The Amalgamated Coalfields Ltd. and Others vs The Janapada Sabha, Chhindwara

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Petition No. 31 of 1959

Decision Date: 10 February 1961

Coram: N. Rajagopala Ayyangar, Bhuvneshwar P. Sinha, S.K. Das, A.K. Sarkar, K.C. Das Gupta

In the matter titled The Amalgamated Coalfields Ltd. and Others versus The Janapada Sabha, Chhindwara, a judgment was delivered by the Supreme Court of India on 10 February 1961. The opinion was authored by Justice N. Rajagopala Ayyangar and the bench consisted of Justices N. Rajagopala Ayyangar, Bhuvneshwar P. Sinha, S. K. Das, A. K. Sarkar and K. C. Das Gupta. The petitioners in the case were The Amalgamated Coalfields Ltd. and other associated parties, while the respondent was The Janapada Sabha, Chhindwara. The judgment is reported in 1961 AIR 964 and 1962 SCR (1) 1, and it has been cited in subsequent authorities including R 1964 SC 207, R 1964 SC 1013, R 1965 SC 1150, RF 1971 SC 57 and RF 1977 SC 1680. The legal issue concerned the coal tax and the legislative competence of a local authority to impose such a levy under the Central Provinces Local Self‑Government Act, 1920, specifically section 51, in the context of the Government of India Act, 1915 (sections 80A(3), 81(1)(3), 84(2)), the Government of India Act, 1935 (section 143), and Article 227 of the Constitution of India.

Section 51 of the Central Provinces Local Self‑Government Act, 1920 authorized a district council, subject to prior sanction of the local Government, to levy “any tax, toll or rate, other than those specified in sections 24, 48, 49 and 50.” On 12 March 1935, an Independent Mining Local Board that was operating in the area where the petitioners’ mines were located exercised the powers of a district council and passed a resolution to impose a tax on coal, coal‑dust and coke that were either manufactured at the mines or sold within the Board’s territorial jurisdiction. The petitioners received notices of demand requiring them to pay specified amounts as tax for the dispatches of coal from their mines. They contested the legality of the tax on three principal grounds. First, they argued that the Act empowering the tax under section 51 had been enacted by the local legislature without obtaining the required prior sanction of the Governor‑General, thereby violating section 80A(3) of the Government of India Act, 1915; they further contended that even if the Act had been validly passed before the 1919 amendment introducing section 80A, the power under section 51 was only exercised in 1935, by which time section 80A was already in force, making any tax imposition unlawful without the Governor‑General’s sanction. Second, they claimed that the language of section 51, read in the context of the other provisions listed therein, did not authorize a levy of the particular nature of a coal tax. Third, they asserted that, irrespective of the foregoing arguments, the tax could no longer be legally imposed after the commencement of the Government of India Act, 1935 and the Constitution of India, because such a tax could be imposed only by the Central Government.

The Court held that the levy of the tax remained legally enforceable after the Government of India Act of 1935 and the Constitution of India came into force because such a tax could be imposed only by the Central Government. The Court observed that the Central Provinces Local Self‑Government Act of 1920 had obtained the assent of the Governor‑General and, in light of the saving provisions contained in the proviso to section 80A(3) and section 84(2) of the Government of India Act of 1915, its validity could not be contested. The Court further noted that when the 1920 Act was enacted there was no ground for objection under the Government of India Act of 1915; consequently any later amendments to that earlier Act could not in any way diminish the continued validity and operation of the 1920 legislation. Upon a proper construction of section 51 of the 1920 Act, the Court found that the imposition of a coal tax was not excluded from the powers of the local authority. Finally, the Court concluded that the ongoing collection of the tax after the commencement of the Government of India Act of 1935 and the Constitution of India was permissible, relying on section 143 of the 1935 Act and article 227 of the Constitution.

The matter arose in original jurisdiction as Petition No. 31 of 1959, filed under article 32 of the Constitution for the enforcement of fundamental rights. The petition challenged the validity of two demand notices served on the petitioners, which required payment of a levy described by the respondent as a “coal tax.” The respondent was a Local Board created under the Central Provinces and Berar Local Government Act of 1948. The petitioners contended that there was no legislative authority to impose the tax and that their fundamental rights under article 19(1)(f) and (g) were being infringed. The tax in question had been imposed by the local authority beginning on 12 March 1935, and its validity had first been questioned only in 1957. The Court noted that any prior acquiescence by the petitioners could not automatically preclude relief. The Court then set out the arguments presented by the Attorney‑General on behalf of the State and described the relevant provisions of section 51 of the Central Provinces Local Self‑Government Act of 1920, which authorized a district council, subject to any existing law, to impose taxes, tolls or rates not listed in certain other sections, provided that the first imposition received prior sanction from the local government. The judgment was delivered by Justice Ayyangar.

In the Act, a district council was authorized to impose any tax, toll or rate that was not listed in sections 24, 48, 49 and 50, provided that the imposition was made by a resolution passed at a special meeting with a majority of not less than two‑thirds of the members present, and that the first such imposition obtained prior sanction of the local government. The petitioners operate several mines located in the district of Chhindwara. For the area covering those mines, an Independent Mining Local Board was created around 1926; under the definition of a “Local Board” in the Act, such a Board possessed all the powers that a district council enjoyed. After securing the required prior approval from the local government, the Mining Board, on 12 March 1935, passed a resolution in accordance with the majority requirement of Section 51(1) of the Act, to levy a tax on coal, coal‑dust and coke. The resolution stipulated that “the tax shall be levied at the rate of three pies per ton on coal, coal dust or coke, manufactured at the mines, sold for export by rail or sold otherwise than for export by rail within the territorial jurisdiction of the Independent Mining Local Board.” That tax has been imposed and collected continuously ever since.

The Local‑Self Government Act of 1920 was later repealed and replaced by the Central Provinces & Berar Local Government Act of 1948. The replacement legislation, together with subsequent amendments, contains provisions that preserve the existence of Local Boards that were constituted under the repealed enactment and that allow the taxes imposed by those Boards to continue in force after the commencement of the 1948 Act. The respondent, Janapada Sabha, was constituted under the 1948 Act and is acknowledged to be the successor to the Independent Mining Board that had passed the 1935 resolution. Consequently, the Sabha is legally entitled to maintain the levy so long as the original imposition was valid.

A further point of record is that the rate fixed in the 1935 resolution was three pies per ton, but the local body increased the rate to nine pies per ton in 1949, and the higher rate remains the applicable rate. On 23 August 1958, the Chief Executive Officer of the respondent‑Sabha served two notices of demand on the first and second petitioners, requiring them to pay Rs 21,898.64 and Rs 11,838.09 respectively as tax due for coal dispatched from their mines during the period 1 January 1958 to 30 June 1958. The petitioners challenge the validity of those notices. The learned Attorney‑General advanced three submissions: first, that the tax levied by the Independent Mining Board was invalid at the time of its original imposition…

In this case the Attorney‑General advanced three separate submissions. First, he argued that the tax imposed by the Independent Mining Board in 1935 was invalid at the time of its original imposition, and consequently the respondent‑Sabha, as the Board’s successor, possessed no authority to continue levying the tax. Second, he contended that even if the original levy had been valid, it ceased to be lawful after the Government of India Act, 1935 came into force, and later after the Constitution of India became operative in 1950, because the tax—or at least portions of it—had become a matter exclusively within the taxing power of the Central or Union Government and therefore fell outside the protection afforded by section 143 of the Government of India Act, 1935 and, subsequently, Article 277 of the Constitution. Third, he maintained that assuming section 143 did protect the tax, that protection applied only to the original rate of three pies per ton that existed before the commencement of the Government of India Act on 1 April 1937, and that the later increase of the rate to nine pies per ton in 1949 rendered the levy and the demand illegal, either wholly or in part. The Court indicated that it would address these three points in the order presented, beginning with the question of whether the tax’s original imposition by resolution dated 12 March 1935 was invalid.

The Court examined the first submission, which rested on three distinct grounds. The initial ground asserted that the levy violated section 80A(3) of the Government of India Act, 1915. That provision, in the material part, stated that a provincial local legislature could not, without the prior sanction of the Governor‑General, enact or consider any law imposing a new tax unless that tax was listed in the schedules to the Scheduled Taxes Rules, which exempted it from the requirement of prior sanction. The tax under dispute was not listed in those schedules, so the prior sanction of the Governor‑General was necessary before a bill authorising the tax could be considered. The Act that, by section 51, authorised the levy had been passed by the local legislature without obtaining that prior sanction. The petition relied on the premise that the Act was passed after the Government of India Act, 1919 introduced section 80A into the 1915 Act. If that premise were correct, the proviso to section 80A(3) would have provided a complete defence: the proviso declared that an Act or provision made by a local legislature and subsequently assented to by the Governor‑General in accordance with the Act would not be deemed invalid merely because it required the Governor‑General’s prior sanction. The Court noted that, under the Government of India Act, 1915, both before and after its amendment in 1919, every bill passed by a local legislative council needed the Governor‑General’s assent after the Governor’s assent before it could become law, and that the Governor‑General’s assent to the Act under that provision was undisputed. Consequently, the Court considered whether the saving contained in the proviso, together with the general saving in section 84(2) of the Government of India Act, barred the challenge to the tax’s validity.

It was observed that after the amendment of the Government of India Act in 1919, every bill that had been passed by a local legislative council was required, after obtaining the Governor’s assent, to be sent to the Governor‑General and could become law only once the Governor‑General had signified his assent, as provided by sections 81(1) and 81(3) of that Act. The fact that the Governor‑General had indeed assented to the Act under this provision was never contested. In addition to the specific saving contained in the proviso, the Court noted the broader general saving found in section 84(2) of the Government of India Act, which states that the validity of any Act of any local legislature shall not be called into question in any legal proceedings on the ground that the Act affects a central subject. This wider provision was designed to remove from judicial scrutiny any question concerning the legislative competence of a local legislature of the type that was now being raised. However, at the stage when the arguments were being considered, it became clear that the Act had become law before the Government of India Act of 1919 had come into force. Consequently, the petitioner's contention that relied on section 80A(3) could not be raised. The recitals at the beginning of the Act showed that the required previous sanction of the Governor‑General had been obtained for the measure’s introduction into the local legislature under section 79(2) of the Government of India Act, 1915, i.e., before section 80A(3) was added to the 1919 Act.

The Attorney‑General therefore altered his submission, arguing that while section 51 of the Act had been within the competence of the local legislature when it was enacted, the power to levy the tax under that section was not exercised until 1935, by which time section 80A had already been introduced into the Government of India Act. He claimed that after that date no local authority could impose a tax not included in the Scheduled Taxes Rules without obtaining prior sanction of the Governor‑General. The Court considered this argument wholly without force. It held that the validity of section 51 at the time of its enactment was not open to any objection under the 1915 Act, and that the amendments made by the 1919 Act did not, either expressly or by implication, affect or diminish the continuing validity and operation of that section. Section 80A(3) was only concerned with the procedural preliminaries for enacting a law after its coming into force; once a law had been enacted and was in operation, those procedural requirements no longer applied. Moreover, the Court pointed out that rule 5 of the Scheduled Taxes Rules states that nothing in those rules shall affect the right of a local authority to impose a tax, whether with or without prior sanction of the Governor‑General, when such right is conferred by any law then in force. Accordingly, the submission that a fresh sanction or legislation was required before the power conferred by section 51 could be exercised was rejected.

In this case, the Court examined the argument that a local authority could not impose a tax without first obtaining the approval of the Governor‑General, or that a fresh legislative enactment was necessary before the power granted by section 51 of the Act could be exercised. The Court observed that rule 5 of the Scheduled Taxes Rules expressly protects the right of a local authority to levy a tax without previous sanction, or with the prior sanction of the local Government, whenever such authority is conferred by any law that is in force at the time. Consequently, the submission that a prior sanction of the Governor‑General was required, or that a new law had to be passed before the tax could be imposed, was rejected. The Court then turned to the second contention, which focused on the introductory phrase of section 51: “Subject to the provision of any law or enactment for the time being in force.” Counsel suggested that the provision contained in clause 80A(3) of the Government of India Act, together with the Scheduled Taxes Rules made under that clause, constituted “a law for the time being in force” and therefore limited the power to levy the tax. The Court clarified that clause 80A(3) merely sets out the procedural steps for enacting future statutes of the local legislature; it is not itself a substantive law that can be read as a restriction on the tax‑levying power. Even assuming, arguendo, that it could be treated as such a law, the Court emphasized that rule 5 of the Scheduled Taxes Rules would still preclude the proposed construction, because the rule expressly preserves the authority of local bodies to impose taxes irrespective of any procedural enactments.

The final ground raised against the validity of the original tax imposition was that section 51, by its language and in the context of the other provisions listed in that section, did not authorize a levy of a tax or cess described as the “coal tax.” The Court examined the wording of section 51, which states that a local authority may “impose any tax, toll or rate other than those specified in sections 24, 48, 49 and 50.” The Court noted that the “coal tax” is not among the taxes enumerated in those cited sections, and therefore the provision clearly authorizes the levy of any other tax, including the one that is now being challenged. Although the learned Attorney‑General argued that the tax permitted by section 51 should be of a similar character to the taxes listed in the other sections, the Court observed that the phrase “other than those” displaces the rule of ejusdem generis, and no rule of construction could therefore exclude the “coal tax” from the scope of the local authority’s power. On this basis, the Court held that the original imposition of the coal tax in 1935 was valid. The Court then considered whether the tax had ceased to be legally enforceable after the Government of India Act, 1935 and the Constitution came into force. Both the 1935 Act and the Constitution contain explicit provisions allowing taxes, cesses, and similar levies that were lawfully imposed by local authorities for local purposes to continue to be collected and applied for the same purposes, even though subsequent constitutional arrangements might otherwise assign the power to impose such taxes to the Central or Union Government. Accordingly, the Court found no reason to deem the tax invalid or uncollectible on the ground that later constitutional provisions had transferred the authority to levy taxes to a higher level of government.

The Court observed that both the Government of India Act, 1935 and the Constitution contained explicit provisions allowing taxes that had previously been lawfully imposed by local authorities to continue to be collected even after the power to levy such taxes was transferred to the Central or Union Government. Specifically, section 143 of the Government of India Act, 1935 and article 277 of the Constitution were cited as the relevant authorities. Consequently, the Court held that the argument asserting that the “coal tax” or any part of it could be imposed solely by the Central or Union Government did not constitute a valid basis for challenging the tax’s ongoing validity or its enforceability. Furthermore, the Court noted that even if the tax in question were to fall within the Provincial or State List, its levy would still be permissible under section 292 of the Government of India Act and article 372 of the Constitution, and this would be the case irrespective of the special provisions contained in section 143 or article 277. In light of these considerations, the learned Attorney‑General did not pursue this point with any seriousness. The Court then turned to the final issue raised, namely the validity of the increase in the tax rate to nine pies per ton effected in 1949, which occurred after the commencement of the Government of India Act, 1935. The Court observed that this objection had not been mentioned in the petition before it and therefore it was not appropriate to allow the petitioners to introduce it at this stage. As a result, the petition was dismissed with costs, and the order of dismissal was recorded.