The Hingir-Rampur Coal Co., Ltd. & Ors Vs. The State of Orissa & Ors [1960] INSC 208 (21 November 1960)
1960 Latest Caselaw 208 SC

The Hingir-Rampur Coal Co., Ltd. & Ors Vs. The State of Orissa & Ors [1960] INSC 208 (21 November 1960)

GAJENDRAGADKAR, P.B.

SARKAR, A.K.

SUBBARAO, K.

WANCHOO, K.N.

MUDHOLKAR, J.R.

CITATION: 1961 AIR 459 1961 SCR (2) 537

CITATOR INFO :

R 1963 SC 703 (23) F 1964 SC1284 (11,14) D 1965 SC 177 (8) R 1965 SC1107 (17,48,50) APL 1970 SC1436 (14,15,16) R 1971 SC1182 (7) F 1975 SC 846 (14) RF 1976 SC1654 (5,19,24,25) AFR 1980 SC 1 (13) R 1980 SC1008 (13,14) RF 1980 SC1955 (41) RF 1981 SC 711 (11) RF 1981 SC 951 (11) R 1983 SC 617 (6) R 1983 SC 930 (7) F 1983 SC1246 (30) R 1984 SC 420 (15) RF 1985 SC 218 (7,9) D 1985 SC1211 (41) RF 1986 SC 726 (11) RF 1987 SC2034 (16) RF 1989 SC 317 (34) R 1989 SC2015 (10) F 1990 SC 85 (26,30) R 1990 SC1637 (47) E 1991 SC1676 (5,6,9,13,15,18,27,42,48,50,52 RF 1992 SC1383 (14) R 1992 SC2038 (3,7)

ACT:

Mining Areas, Development of--Enactment by State Legislature authorising constitution of mining areas and development fund-Imposition of cess-Constitutional validity-Competency of State Legislature-Orissa Mining Areas Development Fund Act, 1952 (Orissa XXVII of 1952), S. 4-Constitution of India, Art. 372, Seventh Schedule, List II, Entry 23, 66, List I, Entries 52, 54, 84--Adaptation of Laws Order, 1950, cls. 16, 21.

HEADNOTE:

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

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

Although there can be no generic difference between a tax and a fee since both are compulsory exactions of money by public authorities, there is this distinction between them that whereas a tax is imposed for public purposes and requires no consideration to support it, a fee is levied essentially for services rendered and there must be an element of quid pro quo between the person 538 who pays it and the public authority that imposes it. While a tax invariably goes into the consolidated fund, a fee is earmarked for the specified services in a fund created for the purpose. Whether a cess is one or the other would naturally depend on the facts of each case. If in the guise of a fee, the Legislature imposes a tax, it is for the Court on a scrutiny of the scheme of the levy, to determine its real character. The distinction is recognised by the Constitution which while empowering the appropriate Legislatures to levy taxes under the Entries in the three lists refers to their power to levy fees in respect of any such matters, except the fees taken in court, and tests have been laid down by this Court for determining the character of an impugned levy.

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

P. P. Kutti Keva & Ors. v. The State of Madras, A.I.R.

1954 Mad. 621, Attorney-General for British Columbia v. Esquimalt and Nanaimo Railway Co., (1950) A.C. 87 and Parton & Any. v. Mils Board (Victoria), (1949) 80 C.L.R.

229, considered and held inapplicable.

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

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

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

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

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

539 1940 Bom. 58 and Governor-General in Council v. Province of Madras, (1945)'L.R. 72 I.A. 91, considered.

The limitation imposed by the latter part of Entry 23 of List II is a limitation on the legislative competence of the State' Legislature itself and the test whether a statute passed by the State Legislature thereunder was ultra vires would be whether the requisite declaration under Entry 54, List I, has been made by Parliament by law covering the same field or not; it is not necessary in order to make the declaration effective that rules should also be made and enforced.

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

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

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

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

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

540 The Commissioner, Hindu Religious Endowments, Madras, v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt, [1954] S.C.R. 1005, Mahant Sri Jaannath Ramanuj Das v. The State of Orissa, [1954] S.C.R. 1046 and Ratilal Panachand Gandhi v. The State of Bombay, [1954] S.C.R. 1055, discussed.

A duty of excise in pith and substance is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is different and distinct from a sales tax and in law they do not overlap.

Governor-General in Council v. Province of Madras, 72 I.A.

91, referred to.

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

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

Sri Byramjee Jeejeebhoy v. The Province of Bombay, I.L.R.

1940 Bom. 58, Municipal Corporation, Ahmedabad v. Patel Gordhandas Hargovandas, I.L.R. 1054 Bom. 41 and Ralla Ram v.

The Province of East Punjab, [1948] F.C.R. 207, considered.

K. C. Gajapati Narayan Deo v. The State of Orissa, [1954] S.C. R. 1, referred to.

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

ORIGINAL JURISDICTION: Petition No. 87 of 1959.

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

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

A. V. Viswanatha Sastri, R. Ganapathy Iyer, P. Kesava Pillai and T. M. Sen, for the respondents.

H. N. Sanyal, Additional Solicitor-General of India, B. Sen and R. H. Dhebar, for the Intervener.

541 1960. November, 21. The, Judgment of P. B. Gajendragadkar, A. K. Sarkar, K. Subba Rao and J. R. Mudholkar, JJ., was delivered by P. B. Gajendragadkar J., K. N. Wanchoo, J., delivered a separate judgment.

GAJENDRAGADKAR, J.-This is a petition filed under Art. 32 of the Constitution in which the validity of the Orissa Mining Areas Development Fund Act,(-, 1952 (XXVII of 1952), is challenged. The first petitioner is a public limited company which has its registered office at Bombay. A large majority of its shareholders are citizens of India; some of them are themselves companies incorporated under the Indian Companies Act. Petitioners Nos. 2 to 7 are the Directors of Petitioner No. 1, the second petitioner being the Chairman of its Board of Directors. These petitioners are all citizens of India. At all material times the first petitioner carried on and still carries on the business of producing and selling coal excavated from its collieries at Rampur in the State 'of Orissa. Two leases have been executed in its favour; the first was executed on October 17, 1941, by the Governor of Orissa whereby all that piece or parcel of land in the registration district of Sambalpur admeasuring about 3341.79 acres has been demised for a period of 30 years commencing from September 1, 1939, in consideration of the rent reserved thereby and subject to the covenants and conditions prescribed there under; and the second is a surface lease executed in its favour by Mr. Mohan Brijraj Singh Dee on April 19, 1951, in relation to a land admeasuring approximately 211.94 acres for a like period of 30 years commencing from February 4, 1939, in consideration of the rent and subject to the terms and conditions prescribed by it.

Pursuant to s. 5 of the Orissa Estates Abolition Act, 1951, all the right, title and interest of the Zamindar of Rampur in the lands demised to the first petitioner under the second lease vested in respondents, the State of Orissa.

Since then the first petitioner has duly paid the rent reserved by the said lease to the appropriate authorities appointed by respondent 1, 69 542 and has observed and performed all the conditions and covenants of the said lease. In exercise of its rights under the said two leases the first petitioner entered upon the lands demised and has been carrying on the business of excavating and producing coal at its collieries at Rampur.

In December, 1952, the Legislature of the State of Orissa passed the impugned Act; and it received the assent of the Governor of Orissa on December 10, 1952. It was, however, not reserved for the consideration of the President of India nor has it received his assent. In pursuance of the rulemaking power conferred on it by the impugned Act respondent 1 has purported to make rules called the Orissa Mining Areas Development Act Rules, 1955; these rules have been duly notified in the State Gazette on January 25, 1955.

Subsequently, the Administrator, respondent 2, appointed under the impugned Act issued a notification on June 24, 1958, whereby the first petitioner's Rampur colliery has been notified for the purpose of liability for the payment of cess under the impugned Act. The area of this colliery has been determined at 3341.79 acres. In its appeal filed under rule 3 before the Director of Mines the first petitioner objected to the issue of the said notification, inter alia, on the ground that the impugned Act and the rules framed under it were ultra vires and invalid; no action has, however, been taken on the said appeal presumably because the authority concerned could not entertain or deal with the objections about the vires of the Act and the rules.

Thereafter on March 26, 1959, the Assistant Administrative Officer, respondent 3, called upon the first petitioner to submit monthly returns for the assessment of the cess. The first petitioner then represented that it had filed an appeal setting forth its objections against the notification, and added that until the said appeal was disposed of no returns would be filed by it. In spite of this representation respondent 3, by his letter of May 6, 1959, called upon the 543 first petitioner to submit monthly returns in the prescribed form and issued the warning that failing compliance the first petitioner would be prosecuted under s. 9 of the impugned Act. A similiar demand was made and a similar warning issued by respondent 3 by his letter dated June 6, 1959. It is under these circumstances that the present petition has been filed.

The petitioners contend that the impugned Act and' the rules made thereunder are ultra vires the powers of the Legislature of the State of Orissa, or in any event they are repugnant to the provisions of an existing law. According to the petition the cess levied under the impugned Act is not a fee but is in reality and in substance a levy in the nature of a duty of excise on the coal produced at the first petitioner's Rampur colliery, and as such is beyond the legislative competence of the Orissa Legislature.

Alternatively it is urged that even if the levy imposed by the impugned Act is a fee relatable to Entries 23 and 66 in List II of the Seventh Schedule, it would nevertheless be ultra vires having regard to the provisions of Entry 54 in List I read with Central Act LIII of 1948. The petitioners further allege that even if the said levy is held to be a fee it would be similarly ultra vires having regard to Entry 52 in List I read with Central Act LXV of 1951. According to the petitioners the impugned Act is really relatable to Entry 24 in List III, and since it is repugnant with Central Act XXXII of 1947 relatable to the same Entry and covering the same field the impugned Act is invalid to the extent of the said repugnancy under Art. 254. On these allegations the petitioners have applied for a writ of mandamus or a writ in the nature of the said writ or any other writ, order or direction prohibiting the respondents from enforcing any of the provisions of the impugned Act against the first petitioner; a similar writ or order is claimed against respondent 3 in respect of the letters addressed by him to the 1st petitioner on March 3, 1959 and June 6, 1959.

This petition is resisted by respondent 1 on several grounds. It is urged on its behalf that the levy 544 imposed by the impugned Act is a fee relatable to Entries 23 and 66 in List II and its validity is not affected either by Entry 54 read with Act LIII of 1948 or by 'Entry 52 read with Act LXV of 1951. In the alternative it is contended that if the said levy is held to be a tax and not a fee, it would be a tax relatable to Entry 50 in List II, and as such the legislative competence of the State Legislature to impose the same cannot be successfully challenged.

Respondent 1 disputes the petitioner's contention that the impugned Act is relatable to Entry 24 in List III; and so, according to it, no question of repugnancy with the Central Act XXXII of 1947 arises.

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

The first question which falls for consideration is whether the levy imposed by the impugned Act amounts to a fee relatable to Entry 23 read with Entry 66 in List II. Before we deal with this question it is necessary to consider the difference between the concept of tax and that of a fee.

The neat and terse definition of tax which has been given by Latham, C. J., in Matthews v. Chicory Marketing Board (1) is often cited as a classic on this subject. "A tax", said Latham, C. J., "is a compulsory exaction of money by public authority for public purposes enforceable by law, and is not payment for services rendered". In bringing out the essential features of a tax this defini(1) (1938) 60 C.L.R. 263, 276.

545 tion also assists in distinguishing a tax from a fee. It is true that between a tax and a fee there is no generic difference. Both are compulsory exactions of money. by public authorities; but whereas a tax is imposed for public purposes and is not, and need not, be supported by any consideration of service rendered in return, a fee is levied essentially for services rendered and as such there is an element of quid pro quo between the person who pays the fee and the public authority which imposes it. If specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area, and as a condition precedent for the said services or in return for them cess is levied against the said area or the said class of persons or trade or business the cess is distinguishable from a tax and is described as a fee. Tax recovered by public authority invariably goes into the consolidated fund which ultimately is utilised for all public purposes, whereas a cess levied by way of fee is not intended to be, and does not become, a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied. There is, however, an element of compulsion in the imposition of both tax and fee. When the Legislature decides to render a specific service to any area or to any class of persons, it is not open to the said area or to the said class of persons to plead that they do not want the service and therefore they should be exempted from the payment of the cess.

Though there is an element of quid pro quo between the taxpayer and the public authority there is no option to the tax-payer in the matter of receiving the service determined by public authority. In regard to fees there is, and must always be, co-relation between the fee collected and the service intended to be rendered. Cases may arise where under the guise of levying a fee Legislature may attempt to impose a tax; and in the case of such a colourable exercise of legislative power courts would have to scrutinise the scheme of the levy very carefully and determine whether in fact there is a co-relation between the service and the levy, or whether the levy is either not co-related with service or is levied to such an 546 excessive extent as to be a presence of a fee and not a fee in reality. In other words, whether or not a particular cess levied by a statute amounts to a fee or tax would always be a question of fact to be determined in the circumstances of each case. The distinction between a tax and a fee is, however, important, and it is recognised by the Constitution. Several Entries in the Three Lists empower the appropriate Legislatures to levy taxes; but apart from the power to levy taxes thus conferred each List specifically refers to the power to levy fees in respect of any of the matters covered in the said List excluding of course the fees taken in any Court.

The question about the distinction between a tax and a fee has been considered by this Court in three decisions in 1954. In The Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (1) the vires of the Madras Hindu Religious and Charitable Endowments Act, 1951 (Madras Act XIX of 195 1), came to be examined. Amongst the sections challenged was s. 76(1).

Under this section every religious institution had to pay to the Government annual contribution not exceeding 5% of its income for the services rendered to it by the said Government; and the argument was that the contribution thus exacted was not a fee but a tax and as such outside the competence of the State Legislature. In dealing with this argument Mukherjee, J., as he then was, cited the definition of tax given by Latham, C.J., in the case of Matthews (2), and has elaborately considered the distinction between a tax and a fee. The learned judge examined the scheme of the Act and observed that "the material fact which negatives the theory of fees in the present case is that the money raised by the levy of the contribution is not earmarked or specified for defraying the expense that the Government has to incur in performing the services. All the collections go to the consolidated fund of the State and all the expenses have to be met not out of those collections but out of the general revenues by a proper method of appropriation as is done in the (1) [1954] S.C.R. 1005.

(2) (1938) 60 C.L.R. 263.

547 case of other Government expenses". The learned judge no doubt added that the said circumstance was not conclusive and pointed out that in fact there was a total absence of any co-relation between the expenses incurred by the Government and the amount raised by contribution. That is why s. 76(1) was struck down as ultra vires.

The same point arose before this Court in respect of the Orissa Hindu Religious Endowments Act, 1939, as amended by amending Act 11 of 1952 in Mahant Sri Jagannath Ramanuj Das v. The, State of Orissa (1). Mukherjea, J., who again spoke for the Court, upheld the validity of s. 49 which imposed the liability to pay the specified contribution on every Mutt or temple having an annual income exceeding Rs. 250 for services rendered by the State Government. The scheme of the impugned Act was examined and it was noticed that the collections made under it are not merged in the general public revenue and are not appropriated in the manner laid down for appropriation of expenses for other public purposes. They go to constitute a fund which is contemplated by s. 50 of the Act, and this fund to which the Provincial Government contributes both by way of loan and grant is specifically set apart for the rendering of services involved in carrying out the provisions of the Act.

The same view was taken by this Court in regard to s. 58 of the Bombay Public Trust Act, 1950 (Act XXIX of 1950) which imposed a similar contribution for a similar purpose in Ratilal Panachand Gandhi v. The State of Bombay (2). It would thus be seen that the tests which have to be applied in determining the character of any impugned levy have been laid down by this Court in these three decisions; and it is in the light of these tests that we have to consider the merits of the rival contentions raised before us in the present petition.

On behalf of the petitioners Mr. Amin has relied on three other decisions which may be briefly considered. In P. P. Kutti Keya v. The State of Madras (3), the Madras High Court was called upon to consider, inter (1) [1954] S.C.R. 1046. (2) [1954] S.C.R. 1055.

(3) A.I.R. 1954 Mad. 621.

548 alia, the validity of s. 11 of the Madras Commercial Crops Markets Act 20 of 1933 and Rules 28(1) and 28(3) framed thereunder. Section 11(1) levied a fee on the sales of commercial crops within the notified area and s. 12 provided that the amounts collected by the Market Committee shall be constituted into a Market Fund which would be utilised for acquiring a site for the market, constructing a building, maintaining the market and meeting the expenses of the Market Committee. The argument that these provisions amounted to services rendered to the notified area and thus made the levy a fee and not a tax was not accepted by the Court. Venkatarama Aiyar, J., took the view that the funds raised from the merchants for a construction of a market in substance amounted to an exaction of a tax. Whether or not the construction of a market amounted to a service to the notified area it is unnecessary for us to consider.

Besides, as we have already pointed out we have now three decisions of this Court which have authoritatively dealt with this matter, and it is in the light of the said decisions that the present question has to be considered.

In Attorney-General for British Columbia v. Esquimalt and Nanaimo Railway Co. (1), the Privy Council had to deal with the validity of forest protection impost levied by the relevant section of the Forest Act R. S. B. C. 1936. The lands in question were statutorily exempted from taxation, and it was urged against the validity of the impost that the levy of the said impost was not a service charge but a tax;

and since it contravened the exemption from taxation granted to the land it was invalid. This plea was upheld by the Privy Council. The Privy Council did consider two circumstances which were relevant; the first that the levy was on a defined class of interested individuals, and the second that the fund raised did not fall into the general mass of the proceeds of taxation but was applicable for a special and limited purpose. It was conceded that these considerations were relevant but the Privy Council thought that the weight to be attached to them should not be exagge(1) (1950) A.C. 87.

540 rated. In appreciating the weight of the said relevant circumstances the Privy Council was impressed by the fact that the lands in question formed an important part of the national wealth of the Province and their proper administration, including in particular protection against fire, is a matter of high public concern' as well as one of particular interest to individuals. In other words, the effect of the impugned provision was, that the expenses of what was the public service of the greatest importance for the Province as a whole had been divided between the general body of tax. payers and those individuals who had a special interest in having their property protected. It would thus appear that this decision proceeded on the basis that what was claimed to be a special service to the lands in question was in reality an item in public service itself, and so the element of quid pro quo was absent. It is true that when the Legislature levies a fee for rendering specific services to a specified area or to a specified class of persons or trade or business, in the last analysis such services may indirectly form part of services to the public in general.

If the special service rendered is distinctly and primarily meant for the benefit of a specified class or area the fact that in benefiting the specified class or area the State as a whole may ultimately and indirectly be benefited would not detract from the character of the levy as a fee. Where, however, the specific service is indistinguishable from public service, and in essence is directly a part of it, different considerations may arise. In such a case it is necessary to enquire what is the primary object of the levy and the essential purpose which it is intended to achieve.

Its primary object and the essential purpose must be distinguished from its ultimate or incidental results or consequences. That is the true test in determining the character of the levy.

In Parton. v. Milk Board (Victoria)(1), the validity of the levy imposed on dairymen and owners of milk depots by s. 30 of the Milk Board Act of 1933 as amended by subsequent Acts of 1936-1939 was (1) (1949) 80 C.L.R. 229.

70 550 challenged, and it was held by Dixon, J., that the levy of the said contribution amounted to the imposition of a duty of excise. This decision was substantially based on the ground that the statutory board "performs no particular service for the dairyman or the owner of a milk depot for which his contribution may be considered as a fee or recompense" that is to say the element of quid pro quo was absent qua the persons on whom the levy had been imposed.

Therefore none of the decisions on which Mr. Amin has relied can assist his case.

Let us now examine the scheme of the impugned Act. As the preamble shows it has been passed because it was thought expedient to constitute mining areas and a Mining Areas Development Fund in the State of Orissa. It consists of 11 sections. Section 3 of the Act provides for the constitution of a mining area whenever it appears to the State Government that it is necessary and expedient to provide amenities like communications, water-supply and electricity for the better development of any area in the State of Orissa wherein any mine is situated, or to provide for the welfare of the residents or to workers in any such areas within which persons employed in a mine or a group of mines reside or work. Under this section the State Government has to define the limits of the area. and is given the power to include within such area any local area contiguous to the same or to exclude from such area any local area comprised therein; that is the effect of s. 3(1).

Section 3(2) empowers the owner or a lessee of a mine or his duly constituted representative in the said area to file objections in respect of any notification issued under s. 3(1) within the period specified, and the State Government is required to take the said objection into consideration.

After considering objections received the State Government is authorised to issue a notification constituting a mining area under s. 3(3). Section 4 deals with the imposition and collection of cess. The rate of the levy authorised shall not exceed 5 per centum of the valuation of the minerals at the pit's mouth. Section 5 provides for the constitution of the Orissa Mining Areas Development 551 Fund. This fund vests in the State Government and has to be administered by such officer or officers as may be appointed by the State Government in that, behalf Section 5(2) requires that there shall be paid to the credit of the said fund the proceeds of the cess recovered under s. 4 for each mining area during the quarter after deducting expenses, if any, for collection and recovery. Section 5(3) contemplates that to the credit of the said fund shall be placed all collections of cess under s. 5(2) as well as amounts from State Government and the local authorities and public subscriptions specifically given for any of the purposes of the fund. Section 5(4) deals with the topic of the application of the said fund. The fund has to be utilised to meet expenditure incurred in connection with such measures which in the opinion of the State Government are necessary or expedient for providing amenities like communications, water supply and electricity, for the better development of the mining areas, and to meet the welfare of the labour and other persons residing or working in the mining areas.

Section 5(5) lays down that without prejudice to the generality of the foregoing provisions the fund may be utilised to defray any of the purposes specified in cls. (a) to (e). Under s. 5(6) the State Government is given the power to decide whether any particular expenditure is or is not debitable to the fund and their decision is made final;

and s. 5(7) imposes on the State Government an obligation to publish annually in the gazette a report of the activities financed from the fund together with an estimate of receipts and expenditure of the fund and a statement of account.

Section 6 prescribes the mode of constituting an advisory committee. It has to consist of such number of members and chosen in such manner as may be prescribed, provided however that each committee shall include representatives of mineowners and workmen employed in mining industry. The names of the members of the committee are required to be published in the gazette. Section 7 deals with the appointment and functions of the statutory authorities to carry out the purpose of the Act, while s. 8 confers on the State Government power to 552 make rules. Section 9 prescribes penalties and provides for prosecutions; and s. 10 gives protection to the specified authorities or officers in respect of anything done or intended to be done by them in good faith in pursuance of the Act or any rules or order made thereunder. Section 11, which is the last section confers on the State Government the power to do anything which may appear to them to be necessary for 'the purpose of removing difficulties in giving effect to the provisions of the Act.

The scheme of the Act thus clearly shows that it has been passed for the purpose of the development of mining areas in the State. The basis for the operation of the Act is the constitution of a mining area, and it is in regard to mining areas thus constituted that the provisions of the Act come into play. It is not difficult to appreciate the intention of the State Legislature evidenced by this Act. Orissa is an underdeveloped State in the Union of India though it has a lot of mineral wealth of great potential value. Unfortunately its mineral wealth is located generally in areas sparsely populated with bad communications. Inevitably the exploitation of the minerals is handicapped by lack of communications, and the difficulty experienced in keeping the labour force sufficiently healthy and in congenial surroundings. The mineral development of the State, therefore, requires that provision should be made for improving the communications by constructing good roads and by providing means of transport such as tramways; supply of water and electricity would also help. It would also be necessary to provide for amenities of sanitation and education to the labour force in order to attract workmen to the area. Before the Act was passed it appears that the mine-owners tried to put up small-length roads and tramways for their own individual purpose, but that obviously could not be as effective as roads constructed by the State and tramway service provided by it. It is on a consideration of these factors that the State Legislature decided to take an active part in unsystematic development of its mineral areas which would help the mine-owners in moving their 553 minerals quickly through the shortest route and would attract labour to assist the excavation of the minerals.

Thus there can be no doubt that the primary and the principal object of the Act is to develop' the mineral areas in the State and to assist more efficient and extended exploitation of its mineral wealth.

The constitution of the advisory committee as prescribed by s. 4 emphasises the fact that the policy of the Act would be to carry out with the assistance of the mine-owners and their workmen. Thus after a mining area is notified an advisory committee is constituted in respect of it, and the task of carrying out the objects of the Act is left to the care of the said advisory committee subject to the provisions of the Act. Even before an area is notified the mine-owners are allowed an opportunity to put forward their objections. These features of the Act are also relevant in determining the question as to whether the Act is intended to render service to the specified area and to the class of persons who are subjected to the levy of the cess.

Section 5 shows that the cess levied does not become a part of the consolidated fund and is not subject to an appropriation in that behalf; it goes into the special fund earmarked for carrying out the purpose of the Act, and thus its existence establishes a correlation between the cess and the purpose for which it is levied. It was probably felt that some additions should be made to the special fund, and so s. 5(3) contemplates that grants from the State Government and local authorities and public subscriptions may be collected for enriching the said fund. Every year a report of the activities financed by the fund has to be published together with an estimate of receipt and expenditure and a statement of accounts. It would thus be clear that the administration of the fund would be subject to public scrutiny and persons who are called upon to pay the levy would have an opportunity to see whether the cess collected from them has been properly utilised for the purposes for which it is intended to be used. It is not alleged by the petitioners 554 that the levy imposed is unduly or unreasonably excessive so as to make the imposition a colourable exercise of legislative power. Indeed the fact that the accounts have to be published from year to year affords an indication to the contrary. Thus the scheme of the Act shows that the cess is levied against the class of persons owning mines in the notified area and it is levied to enable the State Government to render specific services to the said class by developing the notified mineral area. There is an element of quid pro quo in the scheme, the cess collected is constituted into a specific fund and it has not become a part of the consolidated fund, its application is regulated by a statute and is confined to its purposes, and there is a definite co-relation between the impost and the purpose of the Act which is to render service to the notified area.

These features of the Act impress upon the levy the character of a fee as distinct from a tax.

It is, however, urged that the cess levied by s. 4(2) is in substance and reality a duty of excise. As we have already noticed s. 4(2) provides that the rate of such levy shall not exceed 5 per centum of the valuation of the minerals at the pit's mouth; in other words it is the value of the minerals produced which is the basis for calculating the cess payable by mine-owners, and that precisely is the nature in which duty of excise is levied under Entry 84 in List I. The said Entry empowers Parliament to impose duties of excise, inter alia, on goods manufactured or produced in India. When minerals are produced from mines and a duty of excise is intended to be imposed on them it would be normally imposed at the pit's mouth, and that is precisely what the impugned Act purports to do. It is also contended that the rate prescribed by s. 4(2) indicates that it operates not as a mere fee but as a duty of excise. This argument must be carefully examined before the character of the cess is finally determined. It is not disputed that under Entry 23 in List II read with Entry 66 in the said List the State Legislature can levy a fee in respect of mines and mineral development. Entry 23 reads thus: "Regulation of Mines and mineral development subject to 555 the provisions of List I with respect to regulation and development under the control of the Union". We will deal with the condition imposed by the latter part of this Entry later. For the present it is enough to state that regulation of mines and mineral development is within the competence of the State Legislature. Entry 66 provides that fees in respect of any of the matters in the said List can be imposed by the State Legislature subject of course to the exception of fees taken in any Court. The argument is that though the State Legislature is competent to levy a fee in respect of mines and mineral development, if the statute passed by a State Legislature in substance and in effect imposes a duty of excise it is travelling outside its jurisdiction and is trespassing on the legislative powers of Parliament.

This argument is based on two considerations. The first relates to the form in which the levy is imposed, and the second relates to the extent of the levy authorised. The extent of the levy authorised would always depend upon the nature of the services intended to be rendered and the financial obligations incurred thereby. If the services intended to be rendered to the notified mineral areas require that a fairly large cess should be collected and correlation can be definitely established between the proposed services and the impost levied, then it would be unreasonable to suggest that because the rate of the levy is high it is not a fee but a duty of excise. In the present case, if the development of the mining areas involves considerable expenditure which necessitates the levy of the prescribed rate it only means that the services being rendered to the mining areas are very valuable and the ratepayer in substance is compensating the State for the services rendered by it to him. It is significant that the petitioners do not seriously suggest that the services intended to be rendered are a cloak and not genuine, or that the taxes levied have no relation to the said services, or that they are unreasonable and excessive. Therefore, in our opinion, the extent of the rate allowed to be imposed by s. 4(2) cannot by itself alter the character of the levy from a 556 fee into that of a duty of excise. If the co-relation between the levy and the services was not genuine or real, or if the levy was disproportionately higher than the requirements of the services intended to be rendered it would have been another matter.

Then as to the form in which the impost is levied, it is difficult to appreciate how the method adopted by the Legislature in recovering the impost can alter its character. The character of the levy must be determined in the light of the tests to which we have already referred.

The method in which the fee is recovered is a matter of convenience, and by itself it cannot fix upon the levy the character of the duty of excise. This question has often been considered in the past, and it has always been held that though the method in which an impost is levied may be relevant in determining its character its significance and effect cannot be exaggerated. In Balla Ram v. The Province of East Punjab (1) the Federal Court had to consider the character of the tax levied by s. 3 of the Punjab Urban Immoveable Property 'tax Act XVII of 1940. Section 3 provided as follows: "There shall be charged, levied and paid an annual to tax on buildings and lands situated in the rating areas shown in the schedule to this Act at such rate not exceeding twenty per centum of the annual value of such buildings and lands as the Provincial Government may by notification in official gazette direct in respect of each such rating area". The argument urged before the Federal Court was that the tax imposed by the said section was in reality a tax on income within the meaning of Item 54 in List I of the Seventh Schedule to the Constitution Act of 1935, and as such it was not covered by Item 42 in List II of the said Schedule. This argument was rejected on the ground that the tax levied by the Act was in pith and substance a tax on lands and buildings covered by Item 42.

It would be noticed that the basis of the tax was the annual value of the building which is the basis used in the Indian Income-tax Act for determining income from property; and so, the attack against the section was based on (1) (1948) F.C.R. 207.

557 the ground that it had adopted the same basis for leaving the impost as the Income-tax Act and the said basis determined its character whatever may be the appearance in which the impost was purported to be levied. In repelling this argument Fazl Ali, J. observed that the crucial question to be answered was whether merely because the Income-tax Act has adopted the annual value as the standard for determining the income it must necessarily follow that if the same standard is employed as a measure for any other tax that tax becomes a tax on income. The learned judge then proceeded to add that if the answer to this question is to be given in the affirmative then certain taxes which cannot possibly be described as income-tax must be held to be so. In other words, the effect of this decision is that the adoption of the standard used in Income-tax Act for getting at the income by any other act for levying the tax authorised by it would not be enough to convert the said.

tax into an income-tax. During the course of this judgment Fazl Ali, J. also noticed with approval a similar view taken by the Bombay High Court in Sir Byramjee Jeejeebhoy v. The Province of Bombay (1).

This decision has been expressly approved by the Privy Council in Governor-General in Council v. Province of Madras (2). Consistently with the decision of the Federal Court their Lordships expressed the opinion that "a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax on goods and not on sales or the proceeds of the sale of goods. The two taxes, the one levied on the manufacturer in respect of his goods and the other on the vendor in respect of his sales may in one sense overlap, but in law there is no overlapping; the taxes are separate and distinct imposts.

If in, fact they overlap that may be because the taxing authority imposing a duty of excise finds it convenient to impose that duty at the moment when the excisable article (1) I.L.R. 1940 Bom. 58.

(2) (1945) L.R. 72 I.A. 91.

71 558 leaves the factory or workshop for the first time on the occasion of its sale". In that case the question was whether the tax authorised by the Madras General Sales Tax Act, 1939, was a tax on the sale of goods or was a duty of excise, and the Privy Council held it was the former and not the latter. Therefore, in our opinion, the mere fact that the levy imposed by the impugned Act has adopted the method of determining the rate of the levy by reference to the minerals produced by the mines would not by itself make the levy a duty of excise. The method thus adopted may be relevant in considering the character of the impost but its effect must be weighed along with and in the light of the other relevant circumstances. In this connection it is always necessary to bear in mind that where an impugned statute passed by a State Legislature is relatable to an Entry in List II it is not permissible to challenge its vires only on the ground that the method adopted by it for the recovery of the impost can be and is generally adopted in levying a duty of excise. Thus considered the conclusion is inevitable that the cess levied by the impugned Act is neither a tax nor a duty of excise but is a fee.

The next question which arises is, even if the cess is a fee and as such may be relatable to Entries 23 and 66 in List II its validity is still open to challenge because the legislative competence of the State Legislature under Entry 23 is subject to the provisions of List I with respect to regulation and development under the control of the Union;

and that takes us to Entry 54 in List I. This Entry reads thus: "Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient-in the public interest". The effect of reading the two Entries together is clear. The jurisdiction of the State Legislature under Entry 23 is subject to the limitation imposed by the latter part of the said Entry. If Parliament by its law has declared that regulation and development of mines should in public interest be under the control of the Union, to 559 the extent of such declaration the jurisdiction of the State Legislature is excluded. In other words, if a Central Act has been passed which contains a declaration by Parliament as required by Entry 54, and if the said declaration covers the field occupied by the impugned Act the impugned Act would be ultra vires, not because of any repugnance between the two statutes but because the State Legislature had no jurisdiction to pass the law. The limitation imposed by the latter part of Entry 23 is a limitation on the legislative competence of (,he State Legislature itself. This position is not in dispute.

It is urged by Mr. Amin that the field covered by the impugned Act has already been covered by the Mines and Minerals (Regulation and Development) Act, 1948, (LIII of 1948) and he contends that in view of the declaration made by s. 2 of this Act the impugned Act is ultra vires. This Central Act was passed to provide for the regulation of mines and oil fields and for the development of minerals.

It may be stated at this stage that by Act LXVII of 1957 which has been subsequently passed by Parliament, Act LIII of 1948 has now been limited only to oil fields. We are, however, concerned with the operation of the said Act in 1952, and at that time it applied to mines as well as oil fields. Section 2 of the Act contains a declaration as to the expediency and control by the Central Government. It reads thus: "It is hereby declared that it is expedient in the public interest that the Central Government should take under its control the regulation of mines and oil fields and the development of minerals to the extent hereinafter provided". It is common ground that at the relevant time this Act applied to coal mines. Section 4 of the Act provides that no mining lease shall be granted after the commencement of this Act otherwise than in accordance with the rules made under this Act. Section 5 empowers the Central Government to make rules by notification for regulating the grant of mining leases or for prohibiting the grant of such leases in respect of any mineral or in any area. Sections 4 and 5 thus 560 purport to prescribe necessary conditions in accordance with which mining leases have to be executed. This part of the Act has no relevance to our present purpose. Section 6 of the Act, however, empowers the Central Government to make rules by notification in the official gazette for the conservation and development of minerals. Section 6(2) lays down several matters in respect of which rules can be framed by the Central Government. This power is, however, without prejudice to the generality of powers conferred on the Central Government by s. 6(1). Amongst the matters covered by s. 6(2) is the levy and collection of royalties, fees or taxes in respect of minerals mined, quarried, excavated or collected. It is true that no rules have in fact been framed by the Central Government in regard to the levy and collection of any fees; but, in our opinion, that would not make any difference. If it is held that this Act contains the declaration referred to in Entry 23 there would be no difficulty in holding that the declaration covers the field of conservation and development of minerals, and the said field is indistinguishable from the field covered by the impugned Act. What Entry 23 provides is that the legislative competence of the State Legislature is subject to the provisions of List I with respect to regulation and development under the control of the Union, and Entry 54 in List I requires a declaration by Parliament by law that regulation and development of mines should be under the control of the Union in public interest. Therefore, if a Central Act has been passed for the purpose of providing for the conservation and development of minerals, and if it contains the requisite declaration, then it would not be competent to the State Legislature to pass an Act in respect of the subject-matter covered by the said declaration. In order that the declaration should be effective it is not necessary that rules should be made or enforced; all that this required is a declaration by Parliament that it is expedient in the public interest to take the regulation and development of mines under the control of the Union. In such a case the test must be whether the legislative declaration covers the field 561 or not. Judged by this test there can be no doubt that the field covered by the impugned Act is covered by the Central Act LIII of 1948.

It still remains to consider whether s. 2 of the said Act amounts in law to a declaration by Parliament as required by Art. 54. When the said Act was passed in 1948 the legislative powers of the Central and the Provincial Legislatures were governed by the relevant Entries in the Seventh Schedule to the Constitution Act of 1935. Entry 36 in List I corresponds to the present Entry 54 in List I. It reads thus: "Regulation of Mines and Oil Fields and mineral development to the extent to which such regulation and development under Dominion control is declared by Dominion law to be expedient in public interest". It would be noticed that the declaration required by Entry 36 is a declaration by Dominion law. Reverting then to s. 2 of the said Act it is clear that the declaration contained in the said section is put in the passive voice; but in the context there would be no difficulty in holding that the said declaration by necessary implication has been made by Dominion law. It is a declaration contained in a section passed by the Dominion Legislature' and so it is obvious that it is a declaration by a Dominion law; but the question is: Can this declaration by a Dominion law be regarded constitutionally as declaration by Parliament which is required by Entry 54 in List I.

It has been urged before us by the learned Additional Solicitor-General and Mr. Amin that in dealing with this question we should bear in mind two general considerations.

The Central Act has been continued under Art. 372(1) of the Constitution as an existing law, and the effect of the said constitutional provision must be that the continuance of the existing law would be as effective and to the same extent after the Constitution came into force as before. It is urged that after the said Act was passed and before the Constitution came into force no Provincial Legislature could have validly made a law in respect of the field covered by the said Act, and it would be commonsense to assume that the effect of the continuance of the 562 said law under Art. 372(1) cannot be any different. In other words, if no Provincial Legislature could have trespassed on the field covered by the said Act before the Constitution, the position would and must be the same even after the Constitution came into force.

It is also contended that for the purpose of bringing the provision of existing laws into accord with the provisions of the Constitution the President was given power to make by order appropriate adaptations and modifications of such laws, and the object of making such adaptations obviously was to make the continuance of the existing laws fully effective. It is in the light of these two general considerations, so the. argument runs, must the point in question be considered. The relevant clause in the Adaptation of Laws Order, 1950, on which reliance has been placed in support of this argument is el. 16 in the Supplementary Part of the said Order. This clause provides that subject to the provisions of this Order any reference by whatever form of words in any existing law to any authority competent at the date of the passing of that law to exercise any powers or authorities, or to discharge any functions, in any part of India shall, where a corresponding new authority has been constituted by or under the Constitution, have effect until duly repealed or amended as if it were a reference to that new authority. The petitioners contend that as a result of this clause the declaration made by the Dominion Legislature in s. 2 of the Central Act must now be held to be the declaration made by Parliament. Is this contention justified on a fair and reasonable construction of the clause? That is the crux of the problem.

In considering this question it would be relevant to recall the scheme of the Adaptation of Laws Order, 1950. It consists of Three Parts. Part 1 deals with the adaptation of Central Laws and indicates the adaptation made therein;

Part 11 deals with the adaptation of Provincial Laws and follows the same pattern; and Part III is a Supplementary Part which contains provisions in the nature of supplementary provisions. A perusal of the clauses contained in Part 563 I would show that though some adaptation was made in Act LIII of 1948 it was not thought necessary to make an adaptation in s. 2 of the said Act whereby the declaration implied in the said section has been expressly adapted into a declaration by Parliament.

Now, the effect of el. 16 in substance is to equate an authority competent at the date of the passing of the existing law to exercise any powers or authorities, or to discharge any functions with a corresponding new authority which has been constituted by or under the Constitution.

Reference to the authority in the con. text would suggest cases like reference to the Governor-General eo nomine, or Central Government which respectively would be equated with the President or the Union Government. Prima facie the reference to authority would not include reference to a Legislature; in this connection it may be relevant to point out that Art. 372(1) refers to a competent Legislature as distinguished from other competent authorities. That is the first difficulty in holding that el. 16 refers to the Dominion Legislature and purports to equate it with the Parliament.

It is clear that for the application of this clause it is necessary that a reference should have been made to the authority by some words whatever may be their form. In other words it is only where the existing law refers expressly to some authority that this clause can be invoked.

It is difficult to construe the first part of this clause to include authorities to which no reference is made by any words in terms, but to which such reference may be implied;

and quite clearly the Dominion Legislature is not expressly referred to in s. 2. In construing the present clause we think it would be straining the language of the clause to hold that an authority to which no reference is made by words in any part of the existing law could claim the benefit of this clause.

Besides, there is no doubt that when the clause refers to any authority competent to exercise any powers or authorities, or to discharge any functions, it refers to the powers, authorities or functions attributable to the existing law itself; that is to say, authorities 564 which are competent to exercise powers or to discharge functions under the existing laws are intended to be equated with corresponding new authorities. It is impossible to hold that the Dominion Legislature is an authority which was competent to exercise any power or to discharge any function under the existing law. Competence to exercise power to discharge functions to which the clause refers must inevitably be related to the existing law and not to the Constitution Act of 1935 which would be necessary if Dominion Legislature was to be included as an authority under this clause. The Constitution Act of 1935 had been repealed by the Constitution and it was not, and could not obviously be, the object of the Adaptation of Laws Order to make any adaptation in regard to the said Act. Therefore, the competence of the Dominion Legislature which flowed from the relevant provisions of the Constitution Act of 1935 is wholly outside this clause. We have carefully considered the arguments urged before us by the learned Additional Solicitor-General and Mr. Amin but we are unable to hold that cl. 16 can be pressed into service for the purpose of supporting the conclusion that the declaration by the Dominion Legislature implied in s. 2 of Act LIII of 1948 can, by virtue of cl. 16, be held to be a declaration by Parliament within the meaning of the relevant Entries in the Constitution. If that be the true position then the alternative challenge to the vires of the Act based on el. 16 of the Adaptation of Laws Order must fail.

There is another possible argument which may prima facie lead to the same conclusion. Let us assume that the result of reading Art. 372 and cl. 16 of the Adaptation of Laws Order is that under s. 2 of Act LIII of 1948 there is a declaration by Parliament as suggested by the petitioners and the learned Additional Solicitor-General. Would that meet the requirements of Entry 54 in List I of the Seventh Schedule? It is difficult to answer this question in the affirmative because the relevan