1984 (12) TMI 281 - HC - VAT and Sales Tax

Court rules mining leases as immovable property, not subject to sales tax.

Associated Cement Company Ltd., Secunderabad Versus Government of Andhra Pradesh & Kesoram Cements, Kesoram Industries and Cotton Mills Ltd. Versus State of Andhra Pradesh

Associated Cement Company Ltd., Secunderabad Versus Government of Andhra Pradesh & Kesoram Cements, Kesoram Industries and Cotton Mills Ltd. Versus State ... Issues Involved:1. Whether the petitioners holding mining leases can be considered purchasers of limestone mined by them.2. The nature of the contract between the parties: lease of immovable property, license, or sale agreement.3. The nature of royalty: whether it is the purchase price or the owner's share in the produce.Detailed Analysis:1. Whether the Petitioners Holding Mining Leases Can Be Considered Purchasers of Limestone Mined by ThemThe core question is whether the petitioners, who hold mining leases for limestone and use it for manufacturing cement, can be considered purchasers of the limestone under Section 6-A of the Andhra Pradesh General Sales Tax Act, 1957. The petitioners argued that the mining lease is a lease of immovable property as defined by the Transfer of Property Act, and mining the limestone is merely a method of enjoying the leased property. Therefore, there is no sale of limestone, and the royalty paid does not represent the price but the owner's share in profits. The State contended that the deed is essentially a license to quarry and take away limestone, with the royalty representing the price of the mineral removed.2. The Nature of the Contract Between the Parties: Lease of Immovable Property, License, or Sale AgreementThe court examined the nature of the contract to determine if it is a lease of immovable property, a license, or a sale agreement. The court referred to precedents, including the Supreme Court's decision in Tarkeshwar Sio Thakur Jiu v. B.D. Dey Company, which held that a right to carry on mining operations is a 'right to enjoy immovable property' within the meaning of Section 105 of the Transfer of Property Act. The court noted that the lease deed in question allowed the lessee to enter upon the land, carry out mining operations, and use the land for activities connected with mining. The court concluded that the lease deed is a lease of immovable property, not a license or a sale agreement.3. The Nature of Royalty: Whether It Is the Purchase Price or the Owner's Share in the ProduceThe court examined the nature of the royalty to determine if it is the purchase price or the owner's share in the produce. The court referred to several legal definitions and precedents, including Halsbury's Laws of England and various Indian High Court decisions, which define royalty as a payment proportionate to the amount of the mineral worked and as a form of rent. The court concluded that the royalty amount is not the purchase price but more akin to a lease amount or the owner's share in the produce.ConclusionThe court held that the mining leases are leases of immovable property, not licenses or agreements to sell. Consequently, there is no sale of the mineral extracted by the petitioners, and the mining and quarrying of the mineral is a form of enjoying the leased property. Since there is no element of sale or purchase, Section 6-A of the Andhra Pradesh General Sales Tax Act is not attracted. The royalty amount paid by the petitioners is not the purchase price, and thus, no sales tax is leviable on the royalty amount under Section 6-A of the Act. The writ petitions were allowed, and it was held that no sales tax is leviable on the royalty amount paid by the petitioners. The court also granted a certificate for leave to appeal to the Supreme Court, recognizing the substantial question of law involved.