Royalty liability on minor mineral extraction upheld where works contract functioned as a mining lease, not a mere licence.

Contractors authorised under a works contract to extract minor minerals from Government quarries were treated as bearing the royalty burden where the contract expressly made quoted unit rates inclusive of royalty and required payment on materials obtained from such quarries. The arrangement was characterised as more than a bare licence because it conferred a right to extract, remove and use minerals for the works, bringing it within the nature of a right to enjoy immovable property under Section 105 of the Transfer of Property Act, 1882. The mining operation and the right to win and appropriate minerals also supported treatment of the arrangement as a mining lease rather than a mere licence. Liability to pay royalty was therefore upheld, while refund for minerals used in Government work was left open.

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Issues: Whether contractors who were permitted under the works contract to extract minor minerals from Government quarries were liable to pay royalty on the minerals removed and whether the arrangement amounted to a lease rather than a mere licence.

Analysis: The contractual terms made the quoted unit rates inclusive of royalty and expressly required payment of royalty on materials obtained from Government quarries. Rule 19 of the Karnataka Minor Minerals Concessions Rules, 1969 recognised royalty on minor minerals and the contract allocated that burden to the contractor. The right granted was not a bare permission to enter land, but a right to extract, remove and use minerals for execution of the works, which answered the description of a right to enjoy immovable property within Section 105 of the Transfer of Property Act, 1882. The nature of mining operations and the right to win and appropriate minerals also supported the conclusion that the arrangement was substantively a mining lease and not a mere licence. The possibility of refund for mineral used in Government work was left open as it had not been canvassed below.

Conclusion: The contractors were liable to pay royalty in terms of the contract, and the challenge to the State's demand failed.

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