TMI Blog2015 (10) TMI 2386X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - 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. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 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. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JH/0590/2002 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. (1998) 6 SCC 476 (hereafter SAIL) has been accepted by the High Court, namely, that royalty is chargeable [in accordance with Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (the MMDR Act)] on the quantity of coal extracted at the pit-head, yet the refund of excess royalty paid by TISCO for the period from 10th August, 1998 (the date of the decision in SAIL) till June 2002 [about ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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] { With effect from 18t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 14th October, 1994 the rate of royalty on the washed or beneficiated coal was increased. {By a notification dated 5th May, 1987 the rate of royalty on coking coal Steel Grade I was fixed at ₹ 7/- per ton and of Washery Grade IV at ₹ 5.50 per ton; by a notification dated 1st August, 1991 the rate of royalty on coking coal Steel Grade I was increased to ₹ 150/- per ton and of coking coal Washery Grade IV to ₹ 75/- per ton; by a notification dated 14th October, 1994 the rate of royalty on coking coal Steel Grade I was further increased to ₹ 195/- per ton and of coking coal Washery Grade IV to ₹ 95/- per ton.} 16. In any event, this interpretational dispute led to the filing of a set of writ petitions by Tata Steel in the High Court of Jharkhand, out of which the present appeals have arisen. The controversy Quality of coal and stage of chargeability 17. When coal is extracted from a mine, it is referred to as raw coal or unprocessed coal. Depending upon the use to which it may be put, which also depends upon its ash content and its calorific value, raw coal or unprocessed coal or Run-of-Mine (ROM) coal can be used as it is. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argeable 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 gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 105 12350 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 ₹ 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 ₹ 250/- per ton. For coking coal Washery Grade IV the rate of royalty was raised to ₹ 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 ₹ 11500/- with effect from 16th August, 2002. However, if the royalty were to be computed on postbeneficiation coal, the royalty payable by Tata Steel would work ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Grade IV as ₹ 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} Product Grade Quantity ( in tons) Royalty rate (a+ bP Royalty (Rs per ton) Amount (in Rs) Clean coal Steel Grade I 40 180+5% of 1120 236 9440 Middlings Grade E 40 70+5% of 790 116 4400 Tailings Grade D 25 70+5% of 1000 120 3000 Royalty payable 105 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rises 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. { National Coal Development Corporation Ltd. v. State of Orissa, (1998) 6 SCC 480} 52. Both the interpretations mentioned above relating to removal from the leased area, lite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tically adverted to in an order dated 25th July, 2006 in C.A. No.5651 of 2005 {M/s Central Coalfields Ltd. v. State of Jharkhand decided by this court } 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). (2004) 6 SCC 281] 58. In sum and substance this is the issue before us, namel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty 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 char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing....... 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 .{ 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 underw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. {Central Coalfields Ltd. v. State of Jharkhand, C.A. No.8395 of 2001 decided by three learned judges on 24th September, 2003 } 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able 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}. 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 min ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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