TMI Blog1984 (12) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... ods for sale or otherwise, or (b) disposes of such goods in any manner other than by way of sale in the State, or (c)............................................. shall pay tax on the turnover relating to purchase aforesaid at the same rate at which but for the existence of the aforementioned circumstances, the tax would have been leviable on such goods under section 5 or section 6." Section 5 is the charging section, while section 6 deals with tax in respect of declared goods. It is necessary to state a few facts for a proper appreciation of the question at issue. It would be sufficient if we set out the facts in W.P. No. 6307 of 1980, the first among the three writ petitions. The petitioner is the Associated Cement Companies Ltd. It has a number of cement factories all over the country, two of which are located in Andhra Pradesh-one at Mancherial in Adilabad District, and another at Tadepalli, in Guntur District. The main raw material for manufacture of cement is said to be the limestone, and it is required in large quantities. The petitioner took on lease a large area of about 1,900 acres in Mancherial and in Seetharamapuram, and nearby villages for purposes of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , etc., and carry away any minerals other than limestone, and to carry on all operations in connection with such other minerals. The petitioner should not cause any hindrance or interference to such activity. Part V mentions the rents and royalties, etc., payable. In respect of the surface land used by the petitioner from time to time for the purpose of its lease, it is bound to pay rent at the rate of Re. 1 per acre; this is in addition to the dead-rent/royalty. It is not necessary to notice the contents of Parts VI to IX of the deed. The mining least was originally granted to the petitioner for a period of 20 years in 1956. In 1977 it was renewed for a further period of 20 years. Section 6-A of the Andhra Pradesh General Sales Tax Act was introduced by the Andhra Pradesh General Sales Tax (Second Amendment) Act (49 of 1976) with effect from 1st September, 1976. After the introduction of the said section, the Commercial Tax Officer, Company Circle III, Hyderabad, issued the impugned show cause notice dated 10th November, 1980 calling upon the petitioner to explain, inter alia, why sales tax should not be levied at the rate of 4% on the royalty amount paid by it in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the petitioners until and unless they pay royalty. Strong reliance is placed upon the decision of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. [1977] 40 STC 603 (SC) among other decisions, to which also we shall make a reference at the appropriate stage. Clause (h) in section 2 of the Andhra Pradesh General Sales Tax Act defines the expression "goods", in the following words: "(h) 'goods' means all kinds of movable property other than actionable claims, stocks, shares and securities, and includes all materials, articles and commodities including those used or to be used in the construction, fitting out, improvement or repair of movable or immovable property; and also includes all growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale and also includes motor spirit. Explanation.-'motor spirit' means any substance which by itself or in admixture with other substances is ordinarily used, directly or indirectly to provide reasonably efficient fuel for automotive or stationary internal combustion engines, and includes petrol, diesel oil, and other internal combus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumed by the dealer in the manufacture of other goods meant for sale, or otherwise. In this case, the petitioners are, undoubtedly, dealers. The Government-it is not disputed-is not a registered dealer. It is also not disputed that the limestone is consumed by the petitioners in the manufacture of cement, which is meant for sale. The only dispute is, whether the petitioners/dealers can be said to have "purchased" the limestone, which is mined/quarried by the petitioners themselves. We may also mention that, if the petitioners, who are manufacturers of cement, had themselves not held mining leases, they would have been obliged to purchase limestone from others, in which case the consumption of limestone would be liable to tax, and they would have passed on the same to the petitioners who are purchasers/consumers. Because, in these cases, the petitioners themselves are the holders of mining leases and use the limestone quarried by them, for their own manufacturing purposes, the State is relying upon section 6-A(ii)(a) of the Act and is seeking to levy the tax on, what it calls, the "purchase" of limestone by the petitioners from the State, the royalty amount being treated as the purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and lessees, in India. This decision was affirmed by the Privy Council in Kamakshya Narain Singh v. Commissioner of Income-tax, Bihar and Orissa AIR 1943 PC 153, and has been cited with approval by the Supreme Court in Tarkeshwar Sio Thakur Jiu v. B.D. Dey Company AIR 1979 SC 1669. The facts of the case before the Supreme Court may briefly be noted: the appellant before the Supreme Court, holding the interest of a "Darpatnidar" in the land in question, granted to the respondents a lease of the land for the purpose of raising and taking sand therefrom, for a period of 9 years, which was subsequently renewed for another period of 9 years. The original grant was in July, 1941 and the second 9 year period was to expire in April, 1959. The grant was called a "licence" by the parties. When the respondents did not pay the amount stipulated under the contract, a suit was filed by the appellant, which was resisted by the respondents, inter alia, on the ground that the land having vested in the State under the West Bengal Estates Acquisition Act, 1954 they (who were really tenants and not licensees under the appellant) became direct tenants under the State with respect to the land in questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (d) of section 3 of the Mines and Minerals (Regulation and and Development) Act, 1957 was granted for winning the sand, and to appropriate it; (ii) the said right was granted for a period of 9 years commencing from April, 1950; (iii) the right was granted for a "price" fixed on yearly basis, irrespective of the quantity of sand extracted. The "price" fixed was Rs. 66 per annum; (iv) the contract provided that "the second party (appellant) will be entitled to take khas possession of the land" at the end of the stipulated period, which necessarily implies that, if the respondents continued to pay the "price" as stipulated in the contract, they shall be entitled to enter into and remain in exclusive khas possession of the land for the purpose of carrying out the mining operations for the full stipulated period of 9 years and that, the appellant will not be entitled to retake khas possession of the land or revoke the so-called "licence" before the end of the said 9 year period. It was contended by the appellant, that, on the above terms, it must be construed as merely a "licence" whereunder no right, title and interest in the land was given to the respondents except the raising of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to enjoy immovable property' spoken of in section 105, means the right to enjoy the property in the manner in which that property can be enjoyed. If the subjectmatter of the lease is mineral land or a sand-mine, as in the case before us, it can only be enjoyed and occupied by the lessee by working it, as indicated in section 108, Transfer of Property Act, which regulates the rights and liabilities of lessors and lessees of immovable property." This statement of law was supported with reference to the decision of the Privy Council in Nageshwar Bux Roy v. Bengal Coal Company AIR 1931 PC 186 and Commissioner of Income-tax, Bihar and Orissa v. Kamashaya Narain Singh AIR 1940 Pat 633, a decision of a Special Bench of the Patna High Court, referred to hereinbefore, and the decision of the Privy Council in appeal. It was then observed: "The ratio of the Patna case applies with greater force to the facts of the case before us, because, herein, (a) the annual fixed payment had no relation, whatever, with the quantity of sand extracted and appropriated and what is more important, (b) the defendant was given a right to enter into and remain in khas possession of the mineral field fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and use of the area comprised in any roads or ways to which the public have full right of access." Evidently, the surface rent payable under clause (4) is in addition to the dead-rent payable under clause (2) of Part V, read with section 9-A of the Act. In other words, the amount payable under the leases before us, is more likely to be a fluctuating amount. (ii) In Tarkeshwar's case AIR 1979 SC 1669, the mineral, viz., sand, was lying mostly on the surface of the land of an extent of 9 acres and therefore, "khas" possession of the entire land was delivered to the respondents. Whereas in the case before us, though the extent of the land concerned is very extensive, i.e., 1,900 acres, khas possession of the entire extent is not delivered; what is granted and demised under the deed is "all those mines, beds/veins, seams of limestone marbs, clays, shales and lumps situated, lying and being in or under the lands which are referred to in Part I of the said schedule, together with the liberties, powers and privileges to be exercised or enjoyed in connection herewith, which are mentioned in Part II of the said schedule subject to the restrictions and conditions, as the exercise and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of liberties, powers and privileges granted to the petitioner in Part II is subject to the limitations and restrictions mentioned in Part III. According to Part III, the lessee should not carry on any surface operations in or upon any public pleasure ground, burning or burial ground, or place regarded as a sacred place, or any houses or village sites, or public road, or public ground, so as to injure or prejudicially affect any buildings, work properties, or rights of other persons. It cannot also enter the reserved forest, if any, situated on the said land. It is obliged to allow the existing and future holders of Government licences or leases in respect of any other produce or mineral upon the said land. Under Part IV, the Government is entitled to enter upon the said land and to search for win work, dig, etc., and to convert and carry away any minerals, other than limestone, and for that purpose to carry out all operations necessary therefor. The Government is also entitled to use and lay roads, rail-roads, tramways, etc., and the petitioner should not cause any hindrance or interference to those operations. The lessees of the Government in respect of other produce are also enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause, under such settlement, some portion, however small, of the surface has to be used for carrying on the mining operations and taking the coal out. Another principle to be remembered is the one emphasized by the Supreme Court in paragraph 35 of Tarkeshwar's case AIR 1979 SC 1669, which we have extracted hereinbefore, viz., that the "right to enjoy immovable property" within the meaning of section 105, Transfer of Property Act, may also include the right to remove minerals from the land leased. Another decision to be taken note of is the decision of one of us sitting singly (Jeevan Reddy, J.) in Associated Cement Companies Ltd. v. Government of Andhra Pradesh AIR 1981 AP 320. This case arose under the Stamp Act. The question was, whether the lease deed executed by the petitioner-the very lease deed which is being considered by us herein-is a "lease" as defined by the Stamp Act and requires to be executed on a stamp paper of the requisite value, or whether it is only a licence. The Associated Cement Company contended that it is not a "lease" but only a "licence", while the contention of the State was that is a "lease", as defined by the Stamp Act. The expression "lease" is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a case where the same land is leased out to two different persons in respect of two different minerals, both of them would be lessees with the same rights, obligations and liabilities. We must now deal with the decision of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. [1977] 40 STC 603 (SC), which constitutes the sheet-anchor of the Government's case. This case arose under the Sales Tax Act of Madhya Pradesh. Under a document described as a "lease deed", executed in favour of the respondent-mills by the State of Vindhya Pradesh (which subsequently became a part of the State of Madhya Pradesh), the respondent was permitted on annual payment of royalty, to cut and remove bamboo and salai wood from the leased area; the period of lease was 20 years, later substituted as 30 years, with a provision for renewal. There was provision for payment of minimum royalty. The respondent had, under the terms of the deed, the right to make, for the purposes of its business, dams, cross streams, irrigation works, road, etc., in the leased area with the previous permission of the Government. Royalty was payable at the prescribed rate on every tonne of air-dry bamboo and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the contract of sale'. The crunch issue thus is whether the self-styled lease deed is in substance a contract of sale of timber." After examining the several clauses in the lease deed, the Court observed: "The upshot of the whole transaction is that, for a price fixed, bamboos and salai wood are permitted to be removed from the forest of the appellant by the respondent. For the exercise of the right under this contract, certain necessary licences are conceded. It is made perfectly plain that the possession of the land qua land is not given, and there is a foolproof provision that the rights of the 'lessees' shall extend only to bamboos and salai woods within the leased area and nothing herein shall in any way be deemed to authorise the lessees to interfere with the working of the forest area......of other contractors of the said forest lands." The Court then posed the questions: "Can there be a lease without exclusive possession of the lands? Can there be a lease to A of lands when the only right is to cut certain species of timber above a certain height and according to stipulated conditions? Can there be a lease of lands where similar right to cut timber from the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance, it was a contract of sale of bamboos. Here too, the definition of "goods" in section 2(j) of the Bihar Sales Tax Act seems to have played a part. On the other hand, the Orissa High Court in Titaghur Paper Mills Company Ltd. v. State of Orissa [1980] 45 STC 170 held that a similar contract is a lease of immovable property, but not a licence or an agreement of sale. When the decision of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. [1977] 40 STC 603 (SC) was cited before it, the Orissa High Court declined to follow it on the ground that the said judgment "has not taken into consideration any of the earlier judgments of the Supreme Court on the point". Applying the principles of per incuriam as explained in Mamleshwar Prasad v. Kanahaiya Lal AIR 1975 SC 907, the Orissa High Court preferred to follow the earlier judgments of larger Benches of the Supreme Court in Smt. Shantabai v. State of Bombay AIR 1958 SC 532, Mahadeo v. State of Bombay AIR 1959 SC 735 and Board of Revenue v. A.M. Ansari [1976] 38 STC 577 (SC); AIR 1976 SC 1813 which, according to the said High Court, laid down a principle contrary to the one enunciated in the Orient Paper Mills' cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the produce, as the case may be. In Halsbury's Laws of England (Fourth Edition), the concept of royalty is stated thus in paragraph 236 (Volume 31, page 138): "A royalty, in the sense in which the word is used in connection with mining leases, is a payment to the lessor proportionate to the amount of the demised mineral worked within a specified period. A royalty is a true rent, and as such may be apportioned on a time basis. Usually, the royalties are made to merge in the fixed rent by means of a provision that the lessee, without any additional payment, may work, in each period for which a payment of fixed rent is made, so much of the minerals as would, at the royalties reserved, produce a sum equal to the fixed rent. Reservations of royalties take different forms and as a lessor may reserve royalties in the form he considers most suitable or advantageous in any particular case, the questions which arise are questions of construction and the decided cases cannot be reduced to any principle generally applicable. Sometimes in colliery leases coal consumed in working was freed from royalty.............. " In "Words and Phrases-Legally Defined", edited by John B. Saunders (Seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meaning of the expression at some length, and held: "From all this it is abundantly clear that the word 'royalty' has a wellrecognised and defined meaning. As used in Mineral and Oil Operations it means share of produce or profit paid to the owner of the land for granted privilege of producing minerals therefrom and excludes the concept of fee-simple title to minerals in place." The learned Government Pleader placed strong reliance upon certain observations in the decision of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. [1977] 40 STC 603 (SC) to the following effect: "Royalty has a slight feudal flavour with a tell-tale demise relish, if we may say so, while price is a mercantile concept smacking of commercial relations...... Royalty is feudalistic euphemism for the price of the timber............." It must, however, be remembered firstly that, in the said decision, the Court did not attempt a definition of the said expression. It was a passing observation. They also did not refer to any decisions or texts on the meaning of the expression "royalty". Be that as it may, their observations cannot be said to be inconsistent with the decisions referred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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