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[Cites 34, Cited by 0]

Madras High Court

M/S.Tamil Nadu Magnesite Limited vs The State Of Tamil Nadu on 9 February, 2007

Author: K.Raviraja Pandian

Bench: K.Raviraja Pandian

       

  

  

 
 
 IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED :  09.02.2007

CORAM

THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN

Writ Petition Nos.2359, 2580 and 2631 of 2006
(O.P.Nos.248, 46  and 47 of 2004)




M/s.Tamil Nadu Magnesite Limited
5/53
Omalur Main Road
Jagir Ammapalayam
Salem 636 302.				..Petitioner  in all the WPs
	

	Vs


1.  The State of Tamil Nadu
    represented by its Secretary
    Commercial Taxes Department
    Fort St.George
    Chennai 600 009. 

2.  The Commercial Tax Officer
    Suramangalam Assessment Circle
    Salem. 			 	..Respondents in all WPs



Prayer: 

	Original Petition in O.P.No.248 of 2004 is filed before the Tamil Nadu Taxation Special Tribunal seeking for the relief of  calling for the records of the second respondent in T.N.G.S.T.No.2800193/1999-2000 and set aside the impugned proceedings dated 31.7.2003 as the same has been passed without considering the objections and documents filed by the petitioner without granting personal hearing as contemplated under the provisions of the TNGST Act and also against the principles of natural justice. 

	Original Petition in O.P.No.46 of 2004 is filed before the Tamil Nadu Taxation Special Tribunal seeking for the relief of  calling for the records of the second respondent in T.N.G.S.T.No.2800193/1999-2000 and set aside the impugned proceedings dated 31.3.2003 as the same has been passed against the provisions of the T.N.G.S.T.Act and also unconstitutional as being beyond the State's taxing power under Entry 54 in List II in the Seventh Schedule to the Constitution of India in so far as the levy of tax under Section 7A and 3(4) of the T.N.G.S.T.Act. 

	Original Petition in O.P.No.47 of 2004 is filed before the Tamil Nadu Taxation Special Tribunal seeking for the relief of  calling for the records of the second respondent in T.N.G.S.T.No.2800193/2000-2001 and set aside the impugned proceedings dated 31.3.2003 as the same has been passed against the provisions of the T.N.G.S.T.Act and also unconstitutional as being beyond the State's taxing power under Entry 54 in List II in the Seventh Schedule to the Constitution of India in so far as the levy of tax under Section 7A and 3(4) of the T.N.G.S.T.Act. 
	
	The O.Ps have been transferred to this Court and re-numbered as Writ Petitions on the abolition of the Tribunal.




	For Petitioner  :  Mr.P.Rajkumar

	For Respondents :  Mr.Haja Nazirudeen, Spl. G.P. (Taxes)



O R D E R

The issue involved in all the above writ petitions is one and the same and the parties are also one and the same. The argument advanced by the respective parties is also the same. On consent of the parties, the writ petitions are taken up today for disposal together.

2. The facts of the case are as follows:

The petitioner, a Government of Tamil Nadu undertaking, is a registered dealer with the second respondent herein both under the Tamil Nadu General Sales Tax Act, (hereinafter, referred to as "the TNGST Act") and Central Sales Tax Act, (hereinafter referred to as "the CST Act"). The petitioner was originally granted temporary working permission for a period of nine months from 26.9.1997 to 25.6.1998 for mining magnesite and dunite over an extent of 177.96 hectares of forest land in Salem Division subject to certain conditions by G.O.(2D) No.53, Environment and Forests (FRX) Department dated 23.10.1997. Subsequently, by Government Order in G.O.Ms.NO.234, Environment and Forest Department dated 6.8.1998, the Government of Tamil Nadu renewed the lease in favour of the petitioner for the said area of 177.96 hectares (168.78 hectares of already broken up area and 9.882 hectares of to be broken up area) for a period of ten years from the date of issue of said order on certain conditions. Pursuant to the grant of lease, the petitioner also entered into Mining lease in Reserve Forest Agreement under Forest(Conservation) Act, 1980 with the District Forest Officer, Salem on 24.11.2002 agreeing all the conditions contained therein and the conditions in respect of payment of rent and royalty reserved therein.

3. For the assessment year 1999-2000, the petitioner filed the monthly return in Form A1 under TNGST Act reporting their total and taxable turnover of Rs.2,61,85,450.48ps and Rs.2,58,28,274.32ps claiming exemption over a turnover of Rs.3,57,176.16ps. The petitioner's books of accounts were called for and checked for framing of the assessment by the second respondent - the assessing officer. Upon checking of the returns filed by the petitioner with reference to the books of accounts, the second respondent issued pre-assessment notice on 16.12.2002 pointing out certain defects and omissions in the returns filed by the petitioner vis-a-vis their accounts. I am of the view that all the defects stated in the pre-assessment notice need not be reproduced as the point over which the petitioner raised the issues in these writ petitions are in respect of defects stated in paragraph Nos.3, 6 and 7. The defects pointed out in 3 and 6 and assessed to tax are the subject matter of W.P.Nos.2580 and 2631 of 20006 and that of paragraph No.7 is the subject matter of W.P.No.2359 of 2006. The major and the only issue argued is in respect of the view taken by the second respondent in paragraph No.3.

4. In paragraph No.3 of the notice dated 16.12.2002, the second respondent has pointed out that the petitioner has excavated raw magnesite, a taxable goods from the lands owned by the Government of Tamil Nadu for a price consideration and consumed them in the manufacture of other goods for sale. Such consideration paid for the quantity of the mineral is the purchases consideration and are assessable to tax at 11 percent under Section 7A of the TNGST Act. The quantity quarried during the assessment year 1999-2000 has been arrived to 78,000 MTs and the value of the same was arrived at Rs.8,10,20,845/-, which quantity and value are stated by the petitioner in schedule 25(15) of Annual report of the petitioner company.

5. The other defect pointed out in para 6 was that the petitioner has effected purchase of furnace oil for Rs.5,54,58,158.00 at the concessional rate of tax under the cover of Form XVII for use in manufacture of finished goods. Out of the finished goods so manufactured, the stock worth about Rs.7,57,695/- has been exported out of India, which made the petitioner ineligible for lower rate of tax under Section 3(3) and 3(4). The petitioner is therefore liable to pay the differential tax of one percent on the turnover by a formula under Section 3(4) of the TNGST Act viz., Total purchase value Value of goods } Purchase value of goods made against sent to an agent } of goods against Form XVII declarations or branch in } Form XVII declarations __________________ x other State and } and used in the goods Total sale value of the to other country } despatched to a place goods (including stock by export } outside the State either transfer, 'consignment } by branch transfer to an sales and export sales agent and in the goods manufactured out of exported.

Form XVII) The differential tax at the rate of one percent under Section 3(4) of the TNGST Act has been arrived at in a sum of Rs.1,95,815/-.

6. The other proposal at para 7, which is the subject matter of the writ petition No.2359 of 2006 was that the dealer has incurred expenses in a sum of Rs.60,63,294.00 towards packing and forwarding charges as per Schedule 23 of Annual Report of the petitioner during the relevant assessment year 1999-2000. According to explanation clause (ii) of Explanation 2 of Section 2(r) of the TNGST Act, the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time of or before the delivery thereof. The packing and forwarding charges in a sum of Rs.60,63,294/- has not been assessed for tax. The same has to be taxed at 11%.

7. Thus, among other things, by pointing out the above three defects, the second respondent called upon the petitioner to file their objections, if any, to the proposal prior to 30.12.2002. The petitioner on 29.12.2002 filed their objections to the proposal. In respect of the proposal of levying tax under Section 7A, the dominant objection of the petitioner was that inasmuch as the taxable goods "raw magnesite" was quarried from the petitioner's leasehold land and consumed in petitioner's factory, the taxable goods was petitioner's own goods and there was no element of purchase and in that event of the matter, the respondents cannot invoke section 7-A of the TNGST Act. It was further explained that the quantity and value shown in the Annual Report was the quantity and value of the mineral excavated from the leasehold land and the purchase value of the mineral purchased from M/s.India Magnesite Product Limited. The disclosure of such particulars in the Annual report was for the purpose of complying with the provisions of the Companies Act, 1956.

8. In respect of the proposal pointed out in paragraph No.6, it was explained by the petitioner that Section 3(4) is applicable only for despatch of goods to a place outside the State either by branch transfer or to an agent. However, the sum of Rs.7,57,695/- represents value of direct export sale made under form H. The above turnover was credited to their account. Thus, the petitioner sought for deletion of this turnover.

9. The second respondent - assessing officer by his proceedings dated 31.3.2003 confirmed the proposals in respect of Section 7-A tax and 3(4) determination by giving reason for overruling the objections raised. In the assessment order, in respect of the proposal to include the turn over of packing and forwarding charges, nothing was stated. Subsequently, the respondent issued a notice dated 2.6.2003 informing the petitioner that in the assessment order dated 31.3.2003, the proposal to bring the turnover in a sum of Rs.60,63,294/- representing the packing charges, loading charges paid to the contractor was omitted to be assessed, though in the pre-assessment notice dated 16.12.2002, this was pointed out and objection has also been received. On consideration of the objections already received, the assessing officer pointed out that the petitioner has not proved the fact that the sale value was inclusive of packing and forwarding charges and the proposals to assess the turnover of Rs.60,63,294/- has to be confirmed. He further informed the petitioner in the same notice that in the event of confirmation of the proposal of the said turnover, penalty should also be levied under Section 12(3)(b) of the TNGST Act and called for an objection. The petitioner filed their objection on 9.6.2003 by annexing certain invoices to show that the packing and forwarding charges incurred by them has been included in the sale price. By proceedings dated 31.7.2003, the objection so raised has been rejected and the said turnover has been brought to tax at 11 percent. That portion of the order is challenged in W.P.No.2359 of 2006.

10. The royalty paid, which has been regarded as purchase consideration and assessed to tax under Section 7-A, in respect of the assessment year 2000-2001, is put in issue in W.P.No.2631 of 2006.

11. It is contended on behalf of the petitioner that the second respondent has no jurisdiction to levy purchase tax under Section 7-A of the TNGST Act as the quarrying of raw magnesite was nothing but profit a prendre, which is an immovable property and beyond the State's taxing power. By Government Order in G.O.Ms.No.234 dated 6.8.1998, the petitioner became a lessee of the forest land for the purpose of mining magnesite. There was no sale by the State to the petitioner. The basic ingredient of purchase is absent in the case on hand. Hence, the invocation of Section 7A of the TNGST Act is not applicable. In order to sustain his argument, the learned counsel relied on the case of the Supreme Court of India in the case of STATE OF ORISSA AND OTHERS VS. TITAGHUR PAPER MILLS CO.LTD. AND ANOTHER reported in (1985) 60 STC 213 and also THE INDIA CEMENT LIMITED VS. STATE OF TAMIL NADU reported in AIR 1990 SC 85.

12. I heard the argument of the learned counsel on either side and perused the material on record.

13. From the facts above stated, what is assailed in these writ petitions is an assessment order passed by the statutory authority, who is having competence to pass an assessment order. Hence, all the objections can very well be raised before the appellate authority by filing an appeal. However, the learned counsel for the petitioner contended that filing of an appeal under the statutory provision is an exercise in futility as the present case is squarely covered by the decisions of the Supreme Court in the case of STATE OF ORISSA AND OTHERS VS. TITAGHUR PAPER MILLS CO.LTD. AND ANOTHER reported in (1985) 60 STC 213 and also THE INDIA CEMENT LIMITED VS. STATE OF TAMIL NADU reported in AIR 1990 SC 85.

14. I am afraid to accept the contention of the petitioner that the issue involved i.e., levy of purchase tax on the value of the mineral for which royalty has been paid in addition to the lease amount for the surface soil by the petitioner is covered by the above referred decisions of the Supreme Court reported in (1985) 60 STC 213 and AIR 1990 SC 85. The facts of the present case stand in a totally different footing.

15. In the first case i.e., 60 STC 213, by notifications S.R.O.Nos.372 and 373 dated 23rd May, 1977, issued under sections 3-B and 5 of the Orissa Sales Tax Act, 1947, the Orissa State Government declared that "standing trees and bamboos agreed to be severed" were liable to tax at a certain rate on the turnover of purchases with effect from 1st June, 1977. On 29th December,. 1977, as a consequence of the amendment of section 5 of the Act, the Government issued two other similar notifications, S.R.O.Nos.900 and 901, in suppression of the notifications dated 23rd May, 1977. Some of the petitioners had taken settlement of forest areas for exploitation of bamboos and some others had taken annual settlement for exploitation of timber and other forest produce. All of them filed writ petitions and contended, inter alia, that by imposing purchase tax on "bamboos and standing trees agreed to be severed", the State Government was not imposing any tax on "sale of goods", that if there was any sale of goods, the State Government was taxing the same goods twice, once at the purchase point and again at the sale point, which was forbidden by law, and that, therefore, the notifications were beyond the competence of the State Government. The contention of Revenue, inter alia, was that bamboos and trees agreed to be severed were different commercial commodities from bamboos and timber after they were felled and therefore the Government was competent to tax them, both at the sale point and purchase point. In those factual circumstances of the case and having regard to the licence agreement entered into between the parties, the High Court of Orissa at Cuttack held that under the agreement relating to exploitation of timber and forest produce, persons taking auction were liable to reimburse the sales tax to the forest department. Trees which were agreed to be severed and which were exigible to sales tax also became exigible to purchase tax under the notifications. In common parlance, trees or bamboos after they are severed are timber and bamboos respectively. The nature and character of the felled trees and bamboos do not change when they are brought outside the forest for the purpose of sale. There is no material distinction between the two. The trees and bamboos agreed to be severed are commercially the same goods as the trees and bamboos. That the trees which are otherwise immovable property are construed as movable property because of the fact of impending severance. Therefore, in the case of standing trees or timber, title can pass either before severance or after severance and the intention of the parties is to be gathered from the documents. If the intention of the parties was that title should pass before severance, then the petitioners got the right to cut and carry timber of specified species and, till the trees were cut, they remained the property of the Government. If the notification purported to impose tax at that point, it would amount to taxing at a point of time before title passed, while the trees still remained the property of the Government and the notifications would be imposing a tax on an agreement to sell or a tax on immovable property. If the parties had agreed that the property in the trees should pass after severance, then what passed was "timber" of the trees, which was the subject-matter of tax at the sale point. Therefore, if the State Government purported to tax by the notifications on the purchase of "bamboos agreed to be severed" or "trees agreed to be severed", then what it did was to tax an agreement to sell or to tax the trees or bamboos at the purchase point while the bamboos or trees were assessed at the point of sale also. That standing trees are unascertainable goods and continue to be the property of the Government until felled. Title to the trees would be transferred in favour of the petitioners only when after compliance of all the conditions of the agreement, the trees were felled or severed by them. The notifications could not be construed to impose purchase tax on standing trees or timber before severance which would amount to an impost of tax on an agreement to sell and not on actual sale. That bamboos which would come in future were also the subject-matter of transfer but such transactions also amounted to profit a prendre and could not amount to sales or purchases of goods as envisaged under the Sale of Goods Act, 1930. That the notifications were accordingly ultra vires the provisions of the Act. In the case of bamboo exploitation contracts, the notifications also amounted to impost of tax on profit a prendre and, as such, were against the provisions of the Act. On the above said reasoning, the High Court quashed the notifications.

16. The Revenue carried the above matter on appeal to the Supreme Court and the Supreme Court in 60 STC 213, after construing the agreement has held that by reason of the operation of the Forest Contract Rules, the property in bamboos passed to the company only after the bamboos were felled, taken to the depots at inspection points and there checked and examined and thereafter removed from the contract area. The notifications did not have any application and the amount payable under the bamboo contracts were not exigible to purchase tax in the hands of the company. That the bamboos contract was not a contract for the sale of goods. The bamboo contract was not a lease or the grant of an easement; it conferred upon the company a benefit to arise out of land, namely, the right to cut and remove bamboos, which would grow from the soil coupled with ancillary rights and was thus a grant of a profit a prendre. Any attempt on the part of the State Government to tax the amounts payable under the bamboo contracts would not only be ultra vires the Orissa Act but also unconstitutional as being beyond the taxing power of the State Legislature under entry 54 of List II of the Seventh Schedule to the Constitution of India. That it was not possible to view the bamboo contract as a composite contract; one an agreement relating to standing bamboos agreed to be severed, and the other, an agreement relating to bamboos to come into existence in the future. It was one integral and indivisible contract not capable of being severed. Holding thus, the Supreme Court reversed the judgment of the High Court on the point of constitutionality and vires but confirmed on the point of non-applicability of the provisions of the notification imposing tax on purchase of trees and bamboos agreed to be severed.

17. In the case on hand, it is not a licence but it is a lease, which is not disputed, but an admitted fact. As could be seen from the Government Order in GO.Ms.No.234 dated 6.8.1998, wherein lease has been granted to the petitioner for ten years on condition of execution of statutory lease agreement as per the provisions of the Mines and Minerals (Development and Regulation) Act, 1957. The lease deed so executed by the petitioner with District Forest Officer provided for payment of amount by the petitioner towards annual lease rent for the land. In addition thereto, the agreement further provided for payment of amount towards royalty over the quantity of minerals quarried. For the sake of clarity, the relevant portions of the agreement are extracted below:

"PART - V - Rents and Royalties Reserved by This Lease. Fixed yearly rent
1. The lessee should pay lease rent from 6th day of Aug'98 every year 12 1/2 % of the market value fixed by the Sub-Registrar, Omalur, and the lease rent revised every three years. (As per G.O.Ms.No.272, Environment & Forest, dt.15.6.91). As per market value, the lease rent is Rs.21,81,316/- per annum. The lease rent will be fixed and payable as when the same is decided by the government.
2) The lessee should pay to the District Forest Officer, Salem Forest Division, Salem on the day of 1st April in each year Royalty on minerals despatched from the leased area at the rate specified below (as fixed in Govt. of India Gazette No.156, New Delhi, dt.11th April 1997) Rs.25/- (Rupees twenty five only) per tonne. ...

2(A) .......

PART - VI - Provisions relating the Rents and Royalties, Place of Payment.

1. The rents and royalties mentioned in Part-V of the Schedule shall be paid free from any more deductions to the Sub-Treasury at Salem or to such other officer and at such other place as the Government shall from time to time appoint. Provided Always and it is hereby agreed that Rs.1,000/- the balance standing to the credit of the lessee on account of the deposit made by the lessee on applying for this lease shall be retained and accepted by the Governor in satisfaction of the rents and royalties mentioned in Part-V until they reach that amount.

2. ....

3. For the purpose of computing the said Royalties the lessee shall keep a correct account of the minerals produced and despatched. The accounts as well as the weight of the minerals in stock or in the process of export may be checked by any Officer authorised by the Government or the Central Government.

PART - VII - The Covenants of the Lessee/Lessees, To pay rents, royalties, rates and taxes.

The lessee shall pay the rents and royalty reserved by this lease at the times and in the manner provided in Parts V and VI and shall also pay and discharge all taxes rates, assessments, cess or royalities and impositions whatsoever being in the nature of public demands which shall from time to time be charged, assessed or imposed upon or in respect of the mines or works of the lessee or any part thereof by authority of the Central Government or that of the State Government or otherwise except demands for land revenue and shall also pay interest at the rate of six per cent per annum or that may be fixed from time to time on all arrears of such rents or royalty from the date whereon the same ought to be paid under these presents."

18. From the above, it is clear that the petitioner has to pay lease, rent in respect of the land given in lease. Apart from that, the lease rent so reserved, the petitioner has also to pay royalty on the mineral despatched from the leased area at the rate of Rs.25/- per tonne. The rate of royalty is revisable as provided under the agreement with reference to the statutory provisions of the Mines and Minerals (Regulation and Development) Act, 1957. The lease amount is for the entire area but the royalty is payable with reference to the quantity of the minerals mined by the petitioner. It is well settled that the mineral belongs to the Government. For the purpose of exploiting the mineral, the royalty has to be paid.

19. I am of the view that in order to have more clarity on the concept of payment of royalty with reference to mining, it is useful to refer certain passages of the judgment of the Supreme Court in the case of D.K.TRIVEDI AND SONS AND OTHERS VS. STATE OF GUJARAT AND OTHERS reported in AIR 1986 SUPREME COURT 1323, wherein it was held thus:

"35. ..... Before embarking upon a consideration of this question, it will be useful to know the meaning of the expressions dead rent and royalty and their connotation. ..... Jowitts Dictionary of English Law, 2nd Edn., at p. 555, defines dead rent as:
Dead Rent, a term sometimes used in mining leases in contradistinction to a royalty, to denote a fixed rent to be paid whether the mine is productive or not. See RENT.
The same dictionary states under the heading Rent, at p. 1544: "When a mine, quarry, brick-works, or similar property is leased, the lessor usually reserves not only a fixed yearly rent but also a royalty or galeage rent, consisting of royalties (q.v.) varying with the quantity of minerals, bricks, etc., produced during each year. In this case the fixed rent is called a dead rent."

36. Royalty is defined in Jowitts Dictionary of English Law, 2nd Edn., at p. 1595, inter alia, as:

"Royalty, a payment reserved by the grantor of a patent, lease of a mine or similar right, and payable proportionately to the use made of the right by the grantee. It is usually a payment of money, but may be a payment in kind, that is, of part of the produce of the exercise of the right. See Rent."

Royalty is defined in Whartons Law Lexicon, 14th Edn., at p. 893, as:

Royalty, payment to a patentee by agreement on every article made according to his patent; or to an author by a publisher on every copy of his book sold; or to the owner of minerals for the right of working the same on every ton or other weight raised.
The definition of royalty given in Blacks Law Dictionary, 5th Edn., at p. 1195, is as follows:
"Royalty, Compensation for the use of property, usually copyrighted material or natural resources, expressed as a percentage of receipts from using the property or as an account per unit produced. A payment which is made to an author or composer by an assignee, licensee or copyright holder in respect of each copy of his work which is sold, or to an inventor in respect of each article sold under the patent. Royalty is share of product or profit reserved by owner for permitting another to use the property. In its broadest aspect, it is share of profit reserved by owner for permitting another the use of property....
In mining and oil operations, a share of the product or profit paid to the owner of the property....
In H.R.S. Murthy v. Collector of Chittoor(1964) 6 SCR 666, 673: (AIR 1965 SC 177 at p.180), this Court said that royalty normally connotes the payment made for the materials or minerals won from the land. ...":

37. In Halsburys Laws of England, 4th Edn. in the volume which deals with Mines, Minerals and Quarries, namely, Vol. 31, it is stated in para 224 as follows:

"224. Rents and royalties. An agreement for a lease usually contains stipulations as to the dead rents and other rents and royalties to be reserved by, and the covenants and provisions to be inserted in, the lease...."

The topics of dead rent and royalties are dealt with in Halsburys Laws of England in the same volume under the sub-heading Consideration, the main heading being Property demised; Consideration. Para 235 deals with dead rent and para 236 with royalties. The relevant passages are as follows:

......
236. Royalties. 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 specific period."

In paragraph 238 of the same volume of Halsburys Laws of England it is stated:

"238. Covenant to pay rent and royalties. Nearly every mining lease contains a covenant by the lessee for payment of the specified rent and royalties."

38. Rent is an integral part of the concept of a lease. It is the consideration moving from the lessee to the lessor for demise of the property to him. Section 105 of the Transfer of Property Act, 1882, contains the definitions of the terms lease, lessor, lessee, premium and rent and is as follows:

"105. Lease defined.A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.
Lessor, lessee, premium and rent defined.
The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.

39. In a mining lease the consideration usually moving from the lessee to the lessor is the rent for the area leased (often called surface rent), dead rent and royalty. Since the mining lease confers upon the lessee the right not merely to enjoy the property as under an ordinary lease but also to extract minerals from the land and to appropriate them for his own use or benefit, in addition to the usual rent for the area demised, the lessee is required to pay a certain amount in respect of the minerals extracted proportionate to the quantity so extracted. Such payment is called "royalty". It may, however, be that the mine is not worked properly so as not to yield enough return to the lessor in the shape of royalty. In order to ensure for the lessor a regular income, whether the mine is worked or not, a fixed amount is provided to be paid to him by the lessee. This is called "dead rent".

"Dead rent" is calculated on the basis of the area leased while royalty is calculated on the quantity of minerals extracted or removed. Thus, while dead rent is a fixed return to the lessor, royalty is a return which varies with the quantity of minerals extracted or removed. Since dead rent and royalty are both a return to the lessor in respect of the area leased, looked at from one point of view dead rent can be described as the minimum guaranteed amount of royalty payable to the lessor but calculated on the basis of the area leased and not on the quantity of minerals extracted or removed. ..."

20.Thus, in this case, there is an additional payment of royalty apart from lease rent. Whether the royalty paid for consumption of mineral amounts would partake the character of purchase tax under Section 7-A is a question to be decided. That exercise has to be done on the basis of the various covenants contained in the lease agreement and on arriving a factual finding as to how the amount of royalty has been dealt with by the parties to the agreement.

21. In 60 STC 213 relied on by the learned counsel for the petitioner and referred supra, the constitutionality and virus of certain notifications issued has been decided and particularly the levy of purchase tax on the basis of the notification on the bid amount. The said case can never be compared with a case arising out of the factual situation of the present one, as several additional and different facts are there for consideration. There may be few similar factors available in both the cases. It is very established and settled principle of law that Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of courts are not to be read as Euclids theorems nor as provisions of the statute. The observations must be read in the context in which they appear. Judgments of courts are not to be construed as statutes. There is always peril in treating the words of a speech or a judgment as though they were words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect. Useful reference can be had to the judgment of the Supreme Court in the case of Haryana Financial Corpn. v. Jagdamba Oil Mills,(2002) 3 SCC 496, at page 509.

22. In the case of THE INDIA CEMENT LIMITED VS. STATE OF TAMIL NADU reported in AIR 1990 SUPREME COURT 85 relied on by the learned counsel for the petitioner, the legislative competence of the State Legislature to levy local cess and local cess surcharge on the royalty was a question raised and it was decided that the State Legislature has no such legislative competence. This decision cannot be taken in aid of the petitioner to maintain the writ petitions in the given facts of the case.

23. The assessing officer in this case has taken the royalty paid as value of the material, which is a taxable goods as per the petitioner's annual report and regarded the turnover as purchase turnover paid by the petitioner to the Government in terms of Section 7-A of the TNGST Act.

24. Section 7A of TNGST Act has been considered by the Supreme Court in the case of THE STATE OF TAMIL NADU VS. M.K.KANDASWAMI AND OTHERS reported in (1975) 36 STC 191, wherein the Supreme Court in uncertain terms has held that the definition of "dealer" in Section 2(g) of the Madras Sales Tax Act, 1959 included not only a person who carries on business of "selling, supplying or distributing" goods but also the one who carries on the business of "buying" only. Section 7-A(1) of the Act could be invoked if the following ingredients mentioned in the Section are cumulatively satisfied:

"(1) The person who purchases the goods is a dealer;
(2) The purchase is made by him in the course of his business;
(3) Such purchase is either from a registered dealer or from any other person;
(4) The goods purchased are goods the sale or purchase of which is liable to tax under this Act;
(5) Such purchase is in circumstances in which no tax is payable under Sections 3, 4 or 5 as the case may be, and (6) The dealer either
(a) consumes such goods in the manufacture of other goods for sale or otherwise, or
(b) despatches all such goods in any manner other than by way of sale in the State, or
(c) despatches them to a place outside the State except as a direct result of sale or purchase in the course of inter-State trade or commerce."

The Apex Court further held that the scheme of the Act involved three inter-related but distinct concepts, which might be described as "taxable person", "taxable goods" and "taxable event". All the three must be satisfied before a person could be saddled with liability under the Act. The focal point in the expression "goods, the sale or purchase of which is liable to tax under the Act," is the character and class of goods in relation to their exigibility. In a way this expression contains a definition of "taxable goods", that is, goods mentioned in the First Schedule of the Act, the sale or purchase of which is liable to tax at the rate and at the point specified in the schedule. The words "the sale or purchase of which is liable to tax under the Act" qualify the term "goods" and exclude by necessary implication goods, the sale or purchase of which is totally exempted from tax at all points under section 8 or section 17(1) of the Act. The goods so exempted - not being "taxable ;goods" - cannot be brought to charge under section 7-A. The words "under the Act" include a charge created by section 7-A also. Section 7-A is a charging as well as a remedial provision. The ingredients (4) and (5) in Section 7A(1) are not mutually exclusive and the existence of one does not necessarily negate the other. Both can co-exist and in harmony. Ingredient (4) would be satisfied if it is shown that the particular goods were "taxable goods", i.e., the goods, the sale or purchase of which is generally taxable under the Ac;t. Notwithstanding the goods being "taxable goods", there may be circumstances in a given case, by reason of which the particular sale or purchase does not attract tax under section 3, 4 or 5. Section 7-A provides for such a situation and makes the purchase if such goods taxable in the case of purchasing dealer on his purchase turnover if any of the conditions (a), (b) and (c) of sub-section (1) of section 7-A is satisfied.

25. The Apex Court concluded in the said case by observing that the object of Section 7A is to plug leakage and prevent evasion of tax. In interpreting such a provision, a construction which would defeat its purpose and, in effect, obliterate it from the statute book should be eschewed. If more than one construction is possible, that which preserves its workability and efficacy is to be preferred to the one which would render it otiose or sterile.

26. So, the factual aspect with reference to the lease agreement entered into and the grant order in G.O.Ms.No.234, Environment and Forest Department dated 6.8.1998 has to be considered to come to the conclusion whether the levy of purchase tax in the given circumstances of the case is correct or not by the Appellate Authority only. I can usefully take support of the observation of the Supreme Court for that purpose.

27. In Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 = 53 STC 315, for the assessment year 1980-81, the assessee filed its return of intra-State sales and inter-State sales returning the gross turnover and claiming deduction of sales to registered dealers in the case of both the turnovers and also deduction in respect of sales made to Department of Government in the case of turnover of inter-State sales. During the proceedings for assessment, the assessee sought adjournment on one ground or another. Eventually the Sales Tax Officer refused to grant any further adjournment holding that the assessee had sufficient opportunity and made assessment to the best of his judgement under Rule 15 of the Central Sales Tax Act (Orissa) Rules, 1957 and Section 12(4) of the Orissa Sales Tax Act, 1947, treating the local turnovers returned to be their taxable turnovers. In the case of inter-State sales, the Officer disallowed the assessee's claim for deduction representing sales to registered dealers and departments of Government as well as the amount claimed as deduction on account of tax collected from the purchasers, as the requisite declarations in form C were not forthcoming. He also disallowed the concessional rate of tax at 4 per cent. Similarly, while making an assessment under section 12(4) of the Act, he treated the gross turnover of inside sales as returned by the petitioners to be their taxable turnovers and disallowed the assessee's claim for deduction of sales to registered dealers as the prescribed declarations had not been produced.

Thereupon the assessee filed writ petitions in the High Court challenging the assessments among other things on the ground that the Sales Tax Officer had acted in flagrant violation of the rules of natural justice as they were deprived of their opportunity to place their case and that he was not justified in disallowing the claim for deductions.

The High Court dismissed the petitions on the grounds that the assessee had a right a right of appeal and that that was not a case of inherent lack of jurisdiction.

The assessee preferred petitions in the Supreme Court for special leave to appeal and an officer of the assessee-company also filed writ petitions in the Supreme Court challenging the validity of the assessment orders. In that case, the Supreme Court dismissing the petitions has held that:

(i) the assessee had an equally efficacious alternative remedy by way of appeal to the prescribed authority under section 23(1) of the Act, then a second appeal to the Tribunal under section 23(3)(a), and thereafter in the event the assessee got no relief, to have a case stated to the High Court.
(ii) The instant case was a case in which the entrustment of power to assess was not in dispute, and the authority within the limits of his power was a tribunal of exclusive jurisdiction.
(iii) The challenge was only to the regularity of the proceedings before the Sales Tax Officer as also his authority to treat the gross turnover returned to be the taxable turnover.
(iv) Investment of authority to tax involves authority to tax transactions which in exercise of his authority the taxing officer regards as taxable, and not merely authority to tax only those transactions which are, on a true view of the facts and the law, taxable.

The Supreme Court further held that the assessing order clearly showed that the assessee was afforded sufficient opportunity to place their case. Merely because the Sales Tax Officer refused to grant any further adjournments and proceeded to make a best judgment assessment, it could not be said that he acted in violation of the rules of natural justice. The question whether another adjournment should have been granted or not was within the discretion of the Sales Tax Officer and was a matter which could properly be raised only in an appeal under section 23(1) of the Act.

The Apex Court further held that the Act provided for a complete machinery to challenge an order of assessment and the orders of assessment in the case could only be challenged by the mode prescribed by the Act and not by a petition under article 226 of the Constitution of India. The Act provided for an adequate safeguard against an arbitrary or unjust assessment. The assessee had a right to prefer appeals under section 23(1) of the Act subject to their payment of the additional amount of tax as enjoined by the proviso thereto, and as regards the disputed amount of tax they had the remedy of applying for stay of recovery to the Commissioner under clause (a) of the second proviso to section 13(5) of the Act.

28. The above said three judges judgment of the Supreme Court would squarely applicable to the facts of this case. In this case also, what is put in issue, as already stated, is assessment orders, which are appealable to the first appellate authority under Section 31 of the TNGST Act. Even before the first appellate authority, the petitioner is not able to get a favourable order. The statute provided another opportunity of Second Appeal under Section 36 to the Tribunal.

29. In a comparable factual situation, in the case of State of Goa Vs.Leukoplast (India) Limited reported in (1997) 105 STC 318, the Supreme Court has taken the same view. That was a case in which a licence granted by the Drugs Controller under the Drugs and Cosmetics Act, 1940, the assessee was producing zinc oxide adhesive plaster, surgical wound dressing, belladona plaster, capsicum plaster and cotton crepe bandage. Prior to November 1, 1981, the respondent paid local sales tax at 6 percent and Central sales tax at 4 per cent on the sale of those goods.

By Notification No.14/41/81-Fin (R&C) dated August 28, 1981, drugs and medicines were exempted from the levy of local sales tax in excess of 3 per cent and, accordingly, Central sales tax was also reduced to 3 per cent. By another Notification No.5/5/87 (R & C)-8 dated April 1, 1987, the State of Goa, in exercise of the powers under section 10 of the Goa, Daman and Diu Sales Tax Act, 1964, amended Schedule II to the Act by inserting entry 77 which specified "drugs and medicines, including all I.V. drips". By that notification such goods were totally exempted from local sales tax and the sales tax authorities ceased to collect Central Sales tax and local sales tax on the products manufactured by the respondent.

The assessee claimed refund of tax paid in excess of 3 per cent for the period November 1, 1981 to April 1, 1987, on the ground that the goods produced by them being "drugs and medicines", they were liable to local and Central sales tax only at 3 percent. Since no action was taken on the claim for refund the assessee filed writ petitions for quashing the assessment orders completed till then. It also filed revised returns for the periods January 1, 1985 to December 31, 1985, and January 1, 1986 to December 31, 1986. After the admission of the writ petition the Assistant Sales Tax Officer completed the assessment for the period January 1, 1983 to December 31, 1983, rejecting the claim for refund. Thereupon, the assessee filed a writ petition challenging the decision of the Assistant Sales Tax Officer. The contention of the assessee was that the assessment orders should be set aside and it was entitled to refund of the tax paid; under mistake of law and collected by the State without the authority of law. The department contended that the products did not fall under "drugs and medicines" and as such no question of refund of tax arose.

The High Court, after discussing the nature of the products and referring to the Pharmaceutical Codes, the meaning given to "drugs and medicines" in the Drugs and Cosmetics Act and the understanding of that expression by the excise authorities, and the affidavits filed by the assessee, allowed the writ petitions holding that the products manufactured by the assessee were "drugs and medicines" coming within the purview of the notifications and that the assessee was entitled to refund.

On appeal to the Supreme Court, the Supreme Court set aside the order of the High Court by holding that in order to decide the question whether the products manufactured by the assessee could be treated as "drugs and medicines", it had to be found out how those products were understood and treated in the market, viz., whether, in the ordinary commercial sense, those articles were considered as drugs and medicines. The question whether the products manufactured by the assessee could be treated as "drugs or medicines" could not be answered straight away. Their medical contents, if any, had to be ascertained. Their curative function was to be found out. It had to be decided whether they could be called medicament at all, and whether they were used to cure or alleviate or prevent disease or to restore or preserve health. These were basically questions of fact which should have been agitated before the statutory appellate authority. There was no reason for the assessee to by-pass the statutory remedy and approach the court with a writ petition and the High Court ought not to have allowed the assessee to by-pass the statutory remedies where the questions could have been properly agitated and ascertained. Thus, the Supreme Court allowed the appeal filed by the State of Goa by following its earlier judgment of Titaghur Paper Mills Co. Ltd. v. State of Orissa, (1983) 2 SCC 433 = 53 STC 315 , which is referred above.

30. In Union of India and others Vs. Tata Engineering & Locomotive Company Limited reported in AIR 1998 SUPREME COURT 287, aggrieved by the order of the Division Bench of Patna High Court directing the Assistant Collector of Central Excise,Jamshedpur to pass without delay appropriate final order on all the price lists submitted by the company by taking the price at which the Company sold the vehicles at the factory gate at Jamshedpur as the normal price for the purpose of computation of the value of the excisable goods and with a further direction to the Assistant Collector not to call for any other document for the purpose of assessment of the value of the excisable goods on the basis that the issue has already been covered by various decisions of the Court filed an appeal to the Supreme Court. The Supreme Court held as follows:

" ... 4. In our view, this petition should not have been entertained by the High Court at all. The Assistant Collector is entitled to complete the assessment as he thinks fit in exercise of his judgment and according to his understanding of the law and facts. For this purpose, he can call for and examine whatever documents he considers relevant. If the Assistant Collector fails to follow any judgment of the High Court or this Court, the assessee had adequate statutory remedies by way of an appeal and revision against the assessment order. The Court should not try to control the mode and manner in which an assessment should be made. If the Assistant Collector is of the view that enquiries are necessary to be made as to the price at which trucks were sold at the Regional Sales Offices, the Court cannot stop him from making such enquiries.
5. Mr Sorabjee, appearing on behalf of the respondents, has complained that the assessments are going on endlessly and without due regard to an earlier judgment of the Patna High Court in respect of an earlier assessment year on the very same issues. Whether the controversy raised in this case is covered by an earlier judgment of the High Court is a matter to be decided by the Assistant Collector. He will have to decide all questions of fact and law. He has to make whatever enquiries he thinks necessary for determination of the value of excisable goods. The High Court in exercise of its jurisdiction cannot give guidance to the Assistant Collector about the manner and mode in which the assessment should be made.
6. We are of the view that the High Court was in error in entertaining this writ petition. Therefore, the appeal is allowed and the judgment of the High Court under appeal is set aside. There will be no order as to costs. ..."

31. So far as the writ petition in in W.P.No.2359 of 2006 filed in respect of the assessment year 1999-2000, the impugned order clearly states that though in the pre-assessment notice dated 16.12.2002 proposed to include the turnover relating to packing and forwarding charges and objections have been filed by the petitioner, the assessment order that has been inadvertently omitted, by giving one more opportunity by issuing notice, the petitioner was directed to file objections and upon filing objections, objections of the petitioner have been rejected by giving reason that the objections filed with the invoices would not any way suggest that the sale price itself included the packing and forwarding charges also. Equally this is also a factual finding, which can be agitated before the appellate authority for the reasons stated in the earlier paragraphs. So is the other; point as to whether the demand of differential duty under Section 3(4) on the exported turnover of the manufactured goods could also be questioned in in the appeal.

33. In the light of the uniform opinion expressed by the Apex Court of India by Three Judges Bench Judgment in first two of the cases above mentioned and the Division Bench judgment of the later case, I am of the view that the writ petitions cannot be maintained, particularly, when this Court has come to the conclusion that the reliance with which the petitioner heavily made on i.e., 60 STC 213 is not a comparable decision to the facts of the present case, the writ petitions are dismissed with liberty to file appeal. However, there is no order as to costs. In order to render complete justice, as the O.Ps were entertained by the Special Tribunal in the year 2004 and on abolition they were transferred to this Court and converted as writ petitions, two weeks time is granted from the date of receipt of copy of this order to file appeal, if the petitioner is so advised. The original orders, if any, filed by the petitioner are directed to be returned on written request and on the petitioner submitting the same with xerox copies duly certified as true copy.

usk To

1. The Secretary Commercial Taxes Department State of Tamil Nadu Fort St.George Chennai 600 009.

2. The Commercial Tax Officer Suramangalam Assessment Circle Salem.

[PRV/9633]