STATE OF ORISSA AND ORS.versusSTEEL AUTHORITY OF INDIA AND ANR

A                         STATE OF ORISSA AND ORS.
                                           v.
                    STEEL AUTHORITY OF INDIA AND ANR

                                 AUGUST IO, 1998

B             [M.M. PUNCHHI, CJ. AND K. VENKATASWAMI, JJ.]


            Mines and Minerals (Regulation and Development) Act, 1957: Section
    9(1).

C         Mines and Minerals-Royalty-Payment of-Mode of :alculation-
    Manufacturer of iron, steel and allied products obtained a piece of land on
    lease for extracting limestone and dolomite for use as raw materials-
    Agreement stipulated payment of royalty-Extracted mineral had undergone
    a processing to remove waste and foreign materials-Held : Such processing
    amounts to consumption-Hence, manufacturer liable to pay royalty on the
D   entire mineral extracted and not on the quantity of mineral obtained after
    processing.
                                                                                       •
            Words and Phrases:

E        "Consumption"-Meaning of-Jn the context of S.9 (I) of the Mines
    and Minerals (Regulation and Development) Act, I 95 7.

          The respondent, a manufacturer of iron, steel and allied products
    obtained a piece of land from the State Government for extracting limestone
    and dolomite for use as raw materials. The agreement stipulated payment of
F   royalty on the minerals extracted. The extracted mineral had undergone a
    processing to remove waste and foreign matter. It was the case of the appellants
    that the respondent was liable to pay royalty on the mineral extracted while
    the case of the respondent was that the liability was on the quantity of
    mineral obtained after it had undergone the process.

G        The High Court, after referring to Section 9(1) of the mines and
    Minerals (Regulation and development) Act, 1957, held that the respondent
    was liable to pay royalty only on the quantity of mineral obtained after
    processing and not on the entire quantity of mineral extracted. Hence this
    appeal

H           Allowing the appeal, this Court
                                         1074
             STATE v. STEEL AUTHORITY OF INDIA [K. VENKATASWAMI. J.]             1075

---         HELD : 1. The levy of royalty is in respect of minerals removed or
      consumed by the contractor from the leased area. Section 9(1) of the Mines
                                                                                         A

      and Minerals (Regulation and Development) Act, 1957 also contemplates the
      levy of royalty on the mineral consumed by the holder of a mining lease in
      the leased area. If that be so, the case of the appellants that such processing
      amounts to consumption and, therefore, the entire mineral is exigible to levy      B
      of royalty has to be accepted. The High Court erred in holding that the
      royalty can be levied only on the quantity of mineral obtained after processing.
                                                                   [1077-H; 1078-A[
            National Coal Development Corporation Ltd. v. State of Orissa and
      Ors., (CA No. 807176 decided by supreme Court on 5-12-1991 and India
      Cement Ltd. v. State of T.N, [1990] 1SCC12, relied on.                             C
           Saurashtra Cement and Chemicals Industries Ltd. v. Union of India
      and Anr. [1996[ 1 SCC 226, referred to.

          CIVIL APPEALLATE JURISDICTION : Civil Appeal Nos. 3693-
      94ofl998.                                                                          D
           From the Judgment and Order dated 25-6-91/10.9.92 of the Orissa High
      Court in O.J.C. No. 1491/86 and O.J.C. No. 3379of1989.

            P.N. Misra for the Appellants.

            G.M Misra, Dhruv Mehta, F. Anam, S.K. Mehta and Mrs. Monita Mehta            E
      for the Respondents.

            The Judgment of the Court was delivered by

            K. VENKA TASWAMI, J. Special leave granted. These appeals raise a
      common question of law and the parties are same in both the appeals. As a          F
      matter of fact, in Civil Appeal arising out ofS.L.P. (C) No. 16665/92 the High
      Court has simply followed its earlier judgment against which the Civil Appeal
      arising out of S.L.P. (C) No. 16718/91 has been filed. In the circumstances,
      both the appeals are disposed of by this common judgement.
                                                                                         G
            The respondent, a manufacturer of iron, steel and allied products, entered
      into an agreement of lease in respect of !and measuring 569.6 acres with the
      State Government in order to meet its own requirements of raw materials,
      namely, limestone and dolomite. Under the agreement, it was agreed that the
      respondent was liable to pay royalty on the minerals extracted. However, the
      dispute that arises for consideration out of the two judgments of the High         H
    1076                   SUPREME COURT REPORTS                    [1998] 3 S.C.R.

A   Court is whether the respondent is liable to pay royalty on the quantity of
    mineral extracted as it is or on the quantity arrived at after the said mineral
                                                                                       --
    had undergone a processing to remove waste and foreign matters. It was the
    case of the appellants that the respondent was liable to pay royalty on the
    mineral extracted while the case of the respondent was that the liability was
B   on the quantity of mineral obtained after it had undergone the process.

          The process adopted by the respondent is given in the SLP paper book
    at page 11, which reads as follows :-

            "In the Mechanised Section of the respondent's quarry, after blasting,
            the blasted materials containing Limestone and other foreign materials
c           are loaded by mechanical shovels and are brought to the crushing
            Plant by dumpers. These are called "Run of Mines", for short R.O.M.
            The R.O.M. are fed into the crusher, and when necessary stockpile is
            made, the same is fed into the primary crusher whereafter it goes to
            the secondary crusher mechanically. In between the secondary crusher
D           and the screening Plant is aftixed the Weighto-meter. From the
            secondary crusher the Limestone is moved into the screening Plant
            and from the screening Plant to the stockpile. The stockpile is then
            transported and loaded into the Railway wagons.

                The Weighto-meter recording mentioned hereinabove, is done as
E           the workmen are paid their incentives on the basis of production. This
            figure recorded by the Weighto-meter is duly recorded in the books
            kPpt by the respondent-company in the regular course of business as
            "production".

         The Senior Mining Officer is duly intimated of the weight recorded in
F   the manner as aforesaid."
                                                                                       ..
                                                                                       ,

         The High Court, after referring to Section 9(1) of the Mines and
    Minerals (Regulation and Development) Act, 1957 (hereinafter called "the
    Act") and also clause 3 of Part V of the Lease Deed, held as follows :

G           "A distinction has to be made between removal from the mine and
            removal from the leased area. If after the mineral is extracted from the
            mine, it undergoes some processing and during processing a part of
            the mineral is wasted and the wastage remains on the leased area and
            is not removed therefrom, the lessee cannot be asked to pay royalty
H           on that portion of the wastage."
       S 1ATE v. STEEL AUTHORITY Of INDIA [K. VENKATASWAM!.J.]          1077
     On that view of the matter, the High Court quashed the demands, which A
were levied on the quantity of 'unprocessed' minerals.

     Aggrieved by the order of the High Court, the present appeals are filed
by special leave.

       The learned counsel appearing for the appellants submitted that the      B
High Court was not right in making the distinction and concluding that the
quantity of minerals which had undergone certain process alone was liable
to levy of royalty. According to the learned counsel, this view runs counter
to the view already taken by another Division Bench of the same High Court
in 0.1.C. No. 909174. The further case of the learned counsel was that the      C
judgment in 0.1.C. 909174 was taken on appeal to this Court by the aggrieved
assessee in Civil Appeal No. 807176 National Coal Development
Corporation ltd. v. State of Orissa & Ors., and this Court approved the
view taken by the High Court and dismissed the said Civil Appeal on 5.12.91.
Learned counsel, in support of his argument, placed reliance on the judgments
of this Court, namely, India Cement Ltd. & Ors. v. State of Tamil Nadu &        D
Ors., (1990] I SCC 12 and Saurashtra Cement and Chemical Industries Ltd.
v. Union of India & Anr., [1994] J SCC 226. Learned counsel appearing for
the respondent-assessee supported the judgments under appeal on the basis
of the distinction made by the High Court.

     We have considered the arguments and the reasonings contained in the       E
judgments under appeal.

     Section 9(1) of the Act reads as follows :-

       "The holder of a mining lease granted before the commencement of
       this Act shall, notwithstanding anything contained in the instrument F
       of lease or in any law in force at such commencement, pay royalty
       in respect of any mineral removed or consume.ct by him or his agent,
       manager, employee, contractor or sub-lessee from the leased area
       after such commencement, at the rate for the time being specified
       in the Second Schedule in respect of that mineral. (Emphasis supplied) G

     It is to be noted that the levy of royalty is in respect of minerals
removed or consumed by the contractor from the leased area. We have seen
earlier the process that the mineral said to undergo before the same was
removed form leased area. Section 9( I) of the Act also contemplates the levy
of royalty on the mineral consumed by the holder of a mining lease in the H
    1078                      SUPREME couin REPORTS                        [1998] 3 S.C.R.

A leased area. If that be so, the case of the appellants that such processing
    amounts to consumption and. therefore. the entire mineral is exigible to levy
    of royalty has to be accepted. We are unable to agree with the distinction
    made by the High Court and the conclusion that the royalty can be levied
    only on the quantity of mineral obtained after processing.

B          Another Division Bench of the Orissa High Court in National Coal
    Development Corporation case (supra), while considering the question whether
    the coal extracted by the workmen for their own domestic consumption is
    exigible to levy of royalty, accepting the contention of the Revenue, held
    "that removal from the seam in the mine and extracting the same through the
C   pits's mouth to the surface satisfy the requirement of Section 9 in order to
    give rise to liability for royalty". This view of the High Court found approval
    by this Court in Civil Appeal No. 807 /76 and this Court held that the lessee
    in that case was liable to pay royalty for the coal supplied to its workmen for
    consumption.

D         In India Cement's case (supra), a Constitution Bench, while considering
    the constitutionality of levy of cess on the royalty, held as follows :-

             "In the Western India Theaters Ltd. v. Cantonment Board, Poona
             Cantonment it was held that an entertainment tax is dependent upon
             whether there would or would not be a show in the cinema house. If
E            there is no show, there is no tax. It cannot be a tax on professions
             or calling. Professional tax does not depend on the exercise of one's
             profession but only concerns itself with the right to practice. It appears
             that in the instant case also no tax can be levied or is leviable under
             the impugned Act if no mining activities are carried on. Hence, it is
             manifest that it is not related to land as a unit which is the only
F            method of valuation of land under Entry 49 of List II, but is relatable
             to minerals extracted. Royalty is payable on a proportion of the minerals
             extracted ................................................................... .

           For the reasons stated above, we hold that the High Court was not right
G in quashing the demands, which were rightly calculated and levied. The
    impugned judgments of the High Court are set aside and the OJ.Cs. filed by
    the respondent stand dismissed.

           The appeals are allowed accordingly with no order as to costs.

    V.S.S.                                                              Appeals allowed.