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CASE NO.: Appeal (civil)  5576 of 1995

PETITIONER: Panyam Cements and Minerals Ltd.,                

RESPONDENT: Vs. Union of India & Ors.                                    

DATE OF JUDGMENT: 07/07/2003

BENCH: Ruma Pal & B.N. Srikrishna

JUDGMENT:

J U D G M E N T

RUMA PAL, J

       The appellant manufactures cement at its factory in  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

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(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

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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’  

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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

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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.

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       We therefore dismiss the appeal with costs.