TaxTMI 
TaxTMI 
2015 (10) TMI 2386
X X X X Extracts X X X X
X X X X Extracts X X X X
....in State of Orissa v. Steel Authority of India Ltd. (1998) 6 SCC 476 (hereafter SAIL) has been accepted by the High Court, namely, that royalty is chargeable [in accordance with Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (the MMDR Act)] on the quantity of coal extracted at the pit-head, yet the refund of excess royalty paid by TISCO for the period from 10th August, 1998 (the date of the decision in SAIL) till June 2002 [about Rs. 29.34 cr.] has been denied. TISCO therefore claims entitlement to refund on the excess royalty paid by it for this period. 4. Civil Appeal No.307/2004 has been filed by the State of Bihar (Now Jharkhand) against the same judgment and order dated 23rd July, 2002. The submission is that after the decision in SAIL the Government of India issued a notification dated 25th September, 2000 inserting Rule 64B and Rule 64C in the Mineral Concession Rules, 1960 (hereafter MCR) and as a result of this, Run-of-Mine (ROM) minerals, after being processed in the leased area are exigible to royalty on the processed mineral. It is contended that these rules were, unfortunately, not brought to the notice of the High Court and that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble on the processed or beneficiated coal only after 25th September, 2000 and royalty is payable on unprocessed, raw or ROM coal extracted at the pit-head only for the period from 10th August, 1998 to 25th September, 2000. Background facts 8. Tata Steel holds several mining leases for coal in the State of Jharkhand, in the district of Ramgarh (formerly Hazaribagh) known as the West Bokaro Colliery and in the district of Dhanbad known as the Jamadoba and Belatand group of collieries. The coal mines are captive coal mines. Tata Steel has an adequate number of washeries in the leased area where the raw coal extracted from the mine (Run-of-Mine coal) is washed to improve its quality and is then dispatched for use in its steel plant at Jamshedpur for the production of iron and steel. 9. Initially Tata Steel and TISCO were of the opinion that in accordance with the provisions of Section 9 of the Mines and Minerals (Regulation and Development) Act, 1957 [now renamed as the Mines and Minerals (Development and Regulation) Act, 1957 or the MMDR Act] {With effect from 18th December, 1999 9. Royalties in respect of mining leases.-(1) The holder of a mining lease granted before the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e on the coal removed from the leased area and so long it is not removed, no royalty is payable. In view of the fact that coal is removed from the leased area, only after it is washed, the petitioner is liable to pay royalty on the weightage of that coal." 10. This decision has attained finality and the position at law in this regard continued till 1998. 11. On 10th August, 1998 this court delivered judgment in SAIL. The question raised in that case was whether the Steel Authority of India Ltd. or SAIL was liable to pay royalty at the rate mentioned in the Second Schedule to the MMDR Act on the quantity of mineral (limestone and dolomite) extracted as it is or on the quantity arrived at after these minerals have undergone a process of removal of waste and foreign matter. According to the State of Orissa royalty was chargeable on the extracted minerals at the rate mentioned in the Second Schedule to the MMDR Act while according to SAIL royalty was chargeable at the rate mentioned in the Second Schedule to the MMDR Act on the quantity of minerals obtained after the process of removal of waste and foreign matter. 12. This court referred to an earlier decision of the Orissa Hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the rate of royalty on coking coal Steel Grade I was fixed at Rs. 7/- per ton and of Washery Grade IV at Rs. 5.50 per ton; by a notification dated 1st August, 1991 the rate of royalty on coking coal Steel Grade I was increased to Rs. 150/- per ton and of coking coal Washery Grade IV to Rs. 75/- per ton; by a notification dated 14th October, 1994 the rate of royalty on coking coal Steel Grade I was further increased to Rs. 195/- per ton and of coking coal Washery Grade IV to Rs. 95/- per ton.} 16. In any event, this interpretational dispute led to the filing of a set of writ petitions by Tata Steel in the High Court of Jharkhand, out of which the present appeals have arisen. The controversy Quality of coal and stage of chargeability 17. When coal is extracted from a mine, it is referred to as raw coal or unprocessed coal. Depending upon the use to which it may be put, which also depends upon its ash content and its calorific value, raw coal or unprocessed coal or Run-of-Mine (ROM) coal can be used as it is. 18. As far as Tata Steel is concerned, it is stated on page 164 of the Convenience Volume handed over to us by learned counsel for Tata Steel that "Most of our raw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....used as it is) as follows:- "17. That the petitioner all along has been utilizing the entire coal raised from the said West Bokaro Colliery for the purpose of treatment and/or washing thereof as to reduce the ash percentage thereof with a view to use the same in its Steel Plant, in as much as in the Steel plant only coking coal of high grade which containing [contains] less ash can be used." 24. Similarly, in paragraph 31 of the counter affidavit filed by the Union of India in W.P.(C) No.1504 of 2009 in the High Court it is stated as follows:- "31. That in reply to the statements made in para No.84 of the Writ Petition the Answering Respondent most humbly and respectfully state that the applicability of Rule 64B and Rule 64C [of the Mineral Concession Rules, 1960] is necessary for minerals that need processing or beneficiation before being used, especially metallic minerals. However, [as far as] its applicability to coal minerals is concerned considering the fact that in case of coal, where the entire ROM can be generally made usable the Respondent No. 1 & 2 are of the opinion that Rule 64B and Rule 64C may not be particularly applicable to coal mineral." 25. It is quit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tracted): = 100 tonnes Beneficiation: The products are dewatered but still the surface moisture gets adhered to the product generated. The beneficiation is a wet process i.e. raw coal mass flows through different process in slurry form. Output is measured on wet process because it is transported on wet basis (with moisture). Hence the output is more than the input of raw coal. Beneficiation process results in Clean Coal; Middlings; Tailings; and Rejects Thus 100 tonnes of raw coal will produce approximately 115 tonnes of washed product. Output from collieries (Average Quantities): Clean coal = 40 tonnes Middlings = 40 tonnes Tailings = 25 tonnes Rejects = 10 tonnes Conclusion: It is quite clear that beneficiation process (dense media gravity separation and froth floatation) are a physical separation process to separate higher ash coal and lower ash coal, so no chemical changes are there in the coal mineral, as there are no chemical reactions involved during this beneficiation process. Referring below a flow chart [not relevant]........ From the quantity related table, it is also quite evident that due to addition of water during wet bene....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ailings or rejects. However, levy of royalty is applicable only in case such tailings or rejects subsequently used for sale or consumption. For example, tailing from copper concentrate are likely to contain silver. However, royalty on silver generally cannot be levied till silver is extracted from the tailings and sold or consumed. Rule 64C is therefore applicable on such cases of minerals, where tailings or rejects generated during mining or processing are likely to be dumped due to its limited use." 29. In other words, the ROM copper ore contains hardly 1% or 2% of copper but after the beneficiation process the copper extract from the ore increases to about 25%. It is thereafter sent for refining and smelting. In other words, copper ore cannot be utilized as it is or in the ROM state - it must undergo a beneficiation process from the ore and can then be used. 30. As mentioned in SAIL the consequences of processing dolomite or limestone has a consequence different from that of copper ore, namely, mere removal of waste and foreign matter. It appears that this process does not improve the quality of the dolomite or the limestone, though with the removal of waste and foreign....
X X X X Extracts X X X X
X X X X Extracts X X X X
....DR Act was amended by a notification dated 16th August, 2002. 38. In terms of the notification dated 16th August, 2002 the rate of royalty for coking coal Steel Grade I, coking coal Steel Grade II and coking coal Washery Grade II was raised to Rs. 250/- per ton. For coking coal Washery Grade IV the rate of royalty was raised to Rs. 115/- per ton. 39. Therefore, for every 100 tons of coking coal Washery Grade IV extracted by Tata Steel, the royalty payable on ROM coal was Rs. 11500/- with effect from 16th August, 2002. However, if the royalty were to be computed on postbeneficiation coal, the royalty payable by Tata Steel would work out to: Product Grade Quantity (tons) Royalty rate (Rs/ton) Amount (in Rs) Clean coal Steel Grade I 40 250 1000 Middlings Grade E 40 85 3400 Tailings Grade D 25 85 2125 Royalty payable 105 15525 Rejects have not been included in this calculation. 40. Based on the above computation, the difference in royalty on post-beneficiation coal (as claimed by the State of Jharkhand) and on ROM coal (as claimed by Tata Steel) is Rs. 4025/- per 100 tons of c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Washery Grade IV: 90+5% of 1120 (56) (Rs.146 per ton) = Rs. 14600/-" 44. Based on the above computation, the difference in royalty payable on post-beneficiation coal (as claimed by the State of Jharkhand) and on ROM coal (as claimed by Tata Steel) is Rs. 2240/- per 100 tons of coal extracted (16840 minus 14600 = 2240). 45. We have been given to understand that this position has undergone changes, but we are not concerned with them. 46. To summarize the computations, the royalty as computed by the State and as computed by Tata Steel is as follows: Royalty payable in Rs. Period (from date) On beneficiated coal (per 100 tons) On ROM coal (per 100 tons) Difference (per 100 tons) Royalty payable 14.10.1994 12350 9500 2850 Royalty payable 16.8.2002 15525 11500 4025 Royalty payable 1.8.2007 16840 14600 2240 47. As is quite obvious, the difference in royalty payable would run into huge figures particularly since coal is mined in millions of tons. Discussion 48. Two interpretations have been given to removal of a mineral from the leased area as postulated in Sections 9(1) and 9(2) of the MMDR Act. 49.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sa High Court held as follows:- "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 on that portion of the wastage."{The decision of the Orissa High Court does not appear to have been reported} 54. In other words, the Orissa High Court took the literal interpretation given to removal from the leased area as removal from the boundaries of the leased area, virtually reiterating the literal interpretation given by the Patna High Court in its judgment and order dated 7th August, 1990. 55. This court in the appeal filed by SAIL did not get into the question of removal of the mineral from the boundaries of the leased area but noted that the extracted mineral undergoes a process of removal of waste and foreign matter before it is removed from the boundaries of the leased area. The decision of this court on the levy of royalty turned on the consumption of the mineral through that process carried ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ore. 60. The Second Schedule to the MMDR Act provides rates of royalty and Entry 23 relates to iron ore. Royalty is payable on lumps, fines and concentrates. In the process of mining, iron ore is extracted and separated into ore lumps, fines and waste material which is commonly known as "slime", that is the resultant waste material from the wet screening process undertaken for segregation of lumps and fines. When the issue of exigibility of "slimes" was raised in the High Court,[The decision of the High Court is reported as AIR 1999 MP 112] it was held that royalty is payable on the mineral as extracted and removed or consumed from the leased area. The High Court also relied upon SAIL to hold that the entire quantity of ROM iron ore as extracted from the earth shall be liable to payment of royalty. 61. While disagreeing with the view taken by the High Court, it was held by this court that if Section 9 of the MMDR Act was to be read in isolation, perhaps, the total quantity of mineral removed from the leased area or consumed in the process of beneficiating iron ore would have been liable for payment of royalty and that quantity may have included the quantity of slimes as held....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g provision and the computation provision do differ qualitatively. In case of conflict, the computation provision shall give way to the charging provision. In case of doubt or ambiguity the computing provision shall be so interpreted as to act in aid of charging provision. If the two can be read together homogeneously then both shall be given effect to, more so, when it is clear from the computation provision that it is meant to supplement the charging provision and is, on its own, a substantive provision in the sense that but for the computation provision the charging provision alone would not work. The computing provision cannot be treated as mere surplusage or of no significance; what necessarily flows therefrom shall also have to be given effect to. 24. Applying the abovestated principle, it is clear that Section 9 neither prescribes the rate of royalty nor does it lay down how the royalty shall be computed. The rate of royalty and its computation methodology are to be found in the Second Schedule and therefore the reading of Section 9 which authorises charging of royalty cannot be complete unless what is specified in the Second Schedule is also read as part and parcel of Se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....see. The Court held that though the impurities part of dolomite and limestone were not removed from the leased area but that would not make any difference as the run-of-mine was itself consumed in the processing on the leased}. On the basis of the mineral extracted and the decision rendered by this court, therefore, no similarity can be found between SAIL (case of consumption) and National Coal Development Corporation Limited (case of removal) although royalty is charged on dolomite and limestone, as in coal, on a per ton basis. 68. Iron ore (with which NMDC is concerned) falls in the same generic category for levy of royalty as dolomite, limestone and coal namely on a tonnage basis but there is a crucial difference between iron ore and coal (as also between dolomite, limestone and iron ore). In the case of iron ore, beneficiation is necessary before it can be utilized. It has been observed in NMDC that "in iron ore production the run-of-mine (ROM) is in a very crude form. A lot of waste material called "impurities" accompanies the iron ore. The ore has to be upgraded. Upgrading the ores is called "beneficiation". That saves the cost of transportation. Different processes have b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....extraction of minerals could imagine: Entry Mineral Rate as per Notification of 5th May, 1987 Rate as per Notification of 17th February, 1992 7 Cadmium Sixteen rupees per unit percent of cadmium metal per ton of ore and on pro rata basis Seventy four rupees per unit percent of cadmium metal per ton of ore and on pro rata basis 12 Copper ore Five rupees per unit percent of copper metal contained per ton of ore and on pro rata basis Seventeen rupees per unit percent of copper metal contained per ton of ore and on pro rata basis 21 Gold Two rupees per one gram of contained gold per ton of ore and on pro rata basis (a) Eleven rupees per one gram of contained gold per ton of ore and on pro rata basis (b) by product gold ten rupees per gram 27 Lead ore Three rupees per unit percent of contained lead metal per ton of ore and on pro rata basis Eight rupees per unit percent of contained lead metal per ton of ore and on pro rata basis 28 Zinc ore Six rupees per unit percent of zinc metal contained per ton of ore and on pro rata basis Sixteen rupees per unit percent of zinc metal contained per ton of ore and on pro rata b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....National Coal Development Corpn. case 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 pit'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 National Coal case (C.A. No.807 of 1976 decided on 5.12.1991) and this Court held that the lessee in that case was liable to pay royalty for the coal supplied to its workmen for consumption." In this view of the matter we find no substance in the matter. The appeal is dismissed accordingly." 75. In view of the decision of this court in Central Coalfields Ltd. the issue is no longer res integra and in so far as coal is concerned, its "removal from the seam in the mine and extracting the same through the pit's mouth to the surface [satisfies] the requirement of Section 9 in order to give rise to liability for royalty." Rule 64B and Rule 64C of the Mineral Concession Rules 76. The complexities of charg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ad or after the removal of waste and foreign matter and of course the stage of charging royalty on other minerals such as copper, gold, lead and zinc amongst others. 78. Similarly, Rule 64C of the MCR relates to royalty on tailings or rejects. As far as Tata Steel is concerned, its computation given in the Convenience Volume indicates that royalty is paid and payable on middlings and tailings. Rule 64C of the MCR makes it clear that royalty is payable on rejects when they are sold or consumed after being dumped. This will take care of situations such as that pertaining to silver, as mentioned in the affidavit of the Union of India. 79. There is nothing to indicate in Rule 64B and Rule 64C of the MCR that coal has been put on a different pedestal from other minerals mentioned in the MMDR Act read with the Second Schedule thereto. It is, therefore, difficult to accept the view canvassed by the Union of India that these rules "may not be particularly applicable on coal minerals." That apart, the stand of the Union of India is not definite or categorical ("may not be"). In any event, we are not bound to accept the interpretation given by the Union of India to Rule 64B and Rule 64....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cally refunded but should be adjusted pro rata against future payments of royalty by TISCO over the next one year. TISCO is not entitled to refund of royalty paid after 25th September, 2000. The royalty paid by TISCO after 25th September, 2000 was correctly paid and in accordance with Rule 64B and Rule 64C of the MCR, which have not been challenged by TISCO. 85. We make it clear that we have not adverted to the issue of consumption of coal within the boundaries of the leased premises since that question does not arise in these appeals. 86. No other contention was urged before us. Conclusion 87. Our conclusions are as follows:- (1) The decision rendered in SAIL is confined to its own facts and to the minerals dolomite and limestone. The decision does not deal with removal of a mineral from the leased area but deals with consumption within the leased area. (2) The unreported decision of this court in Central Coalfields Ltd. approves the law laid down by the Orissa High Court in National Coal Development Corporation Ltd. to the effect that removal of coal from the seam in the mine and extracting it through the pit-head to the surface satisfies the requirements of Sec....