Panyam Cements And Minerals Ltd vs Union Of India & Ors

Kurnool District, Andhra Pradesh. The main raw-material used

for the manufacture of cement is limestone. The land on which

the factory is situated is owned by the appellant. In 1957 and

1959 the appellant was granted two mining leases by the State

Government for extracting limestone covering a total area of

3597 acres and 85 cents. Under the lease deeds the appellant

was liable to pay royalty in respect of the limestone quarried

from the mines in the leased areas at "5% of the sale value at

the pit's mouth subject to a minimum of 0.37 paise per tonne

of limestone". The rate of royalty payable under the lease

deeds was revisable under sub sections (1) and (3) of Section

9 of the Mines and Minerals (Regulation and Development)

Act, 1957 (hereinafter referred to as "the Act"), which as they

then stood read:

" 9 (1) The holder of a mining lease granted

before the commencement of this Act shall,

notwithstanding anything contained in the

instrument of lease or in any law in force at

such commencement, pay royalty in respect

of any mineral removed by him from the

leased area after such commencement, at the

rate for the time being specified in the Second

Schedule in respect of that mineral.

9(2) xxx xxx xxx xxx

9(3) The Central Government may, by

notification in the Official Gazette, amend the

Second Schedule so as to enhance or reduce

the rate at which royalty shall be payable in

respect of any mineral with effect from such

date as may be specified in the notification

Provided that the Central Government shall not

-

"(a) fix the rate of royalty in respect of

any mineral so as to exceed twenty per

cent of the sale price of the mineral at

the pit's head, or

(b) enhance the rate of royalty in respect

of any mineral more than once during

any period of four years".

Sub Section 3 of Section 9 has since been amended by

the Mines and Minerals ( Regulation and Development

Amendment) Act, 1972, (Act 56 of Section 1972) by which inter

alia the proviso to sub section 3 was deleted and the only limit

at present on the Central Government's power to enhance or

reduce the rate of royalty is that the enhancement cannot be

made more than once during any period of four years.

We are concerned with the royalty and cess payable by

the appellant for the period prior to the 1972 amendment

namely for the period 11.10.1962 to 10.12.1971. The present

dispute has arisen out of a claim made by the appellant in a suit

against the respondents claiming refund of excess royalty

alleged to have been paid by the appellant to the respondents

between the period 11.10.1962 to 10.12.1971 together with the

cess thereon as well as for interest on such excess payment.

According to the claim in the appellant's plaint, the appellant

had paid royalty at the agreed rate of 0.37 paise per tonne on

the limestone quarried by it from the leased areas till

November 1962. On 16.11.1962 the Central Government

issued Notification No. M11-152 (26) 62 amending the Second

Schedule to the Act with effect from 10.11.1962. The

Notification sought to fix royalty on limestone at the rate of 0.75

p. per tonne subject to a rebate of 0.38 p. per tonne to be given

on limestone beneficiated by froth floatation method. The rate

of royalty was again revised by an amendment of the second

Schedule by a second Notification dated 8.7.1968. According

to this notification with effect from 1.7.1968, royalty of Rs.1.25

paise per tonne was payable in respect of superior grade

limestone and at the rate of 0.75 p. per tonne for inferior grade

limestone. Since the limestone quarried by the appellant was of

inferior grade, it continued to pay royalty at the rate of 0.75 p.

per tonne. In 1970 the Central Government issued a third

Notification in exercise of powers conferred by Section 9 (3) of

the Act. The third Notification No. GSR 200 dated 29.1.1970

did away with the difference in the rate of royalty on the basis of

the grade of limestone and fixed the royalty payable in respect

of all grades of limestone at Rs.1.25 per tonne. Incidentally

both the Courts below had incorrectly recorded that the third

notification fixed the rate of royalty at 0.75 p. per tonne. It is not

in dispute that the appellant had paid for the limestone quarried

by it subsequent to 29.1.1970 at 0.75 p. per tonne. The

appellant has claimed it had submitted monthly and annual

returns to the concerned authorities which disclosed the

quantity of limestone quarried during each month, year, the

total value and stock in hand, the royalty payable and paid

together with land cess and the pit's mouth value of limestone.

The appellant challenged the second and third

Notifications by way of a writ petition (W.P. No. 3276 of 1970) in

the High Court of Andhra Pradesh on two grounds: first that the

rate of Rs.1.25 per tonne did not reflect 20% of the sale price

under proviso (a) to Section 9(3) and second that there could

be no revision in 1970 after the 1968 notification in

contravention of clause (b) of Section 9(3). The writ petition

was disposed of on 22.2.1972 holding that under the first

proviso to sub section 3 of Section 9 of the Act, the Central

Government did not have the power to enhance the rate of

royalty in excess of 20% of the sale price of the limestone at the

pit's head and directed the respondents to refund any amount

which the appellant may have paid in excess to them. The

submission of the respondents that the rate of Rs.1.25 was

fixed on the basis of an All India average was rejected following

an earlier decision of the same High Court. This is what the

learned Judge who disposed of the appellant's writ petition

said:

" What is stated in clause (a) is very clear.

The rate of royalty has to be fixed so as not to

exceed 20 per cent of the sale price of the

mineral at the pits head. Evidently, the

question of taking averages into consideration

does not arise. The same view was taken by

my learned brother Kuppuswami, J., in Writ

Petition No. 5758/70 and batch, where the

very same notification had been challenged

on the grounds raised before me. In that

case, it was argued that it was the All India

average that had been taken into

consideration. The learned Judge come to

the conclusion that the royalty cannot in any

case exceed 20 per cent of the sale price of

the mineral at the pit's head and, therefore,

the notification issued by the Government

would have to be limited to 20 per cent of the

sale price at the pit's head. The learned

Judge also directed that the Government will

ascertain the sale price of the limestone at the

pit's head in each case and charge 20 per

cent thereof as royalty and refund the excess,

if any, paid by the persons concerned. I find

myself in entire agreement with the direction

given by the learned Judge. I also direct that

the Government will determine the sale price

of the lime stone quarried by the Company at

the pit's head and charge 20 per cent thereon

as royalty and if the Company has paid any

excess, refund the same to the Company".

The allegation of contravention of clause (b) of the

proviso to Section 9(3) was however rejected.

The suit out of which these proceedings arise, was

filed by the appellant before the Subordinate Judge, Kurnool

on 17.1.1973. The cause of action as pleaded in the plaint

was that an amount of Rs.14,82,311.50 of excess royalty had

been paid by the appellant by mistake which became known

to the appellant only after the decision in W.P. 3276 of 1970. A

decree for the entire amount was sought together with interest

from 27.4.1972 at 12% per annum. The claim of the appellant

was resisted by the State respondents. In their written

statement, they said that the periodical returns filed by the

appellant indicating pit's mouth values of the limestone were

not accepted by the State since royalties at flat rates were

fixed for limestone. It was further stated that on a verification

of the accounts produced by the appellant, the Assistant

Director of Mines and Geology , Kurnool, had found

discrepancies in the quantity of limestone stated to have been

quarried by the appellant and that the appellant was in fact

liable to pay royalty on a further quantity of 1,56,268.00 tonnes.

The said respondents relied upon guidelines issued by the

Central Government fixing the sale price at the pit's head year-

wise for the period from 10.11.1962 to 31.3.1972. The sale

price had been worked out by the Director Mines and Geology

on the basis of various items of expenditure involved in

extraction of limestone from the leased areas which included

expenditure on account of Staff Welfare Fund , Insurance and

Depreciation. This was taken as the equivalent of the sale

price of limestone at the pit's head and the royalty was

calculated at 20 % of the sale price so fixed. In Annexure 'F'

to the written statement, the State respondents gave the total

amount payable by the appellant for the period 10.11.1962 to

31.3.1972 on account of royalty and cess including the

additional royalty on the inferior quantity of limestone detected

after giving credit to the appellant for the payments made by

the respondents. On the basis that the sale price of the

limestone was to be fixed from the point of its despatch to the

appellants' factory, it was admitted that the appellant had paid

the State respondent in excess of 20% of the pit's mouth value

during the period in question towards royalty and cesses.

According to the State respondents an amount of

Rs.2,50,571.61 was payable by the State to the appellant

which sum would be adjusted against the royalty and cess

payable by the appellant towards subsequent dues. An

amendment to the written statement was allowed by the

Subordinate Judge, Kurnool by which the State respondents

sought to claim that the sale price of limestone at the pit's head

should also include the expenditure relating to the crusher and

ropeway, as a result of which nothing was payable by the State

to the appellant by way of refund.

The trial Court decreed the suit in part holding that the 'pit

head' as referred to in proviso (a) to Section 9(3) meant the

common area where the limestone was stocked in the leased

area after the area was excavated and processed and readied

for despatch either to purchasers or to the factories of the

lessee/assessee for being used in the manufacture of cement.

Therefore, all items of expenditure upto the point of stacking

was includible for the purposes of calculating the sale price of

the limestone. Any further expenditure in transporting the

limestone from the 'pit head' so defined, to the appellants'

factory was not so includible. In other words, the case made

out by the respondents by the amendment to the written

statement was rejected. An amount of Rs.2,50,571.61p. was

held to be due to the appellant by way of refund. Interest

@12% per annum was also granted on the decreed amount

from 27.4.1972 till realisation. The appellate Court upheld the

reasoning of the Trial Court on 23rd January 1987 and came to

the conclusion that the trial Court's finding that the appellant

had paid an excess amount of Rs.2,50,571.61p. was correct.

No appeal has been preferred from the decision of the

appellate Court by the respondents. The only question,

therefore, is whether the appellant's further claim for a refund of

the balance of Rs.16,08,308.02p is permissible.

The appellant's claim is founded on the definition of

the word 'pit's head' used in proviso (a) to Section 9(3) of the

Act. According to the appellant, the word 'pit' had been

wrongly construed by the Trial and High Courts not only by

giving it the same meaning as 'mine' but also by importing the

definition of the word 'mine' in the Mines Act, 1952 to define

the word 'pit-head' in the 1957 Act. According to the

appellant, 'pit' means the actual physical opening and the 'pits

head' means the mouth of this opening. Therefore, according to

the appellant, for the purposes of proviso (a) to Section 9(3) of

the Act, the sale price of the mineral was to be ascertained with

reference to the 'pits head' so defined and the royalty

calculated on such sale price.

Learned counsel for the respondents on the other hand

has supported the reasoning of the Courts below. Both, the trial

court as well as the High Court went into the question of the

sale price of the limestone quarried by the appellant in the

leased area in elaborate detail, an exercise which, as it now

turns out was really futile.

On 23rd November, 1993, this Court in Saurashtra

Cement and Chemicals Industries Ltd. v. Union of India and

Another disposed of an appeal from a decision of the Gujarat

High Court which had, unlike the Andhra Pradesh High Court in

WP No. 3276 of 1970, held that the 1970 Notification was not

contrary to clause (a) of the proviso to sub section (3) of

Section 9 of the Act. In that case also the appellant was a

manufacturer of cement and held a mining lease for excavating

limestone like the appellant before us. The limestone mined

was not sold but consumed in its own factory. The Union of

India filed an affidavit before this Court showing the manner in

which the royalty for limestone was fixed at Rs.1.25 per tonne

by the 1970 notification. It was stated that the restriction of

20% of the sale price of the mineral at the pit's head was

worked out by taking the average sale price of the minerals at

the pit's head for the entire country and the fixation of royalty by

taking sale price of each unit in the country was not visualised

by clause (a) nor was it practicable.

This was accepted by this Court by saying:

" Payment of royalty under sub-section (I) is in

respect of mineral removal from area but

fixation under clause (a) of proviso to sub-

section (3) is related to mineral and not to

area leased or the unit. It did not admittedly

exceed 20% of the sale price of the mineral at

the pit's head if the average sale price of the

mineral for the entire country is taken into

account. From the provisions extracted earlier

it is apparent that the law does not require that

fixation of royalty should be unitwise. In fact it

could not be as demonstrated in the counter-

affidavit. It cannot therefore, be said that the

notifications issued by the Government were

violative of the proviso".

Therefore, both in law and as a matter of fact the fixation of

Rs.1.25 per tonne by the 1970 Notification was held to be valid

and in accordance with proviso (a) of Section 9(3) of the Act.

The view in Saurashtra Chemical is in keeping with

subsequent observations of this Court in State of M.P. v.

Mahalaxmi Fabric Mills Ltd. that:

" The purpose of the Union control envisaged

by Entry 54 and the MMRD Act, 1957, is to

provide for proper development of mines and

mineral areas and also to bring about a

uniformity all over the country in regard to the

minerals specified in Schedule I in the matter

of royalties and, consequently, prices". (p.663)

Strictly speaking therefore, since the substratum of the

appellant's claim in the suit was the High Court's decision in

WP 3276 of 1970, and since that decision is clearly not good

law in view of the decision in Saurashtra Chemicals, the suit

is liable to be dismissed. However, since the respondents had

not impugned either the decision in WP 3276 of 1970 nor the

decision of the High Court partly directing the appellants suit,

we cannot follow what would otherwise have been the legal

course. However, having regard to the decision of this Court in

Saurashtra Chemicals (supra) the appellant's submission that

the words 'pits head' in proviso (a) of Section 9(3) of the Act

must be construed to mean the mouth of a particular

excavation in a particular leased area is entirely unacceptable.

When this Court has allowed the calculation of royalty on

limestone on the basis of a national average pit head sale

price, the decision of the Trial Court and High Court to reject

the appellant's plea that the 'sale price' at the pit head must

mean the price of limestone at the opening of each excavation

within the leased area cannot be held to be erroneous.

We therefore dismiss the appeal with costs.