication to the contrary. Thus the scheme of The St••• of the Act shows that the cess is levied against the class Orsssa <!> Others of persons owning mines in the notified area and it is •J•n [. ][,-,. ]raga ""' 1 · [levied ]fie services [to ]• [enable ]to t sai c,ass y evelopmg [the ]"d [State Government to render speci-]~ · the notified mineral area. There is an element of quid pro quo in the scheme, the cess collected is constituted into specific fund and it has not become part of the con-119lidated fund, its application is regulated by statute and is confined to its purposes, and there is definite co-relation between the impost and the purpose of the Act which is to render service to the notified area. These features of the Act impress upon the levy the character of a. fee as distinct from a. tax.

It is, however, urged that the cess levied by s. 4(2) is in substance and reality a. duty of excise. As we have already noticed s. 4(2) provides that the rate of such levy shall not exceed 5 per centum of the valua-tion of the minerals at the pit's mouth; in other words it is the value of the minerals produced which is the basis for calculating the cess payable by mine-owners, and that precisely is the nature in which duty of excise is levied under Entry 84 in List I. The said Entry empowers Parliament to impose duties of excise, inter a.lia, on goods manufactured or produced in India. When minerals a.re produced from mines and duty of excise is intended to be imposed on them it would be normally imposed at the pit's mouth, and that is precisely what the impugned Act purports to do. It is also contended that the· rate prescribed by s. 4(2) indicates that it operates not as mere fee but as duty of excise. This argument must be carefully exa-mined before the character of the cess is finally deter-mined. It is not disputed that under Entry 23 in List II read with Entry 66 in the said '.List the State Legislature can levy fee in respect of mines and mineral development. Entry 23 reads thus: "Regu-lation of Mines and mineral development subject tothe provisions of List I with respect to regulation and r96o development under the control of the Union". We Th H' . will deal. with the condition imposed b~ ~he latter Ramp:, ~:!~'~0., part of this Entry later. For the present it is enough Ltd . .s. Others to state that regulation of mines and mineral develop-v. ment is within the competence of the State I,.egisla-T~e Stal• of • tu re. Entry 66 provides that fees in respect of any Omsa 0- Others of the ma~ters in the ~a.id List ca.n be imposed by ~he Gajendragatlhar J. State Legislature subJect of course to the exception of fees taken in any Court. The argument is that though the State Legislature is competent to levy a. fee in respect of mines and mineral development, if the statute passed by State Legislature in substance and in effect imposes duty of excise it is travelling outside its jurisdictiOn and is trespassing on the legis-lative powers of Parliament. · ·

This argument is based on two considerations. The first relates to the form in which the levy is impose~, and the second relates to the extent of the levy authorised. The extent of the levy authorised would always depend upon the nature of the services inten-ded to be rendered and the financial obligations in-curred thereby. If the services intended to be rende-red to the notified mineral areas require that a. fairly large cess should be collected and co-relation can be definitely established between the proposed services and the impost levied', then it would be unreasonable to suggest that because the rate of 'the levy is high it is not a. fee but a. duty of excise. In the present ca.se, if the development of the mining areas involves con-siderable expenditure which necessitates the levy of the prescribed rate it only means that the services being rendered to the mining areas are very valuable and, the rate-payer in substance is compensating the State for the services rendered by it to him. It is signifi-cant that the petitioners do not seriously suggest that the services intended to be rendered are cloak and not genuine, or that the taxes ievied have no relation to the said services, or that they are unrea-sonable and excessive. Therefore, in our opinion, the extent of the rate allowed · to be imposed by s .. 4(2) oannot by itself alter the character of the levy from a.z96o fee into that of duty of excise. If the co-relation Th H" . between the levy and the services was not genuine or Ramp:, -;;:;;~ •. real, or if the levy was disproportionately higher than Ltd. c;. Othm 'the requirements of .the services intended to be ren-v. dered it would have been another matter. The s101e of Then as t-0 the form in which the impost is levied, 011ssa &- 01/"'s it is difficult to appreciate how the method adopted GajendTagadkar J. ?Y the Legislature in recovering the impost can alter its character. The character of the levy must be deter-mined in the light of the tests to which we have al-ready referred. The method in which the fee is reco-vered is matter of convenience, and by itself it cannot fix upon the levy the character of the duty of excise. This question has often been considered in the past, and it has always been held that though the method in which an impost is levied may be relevant in deter-mining its character its significance and effect cannot be exaggerated. In Balla Ram v. The Province of East Punjab ([1]) the Federal Court had to consider the character of the tax levied by s. 3 of the Punjab Urban Immoveable Property Tax Act XVII of 1940. Section 3 provided as follows : "There shall be charg -ed, levied and paid an annual to tax on buildings and lands situated in the rating areas shown in the sche-dule to this Act at such rate not exceeding twenty per centum of the annual value of such buildings and lands as the Provincial Government may by notifica-tion in official gazette direct in respect of each such rating area". The argument urged before the Federal Court was that the tax imposed by the said section was in reality tax on income within the meaning of Item 54 in List I of the Seventh 'Schedule to the Con-stitution Act of 1935, and as such it was not covered by Item 42 in List II of the said Schedule. This argu-ment was rejected on the ground that the tax levied by the Act was in pith and substance tax on lands and buildings covered by Item 42. It would be notic-ed that the basis of the tax was the annual value of the building which is the basis used in the Indian Income-tax Act for determining income from property; and so, the attack against the section was based on (1) (1948) F.C.R. •O'/·

the ground that it had adopted the same basis for z960 levying the impost as the Income-tax Act and the Th H" . said basis determined its character whatever may be Ramp:r ~;;;-Co the appearance in which the impost was purported to Ltd. &- Others " be levied. In repelling this argument Fazl Ali, J. v. observed that the crucial question to be answered was na State of whether merely because the Income-tax Act has Orissa &- Others adopted the annual value as the standard for deter- Gaj•ndragatlkar 1 mining the income it must necessarily follow that if the same standard is employed as a. measure for any other tax that tax becomes tax on income. The learned judge then proceeded to add that if the .answer to this question is to be given in the affirmative then certain taxes which cannot possibly be described a.s income-tax must be held to be so. In other words, the effect of this decision is that the adoption of the standard used· in Income-tax Act -for getting at the income by any other act for levying the tax authoris-ed by it would not be enough to convert the said tax into an income-tax. During the course of this juclg-ment Fazl Ali, J. also noticed with approval similar view taken by the Bombay High Court in Sir Byram-jee Jeejeehhoy v. The Province of Bombay([1]).

z960 Th H" . ~;;;-Co Ltd. &- Others " v.

This decision has been expressly approved by the Privy Council in Governor-General in Council v. Pro-vince of Madras ([9]). Consistently with the decision of the Federal Court their Lordship~ ·expressed the opinion that "a duty of excise is 'primarily duty levied on manufacturer or producer in respect of the commodity manufactured or produced. It is tax on goods and not on sales or the proceeds of the sale of goods. The two taxes, the one levied on the manu-facturer in respect of his goods and the other on the vendor in respect of his sales may in one sense over-lap, but in law there is no overlapping; the taxes are separate and distinct imposts. If in fa.ct they over-lap that may be because the taxing authority· impos-ing duty of excise finds it convenient to impose that duty at the moment when th,e. exciseable article

{I) I.L.R. 1940 Bom. 58. (2) (1945) L.R. 72 I.A. 91.

'9[60 ]leaves the factory or workshop for the first time on the TA• Hi•&i•-occasion of its sale". In that case the question was Rampvr coal co. whether the tax a~thorised by the Madras General J.1d. If>- Othm Sales Tax Act, 1939, was tax on the sale of goods v. or was duty of excise, and the Privy Council held TA• Stat• [0]1 it was the former and not the .latter. Therefore, Orissa If>- OIAers in our opinion, the mere fact that the levy imposed by Gaj••dragadka• J. the impugned Act has adopted the method of deter-mining the rate of the levy by reference to the minerals produced ,by the mines would not by itself make the levy 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 circum-stances. In this connection it is always necessary to bear in mind that where an impugned statute passed by 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 adopt-ed in levying duty of excise. Thus considered the conclusion is inevitable that the cess levied by the impugned Ac.t is neither tax nor duty of excise but is fee.

The next question which arises is, even if the cess is

a. fee and as such may be relatable to Entries 23 and 66 in List II its validity is still open to challenge because the legislative competence of the State Legis-lature under Entry 23 is subject to the provisions of List I with respect to regulation and· development under the control of the Union; and that takes us to Entry 54 in List I. This Entry reads thus: "Regn-lation of mines and mineral development to the extent t.o which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest". The effect of reading the two Entries together is clear. The juris-diction of the State Legiillature under Entry 23 is sub-ject to the liniitation imposed by the latter part of the said Entry. If Parliament by its law has declared that regulation and development of mines should in public interest be under the control of the Union, to

the extent of such declaration the jurisdiction of the 8960 State Legislature is excluded. In other words, if n -;;· . Central Act has been passed which contains declara- Ramp:, ~:!~'~0• 0• • tion by Parliament as required by Entry 54, and if Ltd. o$. Olhm ' the said declaration covers the field occupied by the im-. v. pugned Act the impugned Act would be ultra virea, not Th• s1a11 of because of any repugnance between the two statutes Orissa .s. OIMri but because the State Legislature had no jurisdiction .,,., agadliar J to pass the law. The limitation imposed by the latter v ' part of Entry 23 is limitation on the legislative competence of the State Legislature itself. This position is not in dispute.

n -;;· . ~:!~'~0• 0• • Ltd. o$. Olhm ' . v. Th• s1a11 of

It is urged by Mr. Amin that the field covered by the impugned Act has already been covered by the Mines and Minerals (Regulation and Development) Act, 1948, (Liii of 1948) and he contends that in view of the declaration made by s. 2 of this Act the impugned Act is ultra vires. This Central Act was passed to provide for the regulation of mines and oil fields and for the development of minerals. It may be stated at this stage that by Act LXVII of 1957 which ha.s been subsequently passed by Parliament, Act Liil of 1948 has now been limited only to oil fields. We a.re, however, concerned with the operation of the said Act in 1952, and at that time it applied to mines as well as oil fields. Section 2 of the Act con-tains declaration as to the expediency and control by the Central Government. It reads thus: "It is here-by declared that it is expedient in the public interest that the Central Government should take under its control the regulation of mines and oil fields and the development of minerals to the extent hereinafter provided". It is common ground that at the relevant time this Act applied to coal mines. Section 4 of the Act provides that no mining lease shall be granted after the commencement of this Act otherwise than in accordance with the rules made under this Act. Section 5 empowers the Central Government to make rules by notifi-cation for regulating the grant of mining leases or for prohibiting the grant of such leases in respect of any mineral or in· any area. Sections 4 and 5 thus

'9[[60 ]]purport to prescribe necessary conditions in accordance Th• Hingir-with which mining leases have to be executed. This Rampur coal co., part of the Act has no relevance to our present pur-Ltd . .s. Othm pose. Section 6 of the Act, however, empowers the v. Central Government to make rules by notification in n. State [0]1 the official gazette for the conservation and develop-oross• &- Others ment of minerals. Section 6(2) lays down several Gaj•nd;;;;dAar ;. matters in respect of which rules can be framed by the Central Government. This power is, however, with-out prejudice to the generality of powers conferred on the Central Government by s. 6(1). Amongst the matters covered by s. 6(2) is the levy and collection of royalties, fees or taxes in respect of minerals mined, quarried, excavated or collected. It is true that no rules have in fact been framed by the Central Govern-ment in regard to the levy and collection of any fees; but, in our opinion, that would not make any diffe-rence. If it is held that this Act contains the declara-tion referred to in Entry 23 there would be no diffi-culty in holding that the declaration covers the field of conservation and development of minerals, and the said field is indistinguishable from the field cover-ed by the impugned Act. What Entry 23 provides is that the legislative competence of the State Legis-lature is subject to the provisions of List l with respect to regulation and development under the control of the Union, and Entry 54 in List I requires declaration by Parliament by law that regulation and develop-ment of mines should be under the control of the Union in public interest. Therefore, if 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 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 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 LUI of 1948. ·

1960 H' ~0C,:;~0C,:;~C,:;~. 0 Ltd. & Others ·• v.

Ra!;:, H' ~0C,:;~0C,:;~C,:;~. 0

It still remains to consider whether s. 2 of the said Ltd. & Others ·• Act amounts in law to declaration by Parliament as v. required by Art. 54. When the said Act was passed 1'hs State of in 1948 the legislative powers of the Central and the Orissa & Others Provincial Legislatures were governed by the r~lev~nt Gajendragadkar J. Entries in the Seventh Schedule to the Const1tut10n Act of 1935. Entry 36 in List I corresponds to the present Entry 54 in List I. It reads thus: "Regula~ion of Mines and Oil Fields and mineral development to the extent to which such regulation and development under Dominion control is declared by Dominion law to be expedient in public interest". It would be notic-ed that the ·declaration required by Entry 36 is declaration by Dominion law. 'Reverting then to s. 2 of the said Act it is clear that the declaration contain-ed in the said section is put in the passive voice; but in the context there would be no difficulty in holding that the said declaration by necessary implication has been made by Dominion law. It is declaration con-tained in section passed by the Dominion Legisla-ture, and so it is obvious that it is declaration by Dominion law; but the question is: Can this declara-tion by Dominion law be regarded constitutionally as declaration by Parliament which is required by Entry 54 in List I .

It has been urged before us by the learned Addi-tional Solicitor-General and Mr. Amin that in dealing with this question we should bear in mind two general considerations. The Central Act has been continued under Art. 372(1) of the Constitution as an existing law, and the effect of the said constitutional provision must be that the continuance of the existing law would be as effective and to the same extent after the Constitution came into force as before. It is urged that after the said Act was passed and before the Con-stitution came into force no Provincial Legislature could have validly made a. law in respect of the field covered by the said Act, and it would be commonsense to assume that the effect of the continuance of the

z960 said law under Art. 372(l)·ca.nnot be any different. In T [• ][H' ]. other words, if no Provincial Legislature could have Ra,.pur nl •ngir-Coal co. t respasse on th. fi ld covere y t sa1 'd ct e1ore " Ltd. & Others 'the Constitution, the position would and must be the v. same even after the Constitution came into force.

TA• s1a11 of It is also contended that for the purpose of bringing Orissa & Others the provision of existing -laws into accord with the Gajendragadhr l· provisions of the Constitution th~ President 'Yas given power to make by order appropriate adaptations and modifications of such Jaws, and the object of making such adaptations obviously was to make the continu-ance of the existing laws fully effective. It is in the light of these two general considerations, so the argu-ment runs, must the point in question be considered. The relevant clause in the Adaptation of Laws Order, 1950, on which reliance has been placed in support of this argument is cl. 16 in the Supplemen-tary Pa.rt of the said Order. This clause provides that subject to the provisions of this Order any reference by whatever form of words in any existing law to any authority competent at the date of the passing of that law to exercise any powers or authorities, or to dis-charge any functions, in any part of India. shall, where a. corresponding new authority has been constituted by or under the Constitution, have effect until duly repealed or amended as if it were a. reference to that new authority. The petitioners contend that as a. result of this clause the declaration ma.de by the Dominion Legislature in s. 2 of the Central Act must now be held to be the declaration ma.de by Parliament. Is this contention justified on fair and reasonable construction of the clause? That is the crux of the problem.

In considering this question it would be relevant to

recall the scheme of the Adaptation of Laws Order, 1950. It consists of Thre'e Parts. Pa.rt I deals with the adaptation of Central Laws and indicates the adaptation ~a.de therein; Part II deals with the adaptation of Provincial Laws and follows the same pattern; and Part III is a. Supplementary Pa.rt which contains provisions in the nature of supplementary provisions. perusal of the clauses contained in Pa.rt

2 S.C.R. SUPREME COURT REPORTS

I would show that though some adaptation was made

in Act LIU of 1948 it w&s LIU of 1948 it w&s of 1948 it w&s 1948 it w&s it w&s w&s not thought necessary to. Th n· . make an adaptation in s. 2 of the said Act whereby of the said Act whereby the said Act whereby Ramp:. ~;;;-co . ..

Th n· ~;;;-co . .Lta.h Others ' v. T~e State [0]1

in Act LIU of 1948 it w&s LIU of 1948 it w&s of 1948 it w&s 1948 it w&s it w&s w&s not thought necessary to. make an adaptation in s. 2 of the said Act whereby of the said Act whereby the said Act whereby the declaration implied in the said section has been expressly adapted into declaration by Parliament.

:Now, the effect of cl. 16 in substance is to equate an

authority competent at the date of the passing of the Omsa .s. Olhm existing law to discharge any functions with. corresponding new to exercise any powers or authorities, or Ga ·enaragadkar ~ 1 authority which has been constituted by or under the Constitution. Referenge to ·the authority in the con-text would suggest oases like reference to the Gover-nor-General eo nomine, or Central Government . which respectively would be equated with the President or the Union Government. Prima fa.oie the reference to authority would not include reference to Legislature; in this connection it may be relevant to point out that Art. 372(1) refers to competent Legislature as dis-tinguished from other competent authorities. That is the first difficulty in holding that cl. 16 refers to the Dominion Legislature and purports to equate it with the Parliament.

It is clear that for the application of this clause it is necessary that reference should have been made to the authority by some words whatever may be their form. In other words it is only where the existing law refers expressly to some authority that this clause can be invoked. It is difficult to construe the first pa.rt of this clause to include authorities to whic.h no reference is made by any words in terms, but to which such reference may be implied; and quite clearly the Domi-nion Legislature is not expressly referred to in s. 2. In construing the present clause we think it would be straining the language of the clause to hold that an authority to which no reference is made by words in any pa.rt of the eXisting law could claim the benefit of this clause.

Besides, there is no doubt that when the clause

refers to any au~hority competent to exercise any powers or authorities, or to discharge any functions, it refers to the powers; authorities or functions attribut-able tQ the existing law itself; that is to say, authorities

i96o which are competent to exercise powers or to discharge Th H' . functions under the existing laws are intended to be Ramp:, i;;;;;~0 • equated with corresponding new authorities. It is Ltd. & others 'impossible to hold that the Dominion Legislature is an v. authority which was competent to exercise any power ~h• Stat• [0]! or to discharge any function under the existing law. Omsa ~Others Competence to exercise power to discharge functions Gaj•ntlragadkar ;. to which the clause refers must inevitably be related to the existing law and not to the Constitution Act of 1935 which would be necessary if Dominion Legisla-ture was to be included as an authority under this clause. The Constitution Act of 1935 had been repeal-ed by the Constitution and it was not, and could not obviously be, the object of the Adaptation of Laws Order to make any adaptation in regard to the said Act. Therefore, the competence of the Dominion Legislature which flowed from the relevant provisions of the Constitution Act of 1935 is wholly outside this clause. We have carefully considered the arguments urged before us by the learned Additional Solicitor-General and Mr. Amin but we are unable to hold that cl. 16 can be pressed into service for the purpose of supporting the conclusion that the declaration by the Dominion Legislature implied iri s. 2 of Act LUI of 1948 can, by virtue of cl. 16, be held to be declara-tion by Parliament within the meaning of the relevant Entries in the Constitution. If that be the true posi-tion then the alternative challenge to the vires of the Act based on cl. 16 of the Adaptation of Laws Order must fail.

There is another possible argument which may

may prima acie lead to the same conclusion. Let us assume that the result of reading Art. 372 and cl. 16 of the Adaptation of Laws Order is that under s. 2 of Act LIU of 1948 there is declaration by Parliament as suggested by the petitioners and the learned Additional Solicitor-General. Would that meet the requirements of Entry 54 in List I of the Seventh Schedule? It is difficult to answer this question in the affirmative because the relevant provisions of the Constitution are prospective and the declaration by Parliament specified by Entry 54 must be declaration made by

2 S.C.R. SUPREME COURT REPORTS

Parliament subsequent to the date when the Constitu-x96o tion came into force .. Unless a·declaration is made by Th H" . Parliament after the Constitution came into force it Ramp:, ~:~·;~0 • will not satisfy the requirements of Entry 54, and that Ltd . .s. Ano.llur ' inevitably would mean that the impugned Act. is v. validly enacted under Entry 23 in List II of the ~he State of Seventh Schedule. If that be the true position then it Omsa .s. Others would follow that even on the a~umption that cl. 16 Gajendragadkar 1 of the Adaptation of Laws Order and Art. 372 can be construed as suggested by the petitioners the impugn-ed Act would be valid. ·

Faced with this difficulty, both the learned Addi-tional Solicitor-General and Mr. Amin argued that cl. 21 of the said Order may be of some assistance. Clause 21 reads thus: "Any Court, Tribunal, or autho-.rity required or empowered to enforce any law in force in the territory of India immediately before the appointed day shall, notwithstanding that this Order ' makes no provision or insufficient provision for the adaptation of the law for the purpose of bringing it into accord with the provisions of the Constitution, construe the law with all such adaptations as are necessary for the said purpose". Assuming that this clause is valid we do not see how it is relevant in the present case. All that this clause purports to do is to · · empower the Court to construe the law with such adap-tations as may be necessary for the purpose Qf bring~ ing it in accord with the provisions of the Constitu-tion. There is no occasion to make any adaptation in construing Act LIII of 1948 for bringing it into accord with the provisions of the Constitution at all. The said Act has been continued under Art. 372(1) and there is no constitutional defect in the said Act for the avoidance of which any adaptation is necessary. In fact what the petitioners seek to do is to read in s. 2 of the said Act the declaration by Parliament required by Entry 54 so as to make the impugned Act ultra vireB. Quite clearly cl. 21 cannot be pressed· into service for such purpose. Therefore, we reach this', position that the field covered by Act LIII of 1948 is substantially the same as the field covered by the

1960 impugned Act but the declaration made by s. 2 of the . . . said Act does not constitutionally amount to the requi-R [1 ];• H';;g~r~ site declaration by Parliament, and so the limitation •;,/~ ;,~.., o., imposed by Entry 54 does not come into operation in v. the present case. Act LIII of 1948 continues in opera.-Th• State [0]1 tion under Art. 372; with this modification that so far . Oriss• .s. Othm as the State of Orissa is concerned it is the impugned Ga 'endragadhr 1. Act t~at governs. an~ not the C~ntral Act. Arti~le ' · 372(1) m fact provides for the contmuance of the ex1s-. ting law until it is altered, repealed or amended by competent Legislature or other competent authority. In the absence of the requisite parliamentary declara-tion the legislative competence of the Orissa Legisla-ture under Entry 23 read with Entry 66 is not impair-ed, and so the said Legislature is competent either to repeal, alter or amend the existing law which is the Central Act LIII of 1948; in effect, after the impugned Act was passed, so far as Orissa is concerned the Central Act must be deemed to be repealed. This position is fully consistent with the provisions of Art. 372. The result is that the material words used in els. 16 and 21 being unambiguous and explicit, it is difficult to give effect to the two general considerations on which reliance has been placed by the petitioners. Incidentally the present case discloses that in regard to the requisite parliamentary declaration prescribed -by Entry 54 in List I in its appHcation to the pre-Constitution Acts under corresponding Entry 36 in List I of the Constitution Act of 1935, there is lacuna which has not been covered by any clauses of the Adaptation of Laws Order; that, however, is matter for Parliament to consider.

There is one more point which is yet to be consider-ed. Mr. Amin contends that Entry 23 in List II is subject to the provisions in List I with respect to regu-lation and development under the control of the Union, and according to him Entry 52 in List I is one of such provisions. In this connection he relies on the said Entry which deals with industries the control of which by the Union is declared by Parliament by law to be expedient in the public interest, and Indus-tries (Development and Regulation) Act, 1951 (LXV

of 1951). This Act has been passed to provide for the

r960 Th H' ~;;;~. 0 0 Lia. &- Others " v. The State of Orissa & Others . a-ak a;en raga ar 1 •

development and regulation of certain industries one Th H' . of which undoubtedly is coal mining industry. Sec- Ramp:, ~;;;~. 0 tion 2 of this Act declares that it is expedient in the Lia. &- Others " public interest that the Union should take under its v. control the industries specified in the First Schedule. The State of This declaration is declaration made by Parlia:tnent, Orissa & Others and if the provisions of the Act read with the said . a-ak 1 ec ara t ion covere t same [• ]d fi ld as is covere . ' y t a;en raga ar 1 impugned Act, it would undoubtedly affect the vires of the impugned Act; but in dealing with this ques-tion it is important to bear in mind the doctrine of pith and substance. We have already noticed that in pith and substance the impugned Act is concerned with the development of the mining areas notified under it. The Central Act, on the other ha.nd, deals more directly with the control of all industries includ-ing of course the industry of coal. Chapter II of this Act provides for the constitution of the Central Advi-sory Council and Development Councils, chapter III deals with the regulation of scheduled industries, chapter IHA provides for the direct management or control of industrial undertakings by Central Govern-ment in certain cases, and chapter IIIB. is concerned with the topic of control of supply, distribution, price, etc:, of certain articles. The last chapter dell.ls with miscellaneous incidental matters. 'J_'he functions of the Development Councils constituted under this Act prescribed by s. 6(4) bring out the real purpose and object of the Act. It is to increase the efficiency or productivity in the scheduled industry or group of scheduled industries, to improve or develop the service that such industry or group of industries renders or could render to the community, or to enable such industry or group of industries to render such service more economically. Section 9 authorises the imposition of cess on scheduled industries in certain cases. Section 9(4) provides that the Central Govern-ment may hand over the proceeds of the cess to the Development Council there specified and that the Development Council shall utilise the said propeeds to achieve the objects mentioned in els. (a) to (d). These

i96o objects include the promotion of scientific and indus-Th H' . _ trial research, of improvements in design and quality, Ramp:, ";;;;co. and the provision for the training of technicians and Ltd. & Others 'labour in such industry or group of industries. It v. would thus be seen that the object of the Act is to The State of regulale the scheduled industries with view to im-Onssa & Othm provement and development of the service that they Gajendragadkar ]. may render to the society, and thus assist the solution of the larger problem of national economy. It is diffi-cult to hold that the field covered by the declaration made by s. 2 of this Act, considered in the light of its several provisions, is the same as the field covered by the impugned Act. That being so, it cannot be said that as result of Entry 52 read with Act LXV of 1951 the vires of the impugned Act can be successfully challenged.

Our conclusion, therefore, is that the impugned Act is relatable to Entries 23 and 66 in List II of the Seventh Schedule, and its validity is not impaired or affected by Entries 52 and 54 in List I read with Act LXV of 1951 and Act LIII of 1948 respectively. In view of this conclusion it ~s unnecessary to consider whether the impugned Act can be justified under Entry 50 in List II, or whether it is relatable to Entry 24 in List III and as such suffers from the vice of repugnancy with the Central Act XXXII of 1947. The result is the petition fails and is dismissed with costs.

WANCHOO, J.-I have read the judgment just deli-

WaHehoo J.

vered by my learned brother Gajendragadkar J. and regret that I have not been able to persuade myself that the cess levied in this case on all extracted miner-als from any mine in any mining area at rate not exceeding five per centum of the value of the minerals at the pit's mouth by the Orissa State Legislature iinder s. 4 of the Orissa Mining Areas Development Fund Act, No. XXVII of 1952, (hereinafter called the Act) is fee properly so called and not duty of ex-cise. The facts are all set out in the judgment just delivered and I need not repeat them. The scheme of the Act, as appears from s. 3 thereof is to give power to the State Government, whenever it

thinks it necessary and expedient to provide amenities,

like communications, water-supply th . etLer eve opmen o ~ 1 t any area in . and th ·. electricity for St w ere-t Rampur Th ' " ,1 . ingir-Coal ingir-Coal Coal ingir-Coal Coal Coal . co. in any mine is situated or to provide for the welfare Ltd. &- Others of residents or workers in any such area within which v; persons employed in mine or group of mines reside The State of or work, to constitute such an area to be mining Orissa &- Others area for the purposes of the Act, to define the limits of Wanchoo J. the area, to include within such area any local area contiguous to the same and defined in the notification and to exclude from such area any local area compris-ed therein and defined in the notification. ,.A notifica-tion under s. 3 is made, after hearing objections from owners or lessees of mines. After such an area is con-stituted under s. 3, cess is imposed under s. 4 on all extracted minerals from any mine in any su'ch area at the rate not exceeding five per centum of the value of the minerals at the pit's mouth. The cess· so. collected is credited to fund called the Orissa Mining Area Development Fund· created under s. 5 of the Act, besides other amounts with which we are not concern-ed in this case. The Fund is to be applied to meet expenditure incurred in connection with such measur-es, which in the opinion of the State Government, are necessary or expedient for providing amenities like communications, water-supply and electricity, for the better development of mining areas and to meet the welfare oflabour and other persons residing or work-ing in the mining areas. Then come other provisions for working out the above provisions including s. 8, which gives power to the State Government to frame rules to carry into effect the purposes of the Act. The Rules were framed under tl:ie Act in January, 1955.

Th ' " . ,1 . ingir-Coal ingir-Coal Coal ingir-Coal Coal Coal co. Ltd. &- Others '

t ' " St w ere-t w ere-t ,1 . ingir-Coal ingir-Coal Coal ingir-Coal Coal Coal co.

The constitutional competence of the Orissa State Legislature to levy the cess under the Act is attacked on two maii:t grounds.· In the first place, it is urged that the cess is in pith and substance duty of exc.ise under item 84 of List I of the Seventh Schedule and therefore the levy of such cess is beyond the com-petence of the Orissa State Legislature. In the' second place, it is urged that even if the cess is fee, in view

z960 of the two Acts of the Central Legislature and Parlia-. . men t, namely, The Mines and Minerals (Regulation and R ampur [Th• ][Hc'"8']oa 1['"c ]o, [Development) Act, No. ]. l R [LUI ]l . ) [of ][1948 ][and ][The Indus-]Ltd. c;. Others tries (Deve opment an egu atrnn Act, No. LXV of v. 1951, the Orissa Legislature was not competent to pass

The State of the Act.

The petition has been opposed on behalf of the State of Orissa and the main contentions urged on its behalf are that the cess is fee properly so called and not duty of excise and therefore the Orissa State Legislature was competent to levy it and the two Cen-tral Acts dg not affect that competence. In the alter-native it has been urged that even if the cess is tax the State Legislature was competent to levy it under item 50 of List II of the Seventh Schedule.

Orissa c;. Others

wanchoo /.

The first question therefore that falls for. considera. tion is whether the cess in this case is tax or fee. Difference between tax properly so called and fee properly so called came up for consideration before this Court in three cases in 1954 and was considered at length. In the first of them, namely, The Commis-sioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt('), it was pointed out that-

"though levying of fees is only particular form of the exercise of the taxing power of the State, our Constitution has placed fees under separate category for purposes of legislation and at the end of each one of the three legislative lists, it has given power to the particular legislature to legislate on the imposition of fees in respect to every one of the items dealt with in the list itself"

It was also pointed that-

"the essence of tax is compulsion, that is to say, it is imposed under statutory power without the tax-payer's consent and the payment is enforced by law. The second characteristic of tax is that it is an im-position 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 (I) [1954] S.C.R. 1005.

collected forms part of the public revenues of the i96o Stat~. As the object of ta~ is n~t ~o. confer any The Hingir-spemal benefit upon any particular md1v1dual, there Ranzpur Coal Co. is, as it is said, no element of quid pro quo between Ltd. c;. Others the tax-payer and the public authority. Another fea. v. ture of taxation is that as it is part of the common The State [0]1 burden, quantum of imposition upon the tax-payer Orissa & Others depends generally upon his capacity to pay." Wanchoo 1.

Ltd. c;. Others '

Wanchoo 1.

As to fees, it was pointed out that-

"a 'fee' is generally defined to be charge for special service rendered to individuals by some go-vernmental agency. The amount of fee levied is sup-posed to be based on the expenses incurred by the Government in rendering the service, though in many cases the costs are. arbitrarily assessed. Ordinarily, the fees are uniform and no account is taken of the varying abilities of different recipients to pay." Finally, it was pointed out that-

"the distinction between tax and fee lies pri-marily in the fact that tax is levied as part of common burden, while fee is payment for speci-al benefit or privilege,. ............. Public i.."lterest seems to be at the basis of all impositions, but in fee it is some special benefit which the individual receives."

The consequence of these principles was that,-

"if, as we hold, fee is regarded as sort of re-

turn or consideration for services rendered, it is abso-lutely necessary that the levy of fees should, on . the face of the legislative provision be co-related to the expenses incurred by Government in rendering the services ............... If the money thus paid is set apart and appropriated specifically for the performance of such work and is not merged in the public revenues for the benefit of the general public, it could be coun-ted as fees and not tax."

Having laid down these principles, that case then considered the vires of s. 76 of the Madras Hindu Religious and Charitable Endowments Act, No. XIX of 1951, and it was pointed out that the material fact which negatived the theory of fees in that case was that the money raised by levy of the contribution was not ear-marked or specified for defraying the expenses

'96° that the Government had to incur in performing the . services. All the collections went to the consolidated Rampur Th ingir-Coal [. ]co., und o t S tate an all the expenses had to be met Ltd. & Others not out of those collections but out of the general reve-v. nues by proper method of appropriation as was done The State [0]! in the case of other government expense~. That in Orisso & Othe>s itself might not be conclusive, but in that case there Wanchoo J. was total absence of any co-relation between the ex-penses incurred by the Government and the amount raised by contribution under the provision of s. 76 and in those circumstances the theory of return or counter-payment or quid pro quo could not have any possible application to that case. Consequently, the contribution levied under s. 76 was held to be tax and not fee.

In the second case of Mahant Sri Jagannath Rama-

nuj Das v. The State of Orissa (1), similar imposition by the Orissa Legislature came up for consideration. After referring to the earlier case, it was pointed out that-"

"two elements are thus essential in order that payment may be regarded as fee. In the first place, it must be levied in consideration of certain services which the individuals accepted either willingly or un-willingly. But this by itself is not enough to make the imposition fee, if the payments demanded for rendering of such services are not set apart or specifi-cally appropriated for that purpose but are merged in the general revenue of the State to be spent for gene-ral public purposes."

The Orissa imposition was held to be fee because the collections made were not nierged in the general public revenue and were meant for the purpose of meeting the expenses of the Commissioner and his office which was the machinery set up for due admi-nistration of the affairs of the religious institution. They went to constitute fund which was contempla-ted by s. 50 of the Orissa Act and this fund was speci-fically set apart for rendering services involved in carrying out the provisions of the Act.

The third case, namely, Ratilal Panachand Gandhi (1) [1954] S.C.R. 1046.

v. The State of Bombay ([1]) came from Bombay. Sec. 58 196o of the Bombay Act, No. XXIX of 1950, provided for . . an imposition in prop?r~ion t? _the gross ~nnual in- Ra!;:~~;;;-co., come of the trust. This 1mpos1t10n was levied for the Ltd . .i Others purpose of due administration of the trust property v. and for defraying the expenses incurred in connection The State of with the same. After referring to the two earlier O•issa & Others cases, the Court went on to say that--

Wanchoo ].

"tax is common burden and the only return which the taxpayer gets is participation in the com-mon benefits of the State. Fees, on the other hand, are payments primarily in the public interest, but for some special· service rendered or some special work done for the benefit of those from whom the payments are demanded. Thus in fees there is always an ele-ment of quid pro quo which is absent in· tax ........ . But in order that the collections made by the Govern-ment can rank as fees, there must be co-relation bet-ween the levy imposed and the expenses incurred by the State for the purpose of rendering such services." It was then pointed out that the contributions, which were collected under s. 58, were to be credited in the Public Trusts Administration Fund as constituted under s. 57. This fund was to be applied exclusively for the payment of charges for expenses incidental to the regulation of public trusts and for carrying into effect the provisions of the Act. The imposition there-fore was in that case held to be fee.

These decisions clearly bring out the difference bet-ween tax and fee and generally speaking there is always an element of quid pro quo in fee and the amount raised through fee is co-related to the ex-penses necessary for rendering the services which are the basis of quid pro quo. Further, the amount collec-ted as fee· does not go to augment the general revenues of the State and many time special fund is cr~ated in which fees are credited-though this is not absolutely necessary. But as I read these deci-sions, they cannot be held to lay down that what is in pith and substance tax can become fee merely

(1) [1954] S.C.R. 1~55.

i96o because fund is created in which collections are cre-Th [. ]. dited and some services may be rendered to the per-1/ampur 1 Coal ngir· Co. sons rom w om co JJ ectwns ' are ma e. If t were t Ltd. o;. Others ·so, it will be possible to convert many taxes not other-v. wise leviable into fees by the device of creating The Sta" of special fund and attaching some service to be render-Orissa &- Othm ed through that fund to the persons from whom col-Wanchoo J. lections are made. I am therefore of opinion that one must first look at the pith and substance of the levy, and if in its pith and substance it is not essentially difforent from tax it cannot be converted into fee by creating special fund in which the collections are credited and attaching some services to be rendered through that fund.

Let me then look at the pith and substance of the

cess, which has been imposed in this case. The cess consists of levy not exceeding five per centum of the value of the minerals at the pit's mouth on a!l extracted minerals. Prima facie such levy is nothing more nor less than duty of excise. Item 84 of List I gives power to levy duties of excise exclusively to the Union and is in these terms:-

"Duties of excise on tobacco and other goods manufactured or produced in India except-

(a) alcoholic liquors for human consumption;

(b) opium, Indian hemp and other narcotic drugs and narcotics, but including medicinal and toilet pre-parations containing alcohol or any substance included in sub-paragraph (b) of this entry."

This item gives power to Parliament to impose duties of excise on all goods manufactured or produced in India with certain exceptions mentioned therein. Taking this particular case, coal is produced from the mine and would clearly be covered by the words "other goods produced in India" and duty of excise can be levied on it. 'Vhat then exactly is meant by duty of excise ? Reference in this connection may be made to Governor-General in Council v. Province of Madras (1). In that case the point arose whether the sales-tax imposed by the Madras Legislature was duty of excise. The Privy Council pointed out that-(•) (•9i5) L.R. 72 I.A. 91.

"in Federal constitution in which there is I96o division of legislative powers between Central and Th H" . Provincial legislatures, it appears to be inevitable that Ramp:, ~';!;'~. 0controversy should arise whether one or other legisla-Ltd. & Others ture is not exceeding its own, and encroaching on the v. other's, constitutional legislative power, and in such The State [0]1 controversy it is principle, which their Lordships Orissa & Others do not hesitate to apply in the present case, that it is Wanchoo J. not the name of the tax but its real nature, its 'pith and substance' as it has sometimes been said, which must determine into ~hat category it falls."

Th H" ~';!;'~. 0. Ltd. & Others '

The Privy Council went on to consider what duty of excise was and said that-

"it is primarily duty levied on manufacturer or producer in respect of the commodity manufactur-ed or produced. It is tax on goods not on sales or the proceeds of sale of goods. Though sometimes duty of excise may be imposed on first sales, duty of excise and tax on the sale of goods were separate and distinct imposts and in law do not overlap."

The Privy Council approved of the decisions of the Federal Court in re The Central Provinces and Berar Sales of ]Jf otor Spirit and Lubricants Taxation Act, 19.38 (1) and The Province of Madras v. Messrs. Boddu Paidanna and Sons ([2]). It seems to have been urged that because in some cases duty of excise may be levied on the occasion of the first sale and sales tax may also be levied on the same occasion, there is really no difference between the two. I.t is however clear that duty of excise is primarily tax on goods manufactured or produced; it is not tax on the sale of goods, though the taxing authority may as mat-ter of concession to the producer not charge the tax immediately the goods are produced and may post-pone it, to make it easy for the producer to pay thfl tax, till the first sale is made by him; nevertheless the charge is still on the goods and is therefore duty of excise. On the other hand, sales tax can only be levied when sale is made and there is nothing to prevent its levy on the first sale. The two concepts

(I) (1939) F.C.R. 18.

(2) (1948) F.C.R. go.

'9[60 ]

are however different and, as the Privy Council point-ed ou~, 8: sal~s tax and _duty of excise are separate and d1stmct imposts and m law do d1stmct imposts and m law do and m law do m law do not overlap. overlap. The pith and substance of duty of excise is that it is pri-and substance of duty of excise is that it is pri-substance of duty of excise is that it is pri-of duty of excise is that it is pri-a duty of excise is that it is pri-duty of excise is that it is pri-of excise is that it is pri-excise is that it is pri-that it is pri-it is pri-is pri-marily duty levied on manufacturer or producer in respect of the commodity manufactured or pro-

Th• mng;,_

Rampur Coal co., and d1stmct imposts and m law do d1stmct imposts and m law do and m law do m law do not overlap. overlap. The Ltd. & Others pith and substance of duty of excise is that it is pri-and substance of duty of excise is that it is pri-substance of duty of excise is that it is pri-of duty of excise is that it is pri-a duty of excise is that it is pri-duty of excise is that it is pri-of excise is that it is pri-excise is that it is pri-that it is pri-it is pri-is pri-

v. The State [0]!

Orissa &- Others duced.

Let me therefore see what the Orissa Legislature has done in the present case. It has levied cess at rate not exceeding five per centum on the value of minerals at the pit's mouth on all extracted mine-rals. All the extracted minerals are nothing other than goods produced and the cess is levied on the goods produced at rate not ~xceeding five per centum of the value at the pit's mouth. The cess therefore in the present case cannot be anything other than duty of excise. The pith and substance of the cess in this case falls fairly and squarely within entry 84 of List I and is therefore duty of excise, which cannot be levied by the Orissa State Legislature. I may in this connection refer to the cesses levied by the Cen-tral Legislature and Parliament by Act XXXII of 1947 and by the Act No. LXV of 1951. Sec. 3 of Act XXXII of 1947 lays down that there shall be levied and collected as cess for the purposes of that Act duty of excise on all coal and coke despatched from collieries at such rate not less than four annas and not more than eight annas per ton as may from time to time be fixed by the Central Government by notifica-tion in the Official Gazette. This is obviously tax on the goods produced, the basis of the tax being so much per ton. Again sec. 9 of Act LXV of 1951 lays down that there may be levied and collected as cess for the purposes of that Act on all goods manufactured or produced 'in any such scheduled industry as may be specified in this behalf by the Central Govern-ment by notified order duty of excise at rate not exceeding two annas per centum of the value of the goods. This again is clearly tax on goods produced or manufactured and is in the nature of duty of ex-cise, the basis of the tax being so much of the value of the goods. If these two taxes are duties of excise,

Wanchoo ].

. 2 s.c.R. SUPREME COURT REPORTS

I fail to see any difference in pith and substance between these two taxes and the cess levied under the

The Hingir-Rampur Coal Co., Ltd. & Others

Act.

It is however urged that the method employed in the Act for realising the cess is only method of quantification of the fee and merely because of this 'fi th · · quant1 cation, .e pit an su stance o t impost does not change from fee to duty of excise. Refe-rence in this connection was made to three cases of quantification. In Sir Byramjee J eejeebhoy v. The Province of Bombay (1), question arose with respect to tax imposed on urban immovable property, whe-ther it was tax on lands and buildings. The chal-lenge to the tax was on the ground that it was tax on income or capital value within items 54 and 55 of List I of the Seventh Schedule of the Government of India Act and could not therefore be imposed by the Bombay Legislature. It was held that the tax was tax on lands and buildings within the meaning of item 42 of List II of the same Schedule and that the basis of the tax, which w~s the annual value, would not convert it into tax on income or capital value. The High Court considered the pith and substance of the said Act and came to the conclusion that every tax on annual value was not necessarily tax on in-come and it was held that the mode of assessment of tax did not determine its character and one has to look to the essential character of the tax to decide whether it was tax on income or on lands and build-ings. Looking to the pith and substance of the tax it was held in that case that it was tax on lands and buildings. That decision was in the circumstances of that case right because the intention of the legislature was not to tax the incoine of any one; the essential character of the tax in that case was to tax the lands and buildings and the annual value of the lands and buildings was only taken as mode of levying the tax. In the present case, however, the very mode of the levy of the cess is nothing other than the levy of duty of excise and therefore the principle of quanti-fication for purposes of fee cannot be extended to

The State [0]! Orissa & Others

wanchoo 1.

(1) I.L.R. 1940 Bom. 58.

z96o such an extent as to convert what is in pith and sub. . stance tax into fee on that basis. Th [. ]Rampur ' ingir-Coal Co Th nex case o w t t h" IO reierence was ,. ma is . Ltd. & Others ··Municipal Corporation, Ahmeilabad v. Patel Gordhandas v. Hargovandas ([1]). In that case the Ahmedabad Bo-n, State of rough Municipality had levied rate on open lands and Orissa & Others the basis of the levy was one per oentum of the capital Wa•ehoo J. value of the land. It was urged that this amounted to capital levy within entry 54 of List I; but the court repelled that contention and held that the levy was in pith and substance tax on lands, which came within entry 42 of List II of the Seventh Schedule to the Government of India. Act. distinction was made between tax on land which is levied on the basis of its capital value and tax which is on capital treating it as an asset itself. This decision also, if I may say so with respect, is correct, for the basic idea was to tax lands and some method had to be found for doing so and the method evolved, though it might look like capital levy, was in pith and substance not so. But the theory of quantification which is the basis of these two oases cannot be stretched so far as to turn levies which are in pith and substance taxes into fees, by the·process of attaching certain services and creating fund.The third case is Ralla Ram v. The Province of East Punjab (2). That was case of tax on lands and buildings and annual value was the basis on which the tax was levied. The Federal Court rightly pointed out that the pith and substance of the levy had to be seen and on that view it was not income-tax but tax on lands and buildings and the method adopted was merely method of quantifi9ation. The Federal Court also pointed out that "where there is an apparent con-flict between an Act of the Federal Legislature and an Act of the Provincial Legislature, we must try to ascertain _the pitli and substance or the ·true nature and character of the conflicting provisions and that before an Act is declared ultra vires, there should be an attempt to reconcile the two conflicting jurisdic-tions, and, only if such reconciliation should prove (1) I.L.R. 1954 Bom. 41. (•) (1948) F.C.R. •07·

impossible, the impugned Act should be declared in.-r960 . valid." It may also be pointed out that in all these Th w . three cases, one source of income of an individual or i;:;;~o. Ramp:, one •item out of the total capital of an individual was Ltd. & Others ' the basis of calculation while income-tax or capital levy v. is .generally on the total income or the total capital of The Staie uf person. That aspect must have gone into the deci-Orissa & Oth,rs sion that the method employed was merely mode Wanchoo J. for imposing tax on lands and buildings. In the present case, however, I see no difference between the method of imposing duty of excise _and the method employed in the Act for imposing cess-a matter which will be clear from the cesses imposed under the two Central Acts already referred to (No. XXXII of 1947 and No. LXV of 1951). It is not as if there could be no method of imposing fee properly so called in this case except the one employed. Two methods readily suggest themselves. lump sum annual fee could be levied on each mine even on graded scale depending on the size of the mine as evidenced by its share capital. Or similar graded fee could be levied on each mine depending on its size de<.;ermined by the . number of men employed therein. Where therefore the result of quantification is to bring particular impost entirely within the ambit of tax it would not be right to say that such an impost is still fee, be-cause certain services have to be rendered and fund has been created in whfoh collections of the impost are credited. If this were p~rmissible many taxes not otherwise leviable would be converted irito fees.by the simple device of creating special fund and attaching certain services to be rendered from the amount in that fund. That would in my opinion be colourable exercise of the power of legislation, as explained in K. 0. Gajapati Narayan Deo v. The State of Orissa ([1]). Let me illustrate how taxes can be turned into fees on the so-called basis of quantification with the . help of the device of creating fund an~ attaching certain services to be rendered . out of monies in the fund. Take the case of income-tax under item 82 of List I of the Seventh Schedule, which is exclusively reserved (1) [19,54] S.C.R. 1,

Th w . i;:;;~o. Ltd. & Others '

1960 for the Union. Suppose that some State Legislature Th H' . wants to impose tax on income other than agricul-Ramp:, •;;;;~ •. tural income in the garb of fees. All that it has to do Ltd. & othm ·is then to create special fund out of the amounts v. collected and to attach rendering of certain services The State of to the fund. All that would be necessary would be to Odssa & Othm define the services to be rendered so widely that the wanchoo f. amount required for the purpose would be practically limitless. In that case there would be no difficulty in levying any amount of tax on income, for the amount collected would always be insufficient for the large number of services to be rendered. What has to be done is to find out number of items in Lists II and III of the Seventh Schedule in respect of which fees can be levied by the State Legislature. These fees can be le~ied on total basis for large number of services under various entries of Lists II and III. fund can be created, say, for rendering services of various kinds to residents of one district. In order to meet the expenses of rendering such services, suppose, the legislature imposes tax on every one in the dis-trict at 10 per centum of the net total income (other than agricultural income); the amount so collected is put in separate fund and ear-marked for such special services to be rendered to the residents of that district. Can it be said that such levy is fee justified under various entries of Lists II and III, and not tax on income, on the ground that this is merely mode of quantification? As an instance, take, item 6 of List II, "Public health and sanitation, hospitals and dispen-saries"; item 9, "Relief of the disabled and unemploy. able"; item 11, Education; item 12, Libraries, museums and similar institutions"; item 13, communications, that is to say, roads, bridges a.nd other means of com-munications; item 17, "Water, that is to say, water supplies, irrigation and canals, drainage and embank-ments, water storage and water power"; and item 25, "Gas and gas-works"; item 23 of List III, "Social security and social insurance, employment and un-employment"; item 24, "Welfare of labour including conditions of work, provident funds, employers' liabi-lity, workmen's compensation, invalidity and old age

pensions and maternity benefits"; item 25, "Vocational '9[60 ]and technical training of labour"; and item 38, "Elec-1[[., ]][H' ]. tr1c1ty . . " . ssume t at un . IS create create .1.or .!' ren ermg · Rampur ,.. Coal ingir-these services to the residents of district. The State Ltd. s. Others Legislature is entitled to impose fees for rendering v. these services to the residents of the district; the costs 1 he State 01 of these services would obviously be limitless and · in Orissa & Others order to meet these costs, the State legislature levies Wanchoo 1. consolidated fee for all these purposes at 10 per cen-tum of the total net income on the residents of the district (excluding his agricultural income) as mea-sure of quantification of the fee. Can it be said in the circumstances that such levy would not be income-tax, simply because fund is created to be used in the district where collections are made and these services have to be rendered out of the fund so created to the residents of that district and to no others? The ans-wer can only be one,· viz., that the nature of the im-post is to be seen in its pith and substance; and if in pith and substance it is income-tax within item 82 of List 1 of the Seventh Schedule it will still remain income-tax in spite of the creation of fund and the attaching of certain services to the monies in that fund to be rendered in particular area. Such an impost can never be justified as consolidated fee on the ground that it is merely method of quantification . Compare what has been done in this case. Sec. 3 of the Act which refers to the services to be rendered mentions communications, that is, roads, bridges and other means of communication (barring those given in List I), water-supply and electricity, for the better development of the area. These three items them-selves would mean expenditure of such large amounts· that anything could be charged as fee to meet the costs, particularly in an undeveloped State like Orissa. Further, the section goes on to mention provision for the welfare of residents or workers in any such area, which would include such things as social security and social insurance, provident-funds, employer's liability, workmen's compensation, invalidity and old age pen-sions and maternity benefits and may be even employ-ment and unemployment. Again large funds would

1[[., ]]IS create create .1.or .!' ren ermg · Rampur ,.. Coal ingir-co.,

'9[60 ]be required for these purposes. Therefore, the servi-ne Hingir-ces enumerated ins. 3 being so large a~d requiring Rampu' coal co .. such large sums, any amount can be levied as fee Ltd. & Othm and in the name of quantification any tax, even v. though it may be in List I, can be imposed; and that The State [0]1 is exactly what has been done, namely, what is really Odssa'"' Othm duty of excise has been imposed as fee for these wan,hoo J. purposes which fall under items 13 and 17 of List II and 23, 24 and 38 of List III. There can be no doubt in the circumstances that the levy of cess as fee in this case is colourable piece of legislation. I do not say that the Orissa State Legislature did this deliberately. The motive of the legislature in such cases is irrelevant and it is the effect of the legislation that has to be seen. Looking at that, the cess in this case is in pith and substance nothing other than duty of excise under item 84 of List I and therefore the State legislature was incompetent to levy it as fee.The next contention on behalf of the State of Orissa is that if the cess is not justified as fee, it is tax under item 50 of List II of the Seventh Schedule. Item 50 provides for taxes on mineral rights subject to any limitations imposed by Parliament by law re-lating to mineral development. This raises question as to what are taxes on mineral rights. Obviously, taxes on mineral rights must be different from taxes on goods produced in the nature of duties of excise. If taxes on mineral rights also include taxes on minerals produced, there would be no difference between taxes on mineral rights and duties of excise under item 84 of List I. comparison of Lists I and II of the Seventh Schedule shows that the same tax is not put in both the Lists. Therefore, taxes on mineral rights must be different from duties of excise which are taxes on minerals produced. The difference can be understood if one sees that before minerals are extracted and become liable to duties of excise somebody has got to work the min-es. The usual method of working them is for tqe owner of the mine to grant mining leases to those w40 have got the capital to work the mines. There should

2 S.C.R. SUPREME COURT REPORTS

therefore be no difficulty in holding that taxes on 1960 mineral rights are taxes on the . right l to extract ll mine-d Th H' ingir· . rals and not taxes on the mmera s actua y extracte . Rampur coal co., Thus tax on mineral rights would be confined, for Ltd. & Others example, to taxes on leases of mineral rights and on v. premium or royalty for that. Taxes on such premium n. State [0]1 and royalty would be taxes on mineral rights while Orissa & Others taxes on the minerals actually extracted would be Wanchoo J. duties of excise. It is said that there may be cases where the owner himself extracts minerals and does not give any right of extraction to somebody else and that in such cases in the absence of mining leases or sub-leases there would be no way of levying tax on mineral rights. It is enough to say that these cases also, rare though they are, present no diffi-culty. Take the case of taxes on annual value of buildings. Where there is lease of the building, the annual value is determined by the lease-money; but there are many cases where owners themselves live in buildings. In such cases also taxes on buildings are levied on the annual value worked out according to certain rules. There would be no difficulty where an owner himself works the mine to value the mineral rights on the same principles on which leases of mine.-ral rights are made and then to tax the royalty which, for example, the owner might have got if instead of working the mine himself he had leased it out to somebody else. There can be no doubt there-fore that taxes on mineral rights are taxes of this nature and not taxes on minerals -actually pro-duced. Therefore the present cess is not tax on mineral rights; it is tax on the minerals actually produced and can be no different in pith and substan-ce from tax on goods produced which comes under Item 84 of List I, as duty of excise. The present levy therefore under s. 4 of the Act cannot be justified as tax on mineral rights.

In the view I have taken, it is not necessary to con-sider the other point, raised on behalf of the peti-tioners, namely, that even if it is fee, in view of the two Central Acts (mentioned earlier) the Orissa. Legis-lature was not competent to pass the Act. I would

'9[[60 ]]therefore allow the petition, and declare that the n. Hingir-Orissa Mining Areas Development Fund Act, 1952, is Rampu• coal co., beyond the constitutional competence of the Orissa. Lid. & Othm Legislature to pass it. The whole Act must be struck v. down because there will be very little left in the Act Th• Stat• [0]1 ifs. 4 falls as it must. The legislature would never Orissa ©- Otlurs have passed the Act without s. 4. Wanchoo J. BY COURT. In accordance with the majority Judg-the majority Judg-majority Judg-ment of the Court, the Writ Petition is dismissed with costs.

November aa.

KANTILAL MANILAL AND ORS.

v. THE COMMISSIONER OF INCOME-TAX, BOMBAY

(J. L. KAPUR, M. HIDAYATULLAH and J. c. SH;\H, JJ.)

Income-tax-Distribution of new shares at half the market value-If amounts to distribution of dividend-Assessment-Re-opening of-The Indian Income-tax Act, r9a2 (II of r9zz), ss. a(6A) (a), 66(r).

The appellants were shareholders of company known as Navjivan Mills ltd. which held large number of shares of the Bank of India. The Bank with the object of increasing their share capital offered some more shares to the Mills for price including premium which was about half the market value. The Mills purchased small number of the shares so offered with their own funds and distributed their right to acquire the remaining shares to their shareholders in the proportion of two shares of the Bank for one share held by them. The assessment of the appellant was reopened by the Income Tax Officer under s. 34(1)(a) of the Income-tax Act on the footing that the release of the right to the shares of the Bank of India amounted to distribution of dividend. Appeals against the order of the Income Tax Officer having failed, the High Court at the instance of the appellants framed the following question:-

"Whether on the facts and circumstances of the case, the diskibution of the right to apply for the shares of the Bank of India by Navjivan Mills Ltd. in favour of the assessees amount-ed to distribution of "dividend"?