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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1494 OF 2008
State of Rajasthan & Ors. .....APPELLANTS
VERSUS
Hindustan Zinc Ltd. & Anr. ....RESPONDENTS
WITH
CIVIL APPEAL NO. 1526 OF 2008
J U D G M E N T
ANIL R. DAVE, J.
1. Being aggrieved by the judgment dated 6th July, 2007
delivered by the High Court of Rajasthan in D.B. Civil Special
Appeal No.43 of 2006, the afore-stated two appeals have been
filed. One appeal has been filed by the State of Rajasthan whereas
the other appeal has been filed by Hindustan Zinc Limited, who
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had been leased land situated in districts Bhilwara, Rajsamand and
Udaipur by the State of Rajasthan for extraction of lead and zinc
therefrom.
2. As both the appeals arise from a common judgment, at the
request of the learned counsel, both the appeals were heard
together. So far as the appeal filed by the State of Rajasthan, viz.
Civil Appeal No. 1494 of 2008 is concerned, it mainly challenges
the impugned judgment on the ground that by virtue of
methodology directed to be employed in the said judgment, the
State would suffer substantial loss as the lessee company, viz.
Hindustan Zinc Limited would be paying much less royalty than
what it is supposed to pay.
3. On the other hand, an appeal has also been filed by
Hindustan Zinc Limited as it has been aggrieved by the direction
issued by the High Court, whereby the amount of royalty has been
directed to be re-calculated.
4. As Civil Appeal No. 1494 of 2008 filed by the State of
Rajasthan is the main appeal, we would like to deal with the said
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appeal at the first instance and, thereafter we would deal with the
appeal filed by Hindustan Zinc Limited i.e. Civil Appeal No. 1526
of 2008.
Civil Appeal No. 1494 of 2008
5. The appellant-State and the State Authorities have been
aggrieved by the impugned order whereby the additional demand
raised under notice dated 24th December, 2001 and subsequent
notices issued by the State for recovery of royalty in respect of the
lead and zinc extracted by the respondent-company had been
quashed by the learned Single Judge of the Rajasthan High Court
and the order of the learned Single Judge was confirmed by the
Division Bench in the appeal filed before it. After hearing the
concerned learned advocates appearing for the State and the
respondent-company, the learned Single Judge had come to the
conclusion that the impugned notices, whereby additional amount
was demanded, were bad in law and therefore, the petition was
allowed and the impugned notices dated 22nd December, 2001, 24th
December, 2001 and 4th January, 2002 had been quashed. It may
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also be stated here that the afore-stated notices had been
challenged by the respondent-company initially before the
revisional authority under the Mineral Concession Rules, 1960,
which had confirmed the validity of the said notices and therefore,
the order passed by the revisional authority dated 2nd July, 2003,
whereby the validity of the impugned notices had been upheld, was
also quashed and set aside.
6. The facts giving rise to the issue in question, in a nutshell, are
as under:
7. The respondent-company had been leased land in the areas of
District Bhilwara, Rajsamand and Udaipur for the purpose of
extracting lead and zinc therefrom under the provisions of Mines
and Minerals (Development and Regulation) Act, 1957 (hereinafter
referred to as ‘the Act’). Section 9 of the Act is the charging
section, which enables the State to recover royalty in respect of the
minerals extracted by the holder of a mining lease. The Mineral
Concession Rules, 1960 (hereinafter referred to as ‘the Rules’)
have been framed in exercise of the powers conferred under
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Section 13 of the Act. Rules 64A, 64B, 64C & 64D of the Rules
are relevant Rules, which pertain to calculation of the amount of
royalty payable by the holder of the lease in respect of the minerals
extracted from the land leased to the holder of the mining lease.
8. From time to time, the Government had issued Notifications
determining the rate at which royalty was to be paid by the holder
of the lease in respect of the minerals extracted. In the instant
case, we are concerned with two minerals: lead and zinc. Two
Notifications are relevant for the purpose of determining the issue
involved in these appeals. Under Notification dated 11th April,
1997, by virtue of item nos. 22 and 41 incorporated in the said
Notification, royalty in respect of the afore-stated two minerals
was to be paid as under:
Item No. 22 4% of London metal exchange
Lead concentrate metal price on ad valorem basis
Chargeable per tonne of
concentrate produced.
Item No. 41 3.5% of London metal exchange
Zinc concentrate metal price on ad valorem basis
Chargeable per tonne of
concentrate produced.
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9. Thereafter, by virtue of another Notification dated 12th
September, 2000, substituting the Notification dated 11th April,
1997, royalty in respect of the afore-stated two minerals was
payable as under:
Item No. 25 5% of London metal exchange
Lead lead metal price chargeable on
the contained lead metal in ore
produced.
Item No. 50 6.6% of London metal exchange
Zinc Zinc metal price on ad valorem
basis chargeable on contained
zinc metal in ore produced.
10. By virtue of the afore-stated Notification dated 12th
September, 2000, the manner in which the royalty was to be
calculated had been changed.
11. Formerly the royalty was to be charged on the basis of
mineral concentrate produced but by virtue of the Notification
dated 12th September, 2000, royalty is now to be charged on ad
valorem basis on the contents of metal found in the ore produced.
12. According to the appellant-State, the respondent-lease holder
was supposed to pay the royalty on the entire mineral extracted
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from the earth and accordingly the impugned notices were issued
to the respondent for recovery of difference of royalty.
13. On the other hand, the case of the respondent-company was
that the royalty was chargeable only on the contents of lead and
zinc metal in the ore produced because, by virtue of the
Notification issued in 2000, the respondent-company was supposed
to pay royalty only on the contents of lead or zinc, as the case may
be, contained in the ore produced.
14. As stated hereinabove, the demand made by the appellantState under the impugned notices had been upheld by the
revisional authority but the same had been quashed by the High
Court when the order of the revisional authority was challenged
before the learned Single Judge of the High Court and the view of
the learned Single Judge had been upheld by virtue of the
impugned order passed by the Division Bench.
15. The learned counsel appearing for the appellant-State
submitted that the High Court committed an error in interpreting
provisions of the Rule 64A, 64B and 64C of the Rules read with
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the Notification dated 12th September, 2000 issued by the Central
Government.
16. The sum and substance of the submissions made by the
learned senior counsel appearing for the appellant was that the
royalty ought to have been charged on the basis of the metal
contained in the ore produced so as to give effect to the provisions
of Section 9 and the Second Schedule to the Act read with Rules
64B, 64C and 64D of the Rules.
17. According to the learned counsel, the contention of the
respondent, that unless the ores are taken out of the leased
premises, the royalty would not be leviable, is not correct because
processing the ore would also amount to consumption of the ores
and therefore, even if the said ores are not physically taken out of
the leased area, the royalty will have to be paid on the contents of
lead and zinc contained in the ore.
18. He further submitted that the methodology approved by the
High Court would amount to re-writing the provisions with regard
to computation and calculation of royalty.
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19. He further submitted that the amount of royalty demanded by
the appellant-State from the respondent-company was just and
proper and therefore, the order passed by the High Court be
quashed and set aside. So as to substantiate his submissions, he
relied upon the judgment delivered by this Court in State of
Orissa & Ors. v. M/s. Steel Authority of India Ltd. [(1998) 6
SCC 476].
20. On the other hand, the learned senior counsel appearing for
the respondent-company vehemently supported the reasons given
by the High Court whereby the High Court has held that the
respondent-company was not liable to pay royalty on the tailings as
they had not been taken out of the leased area. Relying upon the
judgment delivered in National Mineral Development
Corporation Limited v. State of Madhya Pradesh & Anr.
[(2004) 6 SCC 281], the High Court had further held that as per the
provisions of Rule 64C of the Rules, unless dumped tailings or
rejects are consumed by the lessee, no royalty can be collected on
such tailings or rejects.
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21. The learned senior counsel appearing for the respondentcompany mainly submitted that the negligible contents of lead and
zinc contained in tailings, which is not taken out of the leased area
and which is dumped within the leased area, can never be taken
into account for the purpose of calculating royalty for the reason
that according to the Notification dated 12th September, 2000,
royalty is to be paid in respect of the metal contained in the ore
produced and the metal which has been left out by way of tailings
within the leased area would never be treated as metal in the ore
produced.
22. According to him, the negligible metal contained in the
tailings, slimes or the rejects can never be the subject matter of
calculation of royalty as that portion of metal was returned to the
mother earth by dumping the same in the leased area without being
taken out of the leased area and that can not be included in the
contents of the metal produced.
23. Upon hearing the learned counsel at length and upon perusal
of the relevant material and the impugned judgment and the
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judgments referred to by the learned counsel, we are of the view
that the conclusion arrived at by the High Court is correct.
24. It is pertinent to note that Section 9 of the Act enables the
appellant-authority to charge royalty on the minerals extracted by
the lease holder from the land given on lease for the purpose of
mining. The methodology for calculating the amount of royalty is
determined by the Rules and by the Notifications issued by the
Central Government from time to time.
25. It is also pertinent to note that prior to issuance of
Notification dated 12th September, 2000, by virtue of Notification
dated 11th April, 1997, royalty was to be calculated on the basis of
metal concentrate produced by the lease holder whereas in
pursuance of Notification dated 12th September, 2000, the method
of calculating the royalty has been substantially changed and in
pursuance of the said Notification, royalty is to be calculated on
the contents of lead and zinc metal in the ore produced.
26. Immediately after the aforestated Notification dated 12th
September, 2000 was issued by the Central Government,
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provisions of Rule 64 of the Rules had also been amended. By
virtue of the said amendment, Rule 64B and Rule 64C had been
inserted with effect from 25th September, 2000, which read as
follows:
“64B. Charging of royalty in case of minerals
subjected to processing.- (1) In case processing of run-ofmine 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.”
27. In the instant case, we are more concerned with the
provisions of Rule 64C of the Rules. Upon perusal of the said
Rule, it is very clear that unless the tailings or rejects are used for
sale or for consumption, such tailings or rejects would not be liable
for payment of royalty.
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28. Moreover, provisions of Rule 64B of the Rules also make it
clear that in case of processing of run-of-mine, royalty shall be
charged only on the processed mineral removed from the leased
area.
29. The aforestated amendment and Notification dated 12th
September, 2000 clearly denote intention of the Government with
regard to the calculation of royalty on the contents of metal in the
ore produced and not on tailings or rejects, which are not taken out
of the leased area. The negligible contents of metal which remains
in the mining area by way of tailings, slimes or rejects, which are
returned to the mother earth cannot be said to be the part of metal
content in the ore produced.
30. This court in the case of National Mineral Development
Corporation Limited (supra) has clearly observed as under:
“Dumped tailings or rejects may be liable to
payment of royalty if only they are sold or
consumed”.
31. From the contents of what has been stated hereinabove by
this Court, it is very clear that once a portion of the metal is
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returned back to the mother earth, it cannot be said to have been
extracted or cannot be said to have been taken out of the leased
area and when the metal which has not been taken out from the
leased area or which is not contained in the ore produced, it cannot
be made subject to payment of royalty because the lease holder
never took out that portion of the metal from the earth and
therefore, that cannot be said to be the part of metal contained in
the ore produced.
32. Though the learned counsel for the State referred to the forms
in which information with regard to ore received from the mines
and treated ore was required to be filled up and supplied to the
concerned Government Authorities by the holder of the mining
lease, in our opinion the said information and the averments are not
much relevant because each and every information required by the
Government may not be necessary for the purpose of calculating
royalty. Possibly the information received from the holders of the
mining lease would be for some other incidental purpose or for the
purpose of cross checking the information given by the holder of
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the mining lease so as to find out whether the details given by the
lease holder on the basis of which royalty is calculated is correct.
33. For the afore-stated reasons, in our opinion, we need not refer
to the submissions made in relation to the forms referred to in the
Rules.
34. Upon carefully going through the impugned judgment and
the judgment delivered by the learned Single Judge of the High
Court, we find that the courts below did not commit any mistake in
arriving at the conclusion that the holder of the lease was not liable
to pay the amount demanded under the impugned notices because,
by virtue of Notification dated 12th September, 2000 read with the
relevant Rules, the lease holder is supposed to pay royalty only on
the contents of metal in ore produced and not on the metal
contained in the tailings, rejects or slimes which had not been
taken out of the leased area and which had been dumped into
dumping ground of the leased area.
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35. For the afore-stated reasons, we do not find any substance in
the appeal and therefore, the appeal is dismissed with no order as
to costs.
CIVIL APPEAL NO. 1526 OF 2008
36. So far as the present appeal is concerned, it has been filed by
Hindustan Zinc Limited as it has been aggrieved by the directions
whereby the matter has been ordered to be remitted to the mining
engineer for re-computing the royalty payable on lead and zinc
contained in the ore produced.
37. The appellant-company is aggrieved by the afore-stated
direction because it was never prayed by the State that the matter
be remitted back to the mining engineer for re-computation of the
royalty.
38. The submission on behalf of the appellant-company was to
the effect that as the entire concentrate has been taken out of the
leased area and as the quantity of concentrate of lead and zinc was
very much known, it was not necessary to give such a direction
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because there is no question with regard to re-computation of
royalty on the basis of metal contained in ore produced.
39. We find substance in what has been submitted because the
metal concentrate which had been taken out from the leased area is
known to the parties and therefore, it is not necessary to have any
further details regarding the ore produced by the appellant company.
40. We, therefore, quash the afore-stated direction and the appeal
filed by the appellant-company is allowed to the above effect with
no order as to costs.
.........................................J.
(R.M. LODHA)
.........................................J.
(ANIL R. DAVE)
New Delhi
March 11, 2013
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