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Wednesday, March 18, 2015

In view of the insertion of Rule 64B and Rule 64C on 25th September, 2000 in the Mineral Concession Rules, the levy of royalty on coal has now been postponed from the pit-head to the stage of removal of the coal (whether unprocessed or ROM coal or whether beneficiated coal). In view of the decision in Central Coalfields Ltd. the entitlement of TISCO and Tata Steel to refund of royalty from 10th August, 1998 to 25th September, 2000 is recognized. For the period from 25th September, 2000 onwards, TISCO is obliged to pay royalty as per Rule 64B and Rule 64C of the Mineral Concession Rules. Tata Steel, like TISCO is liable to pay royalty on coal with effect from 25th September, 2000 in terms of Rule 64B and Rule 64C of the Mineral Concession Rules. The constitutional validity or the vires of Rule 64B and Rule 64C of the Mineral Concession Rules has not been adjudicated upon. It is open to Tata Steel either to revive these appeals limited to this question or to challenge the constitutionality and vires of these rules through a separate challenge. 88. The appeals are disposed of as above. However, the parties will bear their own costs.



                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                     CIVIL APPEAL NOS. 2938-2939 OF 2015
              (Arising out of S.L.P. (C) Nos.8972-8973 of 2014)

Tata Steel Ltd.                                            ....Appellant

                                   Versus

Union of India & Ors.                              ...Respondents

                                     AND

                    CIVIL APPEAL NOS.  2940-2941  OF 2015
              (Arising out of S.L.P. (C) Nos.9016-9017 of 2014)

Tata Steel Ltd.                                             ....Appellant

                                   Versus

State of Jharkhand & Ors.                             ...Respondents

                                    WITH

                        CIVIL APPEAL NO. 303 OF 2004

Tata Iron & Steel Co. Ltd.                                   ....Appellant

                                   Versus

State of Jharkhand & Ors.                             ....Respondents

                                    WITH





                        CIVIL APPEAL NO. 307 OF 2004

State of Bihar (Now Jharkhand) & Ors.                    ...Appellants



                                   Versus

Tata Iron & Steel Co. Ltd.
...Respondent



                               J U D G M E N T





Madan B. Lokur, J.

1.    Leave granted.
2.    Two sets of appeals are before us. One set of appeals pertains to  the
Tata Iron and Steel Company Limited (TISCO) and the other  set  pertains  to
Tata Steel.
3.    In the set of appeals pertaining to TISCO, the first appeal  is  Civil
Appeal No. 303/2004 filed by TISCO against  the  judgment  and  order  dated
23rd July, 2002 passed by the Jharkhand  High  Court.[1]  The  grievance  in
this appeal is that though the application of the  law  laid  down  by  this
court in State of Orissa v. Steel  Authority  of  India  Ltd.[2]  (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  the  decision rendered by

the High Court accepting the law laid down in SAIL is incorrect.

5.    In this context, it must immediately be noted that the  contention  of
the State of Jharkhand is not that Rule 64B and Rule 64C  of  the  MCR  have
retrospective effect. That being  so,  the  question  is  whether  TISCO  is
entitled to refund of the excess royalty paid from 10th  August,  1998  (the
date of the decision in SAIL) to 25th September, 2000 and if so whether  the
High Court was right in denying that refund. Also, the question  is  whether
TISCO is entitled to refund of royalty from 25th September, 2000  till  June
2002 and if so, whether the High Court was right in denying that refund.

6.    The other set of appeals pertaining to Tata  Steel  consists  of  four
appeals. These appeals filed by Tata Steel arise out of S.L.P. (C) Nos.8972-
73/2014 and S.L.P. (C) Nos.9016-17/2014 and are directed  against  a  common
judgment and order dated 12th March,  2014  passed  by  the  Jharkhand  High
Court in W.P. (C) Nos.1504/2009 & 1505/2009 and W.P. (C)  Nos.  2995/2008  &
2999/2008.[3]  The grievance of Tata Steel is that despite the  decision  of
this court in SAIL and the decision dated 23rd July, 2002 of  the  Jharkhand
High Court, royalty is  being  charged  from  Tata  Steel  on  processed  or
beneficiated coal and not on extracted coal or  Run-of-Mine  (ROM)  coal  at
the pit-head. It is submitted that this is  despite  the  affidavit  of  the
Ministry of Coal of the Government of India that Rule 64B and  Rule  64C  of
the MCR "may not be particularly applicable on coal  minerals."  Tata  Steel
is also aggrieved by the conclusion of the Jharkhand High  Court  that  Rule
64B and Rule 64C of the MCR are constitutionally valid.
Appeals filed by Tata Steel
7.    The question for our consideration in the  set  of  appeals  filed  by
Tata Steel is whether royalty is chargeable under Section  9  of  the  Mines
and Minerals (Development and Regulation) Act, 1957 and the Second  Schedule
thereto on raw or unprocessed or Run-of-Mine (ROM) coal at the  pit-head  or
is it chargeable on coal after it  is  processed  and  beneficiated  in  the
washeries located within the boundaries of the leased area. In our  opinion,
the question of payment of royalty has arisen in respect of  other  minerals
and this has been discussed in cases  relating  to  those  minerals.  On  an
appreciation of the decisions rendered, it must  be  held  that  royalty  is
payable 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][4]  they  were  liable  to  pay
royalty at the rates mentioned in the Second Schedule to  the  MMDR  Act  on
the tonnage of washed coal, that is after  raw  coal  or  Run-of-Mine  (ROM)
coal is removed from the washery post the beneficiation process.  In fact  a
writ petition was filed by TISCO in the Patna High Court being CWJC No.1  of
1984 (R) seeking a declaration to this effect. The State of Bihar  (at  that
time) was of the view that royalty was payable at the rate mentioned in  the
Second Schedule to the MMDR Act on the tonnage of the extracted coal at  the
pit-head and not on the tonnage of the washed or beneficiated coal.  By  its
judgment and order dated 7th August, 1990 the Patna  High  Court  held  that
TISCO  was  liable  to  pay  royalty  on  the  tonnage  of  the  washed   or
beneficiated coal.  It was held:
"From the plain reading of section  9(2)  of  the  Act,  it  is  clear  that
royalty is payable 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  High  Court
relating to the National Coal  Development  Corporation  Ltd.[5]    In  that
case, the High Court held that removal of coal from the  seam  in  the  mine
and extracting it through the pit's mouth to the surface would  satisfy  the
requirement of Section 9 of the MMDR Act to give rise  to  a  liability  for
royalty.  The decision of the Orissa High Court  was  appealed  against  but
the appeal was dismissed by this court.[6]  Relying upon this  decision,  it
was concluded in SAIL that the process  of  removal  of  waste  and  foreign
matter amounts to consumption and, therefore, the entire  mineral  extracted
is exigible to a levy of royalty.   By necessary  implication  the  decision
of the Patna High Court in CWJC No.1  of  1984  (R)  filed  by  TISCO  stood
reversed.
13.   Perhaps as a consequence of the decision in SAIL, Rule  64B  and  Rule
64C were inserted in  the  MCR  by  a  notification  dated  25th  September,
2000.[7]
14.   Be that as it may, in view of the decision in SAIL,  the  stand  taken
by Tata Steel/TISCO completely  changed  and  the  view  now  sought  to  be
canvassed was that royalty is payable at the rate mentioned  in  the  Second
Schedule to the MMDR Act on the tonnage of unprocessed or ROM  coal  at  the
pit-head and not on processed or beneficiated coal.
15.   With regard to the claim of Tata Steel  that  it  was  liable  to  pay
royalty only on the tonnage of unprocessed or ROM coal at  the  pit-head  in
terms of the decision in SAIL, the response of the State  of  Jharkhand  was
that in view of Rule 64B and Rule 64C of the MCR, royalty was liable  to  be
paid at the rate mentioned in the Second Schedule to the  MMDR  Act  on  the
tonnage of beneficiated coal and not on the tonnage of  the  raw,  extracted
or ROM coal at the pit-head. In other words, not  only  was  there  a  volte
face by Tata Steel/TISCO but also by the State Government.  The  High  Court
has observed in the impugned  judgment  dated  12th  March,  2014  that  the
reason for the volte face both by Tata Steel and by the State  of  Jharkhand
was that by the notifications dated 1st August, 1991 and 14th October,  1994
the rate of royalty on the washed or beneficiated  coal was increased.[8]
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 coal falls in the (on average) Washery Grade  IV."  It  may
be mentioned that coal of Washery Grade IV has ash content between  28%  and
35%. In the synopsis and lists of dates filed by Tata Steel in  the  appeals
arising out of S.L.P. (C) Nos. 8972-73 of 2014 it is stated as follows:
"The coal, when extracted in its raw form also known as  ROM  contains  high
percentage of ash.  Though ROM is fit for many purposes, it is not  fit  for
the steel industry."

19.   Even the Union of India in its affidavit filed by the Under  Secretary
in the Ministry of Coal in W.P. (C) No.1504 of 2009 in  the  Jharkhand  High
Court states to the same effect, namely, that ROM coal can  be  used  as  it
is. It is stated in paragraph 11 thereof as follows:
"Considering the fact that in case of coal, where  the  entire  ROM  can  be
generally made usable, the Respondents No. 1 & 2 are  of  the  opinion  that
rule 64B and the rule 64C [of the Mineral Concession Rules,  1960]  may  not
be particularly applicable on coal minerals."

20.   Similarly, the State of Jharkhand in its affidavit filed in  the  same
case has stated in paragraph 79 as follows:
"That with regard to the averments made by the petitioner in  Paragraphs  84
and 85 of the instant writ application it is stated and  submitted  that  it
is not necessary that coal produced from a mine should always  be  subjected
to processing.  There are various coal mines in the  country  producing  raw
coal without any processing......."

21.   Therefore, while raw coal or unprocessed coal or  ROM  coal  extracted
by Tata Steel being Washery Grade IV having ash content between 28% and  35%
can be used as it is for certain purposes, it requires to undergo a  process
of beneficiation to make it suitable for use in steel making.  This  process
is undertaken by Tata Steel in its washeries in the leased areas.
22.   The controversy in the present appeals is, therefore, limited  to  the
question whether royalty is payable at the  rate  mentioned  in  the  Second
Schedule to the MMDR Act on  processed  coal,  that  is,  coal  consumed  or
removed from the boundaries of the leased area in a beneficiated form or  on
the raw or unprocessed or ROM coal at the pit-head.
23.   That the controversy is limited to  the  stage  at  which  royalty  is
chargeable on coal is also clear from paragraph 17  of  W.P.(C)  No.2999  of
2008 filed by Tata Steel in the High Court wherein it is stated (though  ROM
coal can be 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 quite clear from the above that raw or unprocessed or  ROM  coal
at the pit-head can be used for certain purposes; it is also clear  that  as
far as Tata Steel is concerned, Washery  Grade  IV  coal  that  it  extracts
needs to be beneficiated to make it usable in the  steel  industry  and  the
controversy is limited to the issue of payment of royalty -  whether  it  is
payable on raw or unprocessed or ROM coal at the pit-head or it  is  payable
on processed Steel Grade coal.

Coal beneficiation

26.   The question that, therefore, arises is what  is  the  consequence  of
beneficiation?  Very briefly, the consequence of beneficiation  of  coal  is
upgrading or improving its quality from the ROM coal.   In  the  Convenience
Volume handed over to us, with reference to beneficiation  of  coal,  it  is
stated by Tata Steel as follows:[9]
"The crushed raw coal (ROM) has ash percentage varying from 22% to  40%  and
moisture of 3% to 5%.  For  use  in  Blast  furnace  for  steel  making,  we
require clean coal of uniform quality at low ash %.   So,  Beneficiation  of
ROM raw coal is done to reduce the ash content to bring up  to  Steel  Grade
coal.

ROM coal of various seams at coal  mine  is  fed  in  to  the  Coal  washery
(Beneficiation plant)  for  beneficiation  so  that  the  final  clean  coal
product has ash of below 15% (Steel Grade coal).

For coal beneficiation, gravity separation methods for coarser (size  13  mm
to 0.5 mm) material and froth floatation method for finer material  (size  <
0.5 mm) are done.

So, before beneficiation, the raw coal is crushed in to size below 13 mm  at
Coal Handling Plant (Crushing Plant). The coarse material i.e. size from  13
mm to 0.5 mm is treated in dense media cyclone whereas, less than 0.5 mm  is
treated by froth floatation  method.  As  beneficiation  is  a  wet  process
hence, it increases the moisture percentage of beneficiated coal  by  around
8% to 15%.

After beneficiation, apart from the clean coal (required  in  Blast  furnace
for Steel making), we also get Coal by-products named as, middling (ash  40-
45%), Tailings (ash 40-45%) and Rejects (ash 60-65%).

The product quantity after beneficiation process gets increased due  to  wet
process by adding moisture into the output, shown by an example below -

Production (Extraction): The basis figure of production  of  100  tonnes  of
ROM coal has been taken.
Therefore, Quantity produced (extracted): = 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  beneficiation,  the  summation  of  beneficiated  coal  product
quantity is higher than fed ROM coal quantity."

27.   From this, it is quite clear that the beneficiation  process,  as  far
as coal is concerned, has two significant consequences - the grade  of  coal
improves (from Washery Grade IV it could improve to Steel Grade I)  and  the
weight of the coal increases (from 100 tons of raw  ROM  coal  to  105  tons
[excluding rejects] of beneficiated coal).
28.   However, the process of beneficiation  for  other  minerals  does  not
result in the same consequence.  As mentioned  by  the  Union  of  India  in
paragraph 9 of its counter affidavit filed in W.P. (C) No. 1504 of  2009  in
the High Court, the beneficiation of copper has different  consequences.  It
is stated, in this regard as follows:
"It is stated that the mineral extracted during mining in its primary  state
is called run of mine (ROM), which may or may not be useable in its  primary
state depending on the minerals and its grade.  In such  a  case  where  the
entire ROM cannot  be  used  generally,  there  is  a  level  of  processing
required to beneficiate the ROM to enhance the grade ore and also  take  out
waste material occurring with the ore.  Rule 64B is specifically  applicable
in such class of minerals where only  a  part  of  the  entire  ROM  mineral
extracted through mining can be used. For example, in  the  case  of  copper
ore, in which the metal contained in ore is in the range of 1% to 2% of  the
ROM the ROM is converted into a high as 25%,  before  it  is  sent  out  the
lease area for refining and smelting.  In such cases, the rule  64B  of  MCR
provides for royalty to be charged by the State  Government  on  the  higher
grade of ore that is being taken out of the lease  area,  in  terms  of  the
royalty rate prescribed in Second Schedule to the MMDR Act. Rule 64B of  MCR
does not specify the royalty rates and its  applicability  is  only  to  the
extent of facilitating levy or royalty on the  processed  ore  removed  from
the lease area, and not the mineral consumed  in  the  lease  area.  Further
royalty is required to be paid as per the  rates  notified  by  the  Central
Government in Second Schedule to the MMDR Act. Rule 64B of MCR is  therefore
applicable  in  case  of  such  minerals  which  cannot  be   used   without
processing.

Similarly, rule 64B [rule 64C] of  the  MCR  is  applicable  on  removal  of
tailings or rejects from leased area  for  dumping  and  restricts  levy  on
royalty on tailings 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 matter, the weight would decrease somewhat.  It
may be mentioned that royalty is charged on  dolomite  and  limestone  on  a
tonnage basis.
31.   It is in this context that the nature of the mineral and the stage  at
which royalty is to be computed become important.  The basis of  levy  would
have to be rational and it might have different  consequences  at  different
stages.
Computation of royalty
32.   As far as the computation of royalty on coal is concerned, Tata  Steel
has given details of the  methodology  of  computation  in  the  Convenience
Volume handed over to us.[10]  For the purposes  of  computing  the  royalty
amount, the quantities assumed by Tata Steel are given below.
33.   It is said that 100 tons of raw coal post-beneficiation  will  produce
approximately 115 tons of the washed products. The break-up of  this  is  as
follows:
Clean coal       = 40 tons
Middlings        = 40 tons
Tailings         = 25 tons
Rejects          = 10 tons

34.   The computations made by Tata Steel are on  the  basis  of  the  above
assumptions. The rate of royalty is given in  the  Notification  dated  14th
October, 1994 amending the Second Schedule to the MMDR Act. For coking  coal
Steel Grade I, coking coal Steel Grade II and coking coal Washery  Grade  II
 the rate of

royalty is Rs.195/- per ton. For coking coal Washery Grade IV  the  rate  of
royalty is Rs.95/- per ton.
35.   Therefore, for  every  100  tons  of  coking  coal  Washery  Grade  IV
extracted by Tata Steel, the royalty payable on ROM coal was Rs.9500/-  with
effect from 14th October, 1994. However, if the royalty were to be  computed
on post-beneficiation coal, the royalty payable by  Tata  Steel  would  work
out to:
|Product      |Grade          |Quantity (tons) |Royalty rate   |Amount   |
|             |               |                |(Rs/ton)       |(in Rs)  |
|                                                                       |
|Clean coal   |Steel Grade I  |40              |195            |7800     |
|Middlings    |Grade E        |40              |70             |2800     |
|Tailings     |Grade D        |25              |70             |1750     |
|Royalty      |               |105             |               |12350    |
|payable      |               |                |               |         |
|Since rejects were ungraded and no rate was prescribed, no royalty was |
|payable on rejects.                                                    |



36.   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.2850/-  per  100  tons  of  coal  extracted
(12350 minus 9500 = 2850).
37.   This position continued till August 2002 when the Second  Schedule  to
the MMDR 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 post-beneficiation coal,  the  royalty  payable  by  Tata  Steel
would work out to:
|Product       |Grade        |Quantity     |Royalty rate      |Amount   |
|              |             |(tons)       |(Rs/ton)          |(in Rs)  |
|                                                                       |
|Clean coal    |Steel Grade I|40           |250               |10000    |
|Middlings     |Grade E      |40           |85                |3400     |
|Tailings      |Grade D      |25           |85                |2125     |
|Royalty       |             |105          |                  |15525    |
|payable       |             |             |                  |         |
|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  coal  extracted
(15525 minus 11500 = 4025).
41.   This position continued till August 2007 when the Second  Schedule  to
the MMDR Act was amended by a notification dated 1st August,  2007.  Through
this notification the rate of royalty on coal  became  a  combination  of  a
specific rate and an ad valorem rate, the formula for calculation being R  =
a + bP where 'R' is the royalty in Rs. per ton, 'a' is  a  fixed  component,
'b' is a variable or ad valorem component and  'P'  is  the  basic  pit-head
price of ROM coal.
42.   The notification provides that for  computing  royalty  (R)  on  Steel
Grade I coal, a = Rs.180; b = 5% of 'P'; P = basic  pit-head  price  of  ROM
coal as reflected in the invoice. Similarly, for payment of royalty  (R)  on
Washery Grade IV coal, a = Rs.90; b = 5% of 'P'; P =  basic  pit-head  price
of ROM coal as reflected in the invoice.
43.   Tata Steel gives the computation arrived at on the basis of the  above
notification in the Convenience Volume as follows:
"As Tata Steel is not selling ROM, hence we take the prices notified by  CIL
[Coal India Limited] for its various collieries. For example, we  apply  the
prices notified by Coal India Ltd for Central Coalfields Ltd. In  the  Price
Notification No.181 dated 15.10.2009  for  CCL,  the  basic  price  for  ROM
Washery Grade IV is Rs.1120.[11]

|Product     |Grade     |Quantity   |Royalty    |Royalty (Rs.|Amount (in |
|            |          |(in tons)  |rate (a+bP)|per ton     |Rs)        |
|                                                                       |
|Clean coal  |Steel     |40         |180+5% of  |236         |9440       |
|            |Grade I   |           |1120       |            |           |
|Middlings   |Grade E   |40         |70+5%      |116         |4400       |
|            |          |           |of 790     |            |           |
|Tailings    |Grade D   |25         |70+5%      |120         |3000       |
|            |          |           |of 1000    |            |           |
|Royalty     |          |105        |           |            |16840      |
|payable     |          |           |           |            |           |
|Rejects have not been included in this calculation.                    |

If we were to pay on RoM:
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     |Period     |On beneficiated   |On ROM coal |Difference    |
|payable in  |(from date)|coal (per 100     |(per 100    |(per 100 tons)|
|Rs.         |           |tons)             |tons)       |              |
|Royalty     |14.10.1994 |12350             |9500        |2850          |
|payable     |           |                  |            |              |
|Royalty     |16.8.2002  |15525             |11500       |4025          |
|payable     |           |                  |            |              |
|Royalty     |1.8.2007   |16840             |14600       |2240          |
|payable     |           |                  |            |              |



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.   The first is a literal meaning given by the Patna High  Court  in  its
judgment and order dated 7th August, 1990.  The High Court  gave  a  literal
interpretation to Section 9(2) of the MMDR Act and  effectively  interpreted
the removal  of  a  mineral  from  the  leased  area  as  removal  from  the
boundaries of the leased area.  On this basis, it was concluded  that  since
beneficiated coal is removed from the leased area, Tata Steel is  liable  to
pay royalty on the weight of the beneficiated coal.
50.   The second interpretation is  a  somewhat  restrictive  interpretation
given by the Orissa High Court  in  National  Coal  Development  Corporation
Limited.  In that case, it was held that:
"The incidence of royalty under the general tenor of the scheme [of  Section
9 of the MMDR Act] arises when coal is severed from the seam in its  natural
state within the mine and removed outside.  Removal [of coal] from the  seam
in the mine and extracting the same through the pit's mouth to  the  surface
satisfies the requirement of Section 9 [of the MMDR Act] in  order  to  give
rise to liability for royalty."

51.   In other words, the Orissa High  Court  did  not  accept  the  literal
meaning of removal from the leased area occurring in Section 9 of  the  MMDR
Act as removal from the boundaries of the leased area but gave a  restricted
interpretation to removal from the leased area as  extraction  of  the  coal
from the seam in the mine which is in the leased area, that  is,  extraction
from the pit-head. This  restricted  interpretation  was  accepted  by  this
court in the appeal filed by National Coal Development  Corporation  and  on
that basis this court also upheld  the  payment  of  royalty  by  the  lease
holder on coal consumed by the workmen  of  the  Corporation  prior  to  the
amendment of Section 9 of the MMDR Act in 1972.[12]
52.   Both the interpretations mentioned above relating to removal from  the
leased  area,  literal  and  restricted,  were  given  in  the  context   of
extraction of coal.
53.   The controversy regarding the interpretation of removal of  a  mineral
(not coal) from the leased  area  again  came  up  for  consideration  in  a
petition filed by SAIL in the Orissa High  Court.  This  petition  concerned
itself with  the  payment  of  royalty  on  dolomite  and  limestone.  While
referring to Section 9(1) of the MMDR Act and the lease deed  of  SAIL,  the
Orissa 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."[13]

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 out by the holder of the  mining
lease.  In that context it was held  in  SAIL  that  since  the  process  of
removal of waste and foreign  matter  amounts  to  consumption,  the  entire
extracted mineral is exigible to royalty.  It was held:-


"Section 9(1) of the Act 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  of
royalty has to be accepted."

56.   It is quite clear that SAIL did not consider  (and  then  reject)  the
reasoning given by the Orissa High Court that  royalty  is  not  payable  on
wastage that remains within the boundaries of  the  leased  area.  This  was
critically adverted to in an order dated 25th July, 2006 in C.A. No.5651  of
2005[14] on the ground, inter alia, that the distinction made by the  Orissa
High Court between removal of a mineral from  a  mine  and  removal  from  a
leased area has been rejected without any reason. This is  what  this  court
had to say:
"A bare reading of this Court's judgment in Steel Authority of India's  case
(supra) indicates that there is practically no reason indicated  as  to  why
the distinction made by the High Court was found to be unacceptable. As  was
noticed by the High Court in the impugned judgment  in  the  said  case  the
distinction is certainly of relevance. As we are unable to subscribe to  the
view expressed in Steel Authority of India's  case  (supra),  we  refer  the
matter to a larger Bench. Records may be placed  before  Hon'ble  the  Chief
Justice of India for necessary directions."
57.   We may also  mention  at  this  stage  that  SAIL  has  been  politely
distinguished in National Mineral Development Corporation Ltd. v.  State  of
M.P. (or NMDC).[15]
58.   In sum and substance this is the issue before us, namely, whether  for
the purposes of payment of royalty, removal of a  mineral  as  mentioned  in
Section 9 of the MMDR Act must be restrictively interpreted  as  removal  or
extraction of the mineral from  the  mine  or  the  pit-head  or  a  literal
interpretation as removal of the mineral from the boundaries of  the  leased
area.
59.   In NMDC the question  before  this  court  was  whether  "slimes"  are
exigible to royalty, as forming part and parcel of iron 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,[16] 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 in SAIL. But, this court went  on  to  hold  that
Section 9 of the MMDR Act  cannot  be  read  in  isolation  and  the  Second
Schedule to the MMDR Act must be read as a part and parcel of Section  9  of
the said Act.  It was also held that though the Parliament was  fully  aware
that iron ore would have to undergo  a  process  which  would  lead  to  the
emergence of lumps, fines, concentrates and slimes yet  it  chose  to  leave
slimes out of consideration for the payment of royalty.   For  this  reason,
it was held that royalty was not payable on slimes.

62.   This court also proceeded to consider Rule 64B and  Rule  64C  of  the
MCR and held that in the case of iron ore the levy of royalty  is  postponed
until the beneficiation process has been undertaken  and  it  is  only  then
that royalty is capable of being quantified on the quantity of lumps,  fines
and concentrates.

63.   The decision of this court in SAIL was also distinguished  by  holding
that the removal of waste and foreign matter in the processing  of  dolomite
and limestone did not result in any removal from the leased  area  but  that
the run-of-mine was itself consumed in the processing in  the  leased  area,
thereby making a distinction  between  removal  from  the  leased  area  and
consumption within the leased area.
64.     NMDC has analyzed the  scope  of  Section  9  of  the  MMDR  Act  in
conjunction with the Second Schedule to the  MMDR  Act.  It  was  held  that
there is no conflict between the two and that Section  9  of  the  MMDR  Act
cannot be read in isolation but that the Second Schedule  to  the  MMDR  Act
must be read as a part and parcel of Section 9 of the MMDR Act.   Paragraphs
23 and 24 of the Report are significant and they read as follows:
"23. Section 9 is not the beginning and end of  the  levy  of  royalty.  The
royalty has to be quantified for purpose of levy and  that  cannot  be  done
unless the provisions of the Second Schedule are taken  into  consideration.
For the purpose of levying any  charge,  not  only  has  the  charge  to  be
authorised by law, it has also to be computed. The  charging  provision  and
the computation provision may be found at one  place  or  at  two  different
places  depending  on  the  draftsman's  art  of  drafting  and  methodology
employed. In the latter case, the charging  provision  and  the  computation
provision, though placed in two parts of the enactment,  shall  have  to  be
read  together  as  constituting  one  integrated  provision.  The  charging
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 Section 9."

65.   It is clear therefore that Section 9 of the MMDR Act has  to  be  read
and understood in conjunction with the Second  Schedule  to  the  MMDR  Act.
There is a good reason for it, which is that  the  scheme  of  the  levy  of
royalty cannot be straitjacketed in view  of  the  variety  of  minerals  to
which the MMDR Act applies and for the extraction of which  royalty  has  to
be paid.
66.   In the case of coal, it has been noted that "Though ROM [coal] is  fit
for many purposes, it is not fit for the steel industry"; "in case  of  coal
... the entire ROM can be generally made usable" and "it  is  not  necessary
that coal produced from a mine should always  be  subjected  to  processing.
There are various coal mines in the country producing raw coal  without  any
processing......." This is to say that ROM coal can  generally  be  used  in
the raw form without processing and beneficiation is not at  all  necessary.
However, if the raw coal is to be utilized for some specialized purposes  it
would need beneficiation.
67.   On the other hand, in the  case  of  dolomite  or  limestone  (subject
matter of SAIL) the process described  in  paragraph  4  of  the  Report  is
undertaken not to upgrade or improve the  quality  of  the  mineral  but  to
remove waste and foreign  matter.  It  is  not  clear  whether  dolomite  or
limestone can be utilized as it is or in the ROM state  without  removal  of
waste and foreign matter. That question was adverted to by the  Orissa  High
Court but not considered by this court, hence  the  critical  reference.  As
mentioned above, the decision in SAIL  was  based  not  on  removal  but  on
consumption of the mineral.[17] 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 been developed by science and technology and accepted  and  adopted  in
different iron ore projects for the purpose  of  beneficiation."[18]  It  is
for this reason, inter alia, that  the  levy  of  royalty  on  iron  ore  is
postponed, as held in NMDC, to a post-beneficiation stage.
69.   In the case of coal, beneficiation is not  necessary  since  ROM  coal
can be used as it is straight from the pit-head.  In the case of  iron  ore,
as noticed in NMDC, waste material is removed from the  extracted  iron  ore
and through the beneficiation process the ore is upgraded.  The  removal  of
waste material obviously reduces the weight of the iron ore and that is  why
it saves the cost of transportation as observed in  NMDC.  However,  in  the
case of coal apart from the fact that beneficiation  is  not  necessary,  if
the lease holder does in fact  beneficiate  the  coal,  the  weight  of  the
beneficiated coal is more than the ROM coal as has been noted  above.   This
would, therefore, increase the cost of transportation which is based on  the
weight of the coal. Under the circumstances, removal  of  beneficiated  coal
as against ROM coal might work to the disadvantage of the lease holder.  For
this reason, no similarity can  be  found  between  coal  and  iron  ore  or
between coal and dolomite and limestone (apart from the fact that  SAIL  did
not deal with removal from  the  leased  area  but  consumption  within  the
leased area).
70.   There are therefore, three categories of minerals dealt with  by  this
court - coal that can be utilized in the raw or ROM stage straight from  the
pit-head, iron ore that cannot be utilized in  the  raw  or  ROM  stage  and
needs beneficiation and dolomite and limestone about which it is  not  clear
whether it can be utilized in the raw or ROM stage.
71.   On the other hand, there are other  minerals  such  as  copper,  gold,
lead, zinc and several others where the  rate  and  computation  of  royalty
payable are arrived on a completely different  basis.  The  table  below  of
some sample minerals  taken  from  the  Second  Schedule  to  the  MMDR  Act
illustrates this position[19] and it also illustrates that waste or  foreign
matter in respect of these minerals is much more than  someone  not  in  the
business of extraction of minerals could imagine:
|Entry |Mineral   |Rate as per Notification  |Rate as per Notification of|
|      |          |of 5th May, 1987          |17th February, 1992        |
|7     |Cadmium   |Sixteen rupees per unit   |Seventy four rupees per    |
|      |          |percent of cadmium metal  |unit percent of cadmium    |
|      |          |per ton of ore and on pro |metal per ton of ore and on|
|      |          |rata basis                |pro rata basis             |
|12    |Copper ore|Five rupees per unit      |Seventeen rupees per unit  |
|      |          |percent of copper metal   |percent of copper metal    |
|      |          |contained per ton of ore  |contained per ton of ore   |
|      |          |and on pro rata basis     |and on pro rata basis      |
|21    |Gold      |Two rupees per one gram of|(a) Eleven rupees per one  |
|      |          |contained gold per ton of |gram of contained gold per |
|      |          |ore and on pro rata basis |ton of ore and on pro rata |
|      |          |                          |basis                      |
|      |          |                          |(b) by product gold ten    |
|      |          |                          |rupees per gram            |
|27    |Lead ore  |Three rupees per unit     |Eight rupees per unit      |
|      |          |percent of contained lead |percent of contained lead  |
|      |          |metal per ton of ore and  |metal per ton of ore and on|
|      |          |on pro rata basis         |pro rata basis             |
|28    |Zinc ore  |Six rupees per unit       |Sixteen rupees per unit    |
|      |          |percent of zinc metal     |percent of zinc metal      |
|      |          |contained per ton of ore  |contained per ton of ore   |
|      |          |and on pro rata basis     |and on pro rata basis      |



72.   What follows from this discussion is that though royalty  may  have  a
definite connotation, the rate of royalty, its  method  of  computation  and
the final levy are different from mineral to mineral. It is for this  reason
that this court held in NMDC that the Second Schedule to the  MMDR  Act  has
to be read as a part and parcel of Section 9 of that  Act.  If  the  general
conclusion of SAIL is to be applied across the board  without  reference  to
the Second Schedule to the MMDR  Act,  calculation  of  royalty  on  copper,
gold, lead, zinc and some other minerals would become impossible.
73.   It is quite  clear  that  the  issue  of  computation  of  royalty  on
minerals is rather complex and it is best left to the experts in  the  field
and it cannot be painted with a broad brush as has been done in  SAIL.  That
decision must be confined to its own facts with reference to consumption  of
dolomite and limestone.  Since the Second Schedule to the MMDR Act  must  be
read as a part and parcel of Section 9 thereof, the interpretation given  in
SAIL possibly cannot apply to the computation of royalty for every  mineral,
as discussed above.
74.   At this stage, it is necessary to refer to an unreported  decision  of
this court.[20] That decision pertains to the removal of  coal  in  relation
to Section 9 of the MMDR Act. Interestingly, though a reference was made  to
SAIL this court adopted the view expressed  by  the  Orissa  High  Court  in
National Coal Development Corporation Limited which  was  endorsed  by  this
court in appeal. The 'reasons' given in SAIL  were  not  even  adverted  to.
This unreported decision reads as follows:
"The contention put forth in this case is that for the purpose of Section  9
of the Mines & Mineral (Regulation & Development) Act, 1957  the  expression
'removal' would mean that it is not enough to extract the mineral  from  pit
but should be  dispatched  out  of  the  leased  area.   In  our  view  word
'removal' would mean extracting the  mineral  from  the  pit's  mouth  after
removal from the seam.   This exact point has been considered by this  Court
in State of Orissa and Ors. v. Steel Authority of India Ltd. - (1998) 6  SCC
476 in which this Court has stated as follows:

"Another  Division  Bench  of  the  Orissa  High  Court  in  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 chargeability, computation and levy of royalty  on
different minerals have now  been  simplified,  clarified  and  standardized
with the insertion of Rule 64B and Rule 64C of  the  MCR  with  effect  from
25th September, 2000.[21]
77.   A plain reading of Rule 64B of the MCR, with which  we  are  presently
concerned, clearly suggests that  the  leased  area  mentioned  therein  has
reference to the boundaries of the leased area  given  to  a  lease  holder.
Sub-rule (1) provides that if  the  ROM  mineral  is  processed  within  the
boundaries of that leased area, then  royalty  will  be  chargeable  on  the
processed mineral removed from the boundaries of the leased area.   However,
if the ROM mineral is removed without processing from the boundaries of  the
leased area then in terms of sub-rule (2) royalty will be chargeable on  the
unprocessed ROM mineral. Rule 64B of the MCR is silent about  removal  of  a
mineral from the mine/pit-head but which is not removed from the  boundaries
of the leased area.  This is a clear pointer that royalty is to be  paid  by
the lease holder only on removal of the mineral from the boundaries  of  the
leased area.  This simplification and clarification takes care  of  some  of
the different and difficult situations  that  we  have  referred  to  above,
namely, the stage of charging royalty on  coal  at  the  pit-head  or  post-
beneficiation, the stage of charging royalty on iron ore at the pit-head  or
post-beneficiation, the stage of charging royalty on dolomite and  limestone
at the pit-head 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 64C of the  MCR  as  excluding  only
coal.  On the contrary, in NMDC this court has  observed  that  these  rules
are general in nature, applicable to all types of minerals,  which  includes
coal. The expression of opinion by the Union of India  is  contrary  to  the
observations of this court.
80.   Therefore, on a plain reading of Rule 64B and Rule 64C of the MCR,  we
are of the opinion that with effect from 25th  September,  2000  when  these
rules were  inserted  in  the  MCR,  royalty  is  payable  on  all  minerals
including coal at the stage mentioned in these rules, that  is,  on  removal
of the mineral from the boundaries of the leased area. For the period  prior
to that, the law laid down in Central Coalfields Ltd. will operate,  as  far
as coal is concerned, from 10th August, 1998 when SAIL was  decided,  though
for different reasons.

81.   We may mention that learned counsel for Tata Steel  had  reserved  his
right to challenge the constitutionality of Rule 64B and  Rule  64C  of  the
MCR should his interpretation of  the  law  be  not  accepted,  namely  that
royalty on coal is chargeable on the  extracted  tonnage  at  the  pit-head.
Since we have not accepted this interpretation post the  insertion  of  Rule
64B and Rule 64C in the MCR, we leave it open to  Tata  Steel  to  challenge
the constitutionality of these rules either by  reviving  these  appeals  to
this limited extent or by initiating fresh proceedings.
Appeals filed by TISCO
82.   The issue about refund of excess royalty paid  by  TISCO  arises  only
for the period  from  10th  August,  1998  when  this  Court  delivered  its
judgment and order in SAIL.

83.   The claim for refund has been  rejected  by  the  High  Court  in  its
judgment and order dated 23rd July, 2002 in the following words:-
"However,  in  view  of  the  fact  that  the  State  [of  Bihar]  has  been
reorganized since 15th November, 2000, now in place  of  'State  of  Bihar',
'State of Jharkhand' will be charging royalty, the appellant -  TISCO  shall
not ask for refund of excess royalty if deposited."

84.   A perusal of the above indicates that the High Court  really  gave  no
reason for denying the refund of the excess royalty paid by TISCO.  For  the
reasons given in  respect  of  Tata  Steel  keeping  in  view  the  decision
rendered in Central Coalfields Ltd., we  hold  that  TISCO  is  entitled  to
refund of royalty paid from 10th  August,  1998  to  25th  September,  2000.
However, this amount need not be physically 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:-
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.
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 Section 9 of the MMDR  Act  in  order  to  give  rise  to  a
liability for royalty.  This view was earlier  approved  by  this  court  in
National Coal Development Corporation Ltd.
In view of the insertion of Rule 64B and Rule 64C on  25th  September,  2000
in the Mineral Concession Rules, the levy of royalty on coal  has  now  been
postponed from the pit-head to the stage of removal  of  the  coal  (whether
unprocessed or ROM coal or whether beneficiated coal).
In view of the decision in Central Coalfields Ltd. the entitlement of  TISCO
and Tata Steel  to  refund  of  royalty  from  10th  August,  1998  to  25th
September, 2000 is recognized.  For the period  from  25th  September,  2000
onwards, TISCO is obliged to pay royalty as per Rule 64B  and  Rule  64C  of
the Mineral Concession Rules.
Tata Steel, like TISCO is liable to pay royalty on  coal  with  effect  from
25th September, 2000 in terms of Rule  64B  and  Rule  64C  of  the  Mineral
Concession Rules.
The constitutional validity or the vires of Rule 64B and  Rule  64C  of  the
Mineral Concession Rules has not been adjudicated upon.  It is open to  Tata
Steel either to  revive  these  appeals  limited  to  this  question  or  to
challenge the constitutionality and vires of these rules through a  separate
challenge.
88.   The appeals are disposed of as above.  However, the parties will  bear
their own costs.

                                     .............................CJI
                                                          (H.L. Dattu)




.................................J
                       (Madan B. Lokur)


.................................J (A.K. Sikri)

New Delhi;
March 17, 2015
-----------------------
[1]    MANU/JH/0590/2002
[2]    (1998) 6 SCC 476
[3]    2014 (2) JLJR 702
[4]     With effect from 18th December, 1999
      9. Royalties in respect of mining leases.-(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  or
consumed by him or by 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.
      (2) The holder of a mining lease granted on or after the  commencement
of this Act shall pay royalty in respect of any mineral removed or  consumed
by him or by his agent, manager, employee,  contractor  or  sub-lessee  from
the leased area at the rate for the  time  being  specified  in  the  Second
Schedule in respect of that mineral.
      (2-A) The holder of a mining lease, whether granted  before  or  after
the commencement of the Mines  and  Minerals  (Regulation  and  Development)
Amendment Act, 1972, shall not be liable to pay any royalty  in  respect  of
any coal consumed by a workman engaged in  a  colliery  provided  that  such
consumption by the workman does not exceed one-third of a tonne per month.
      (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  enhance  the  rate  of
royalty in respect of any mineral more than once during any period of  three
years.

[5]    National Coal Development Corporation Ltd. v. State of Orissa, AIR
1976 Orissa 159
[6]    National Coal Development Corporation Ltd. v. State of Orissa,
(1998) 6 SCC 480
[7]    National Mineral Development  Corporation  Ltd.  v.  State  of  M.P.,
(2004) 6 SCC 281 paragraph 32 had earlier echoed this view
[8]    By a notification dated 5th May, 1987 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.
[9]    This has not been disputed by the State of Jharkhand
[10]   This has not been disputed by the State of Jharkhand.
[11]   Since Tata Steel is not selling ROM coal, the price notified  by  the
Coal India Ltd. for its various collieries has been taken by Tata  Steel  as
the basic price for ROM Washery Grade IV  as  Rs.1120/-.  In  terms  of  the
communication dated 16th October, 2009  issued  by  the  Central  Coalfields
Limited, Sales & Marketing Division, Darbhanga House, Ranchi with  reference
to Price Notification No.1181 dated 15th October,  2009  the  pit-head/basic
price of Run of Mine (ROM) coal for Washery  Grade  IV  stood  revised  from
1020 (in Rupees per tonne) to 1120. This is the figure taken by  Tata  Steel
in its computations given in the Convenience Volume.
[12]   National Coal Development Corporation Ltd. v. State of Orissa,
(1998) 6 SCC 480
[13]   The decision of the Orissa High Court does not appear to have been
reported.
[14]   M/s Central Coalfields Ltd. v. State of Jharkhand decided by this
court
[15]   (2004) 6 SCC 281
[16]   The decision of the High Court is reported as AIR 1999 MP 112
[17]   In National Mineral Development Corpn. Ltd. v. State of M.P. this
court  observed in paragraph 34 of the Report  as follows:
      "Both these minerals [dolomite and limestone]  were  utilised  as  raw
material by the mining lessees on the leased area itself. The mining  lessee
claimed that dolomite and limestone having  been  extracted  from  the  mine
underwent processing wherein a part  of  the  mineral  was  wasted  and  the
wastage  remained  on  the  leased  area  and  not  removed  therefrom.  The
contention of the lessee was that royalty could  not  be  demanded  on  that
portion of the wastage which was not removed  from  the  mining  area.  This
contention was repelled by this Court by reference to Section  9(1)  of  the
Act which speaks of payment of royalty in respect of any mineral removed  or
consumed by the lessee. 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 area."

[18]   National Mineral Development Corporation Ltd v. State of M.P.
paragraph 28.
[19]   This has undergone further changes. These  figures  have  been  taken
since they pertain to the  period  when  the  dispute  arose  in  the  cases
referred to.
[20]   Central Coalfields Ltd. v. State of Jharkhand, C.A. No.8395  of  2001
decided by three learned judges on 24th September, 2003
[21]    64B.  Charging  of  Royalty  in  case  of  minerals   subjected   to
processing: (1)   In case of processing of run-of-mine  mineral  is  carried
out within the  leased  area,  then  royalty  shall  be  chargeable  on  the
processed mineral removed from the leased area.
      (2)   In case run-of mine mineral is removed from the leased  area  to
a processing plant which is located outside the leased area,  then,  royalty
shall be chargeable on the unprocessed run-of-mine mineral and  not  on  the
processed product.

      64C. Royalty  on  tailings  or  rejects: On  removal  of  tailings  or
rejects from the leased area for dumping and not for  sale  or  consumption,
outside leased area such  tailings  or  rejects  shall  not  be  liable  for
payment of royalty:    
      Provided that in case so dumped tailings or rejects are used for  sale
or consumption on any later date after the date of such dumping, then,  such
tailings or rejects shall be liable for payment of royalty.




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