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2015 (10) TMI 2386 - SC - Indian LawsPayment of royalty - whether royalty is payable at the rate mentioned in the Second Schedule to the MMDR Act on processed coal, that is, coal consumed or removed from the boundaries of the leased area in a beneficiated form or on the raw or unprocessed or ROM coal at the pit-head - Held that - beneficiation process, as far as coal is concerned, has two significant consequences the grade of coal improves (from Washery Grade IV it could improve to Steel Grade I) and the weight of the coal increases (from 100 tons of raw ROM coal to 105 tons excluding rejects of beneficiated coal). - ROM copper ore contains hardly 1% or 2% of copper but after the beneficiation process the copper extract from the ore increases to about 25%. It is thereafter sent for refining and smelting. In other words, copper ore cannot be utilized as it is or in the ROM state it must undergo a beneficiation process from the ore and can then be used. - As mentioned in SAIL the consequences of processing dolomite or limestone has a consequence different from that of copper ore, namely, mere removal of waste and foreign matter. It appears that this process does not improve the quality of the dolomite or the limestone, though with the removal of waste and foreign matter, the weight would decrease somewhat. It may be mentioned that royalty is charged on dolomite and limestone on a tonnage basis. - nature of the mineral and the stage at which royalty is to be computed become important. The basis of levy would have to be rational and it might have different consequences at different stages. Court in the appeal filed by SAIL did not get into the question of removal of the mineral from the boundaries of the leased area but noted that the extracted mineral undergoes a process of removal of waste and foreign matter before it is removed from the boundaries of the leased area. The decision of this court on the levy of royalty turned on the consumption of the mineral through that process carried out by the holder of the mining lease. In that context it was held in SAIL that since the process of removal of waste and foreign matter amounts to consumption, the entire extracted mineral is exigible to royalty. - SAIL did not consider (and then reject) the reasoning given by the Orissa High Court that royalty is not payable on wastage that remains within the boundaries of the leased area. This was critically adverted to in an order M/s Central Coalfields Ltd. v. State of Jharkhand decided by this court on the ground, inter alia, that the distinction made by the Orissa High Court between removal of a mineral from a mine and removal from a leased area has been rejected without any reason. Section 9 of the MMDR Act has to be read and understood in conjunction with the Second Schedule to the MMDR Act. There is a good reason for it, which is that the scheme of the levy of royalty cannot be straitjacketed in view of the variety of minerals to which the MMDR Act applies and for the extraction of which royalty has to be paid. - Iron ore (with which NMDC is concerned) falls in the same generic category for levy of royalty as dolomite, limestone and coal namely on a tonnage basis but there is a crucial difference between iron ore and coal (as also between dolomite, limestone and iron ore). In the case of iron ore, beneficiation is necessary before it can be utilized. It has been observed in NMDC that in iron ore production the run-of-mine (ROM) is in a very crude form. A lot of waste material called impurities accompanies the iron ore. The ore has to be upgraded. Upgrading the ores is called beneficiation . That saves the cost of transportation. Different processes have been developed by science and technology and accepted and adopted in different iron ore projects for the purpose of beneficiation. National Mineral Development Corporation Ltd v. State of M.P. 2004 (5) TMI 575 - Supreme Court of India . It is for this reason, inter alia, that the levy of royalty on iron ore is postponed, as held in NMDC, to a post-beneficiation stage. Under the circumstances, removal of beneficiated coal as against ROM coal might work to the disadvantage of the lease holder. For this reason, no similarity can be found between coal and iron ore or between coal and dolomite and limestone (apart from the fact that SAIL did not deal with removal from the leased area but consumption within the leased area). - issue of computation of royalty on minerals is rather complex and it is best left to the experts in the field and it cannot be painted with a broad brush as has been done in SAIL. That decision must be confined to its own facts with reference to consumption of dolomite and limestone. Since the Second Schedule to the MMDR Act must be read as a part and parcel of Section 9 thereof, the interpretation given in SAIL possibly cannot apply to the computation of royalty for every mineral. Similarly, Rule 64C of the MCR relates to royalty on tailings or rejects. As far as Tata Steel is concerned, its computation given in the Convenience Volume indicates that royalty is paid and payable on middlings and tailings. Rule 64C of the MCR makes it clear that royalty is payable on rejects when they are sold or consumed after being dumped. This will take care of situations such as that pertaining to silver, as mentioned in the affidavit of the Union of India. There is nothing to indicate in Rule 64B and Rule 64C of the MCR that coal has been put on a different pedestal from other minerals mentioned in the MMDR Act read with the Second Schedule thereto. It is, therefore, difficult to accept the view canvassed by the Union of India that these rules may not be particularly applicable on coal minerals. That apart, the stand of the Union of India is not definite or categorical ( may not be ). In any event, we are not bound to accept the interpretation given by the Union of India to Rule 64B and Rule 64C of the MCR as excluding only coal. On the contrary, in NMDC this court has observed that these rules are general in nature, applicable to all types of minerals, which includes coal. The expression of opinion by the Union of India is contrary to the observations of this court. With effect from 25th September, 2000 when these rules were inserted in the MCR, royalty is payable on all minerals including coal at the stage mentioned in these rules, that is, on removal of the mineral from the boundaries of the leased area. For the period prior to that, the law laid down in Central Coalfields Ltd. will operate, as far as coal is concerned, from 10th August, 1998 when SAIL was decided, though for different reasons - High Court really gave no reason for denying the refund of the excess royalty paid by TISCO. For the reasons given in respect of Tata Steel keeping in view the decision rendered in Central Coalfields Ltd., we hold that TISCO is entitled to refund of royalty paid from 10th August, 1998 to 25th September, 2000. However, this amount need not be physically refunded but should be adjusted pro rata against future payments of royalty by TISCO over the next one year. TISCO is not entitled to refund of royalty paid after 25th September, 2000. The royalty paid by TISCO after 25th September, 2000 was correctly paid and in accordance with Rule 64B and Rule 64C of the MCR, which have not been challenged by TISCO. - Appeal disposed of.
Issues Involved:
1. Entitlement to refund of excess royalty paid by TISCO. 2. Validity and applicability of Rule 64B and Rule 64C of the Mineral Concession Rules, 1960. 3. Stage of chargeability and computation of royalty on coal. 4. Interpretation of "removal" of minerals under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957. Detailed Analysis: 1. Entitlement to Refund of Excess Royalty Paid by TISCO: - The Supreme Court examined whether TISCO is entitled to a refund of excess royalty paid from 10th August 1998 (date of the decision in SAIL) to 25th September 2000. - The High Court had denied the refund without providing a substantial reason. - The Supreme Court held that TISCO is entitled to a refund for the period from 10th August 1998 to 25th September 2000, which should be adjusted against future royalty payments over the next year. - For the period after 25th September 2000, TISCO is not entitled to a refund as the royalty paid was in accordance with Rule 64B and Rule 64C of the MCR. 2. Validity and Applicability of Rule 64B and Rule 64C of the Mineral Concession Rules, 1960: - The Supreme Court analyzed the insertion of Rule 64B and Rule 64C in the MCR by a notification dated 25th September 2000. - Rule 64B states that royalty is chargeable on the processed mineral removed from the leased area if processing is done within the leased area. If the ROM mineral is removed to a processing plant outside the leased area, royalty is chargeable on the unprocessed ROM mineral. - Rule 64C specifies that tailings or rejects removed for dumping outside the leased area are not liable for royalty unless sold or consumed later. - The court noted that these rules are general and applicable to all minerals, including coal, contrary to the Union of India's opinion that they may not apply to coal. - The constitutional validity of these rules was not adjudicated, leaving it open for Tata Steel to challenge them. 3. Stage of Chargeability and Computation of Royalty on Coal: - The Supreme Court discussed whether royalty is chargeable on raw or unprocessed coal at the pit-head or on processed coal after beneficiation. - It was held that royalty is payable on processed or beneficiated coal only after 25th September 2000, and on unprocessed ROM coal extracted at the pit-head for the period from 10th August 1998 to 25th September 2000. - The court provided detailed computations of royalty for different periods, illustrating the difference in amounts payable on ROM coal and beneficiated coal. - The judgment emphasized that the Second Schedule to the MMDR Act must be read as part and parcel of Section 9 for the computation of royalty. 4. Interpretation of "Removal" of Minerals Under Section 9 of the MMDR Act: - The Supreme Court examined two interpretations of "removal" from the leased area: literal (removal from the boundaries of the leased area) and restrictive (extraction from the pit-head). - The court referred to previous decisions, including the Orissa High Court's interpretation that removal from the seam in the mine and extracting it through the pit's mouth satisfies the requirement for royalty liability. - The unreported decision in Central Coalfields Ltd. v. State of Jharkhand was cited, which approved the Orissa High Court's view and clarified that removal from the seam and extraction through the pit's mouth to the surface gives rise to royalty liability. - The court concluded that for coal, removal from the seam and extraction through the pit's mouth satisfies the requirement of Section 9 for royalty liability. Conclusion: - The decision in SAIL is confined to its facts and does not deal with the removal of a mineral from the leased area but with consumption within the leased area. - The unreported decision in Central Coalfields Ltd. confirms that removal of coal from the seam and extraction through the pit's mouth satisfies the requirement of Section 9 for royalty liability. - Rule 64B and Rule 64C of the MCR apply to all minerals, including coal, and specify the stage of royalty chargeability. - TISCO is entitled to a refund of excess royalty paid from 10th August 1998 to 25th September 2000, to be adjusted against future payments. - Tata Steel and TISCO are liable to pay royalty in terms of Rule 64B and Rule 64C from 25th September 2000 onwards.
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