Orissa High Court
Ms Mideast Integrated Steel Limited And ... vs State Of Odisha Represented Through Its ... on 16 December, 2015
Equivalent citations: AIR 2016 (NOC) 233 (ORI.)
Author: D.H.Waghela
Bench: D.H.Waghela
IN THE HIGH COURT OF ORISSA : CUTTACK
W.P.(C) No. 17403 of 2012
In the matter of an application under Articles 226 & 227 of the
Constitution of India.
M/s. Mideast Integrated Steel Limited
and another ... Petitioners
-Versus-
State of Odisha represented
through its Secretary, Department
of Steel & Mines, Bhubaneswar & Ors. ... Opp.Parties.
For Petitioner - Mr. Salman Khurshid,
Sr.Advocate
Mr. Avijit Pal & A.Das
For opp. Parties - Mr. S.P.Mishra,
Advocate General
PRESENT:
THE HONOURABLE CHIEF JUSTICE MR. D.H.WAGHELA
AND
THE HON'BLE MR JUSTICE BISWANATH RATH
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Date of Hearing : 04.12.2015 Date of Judgment : 16.12.2015
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PER : D.H.WAGHELA, C.J.
1. This petition by Mideast Integrated Steel Limited
('MISL' for short) is directed against levy of royalty in alleged
contravention of Central Government notifications dated 13.8.2009
by the State Government. MISL is engaged in manufacture of steel,
pig iron and sponge iron by a plant set up in Odisha. It has
obtained mineral concession at Roida-I, Iron Ore Mines spread over
104.68 hectares in village Tanto, Barbil Tahasil in the district of
Keonjhar. Even after expiry of the mining lease period on
22.1.2003, the company has applied for second renewal of the mining lease and no final order is stated to have been passed. Hence, by virtue of Rule 24A(6) of the Mineral Concession Rules, 1960, mining lease is deemed to have been extended till final order. The petitioner has obtained approval of Indian Bureau of Mines ('IBM' for short) in respect of scheme of mining, including mines closure plan. The Government of India in the Department of Environment and Forest is stated to have granted final approval under Section 2 of the Forest Conservation Act for diversion of 51.99 hectares of forest land to the company. Thus, in short, MISL is stated to have carried its mining and extracting activity with necessary statutory clearances and it is stated to be extracting iron ore lumps and fines on payment of due royalty in accordance with Rule 64D of the Mineral Concession Rules, 1960 ('MC Rules' for short).
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2. The opposite party no.1, State of Odisha, Department of Steel and Mines, issued circular dated 7.9.2010 addressed to opposite party no.2, Director of Mines and all Deputy Director of Mines in respect of charging of royalty under Rule 64B of M.C. Rules. That letter sought to clarify that in case processing of run-of-mine ('ROM' for short) is carried out within the leased area, then royalty shall be chargeable on the processed mineral removed from leased area; and tried give to a different meaning to Calibrated Lump Ore ('CLO' for short) On the basis of such letter, the Deputy Director of Mines started recovering the differential royalty in respect of CLO. The assessment of royalty for the financial years 2009-10, 2010-11 and 2011-12 were made in accordance with the circular dated 7.9.2010 and demands of differential royalty were made with coercive measures to follow.
3. It is the case of the petitioner that the State Government has no authority and jurisdiction to charge ad valorem royalty at different rate for CLO than lump ore as the IBM has not made any differentiation in respect of CLO and lump ore. However, the petitioner is made to make payments towards differential royalty under the threat of not granting permission for transportation of iron ore outside the leased area. Demand of more than Rs.50 crores has been made from the petitioner by issuing five demand notices in respect of various periods from financial year 2009-10 to 2011-12. The petitioner is stated to have been forced to pay total amount of Rs.11,82,01,033/-. By letter dated 13.1.2012, -4- additional demand for payment of interest on delayed payment of royalty is also made.
4. In the above context, by letter dated 23.7.2012, opposite party no.4, the Union of India, Department of Mines has addressed to the State Government a clarification stating that IBM has given its opinion that CLO is nothing but processed lump ore and it is requested to withdraw the Circular dated 7.9.2010 with immediate effect. The Central Government has also addressed letter dated 10.12.2009 to the IBM for clarification regarding computation of ad valorem royalty under Rule 64D of the MC Rules. It has also requested IBM to host on its Website benchmark sale price per ton of pit-mouth value of the mineral. Accordingly, the IBM has notified the benchmark sale price state wise on quarterly basis. The classification of iron ore as done by the IBM are high grade, BD and fines. The petitioner is stated to have paid royalty amount as assessed by the State Government for the financial year 2009-10, which is stated to be in excess of royalty required to be paid as per IBM report by Rs. 7,19,85,973/-. Similar excess payment is alleged to have been made in the following years. Thus, being aggrieved by the notice dated 6.7.2012 for payment of the amounts remaining due and the Circular dated 7.9.2010 and demand dated 13.1.2012, the present petition is filed. It is alleged in the petition that MISL has been forced to pay total amount of Rs. 35,87,24,422/- towards additional amount of royalty on the basis of the impugned Circular dated 7.9.2010 and amount of additional -5- royalty already paid, amounting to Rs. 20,35,21,316/-, has not been passed on to the purchaser of iron ore. It is prayed that the impugned Circular dated 7.9.2010 may be declared to be illegal and without jurisdiction, that the assessment orders for financial years 2009-2010, 2010-11 and 2011-12 may be quashed to the extent they are based upon the impugned Circular and that refund of Rs. 35,87,24,422/- may be ordered.
5. By filing an affidavit of Under Secretary, Steel and Mines Department of the Government of Odisha, the contentions of the petitioners are controverted. It is averred therein that provisions of the Mines and Minerals (Development and Regulation) Act, 1957 ('MMDR Act' for short) have to be construed and applied harmoniously with the Rules made thereunder. In case of iron ore, ROM comprises of lumps, fines and waste material, the sale price of lumps being higher than the price of fines. When ROM is fed into crusher for processing, the output is calibrated lump ore ('CLO' for short), fines and waste material. Generally CLOs are produced by crushing and would be less in volume/weight than the lumps comprised in ROM. The royalty payable on the basis of market price of CLO should be higher than the price of lumps, but IBM does not publish the sale price of CLO. In terms of the notifications of IBM, royalty on iron ore lumps is much higher than on iron ore fines. Due to crushing of iron ore lumps partly into fines by the petitioner, there was loss to the State exchequer. Therefore, the decision was taken by the State Government to calculate royalty on -6- lump ore which the petitioner would have paid, had they not processed the lumps in the crushing plant inside the leased area. Charging royalty on CLO at the same rate as sale price of lump ore would be unreasonable and unjustified and resulting into loss of revenue, since the value of CLO is much more than that of the lump ore. It is submitted that mineral resources of the State are 'wasting assets' and non-renewable natural resources. Royalty is levied on the basis of quantity of minerals. Rule 64D of MC Rules obliges mine owner to compute the amount of royalty on minerals where such royalty is charged on the basis of state-wise rates of the mineral as published by IBM in accordance with the set formula. The State is obliged to oversee that the lessee pays a fair consideration for exploitation and enjoyment of privileges granted by the State. Therefore, the State opted to charge royalty on the basis of consumption of minerals. Section 9 of MMDR Act clearly offers the option to charge royalty of minerals which are removed or consumed from the lease hold area. It is averred that lumps and fines in the ROM used in the crusher is nothing but consumption of the mineral within the leasehold area by the lessee. On that basis, it is submitted that the question of charging royalty on processed minerals may arise only after IBM starts notifying the sale price of CLO.
6. It is submitted for the State that fines and lumps of iron ore are not suitably defined by the Government of India as far as levy of royalty is concerned. Iron ore lumps and CLO have never an equal market price and there is no justification for clubbing -7- lumps with CLO while fixing weighted average price of lumps. There are some mines that sell lump ore to mining traders, who in turn process it outside the leased area into usable sizes. Due to under-reporting of pit's mouth value by the lessees, the State lost a sizeable amount of royalty in the initial phase of introduction of ad valorem regime of royalty on iron ore. Whenever lumps of iron ore or ROM is subjected to processing, fines are generated along with CLO. Due to non-publication of rate for CLO by IBM, royalty on CLO was collected at the rate applicable to lumps and the State Government was losing huge sums of royalty. IBM was requested by letter dated 7.9.2010 to the Ministry of Mines, Government of India to publish average sale price of CLO and reminder was sent on 1.11.2010. Sub-Rule (1) of Rule 64B of the M.C. Rules inserted by GSR 743(E) dated 25.9.2000 on charging of royalty in case of minerals subjected to processing clarifies that in case processing of ROM mineral is carried out within the leased area, royalty shall be chargeable on the processed mineral removed from the leased area. In these facts, the State Government issued the impugned Circular dated 7.9.2010. The Department of Steel and Mines, Odisha issued fresh instructions to the Directorate of Mines by letter dated 9.4.2012 to modify the Directorate's instruction in conformity with the Circular dated 7.9.2010. Thereby, the Mining Officers were instructed to charge royalty on iron lumps as mined or in the processed form as CLO and fines whichever was higher. -8-
Since IBM was yet to publish the rates for CLO, the Mining officers were directed to collect the differential amount that would arise upon the notification of rates of CLO by IBM. The IBM however expressed by letter dated 6.1.2011 its inability to publish such rates on the ground that there was no provision for reporting grade of CLO in Form F/1 and H/1 prescribed under Rule 45 of Mineral Conservation and Development Rules, 1988 ('MCDR' for short). Under such circumstances, after writing several letters to expeditiously take necessary steps for publication of average price of different grade of CLO, the State Government was compelled to charge royalty on the sale price of lumps and fines comprised in ROM, which generally contained higher percentage of lump ore as compared to CLO.
7. The Ministry of Mines, Government of India in their letter dated 23.7.2012 requested the State Government to withdraw the notification dated 7.9.2010, which letter was replied by letter dated 18.9.2012 by referring to two reports of the Comptroller and Auditor General of India on revenue receipts of the Government of Odisha. The report for the year ended on 31st March, 2008 read as under:
"7.2.15.2 : Short levy of royalty on iron ore:
According to the provisions of the MC Rules, in case of processing of run-of-mine (ROM) minerals within the leasehold area, royalty shall be charged on the output after -9- processing the minerals. However, in case of processing of mineral other than ROM, royalty is chargeable on unprocessed mineral i.e. mineral extracted from the seam.
Scrutiny of the assessment records and monthly returns of seven iron ore mines under the DDM, Joda revealed that during the year 2006-2007, the lessees fed 53.82 lakh MT of unprocessed minerals in their processing plants and paid royalty of Rs.
10.61 crore classifying the minerals as ROM minerals. The assessing officer without carrying out any field inspection accepted the returns of the lessees and levied royalty accordingly. It was noticed that the output was equal to the input minerals i.e. 53.82 lakh MT which indicates that the minerals fed were not ROM minerals and thus royalty of Rs. 13.89 crore should have been levied on the unprocessed minerals. This resulted in short levy of royalty of Rs.3.28 crore.
x x x x x x x x x x x"
Para 7.3.2.1 of report of the CAG on revenue receipts of Government of Odisha for the year ended on 31st March, 2009 read as under:
"7.3.2.1: Short levy of royalty on iron ore :
Test check of the assessment of records of the Deputy Director of Mines, Koira, in January, 2009 revealed that during the years
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2006-07 and 2007-08, a lessee declared to have fed 37.63 lakh of MT of unprocessed minerals as ROM minerals. The Assessing Officer accepted the returns of the lessee and levied royalty accordingly. Audit scrutiny revealed that the output was equal to the input minerals, i.e. 37.63 lakh MT which indicates that the minerals declared to have been fed by the lessee were not ROM minerals and thus royalty of Rs. 7.55 crore should have been levied on the unprocessed minerals. This resulted in short levy of royalty of Rs. 1.85 crore.
After the case was pointed out, the Deputy Director, Mines stated in January 2009 that the royalty was charged on the processed mineral as per the mining plan of the lessee approved by the Indian Bureau of Mines for production of ROM minerals. The fact, however, remains that the minerals fed were not ROM minerals since the output after processing was graded mineral, sized mineral and fines without any foreign material which was also equal to the input quantity."
8. Thus, the case of the opponent authorities is that the petitioner has not been required to pay royalty at any rate higher than that prescribed by the Central Government; but the so- called process within the leased area by the petitioner was resulting into value addition to the mineral and as the iron ore was being consumed for the purpose of processing, the State was entitled to
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charge royalty on the iron ore before it was processed. The State had no option but to ensure collection of royalty at the fair value prescribed by the IBM. It is further submitted on oath on behalf of the Deputy Director of Mines that royalty was demanded in exercise of powers conferred by Section 24(2) of the MMDR Act and M.C. Rules as required under Section 9 of the MMDR Act. It is pointed out that as per the notification of IBM, royalty on iron ore lumps is much higher than iron ore fine. In view of obvious loss to the State Exchequer by crushing of lump ore into CLO and fine by the petitioner and in view of the remarks of the CAG, the impugned Circular had to be issued. As the price of CLO is yet to be published by IBM, the lessee has to pay at least royalty for the lump ore which he would have paid had he not processed the lumps in the crushing plant inside the leased area for value addition. The State Government has already clarified by letter dated 9.4.2012 that royalty shall be charged on iron ore lumps as mined or the processed form, i.e. CLO and fines whichever is higher. It is further submitted that the petitioner has voluntarily made advance payments of royalty through challans and online transfer of funds and the challenge thereto is an afterthought. When the petitioner failed to pay royalty within time, demand for payment of interest was also justified. The State Government has, vide letter dated 18.9.2012, pointed out to the Central Government the reports of the CAG. It is specifically averred that for the year 2010-11 and 2011- 12, the petitioner was required to pay royalty at the rate applicable
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to lumps on the quantity of crushed fine generated by crushing of lumps without introducing any other or additional rate of royalty. It is stated that computation of royalty was in no way violative of the provisions of Rule 64D of the M.C.Rules.
9. In view of the facts and rival contentions, it may be pertinent to refer and reproduce the relevant statutory provisions as under:
"Mines & Minerals (Development & Regulation) Act, 1957 An Act to provide for the development and regulation of mines and minerals under the control of the Union.
Section 2-Declaration as to the expediency of Union control:
It is hereby declared that it is expedient in the public interest that the Union should take under its control the regulation of mines and the development of minerals to the extent hereinafter provided.
Section 9-Royalties in respect of mining leases: (1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement, pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-
lessee from the leased area after such commencement, at the rate for the time being specified in the Second Schedule in respect of that mineral.
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(2) The holder of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area at the rate for the time being specified in the Second Schedule in respect of that mineral.
(2A). The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, shall not be liable to pay any royalty in respect of any coal consumed by a workman engaged in a colliery provided that such consumption by the workman does not exceed one-third of a tonne per month.
(3) The Central Government may, by notification in the Official Gazette, amend the Second Schedule so as to enhance or reduce the rate at which royalty shall be payable in respect of any mineral with effect from such date as may be specified in the notification:
Provided that the Central Government shall not enhance the rate of royalty in respect of any mineral more than once during any period of three years.
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The Second Schedule (See Section 9) Rates of Royalty in respect of minerals at item 1 to 9, 11 to 37, 39 to 45 and 47 to 51 xxxxxxxx
22. Iron Ore : Lumps Ten percent of sale price Fines & Concentrates on ad valorem basis.
all grades The Mineral Concession Rules, 1960 Rule-2. Definitions
(i) 'Act' means the Mines and Minerals (Development and Regulation) Act, 1957 (67 of 1957).
(ii) 'Form' means a Form set out in Schedule I to these Rules.;
Rule-22A. Mining operations to be in accordance with Mining Plans (1) Mining operations shall be undertaken in accordance with the duly approved mining plan.
(2) Modification of the approved mining plan during the operation of a mining lease also requires prior approval.
Rule 64B. Charging of royalty in case of minerals subjected to processing (1) In case processing of run-of-mine is carried out within the leased area, then, royalty shall be chargeable on the processed mineral removed from the leased area.
(2) In case run-of-mine mineral is removed from the leased area to a processing
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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.
Rule 64-C. Royalty on tailings or rejects .......................................................... Rule 64D. Manner of payment of royalty on minerals on ad valorem basis (1) Every mine owner, his agent, manager, employee, contractor or sub-lessee shall compute the amount of royalty on minerals where such royalty is charged on ad valorem basis, as follows:-
(i) for all non-atomic and non fuel minerals sold in the domestic market or consumed in captive plants or exported by the mine owners (other than bauxite and laterite dispatched for use in alumina and metallurgical industries, copper, lead, zinc, tin, nickel, gold, silver and minerals specified under Atomic Energy Act), the State-wise sale prices for different minerals as published by Indian Bureau of Mines shall be the sale price for computation of royalty in
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respect of any mineral produced any time during a month in any mine in that State, and the royalty shall be computed as per the formula given below:
Royalty = Sale price of mineral (grade wise and State-wise) published by IBM x Rate of royalty (in percentage) x Total quantity of mineral grade produced/dispatched:
(ii) xxx
(iii) xxx
(iv) xxx
(2) .........................................................."
xxx xxx xxx
The Mineral Conservation and
Development Rules, 1988
In exercise of the powers conferred by section 18 of the Mines and Minerals (Regulation and Development) Act, 1957 (67 of 1957), the Central Government hereby makes the following rules for conservation and Development of Minerals, namely:-
3. Definitions. - In these rules, unless the context otherwise requires-
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(a) xxx
(b) xxx
(c) xxx
(d) 'beneficiation' means processing of minerals or ores for the purpose of
(i) regulating the size of a desired produce;
(ii) removing unwanted
constituents; and
(iii) improving quality, purity or
assay grade of desired
product;
Rule-13. Mining operations to be in
accordance with mining plans.
(1) Every holder of a mining lease shall carry out mining operations in accordance with the approved mining plan with such conditions as may have been prescribed under sub-rule (2) of rule 9 or with such modifications, if any, as permitted under rule 10 or the mining plan or scheme approved under rule 11 or 12, as the case may be.
(2) If the mining operations are not carried out in accordance with the mining plan as referred to under sub-rule (1), the Regional Controller or the authorised officer may order suspension of all or any of the mining operations and permit continuance of only such operations
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as may be necessary to restore the conditions in the mine as envisaged under the said mining plan.
Rule 20. Beneficiation studies to be carried out.
(1) If the Controller General or the authorised officer, having due regard to the nature of mining operations and grade of ore/mineral is of the view that the sub-grade or / mineral contains certain recoverable product, he may direct the owner, agent, mining engineer or manager of the mine to get the beneficiation investigations carried out.
(2) The report of the beneficiation investigation so carried out shall be submitted to the Controller General or the authorised officer as the case may be immediately after the investigation is over.
(3) In a mine having a beneficiation plant, feed products and tailings shall be regularly sampled and analysed at suitable intervals and records of the same maintained in bound paged book:
Provided that the Controller General or the authorised officer may require the sampling and
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analysis to be done at any other interval than in practice.
Rule 58. Penalty Whoever contravenes any of the provisions of these rules shall be punishable with imprisonment for a term which may extend up to two years, or with fine extending to fifty thousand rupees or with both, and in the case of continuing contravention with an additional fine which may extend up to five thousand rupees for every day during which such contravention continues, after conviction for the first such contravention:
Provided that for repeated contravention the punishment should be in the form of imprisonment only:
Provided further that any offence punishable under these rules may either before or after the institution of the prosecution, be compounded by the authorised officer to make a complaint to the court with respect to that offence, on payment to that officer for credit to the Government, of such sum that officer may specify:
Provided also that in case of an offence punishable with fine only, such sum shall not exceed
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the maximum amount of fine which may be imposed for that offence:
Provided further that where an offence is compounded under these rules, no proceeding or further proceeding, as the case may be, shall be taken against the offender in respect of the offence so compounded, and the offender, if in custody shall be released forthwith.
10. The important phrases in the present context, viz, 'mineral removed or consumed', 'processing' of 'run-of-mines (ROM)' and 'calibrated lump ore (CLO)' are not defined in the statutory scheme; and for the purpose of prescribing rate of royalty, iron ore is divided (in Entry No. 22 of the Second Schedule) into only three categories i.e. lumps, fines and concentrates. It may however be relevant to note here that 'beneficiation' means and includes processing of minerals or ores for the purpose of regulating size of a desired produce, and hence, changing size of lumps to convert them into CLO and fine would amount to 'beneficiation'.
11. It is particularly relevant in the context that the mining scheme of the petitioner for the year 2008-09 to 2013, submitted under Rule 12 of M.C.D.R., 1988 clearly stipulated in Chapter- X as under:
"No mineral beneficiation is envisaged within the lease area. However, crushing and screening is proposed. Currently, Mesco operates a 100 tph and
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200 tph crusher. The flow chart of 100 tph and 200 tph crusher is given annexure 6. As the increased production stabilizes and the central area ( old quarry 4 & 5) gets merged, another 250 tph stationary/semi-mobile crusher are proposed to be installed with screening facilities to maintain higher production."
It may also be pertinent to note here that, as admitted in the written submissions of the petitioner, the input of ROM contains 30% of lump ore and 70% of fines. However, within the soft friable ore, which is 60%, 9% oversized lumps, 7.33% lumps of 10-13 mm size and fines of 43.67% is generated. Out of the rest 40% hard ore and 9% of oversized ore, when put to crusher, lump ore to the extent of 22.67% lumps and fines to the extent of 26.33% are generated. It is conceded in terms, by learned Senior Advocate Sri Salman Khurshid appearing for the petitioner, that process of crushing definitely results into part of the iron ore lumps being reduced to fine on which lesser royalty is payable because of its lesser price and that would necessarily result into loss of revenue to the State exchequer.
12. In the facts of the present case, it is clear that the impugned letters dated 7.9.2010 and 9.4.2012 of the State Government were issued after recognizing the fact that, after extracting ROM iron ore, it was subjected to processing within the leasehold area and the State Government was losing some part of royalty and to meet that situation, instructions were issued to
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assess royalty on iron ore lumps mined or in the processed form i.e. fine and CLO, whichever was higher.
13. Relevant extracts of judgment of the Apex Court which are relied upon for the petitioner may be noted here.
(a) In National Mineral Development Corporation Ltd. vs. State of M.P. & another, (2004) 6 SCC 281, it is observed:
"28. It is clear that in iron ore production the run-of-mine (ROM) is in a very crude form. A lot of waste material called "impurities" accompanies the iron ore. The ore has to be upgraded. Upgrading the ores is called "beneficiation". That saves the cost of transportation. Different processes have been developed by science and technology and accepted and adopted in different iron ore projects for the purpose of beneficiation. In the processes, a stage is reached which yields concentrates. They are treated in the concentrate plant by resort to physical, chemical and/or electrical methods....
29. Parliament knowing it full well that the iron ore shall have to undergo a process leading to emergence of lumps, fines, concentrates and slimes chose to make provision for quantification of royalty only by reference to the quantity of lumps, fines and concentrates. It left slimes out of consideration. Nothing prevented Parliament from either providing for the quantity of iron ore as such as the basis for
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quantification of royalty. It chose to make provision for the quantification being awaited until the emergence of lumps, fines and concentrates. Having done so Parliament has not said: "fines including slimes". Though "slimes" are not "fines"
Parliament could have assigned an artificial or extended meaning to "fines" for the purpose of levy of royalty which it has chosen not to do. It is clearly suggestive of its intention not to take into consideration "slimes" for quantifying the amount of royalty. This deliberate omission of Parliament cannot be made good by interpretative process so as to charge royalty on slimes by reading Section 9 of the Act divorced from the provisions of the Second Schedule. Even if slimes were to be held liable to charge of royalty, the question would still have remained, at what rate and on what quantity, which questions cannot be answered by Section 9."
(underlines added)
(b) In the recent judgment of Three Judge Bench of the Apex Court in Tata Steel Limited vs. Union of India & ors, (2015) 6 SCC 193 it is observed:
"49. In sum and substance this is the issue before us, namely, whether for the purposes of payment of royalty, removal of a mineral as mentioned in Section 9 of the MMDR Act must be restrictively interpreted as removal or extraction of the mineral from
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the mine or the pit-head or a literal interpretation as removal of the mineral from the boundaries of the leased area?
"50. In National Mineral Development Corpn. Ltd. v. State of M.P., (2004) 6 SCC 281, the question before this Court was whether "slimes" are exigible to royalty, as forming part and parcel of iron ore?
"58. On the other hand, in the case of dolomite or limestone (State of Orissa vrs. SAIL (1998) 6 SCC476) the process described in para 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 utilised as it is or in 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. On the basis of the mineral extracted and the decision rendered by this Court, therefore, no similarity can be found between SAIL (case of consumption) and National Coal Development Corpn. Ltd. ,1998) 6 SCC 476.(case of removal) although royalty is charged on dolomite and limestone, as in coal, on a per tonne basis.
"59. Iron ore (with which NMDC is concerned) falls in the same generic
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category for levy of royalty as dolomite, limestone and coal, namely, on a tonnage basis but there is a crucial difference between iron ore and coal (as also between dolomite, limestone and iron ore). In the case of iron ore, beneficiation is necessary before it can be utilised. It has been observed in NMDC that:
'28. ... in iron ore production the run- of-mine (ROM) is in a very crude form. A lot of waste material called 'impurities' accompanies the iron ore. The ore has to be upgraded.
Upgrading the ores is called 'beneficiation'. That saves the cost of transportation. Different processes have been developed by science and technology and accepted and adopted in different iron ore projects for the purpose of beneficiation.' It is for this reason, inter alia, that the levy of royalty on iron ore is postponed, as held in NMDC, to a post- beneficiation stage."
60 to 67. xxx xxx "68. A plain reading of Rule 64-B 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 leaseholder. Sub-rule (1) provides that if 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
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area. However, if ROM mineral is removed without processing from the boundaries of the leased area then in terms of sub-rule (2) royalty will be chargeable on the unprocessed ROM mineral. Rule 64-B of the MCR is silent about removal of a mineral from the mine/pit-head but which is not removed from the boundaries of the leased area. This is a clear pointer that royalty is to be paid by the leaseholder only on removal of the mineral from the boundaries of the leased area. This simplification and clarification takes care of some of the different and difficult situations that we have referred to above, namely, the stage of charging royalty on coal at the pit-head or post-beneficiation, the stage of charging royalty on iron ore at the pit-head or post- beneficiation, the stage of charging royalty on dolomite and limestone at the pit-head or after the removal of waste and foreign matter and of course the stage of charging royalty on other minerals such as copper, gold, lead and zinc amongst others.
69. xxx xxx
70. xxx xxx
71. Therefore, on a plain reading of Rule 64-B and Rule 64-C of the MCR, we are of the opinion that with effect from 25-9-2000 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
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boundaries of the leased area. For the period prior to that, the law laid down in Central Coalfields Ltd. vs. State of Jharkhand, (2015) 6 SCC 220 will operate, as far as coal is concerned, from 10-8-1998 when SAIL was decided, though for different reasons.
xxx xxx xxx 77.3. In view of the insertion of Rule 64- B and Rule 64-C on 25-9-2000 in the Mineral concession Rules, the levy of royalty on coal has now been postponed from the pit-head to the stage of removal of the coal (whether unprocessed or ROM coal or whether beneficiated coal)."
(underlines added)
14. In the case of Tata Steel Limited, etc. (supra), the grievance of TISCO before the Apex Court was that, though the law laid down in SAIL (supra) was accepted by the High Court, viz. that royalty was chargeable in accordance with Section 9 of the MMDR Act on the quantity of coal extracted at the pit-head, yet refund of excess royalty paid by TISCO was denied. In TISCO (supra), it is stated that SAIL (supra) has been politely distinguished in NMDC (supra). The issue in TISCO, as culled out in para 49 of the judgment was : whether for the purpose of payment of royalty, removal of a mineral as mentioned in Section 9 of the MMDR Act must be restrictively interpreted as removal or extraction of the mineral from the mine or the pit-head or a literal interpretation as removal of the mineral from the boundaries of the leased area?
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In NMDC (supra) the question before the Court was whether "slimes" are exigible to royalty, as forming part and parcel of iron ore? Towards the concluding discussion on the legal issues arising in TISCO (supra), the Apex Court has observed (in para-61) that there are three categories of minerals dealt with by the Apex Court, viz. (i) that can be utilized in the raw or ROM stage straight from the pit-head, (ii) iron ore that cannot be utilized in the raw or ROM stage and needs beneficiation, and (iii) dolomite and limestone about which it is not clear whether it can be utilized in the raw or ROM stage. Though royalty may have a definite connotation, the rate of royalty, its method of computation and the final levy are different from mineral to mineral. It is for this reason that the Court held in NMDC (supra) that 2nd Schedule to the MMDR Act has to be read as part and parcel of Section 9 of that Act (para-63). In para-64 of the judgment, the Apex Court clarified 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. Insofar as coal is concerned, its "removal from the seam in the mine and extracting the same through the pit's mouth to the surface (satisfies) the requirement of Section 9 in order to give rise to liability for royalty" (Para-66).
The relevant further observations in paragraphs-68 and 70 require verbatim quotation as under:
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"68. A plain reading of Rule 64-B 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 leaseholder. Sub-rule (1) provides that if 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 ROM mineral is removed without processing from the boundaries of the leased area then in terms of sub-rule (2) royalty will be chargeable on the unprocessed ROM mineral. Rule 64-B of the MCR is silent about removal of a mineral from the mine/pit-head but which is not removed from the boundaries of the leased area. This is a clear pointer that royalty is to be paid by the leaseholder only on removal of the mineral from the boundaries of the leased area ............
xx xx xx xx
70. .........In any event, we are not bound to accept the interpretation given by the Union of India to Rule 64-B and Rule 64-C of the MCR as excluding only coal. On the contrary, in NMDC (supra) this Court has observed that these Rules are general in nature, applicable to all types of minerals, which includes coal. The expression of
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opinion by the Union of India is contrary to the observations of this Court."
(underlines added)
15. The issues arising in the facts of the present case are slightly different from the issues settled in the cases referred hereinbefore. The relevant legal provisions and the settled principles have to be applied herein in the context of two very important facts emerging from the record. Firstly, that the mining scheme submitted by the petitioner and approved or accepted by the respondent clearly stipulate that no mineral beneficiation was envisaged within the lease area and, as seen earlier, mining operations can be carried out only in accordance with the mining scheme. Therefore, even if the operation of crushing were projected in the mining plan, it was not permissible for the petitioner to carry out the process for regulating the size of iron ore lumps as that process amounted to beneficiation. Second important fact was that not only the processing amounted to beneficiation but it resulted into reduction in the amount of royalty on account of part of the lump ore being reduced to fines. These facts have to be scrutinized in light of two successive reports of the Comptroller and Auditor General of India, for the years ending on 31st March, 2008 and 2009, which clearly and exactly pointed out that the quantum of unprocessed mineral fed into the processing plant was exactly the same as the quantum of output from the plant, which would mean that the input was already iron ore lumps, part of which was
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converted into CLO and rest into fines. In such circumstances, inescapable conclusion is that iron ore lumps before beneficiation was already exigible to royalty at a higher rate, but before its removal from the lease-hold area, the composition of that mineral was partly changed so as to increase percentage of fines and increasing the value of lumps by converting them to calibrated size. Ultimately, what was removed from the leasehold area was, weight- wise and volume-wise, the same quantity of mineral.
16. In view of the above special facts, legal scheme on the subject of charging royalty may be examined.
Section-9 of the M.M.D.R. Act clearly mandate payment of royalty in respect of any mineral removed or consumed by the holder of a mining lease and such payment has to be at the rate specified in the Second Schedule. The Second Schedule, in its Entry 22, then specified iron ore as lumps, fines and concentrates of all grades and prescribed flat rate of royalty at ten percent of sale price on ad valorem basis. General provisions for charging of royalty, as contained in Rule 64B, 64C and 64D of MC Rules broadly provide for chargeability of royalty on the processed mineral removed from the lease area. Rule 64D casts an obligation on the mine owner to compute the amount of royalty on minerals where it is charged on ad valorem basis. In case of iron ore, the state-wise sale price for different minerals as published by IBM has to be taken as the sale price for computation of royalty in respect of any mineral produced any time during a month. The prescribed formula for
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computation of royalty is multiplication of sale price of mineral ( grade wise and state wise), as published by IBM, by (x) rate of royalty in percentage by (x) total quantity of mineral grade produced/dispatched. In such scheme of levy of royalty, the sale price of the mineral and the mineral produced or dispatched would be decisive. If the sale price published by IBM is different for different grade of the same mineral or if the quantity of different grade of mineral which is produced or dispatched is different, computation of amount of royalty would be necessarily impacted. In the case of iron ore, Entry 22 of Second Schedule to MMDR Act divided iron ore into three classes, i.e. lumps, fines and concentrates. There is no category of calibrated lump ore (CLO). Therefore, while computing the amount of royalty, the mine owner cannot resort to the device of a further process by which character of iron ore lumps were converted from lumps to calibrated lump ore and fines. Although royalty is chargeable on the processed mineral which is removed from the leased area, computation of amount of royalty could only be on the basis of three prescribed categories of the iron ore, which were produced and then dispatched. Deployment of the words "mineral produced" in Rule 64D of MC Rules have to be read with Entry 22 of the Second Schedule to MMDR Act. Since CLO did not find mention in Entry 22, all the mineral which would be classified as lumps have to be treated as lumps for the purpose of computing royalty.
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17. As held in TISCO (supra), even as iron ore cannot be utilized in the ROM stage and needs beneficiation, the rate of royalty, its method of computation and the final levy may be different from mineral to mineral. It was held in the case of coal that its removal from the seam of the mine and extracting the same through the pit's mouth to the surface satisfies the requirement of Section 9 in order to give rise to liability of royalty. Therefore, in the case of iron ore, although royalty may be payable only at the stage when the mineral is removed from the boundaries of the lease area and the computation of royalty may have to await some processing; but computation of the amount of royalty would depend upon the form and grade of iron ore 'produced', simply because the price published by the IBM could be relatable only to the form of iron ore prescribed in Entry 22. Admittedly, in the facts of the present case, IBM had not published any sale price, grade wise and state wise, for CLO. The sale price was published by IBM for iron ore lumps produced by the holder of mine. The holder of mine cannot be legally allowed to compute the amount of royalty after reducing the quantum of lumps and converting part of lumps into fines for the purpose of value addition or otherwise. The process by which such transformation of lumps into fines was sought to be achieved definitely amounted to beneficiation within the meaning of Rule 3(d) of the Mineral Conservation and Development Rules, 1988 and it was stipulated to be not undertaken in the mining plan. Such beneficiation and undertaking of mining operations except in
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accordance with the mining plan also amounted to violation of Rule 22A of the MC Rules, 1960, which was in turn punishable under the provisions of Rule 58 of MCD Rules. In these peculiar facts and circumstances, the maxim nullus commodum capere potest de injuria sua propria, meaning 'no man can take advantage of his own wrong', squarely applies. In Broom's Legal Maxim (10th Edn.) at p.191, it is stated :
"...it is a maxim of law, recognised and established, that no man shall take advantage of his own wrong; and this maxim, which is based on elementary principles, is fully recognised in courts of law and of equity, and, indeed, admits of illustration from every branch of legal procedure."
The petitioner cannot be allowed to secure the assistance of a court of law or equity for enjoying the fruits of their own wrong.
18. Thus, the initial case of the respondents that crushing of iron ore lumps into CLO and fines amounted to "consumption" was then shifted to the alternative argument of the process of crushing amounting to impermissible "beneficiation" or, at least, further processing of iron ore lumps by the petitioner. That argument was supported by the fact that, as observed in reports of the Comptroller & Auditor General, the quantity of input for the crushers remained exactly the same after crushing and only the form of iron ore lumps was partly reduced to fines. 18.1 Opposing such shift in the stand of the respondents, it was vehemently argued by learned Sr. Counsel Shri Salman
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Khurshid that the word "beneficiation" as defined in Rule 3(d) of the MCDR required three processes to occur, cumulatively and not alternatively.
18.2 That argument, however, has to be stated to be rejected in so far as the definition of beneficiation is exhaustive and clearly demarcates three different purposes of processing, each being separated by a semi-colon(;). If "beneficiation" is read and interpreted as processing of ore, which must simultaneously serve three purposes of regulating the size of the desired produce, removing unwanted constituents and improving quality, purity or usability of the product, it would lead to absurd result; because practically no processing may then amount to "beneficiation". Therefore, it is held that if, by any processing, any one of the three purposes were served, the processing would amount to "beneficiation". In the peculiar facts of the present case, if the volume of input and output of iron ore were remaining same, while undergoing the process of crushing, it would necessarily mean that only the proportion of lumps and fines was changed by the process. It was argued on that basis by learned Advocate General Shri S.P. Misra that, what was crushed within the leased area was already processed and beneficiated mineral. Therefore, even if some processing and beneficiation were permissible and necessary before applying the market price as published by IBM, that process was already carried out by the petitioner before crushing took place. He submitted that even if the method and processes adopted by the
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petitioner in crushing iron ore lumps did not amount to beneficiation, it certainly was further processing and not the processing envisaged by Rule 64-B of the MC Rules. 18.3 That argument has to be accepted in view of the composite scheme of levying royalty on iron ore. While Section 9 of the MMDR Act obliges the holder of a mining lease to pay royalty in respect of any mineral removed or consumed, the rate at which royalty has to be paid is specified in the Second Schedule. The Second Schedule classifies iron ore into three forms, viz. lumps, fines and concentrates. Rule 64-B of the MC Rules provides for charging of royalty on the processed mineral removed from the leased area. The processing envisaged in Rule 64-B could be the processing of iron ore by which it is brought into any of the three forms for which royalty is payable under Section 9 of the MMDR Act; and the manner of computation and payment of royalty as provided in Rule 64-D requires as the basis the mineral produced. A conjoint reading of these relevant provisions for levy of royalty cannot accommodate further processing of the iron ore in any of three forms.
18.4 Rule 64-B and Rule 64-D of MC Rules have to be harmoniously read with Section 9 of the MMDR Act so as not to allow any particular form of iron ore to escape royalty at the prescribed rate by its conversion into another form i.e. from lumps to fines. Charging and computation of royalty on these lines will not be inconsistent with the basic premise that royalty is payable on
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mineral removed or consumed from the leased area, because ultimately the iron ore in the form of lumps and fines would be removed from the leased area after royalty being computed on the basis of the mineral produced in the leased area. In other words, when the mineral is already produced in the form in which it is classified in Entry-22 and the royalty could be computed as prescribed, it's actual levy may have to await till the mineral leaves the boundary of the leased area. But, any change in the form of that mineral by any further process has to be ignored for computation of the amount of royalty.
19. In view of the above discussion and analysis of the peculiar issues arising in the facts of the present case, the prayers of the petitioner cannot be granted, since the method of calculation of royalty and demand of the additional amount of royalty by the State, and the impugned circulars issued for that purpose appear to be legal and justified. Consequently, the petition is required to be dismissed and it is accordingly dismissed without any order as to costs.
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CHIEF JUSTICE ..................................
BISWANATH RATH, J.
Orissa High Court, Cuttack The 16th day of December, 2015/D.Moharana