9911796707
Advanced Search 
TMI Blog2021 (9) TMI 1561X X X X Extracts X X X X X X X X Extracts X X X X ..... overnment The Government of Kerala framed a policy vide G.O. (MS) No. 23/90/PD (the Policy, for short) allowing private agencies and public undertakings to set up hydel schemes for generation of electricity at their own cost. As per the Policy, the matters concerning the construction, operation and maintenance of the hydel scheme were to be managed as per the stipulations made by the Government/Board Kerala State Electricity Board. Clauses 2, 14 and 15 of the Policy were as under: 2. Private agencies/ public undertakings shall be allowed the setting up of sanctioned hydel schemes of the category small/ mini/ micro at their own cost, the construction, operation and maintenance being managed by them as per the stipulations insisted upon by Government/ Board. (The stipulated conditions as per Indian Electricity Act, 1910. Electricity (Supply) Act, 1948, other related Rules and orders from Central and State Governments). 14. Royalty for the use of water together with the tax and duties on generation of power as fixed by Government/Board from time to time have to be paid by the agency. Normally generation of power from schemes of the category small/mini/micro utilizing the storage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generated from the projects during one accounting year such excess energy shall be fed into the KSEB grid itself at rates to mutually agreed upon. Under no circumstances shall CUMI be entitled for the sale or transfer of any excess energy or any energy produced from the project to any party other than the KSEB. The accounting of the energy fed into the grid and supplied by KESB to CUMI or operating their factories in Kerala at Palakkad, Koratty and Kalamaooery will be settled on an annual basis, the year being reckoned from lot of July to 30th June. ... ... ... 14. Royalty for the use of water together with the tax and duties on generation of power as fixed by govt./KESB from time to time have to be paid by CUMI, to K.S.E.B. Maniyar Hydro Electric Projects will utilize the existing head works benefit of the Maniyar Irrigation Dam of P.W.D. which is fed mainly by the controlled release of water from existing Moozhiar Power House of KSEB. In order to account for the additional advantage gained by way of getting such controlled released, CUMI will have to pay to KSEB the cost components for the energy generated from the scheme. This will be in addition to the royalty on water to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be paid by the company to Government. 8. Since the setting up of the project by June, 2001 at a cost of Rs. 50 crores, INDSIL has been generating electricity which is essentially used by it and its associates as stated in Clause 10 of INDSIL Agreement. 9. The respective projects were thus set up by CUMI and INDSIL for Captive Power Consumption and such producers of electricity for own consumption are called Captive Power Producers (CPP) as against Independent Power Producers (IPP) who generate electricity not for self consumption but for supply in its entirety to the Board. 10. On 11.10.2002, Guidelines were issued by the Government after noting the Policy and the recommendations of the Empowered Committee set up vide G.O. dated 5.9.2002. These Guidelines dealt with transmission and distribution losses in wheeling the energy to CPPs but did not deal with royalty for the use of water. The relevant portion of these Guidelines was: The Empowered Committee constituted as per the GO read as 3rd paper above, to oversee the implementation of the reforms of the KSEB and to examine the details for the erection of Small and Mini Hydel Projects, in its meeting held on 5.9.02 and 12. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of water is used, must be noted: CUMI: The water flowing down from Moozhiyar Power House of the Board is diverted to the Kakkad Power House (50 MW) of the Board for generation of electricity using "tail race" benefit of Moozhiyar Power House. After power generation at the Kakkad Power House, the water is allowed to flow back into the river and is then utilized for irrigation and for the Maniyar Hydro Electric Project of CUMI. INDSIL: Anayirankal Dam, one of the largest earthen dams in State of Kerala was built in the 1960s and soon thereafter, the Panniyar Power House having capacity of generating 32 MW electricity was built by the Board. Kuthungal is situated in between Anayirankal Dam (at the higher altitude) and Panniyar Power Station of the Board (at the lower level). Thus the water released from Anayirankal Dam for generation of electricity at Panniyar Power Station passes through the area where the project of INDSIL is situated. 13. CUMI filed O.P. No. 6880 of 2003 praying, inter alia, that the Board had no authority to levy, demand or collect any charges for controlled release of water or royalty from CUMI in respect of electricity generated by it at its Maniyar Hydel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from Moozhiyar Power House is thus diverted to Kakkad Power House and utilized for power generation there. The alleged controlled release of water from Moozhiyar Power House to the Petitioner's hydel project at Maniyar is no longer there and has ceased to be available to the Petitioner after commissioning of the Kakkad Power Station by the 2nd Respondent. It is therefore submitted that the 2nd Respondent cannot in any manner charge or collect the so-called cost component for controlled release of water from Moozhiyar Power House since there is no such release, much less controlled release of water from Moozhiyar Power House to the Petitioner after 1998. Petitioner submits that in any event the charge and collection of cost component from the Petitioner after 1998 is totally without authority of law, arbitrary, illegal and unfair. 5. ... ... There is no provision in the Electricity Supply Act conferring any power on the 2nd Respondent to impose royalty or any charges on generating company which have the same powers, duties and functions for the flow of water in river Pamba or its tributaries. 6. Petitioner submits that the Respondents have granted permission and rights to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th private agencies. But Government under special circumstances allowed such schemes to be set up by private parties. In such case, in order to account for the additional advantage gained by the agency by way of getting the controlled release, the agency will have to pay to government or the Board, as the case may be, in tariff equivalent to the cost component for energy generated from the scheme. This will be in addition to the royalty of water if any, to be paid. The tariff storage/controlled release as above are to be worked out in respect of each scheme separately taking into account the above factors. 5. It is submitted that from the year 1998, the water flowing down from Moozhiyar Power House is collected in the reservoir of Kakkad Power House of the 2nd Respondent and after generation of electricity at Kakkad Power House the water flowing down to the same river and to the reservoir of the Petitioner's Maniyar Project. Thus, the water released from the Moozhiyar Power is further controlled at Kakkad Power House. Maniyar Project thus runs with the controlled release of water from the Kakkad Power House which was commissioned after setting up of the Maniyar Hydro Electric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 03.07.2004 by filing Writ Petition (C) No. 22187 of 2004 in the High Court. The Writ Petition was however withdrawn with liberty to make an appropriate representation to the Government. This led to some correspondence and representations from INDSIL. The Government, however, refused to recall its decision to recover royalty and cost of controlled release of water, which was communicated vide order dated 23.01.2008. The action on part of the Government was challenged by INDSIL by filing Writ Petition (C) No. 4596 of 2008 in the High Court. 18. With regard to the use of controlled water INDSIL submitted: 11. Kuthungal is situated between Anayirankal at the higher end and Ponmudi at the lower end. Panniyar power station at Vellathooval has a capacity to generate 30 MW of power. The said power station functions on water flowing across Panniyar river. There are two storages maintained by the KSEB for its Panniyar Power Station. One is at Ponmudi and other is at Anayirankal which is situated at a height of 1850 Meters above the sea level. As submitted above, there is a reservoir at Anayirankal where the water is stored. Water stored in the Anayirankal reservoir is released by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase from Anayirankal reservoir in addition to water from 114 sq.km., free catchment downstream of the dam as per the detailed project report prepared by KSEB in August, 1991. The Petitioner had also made their own assessment as per the techno economic feasibility report submitted by them. As already mentioned, the scheme envisages utilization of water from 114 sq.km. of free catchment downstream of existing Anayirankal reservoir drained from a catchment of 65 sq. Km for power generation as per the detailed report mentioned above. The averment and allegations in paragraphs 10 and 11 of the writ petition are not fully correct and hence denied. The description of the project of the Petitioner given in the said paragraph explaining that is designed as a "run of the river" scheme does not deny the fact that it is using the water released from Anayirankal reservoir for the months from January to April. It is true that the release of water from Anayirankal reservoir is mainly decided based on the generation requirements at the Panniyar Power Station. However, this water when released is being utilized at Kuthunnal for power generation. The entire water after power generation flows down to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... devoid of jurisdiction to realize any amount from the Petitioner by way of Royalty or other charges on the water used for the Maniyar Hydel Project. In the circumstances, there will be no order as to costs. 22. The decisions of the Single Judge in the matters of INDSIL and CUMI were called in question by the Board by filing Writ Appeal Nos. 1345 of 2013 and 1355 of 2013 respectively before the Division Bench, which appeals were allowed by the Division Bench vide its common judgment and order dated 03.04.2014. The judgment of the Division Bench comprises of two parts: the first part dealt with the case of INDSIL; while the second part considered the case of CUMI. 22.1. After considering some of the decisions of this Court, it was held that after entering into an agreement, a party would be estopped from disputing its liability in terms of the agreement. With regard to the submission based on discrimination, the Division Bench observed: 24. The first ground on which the learned single Judge has interfered with Ext. P11 is that it violated Article 14 of the Constitution of India which prohibits discrimination. The judgment shows that according to the learned single judge, the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condly, IPP's that are complained of by the 1st Respondent were established to Exts.P8 and P9 orders issued by the Government of Kerala in 2002 and 2003. These orders show that the terms and conditions that are incorporated in these orders are totally different from what are contained in Ext. P1, pursuant to which sanction was accorded, agreement was executed and the project was established by the 1st Respondent. Therefore, the obligations undertaken by the 1st Respondent in Ext. P3 agreement and the obligations that are fastened on the beneficiaries of Ext. p8 and Ext. P9 are incomparable and different. That itself shows that the 1st Respondent and the owners of the independent power plants fall in separate classes and therefore also there cannot be any discrimination to be complained of. 27. Yet another reason, in our view, a valid one, urged by the Electricity Board was that unlike the case of the 1st Respondent, the 59 IPP's are not beneficiaries of controlled release of water. The pleading show that according to the State, 22.54% of the power generated by the 1st Respondent at its CPP is attributable to controlled release of water. On the other hand, IPP's are no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the agreement. Agreement does not state that such controlled release should be at the instance of the 1st Respondent and that it should be for their sole benefit. Instead, if the agency is a beneficiary of the controlled release of water, they are liable to pay for it. Admittedly, the 1st Respondent is generating energy utilizing the controlled release of water from Anayirankal and so long as it is so, in view of Clause 14 of the Ext. P1, the 1st Respondent cannot get itself absolved of that liability. Therefore, this contention is only to be rejected and we do so. 22.3. The Division Bench thus found that the Single Judge of the High Court had erred in allowing the Writ Petition preferred by INDSIL. It, however, concluded that the demand raised by the Government vide order dated 03.07.2004 was on the quantum of energy generated rather than being linked to the quantity of water used or the utilization of controlled release of water. It, therefore, directed the Government to pass fresh orders after due notice to the Appellant as under: 42. Therefore, royalty under Clause 14 of Ext. P1 Government Order should be levied assessing the quantity of water used applying Clause 15 of E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty and other charges to the Government and after having enjoyed the benefit thereof, cannot now rely on the provisions of the Electricity (Supply) Act and contend that the Government or the Board have no power under the Electricity (Supply) Act to realise the charges that are contractually payable by them. Therefore, this contention of the learned Senior Counsel is unacceptable and is rejected. 58. The second contention raised by the learned Senior Counsel for the 1st Respondent was that there was no controlled release to the Maniyar Hydro Electric Project and that therefore the charges levied on them for controlled release of water is unsustainable. We have already rejected such a contention raised by the 1st Respondent in WA Nos. 1345/13 and 18/14 and the reasons assigned by us should apply to this case also. Moreover, we are unable accept this contention of the learned Senior Counsel for the reason that Clause 14 of Ext. P2 agreement provides for controlled release of water and the 1st Respondent shall pay charges to the Board. If there was no controlled release of water, there was no reason why the 1st Respondent should have entered into such an agreement taking over the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower. In the absence of Anayirankal reservoir, the water would have flown to Ponmudi during monsoon months and the weir would be overflowing most of the time. And during summer months there would be substantial shortfall in the generation of power at the Kuthungal project in the absence of water release from Anayirankal dam. The release of water at Anayirankal is made in the months of January, February, March and April every year and the scheme generates mostly during these months in a year and primarily generates power out of the water released from Anayirankal. The total generation of power during this period was 266.69 MU and generation from controlled release was 60.12 MU, which is about 22.54% of the total generation. The Petitioner is getting the full advantage of power generation from the release of water from Anayirankal reservoir in the peak summer months. In the drought year of 2002-03, 50% of the total generation from the project was during summer months by utilizing the water from Anayirankal dam. 23.1. In the affidavit in rejoinder, it was submitted by the INDSIL: That Respondent No. 1 & 2 have further drawn distinction on the fact that the Petitioner's project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t up on the same river upstream, i.e. in between the Moozhiyar Power House of KSEB and the Petitioner's Maniyar Power Plant. It is pertinent to note that the alleged controlled release of water being used by the Board's Hydro Electric Project at Kakkad at the first instance and then flows further down to two other private Hydro Electric Projects at Ullunkal & Karikkayam before it reaches the irrigation dam owned by PWD from where the Petitioner draws water for its Maniyar Hydro Electric Project. It is further to be noticed that when the flow of the controlled release of water further strengthened by two more minor rivers and forms confluence on its way of flowing further down along with the other source of water from the catchment area of 237 square kilometers as evidence by the map on record. 24.1. In the affidavit in reply filed by the Board, it was stated: 8. ... ...the Hydro Electric Project are generally classified into two categories based on the storage capacity namely (a) Hydro projects with reservoir of large capacity and (b) Hydro projects having small capacity reservoir /run of river projects. ... ... ... 11. The Sabarigiri Power Project comprises of two d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer House, the water is again stored at Moozhiyar by a concrete Gravity Dam. Water from other small streams like Saippinkuzhy stream also reaches this reservoir. This water is brought to Kakkad Power Station through under ground tunnel and utilized it for power generation. Water from another stream called Veluthode is also brought to Kakkad Power Station by constructing a small Dam across the stream. Before the commissioning of the Kakkad Power Station, the controlled release of water from Sabarigiri Power House directly reached the maniyar barrage (owned by Kerala Irrigation Department) and this was utilized by M/s. Carborundum Universal Ltd., for power generation at maniyar Power House. The only difference after the commissioning of Kakkad Power Station is that the same water is once again utilized for power generation at Kakkad Power Station. There is an added advantage that some more control/Regulation can be done at Kakkad Power House also. It is to be noted that there are no major sources of water (rivers) between Kakkad and Maniyar which can substantially contribute for the supply of water to Maniyar Power House. Now, two more small power stations at Ullunkal (7 MW) and kari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject. On the other hand, such controlled release of water would not be exclusively for the benefit of INDSIL but for the benefit of the Plant at Panniyar. It would therefore be illegal to draw similarity between the case of CUMI and that of INDSIL. e) The imposition of royalty on the use of water would be unconstitutional as INDSIL was discriminated against other similarly situated hydroelectric plants. f) Imposition of royalty in terms of Clause 19 of INDSIL Agreement would partake the nature and character of a "Tax". Assuming that the royalty imposed on INDSIL had genesis in a contract, no decision was taken by the Government as contemplated under said Clause 19. g) Assuming that the terms of the Policy were incorporated into INDSIL Agreement, the tariff for storage/controlled release was required to be worked out in respect of each scheme separately. 26. Appearing for CUMI, Mr. C.A. Sundaram, learned Senior Advocate submitted: a) When its Agreement was entered into, CUMI was the only Power Project in private sector and as such, there was no question of any discrimination. However, the discrimination arose when other Power Projects were given the benefit of controlled re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orated in INDSIL and CUMI Agreements. Said Clause 14 of the Policy dealt with the additional advantage gained by an agency/ project by way of controlled release of water and stipulated that the cost component for such controlled release would be required to be paid. Clause 15 of the Policy then set out the formula to be used for ascertainment of the relevant indicia. The Agreements having accepted the liability to pay such controlled release of water, the matter was purely in the realm of contract. (b) There was no unequal or unnatural bargaining so as to invoke the principles laid down in some of the decisions of this Court. Both CUMI and INDSIL had willingly accepted the liability to pay for the use of controlled release of water. It was a commercial contract which was entered into after due negotiations. (c) The location of the projects of CUMI and INDSIL as well as the facts on record would show that both the projects were enjoying the benefit of controlled supply of water. CUMI had been enjoying the benefit of "tail race" water discharge flowing down from Moozhiyar Power House of the Board while INDSIL Project had been enjoying the advantage of controlled supply of water d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded in INDSIL Agreement a specific reference to the terms and conditions of the policy was made and such terms and conditions were incorporated in INDSIL Agreement. Thus the decision dated 08.04.1994 had no bearing on the matter in question. 29. The first question that arises for consideration is whether the projects of CUMI and INDSIL are located at places where the advantage of controlled supply of water is assured and can be derived. 30. Hydro-Electric Projects rely on the force of fall of water from a height to enable the turbines to generate electricity. Normally, the water is supplied through penstocks from a reservoir. The stored water from a reservoir assures consistent and regular supply of water for the smooth functioning of the generating units. The supply of water from a large reservoir is one way of ensuring consistent and controlled supply of water. However, because of topography, large reservoirs are not always close to a generating unit. In such cases, the water from a large reservoir located at a greater height is steadily released and collected in a smaller reservoir or a weir from which the water is thereafter supplied to the generating units; and depletion i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inly have the advantage of controlled supply of water. Thus, the absence of a specific clause, akin to Clause 14 of CUMI Agreement, in INDSIL Agreement, would be of no consequence. The relationship between the parties would be governed by Clause 14 of the Policy, as incorporated in the respective Agreements. 35. The next questions to be considered are whether Clause 14 of CUMI Agreement and Clause 14 of the Policy which stood incorporated into the respective Agreements could be termed to be unconscionable and/or manifestly arbitrary. 36. The decision of this Court in Central Inland Water Transport Corporation (1986) 3 SCC 156 which was pressed in service, was in relation to terms in a Contract of Employment. This Court found that such term would get included in the contract only at the instance of the employer where because of lack of bargaining power the employee would have no other option but to accept such term. It was in this context that the relevant term contained in the Contract of Employment was found to be unconscionable. At the same time, the principles which weighed with the Court for holding such terms unconscionable were specifically stated to be inapplicable in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing wholly disproportionate and unequal bargaining power. These cases can neither be enumerated nor fully illustrated. The court must judge each case on its own facts and circumstances. (Emphasis added) 37. In S.K. Jain v. State of Haryana and Anr. (2009) 4 SCC 357 a Bench of three Judges of this Court summed up as under: It is to be noted that the plea relating to unequal bargaining power was made with great emphasis based on certain observations made by this Court in Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly (1986) 3 SCC 156. The said decision does not in any way assist the Appellant, because at para 89 it has been clearly stated that the concept of unequal bargaining power has no application in case of commercial contracts. 38. To similar effect, were the observations by this Court in ICOMM Tele Limited (2019) 4 SCC 401, where this Court held: 11. As has correctly been argued by learned Counsel appearing on behalf of the Respondents, this Court's judgment in Central Inland Water Transport Corporation (1986) 3 SCC 156, which lays down that contracts of adhesion i.e. contracts in which there is unequal bargaining power, between private per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia (1984) 3 SCC 316 it was found in paragraph 23 that the Clause had no nexus to the filing of frivolous claims. The discussion in paragraph 23 was: 23. The important principle established by this case is that unless it is first found that the litigation that has been embarked upon is frivolous, exemplary costs or punitive damages do not follow. Clearly, therefore, a "deposit-at-call" of 10 per cent of the amount claimed, which can amount to large sums of money, is obviously without any direct nexus to the filing of frivolous claims, as it applies to all claims (frivolous or otherwise) made at the very threshold. A 10 per cent deposit has to be made before any determination that a claim made by the party invoking arbitration is frivolous. This is also one important aspect of the matter to be kept in mind in deciding that such a Clause would be arbitrary in the sense of being something which would be unfair and unjust and which no reasonable man would agree to. Indeed, a claim may be dismissed but need not be frivolous, as is obvious from the fact that where three arbitrators are appointed, there have been known to be majority and minority awards, making it clear that there may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s consciously accepted by them. The submission that the relevant Clause would be manifestly arbitrary, therefore, does not merit acceptance. 43. Though we have considered the submissions that Clause 14 of the Policy would be unconscionable or arbitrary on merits, reference may also be made to the following statement of law culled out in Rajasthan State Industrial Development and Investment Corporation and Anr. v. Diamond and Gem Development Corporation Limited and Anr. (2013) 5 SCC 470: 15. A party cannot be permitted to "blow hot-blow cold", "fast and loose" or "approbate and reprobate". Where one knowingly accepts the benefits of a contract, or conveyance, or of an order, he is estopped from denying the validity of, or the binding effect of such contract, or conveyance, or order upon himself...... 44. Moving further, even if the relevant term in the Policy is not found to be unconscionable or arbitrary and is found to be perfectly justified, the question still remains whether in the application of said term to CPPs alone and not to IPPs, was any discriminatory treatment meted out to CPPs. Qualitatively, the CPPs and IPPs have a basic distinction. CPPs produce electricity fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the royalty or charges for controlled supply of water in the instant case would be nothing but compulsory exaction and in the absence of any statutory sanction behind such imposition, the actions on part of the Board would be without jurisdiction. The counter submission on behalf of the State and the Board was that such royalty or charges had the genesis in respective contracts and as such the action on part of the Board was fully justified. 47. The distinction between tax and fee was brought out by the Constitution Bench of this Court in Hingir-Rampur Coal Co. Ltd. and Ors. v. State of Orissa and Ors. (1961) 2 SCR 537 as under: 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 (1938) 60 C.L.R. 263, 276 is often cited as a classic on this subject. "A tax", said Latham, C.J., "is a compulsory exaction of money by public authority fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch an excessive extent as to be a pretence 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 Commissioner, Hindu Religious Endowments, Madras v. Sri Lakshmindra Thirtha Swamiar of Sri Shirur Mutt (1954) S.C.R. 1005 the vires of the Madras Hindu Religious and Charitable Endowments Act, 1951 (Madras Act 19 of 1951), came to be examined. Amongst the Sections challenged was Section 76(1). Under this Section every religious institution had to pay to the Government annual contribution not exceeding 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct 29 of 1950) which imposed a similar contribution for a similar purpose in Ratilal Panachand Gandhi v. State of Bombay (1954) S.C.R. 1055. 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. 48. In State of West Bengal v. Kesoram Industries Limited and Ors. (2004) 10 SCC 201, another Constitution Bench of this Court explained certain observations in India Cement Limited v. State of Tamil Nadu (1990) 1 SCC 12, and stated as under: 59. First we will refer to certain dictionaries oft-cited in courts of law: Words and Phrases, Permanent Edn. (Vol. 37-A, p. 597): 'Royalty' is the share of the produce reserved to owner for permitting another to exploit and use property. The word 'royalty' means compensation paid to landlord by occupier of land for species of occupation allowed by contract between them. 'Royalty' is a share of the product or profit (as of a mine, forest etc.) reserved by the owner fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 39. In a mining lease the consideration usually moving from the lessee to the lessor is the rent for the area leased (often called surface rent), dead rent and royalty. Since the mining lease confers upon the lessee the right not merely to enjoy the property as under an ordinary lease but also to extract minerals from the land and to appropriate them for his own use or benefit, in addition to the usual rent for the area demised, the lessee is required to pay a certain amount in respect of the minerals extracted proportionate to the quantity so extracted. Such payment is called 'royalty'. It may, however, be that the mine is not worked properly so as not to yield enough return to the lessor in the shape of royalty. In order to ensure for the lessor a regular income, regardless of whether the mine is worked or not, a fixed amount is provided to be paid to him by the lessee. This is called 'dead rent'. 'Dead rent' is calculated on the basis of the area leased while royalty is calculated on the quantity of minerals extracted or removed. Thus, while dead rent is a fixed return to the lessor, royalty is a return which varies with the quantity of minerals extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssent with that part of the judgment in Mahalaxmi Fabric Mills Ltd. 1995 Supp (1) SCC 642 which says (vide para 12 of SCC report) that there was no "typographical error" in India Cement (1990) 1 SCC 12 and that the said conclusion that royalty is a tax logically flew from the earlier paragraphs of the judgment. 49. In State of Himachal Pradesh and Ors. v. Gujarat Ambuja Cement Ltd. and Anr. (2005) 6 SCC 499, a Bench of three Judges of this Court observed: 44. "Royalty" is not a term used in legal parlance for the price of the goods sold. It is a payment reserved by the grantor of a patent, lease of a mine or similar right, and payable proportionately to the use made of the right by the grantee as held in Titaghur Paper Mills Co. Ltd. Case 1985 Spp SCC 280 : 1985 SCC (Tax) 538. 45. In its primary and natural sense "royalty" in the legal world, is known as the equivalent or translation of "jura regalia" or "jura regia". Royal rights and prerogatives of a sovereign are covered thereunder. In its secondary sense, the word "royalty" would signify, as in mining leases, that part of the reddendum, variable though, payable in cash or kind, for rights and privileges obtained. (See Inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llected forms part of the public revenues of the State. As the object of a tax is, not to confer any special benefit upon any particular individual there is as it is said, no element of "quid pro quo" between the taxpayer and the public authority.... Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay. 51. It is true that as a result of order passed by this Court in Mineral Area Development Authority and Ors. v. Steel Authority of India and Ors. (2011) 4 SCC 450, certain questions concerning "royalty" as determined under the provisions of Mines and Minerals (Development and Regulation) Act, 1957 now stand referred to a Bench of nine Judges, which reference is still pending consideration. However, none of those issues arise in the present matter. 52. On the use of the expression "royalty" in a contract, we may note following observations in Inderjeet Singh Sial and Anr. v. Karam Chand Thapar and Ors. (1995) 6 SCC 166: 12. ... ... The word 'royalty' thus, in the deed was used in a loose sense so as to convey liability to make periodic payments to the assignor for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant Act nor the notification nor the Rules nor the terms and conditions of the licence stipulate the payment of any rental. This amount is required to be paid under an agreement which the exhibitors individually enter into with the Films Division for the supply of these films. It is a payment under the terms of a contract between the two parties. It cannot, therefore, be viewed as a tax at all. The exhibitors contend that because they are required to enter into these agreements, any payment under the agreement is a compulsory exaction and is, therefore, tax. We do not agree. Under the terms of the agreement, the Films Division has to supply certain prints to the theatre owners at stated intervals. The Films Division is required to maintain a distribution network for this purpose. It is required to pack these films and is required to allow the exhibitors to retain these films in their possession for a certain period. The films are to be returned to the Films Division thereafter. The charge is termed in the agreement as rental for the films. It covers charges for preparing the prints of the films for distribution, and for packing them for delivery. These are clearly service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with the statutory obligation, the levy must, since it is correlated with the Films Division discharging certain obligations under the contract, be viewed, at the highest, as a fee and not as a tax. It is an agreed payment, and is not unreasonable. The High Court has rightly negatived the contention of the Respondent exhibitors. 54. Thus, the expression 'Royalty' has consistently been construed to be compensation paid for rights and privileges enjoyed by the grantee and normally has its genesis in the agreement entered into between the grantor and the grantee. As against tax which is imposed under a statutory power without reference to any special benefit to be conferred on the payer of the tax, the royalty would be in terms of the agreement between the parties and normally has direct relationship with the benefit or privilege conferred upon the grantee. Whatever be the nomenclature, the charges for use of controlled release of water in the present cases were for the privilege enjoyed by INDSIL and CUMI. Like the case in Motion Picture Association (1999) 6 SCC 150, the basis for such charges was directly in terms of, and under the arrangement entered into between the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
