STATE.OF H.P. AND ORS. v. GUJARAT AMBUJA CEMENT LTD. AND ANR.

Timber Contracts in respect of a particular felling season only. It is an agreement for a long period extending to fourteen years, thirteen years and eleven years with respect to different contract areas with an option to the respondent company to renew the contract for a further term of twelve years and it embraces not only bamboos which are in existence at the date of the contract but also bamboos which are to grow and come into existence thereafter. The payment of royalty under the Bamboo Contract has no relation to the actual quantity of bamboos cut and removed. Further, the respondent Company is bound to pay a minimum royalty and the amount of royalty to be paid by it is always to be in excess of the royalty due on the bamboos cut in the contract area. c

103. We may pause here to note what the Judicial Committee of the Privy Council had to say in the case of Raja Bahadur Kamakshya Narain Singh of Ramgarh v. C. I. T, Bihar and Orissa, (1943) 11 ITR 513 (PC) about the payment of minimum royalty under a coal mining lease. The question in that case was whether the annual amounts D payable by way of minimum royalty to the lessor were in his hands capital receipt or revenue receipt. The Judicial Committee held that it was an income flowing from the covenant in the lease. While discussmg this question, the Judicial committee said (at pages 522-3) :

These are periodical payments, to be made by the lessee under . E his covenants in consideration of the benefits which he is granted by the lessor. What these benefits may be is shown by the extract from the lease quoted above, which illustrates how inadequate and fallacious it is to envisage the royalties as merely the price of the actual tons of coal. The tonnage royalty is ind!:!ed only payable when the coal or coke is gotten and dispatched : F but that is merely the last stage. As preliminary and ancillary to that culminating act, liberties are granted to enter on the land and search, to dig and sink pits, to erect engines and machinery, coke ovens, furnaces and form railways and roads. All these and the like liberties show how fallacious it is to treat the lease as merely G one for the acquisition of a certain number of tons of coal, or the agreed item of royalty as merely the price of each ton of coal.

Though the case before the Judicial Committee was of a lease of a coal-mine and we have before us the case of a grant for the purpose of felling, cutting and removing bamboos with various other rights H

720 SUPREME COURT REPORTS (2005] SUPP. I S.C.R. '~-= A and licences ancillary thereto, the above observations of the Judicial Committee are very pertinent and apposite to what we have to decide.

xxx xxx

120. It is true that the nomenclature and description given to a contract is not determinative of the real nature of the document or of B the transaction thereunder. They, however, have to be determined from all the terms and clauses of the document and all the rights and results flowing therefrom and not by picking and choosing certain clauses and the ultimate effect or result as the Court did in the Orient Paper Mills case. c xxx

127. Conclusions:

To summarize our conclusions :

D xxx

(9) The dictionary meaning of a word cannot be looked at where· that word has been statutorily defined or judicially interpreted but where there is no such definition or interpretation, the court may take the aid ,. I

of dictionaries to ascertain the meaning of a word in common parlance, E bearing in mind that a word is used in different senses according to its context and a dictionary gives all the meanings of a word, and the court has, therefore, to select the particular meaning which is relevant to the context in which it has to interpret that word.

xxx .. I ..

F (16) Being a benefit to arise out of land, any attempt on the part of the State Government to tax the amounts payable under the Bamboo Contract would be not only ultra vires the Orissa Act but also unconstitutional as being beyond the State's taxing power under Entry 45 in List II in the Seventh Schedule to the Constitution of G India.

(17) The case of Firm Chhotabhai Jethabai Patel & Co. v. State of M P., [1953] SCR 476 is not good law and has been overruled by decisions of larger benches of this Court as pointed out by this Court is State of M P. v. Yakinuddin, AIR (1962) SC 1916. H

STATE OF H.P. v. GUJARAT AM BUJA CEMENT LTD. [PASA YAT, J.) 721 ;, (18) The case of State ofM P. v. Orient Paper Mill Ltd, [1977] 2 SCC A 77 is also not good law as that decision was given per incuriam and laid down principles of interpretation which are wrong in law."

~ ln Cooch-Behar Contractors' Association and Ors. v. State of West Bengal and Ors., [1996] IO SCC 380, a two-Judge Bench of this Court followed Orient Paper Mills Ltd, case (supra), and held that in view of the decision B of this Court in Orient Paper Mills Ltd, case (supra), payment of royalty amounts to payment of price for the goods obtained from the government departments and used in the works contract. Unfortunately, the subsequent ~ judgment of a larger Bench in Titagurh Paper Mill~. case (supra) does not appear to have been cited. That being so, this decision does not lay down the correct position and is overruled. c 'Royalty' is not a term used in legal parlance for the price of the goods sold. It is 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 as held in Titaghur Paper Mills Co. Ltd. case (supra). D In its primary and natural sense 'royalty' in the legal world, is known as the equivalent or translation of 'jura regalia' or 'jura regin'. Royal rights and prerogatives of a sovereign are covered thereunder. In , its secondary sense, the word 'roya_lty' would signify, as in mining leases, that part of the reddendum, variable though, payable in cash or kind, for rights and privileges obtained. (See Inderjeet Singh Sia/ and Anr. v. Karam Chand Thapar and Ors., [1995] 6 SCC 166).

'Royalty' is not a tax. Simply because the royalty is levied by reference to the quantity of the minerals produced and the impugned cess too is quantified by taking into consideration the same quantity_ of the mineral produced, the latter does not become royalty.. The former is the rent of the land on which the mine is situated or the price of the privilege of winning the r f minerals from the land parted by the government in favour of the mining 1 lessee. The cess is a levy on mineral rights with impact on the land and quantified by reference to the quantum of mineral produced. The distinction, though fine, yet exists and is perceptible. (See The State of West Bengal and Anr. v. Kesoram Industries Ltd. and Ors., JT (2004) I SC 375).

Though Section 9 refers to "mineral removed" it does not mean that the royalty is paid on removal. It is print of payability. Royalty in the context of

....i, the agreement is an alternate to dead rent. Section 9 speaks of rates of royalty. H

722 SUPREME COURT REPORTS [2005] SUPP. I S.C.R. ... J

A It is nothing but measure of levy. The charging of dead rent and royalty is under different situations. It is shifting of the measure. Both "dead rent" and "royalty" are returns to the lessor. The stand of appellant that under Section

B 9 of the Minerals Act royalty is a payment in respect of any mineral removed or consumed or ~hat royalty is a money consideration for transfer of property is clearly untenable. in view of the analysis made above. - A mining lease is an interest in immovable property. The extraction and removal of minerals is essentially an extension of the enjoyment of immovable property. As noted in Titagarh Paper Mill's case (supra) the right conferred by the lease deed to extract and remove the minerals is a profit a prendre. c It will be useful to know the meaning of the expressions "dead rent" and "royalty" and their connotation. Wharton's Law Lexicon, 14th Edn., at p. 300, defines "dead rent" as :

Dead Rent - A rent payable on a mining lease in addition to a royalty, so called because it is payable whether the mine is being worked or not.

The definition of ,"dead rent" given in Black's Law Dictionary, 5th ed., at p. 359, is as follows:

Dead Rent. - In English law, a rent pa~ able on a mining lease in addition to a royalty, so called because it is payable altho~gh the mine may not be worked.

Jowitt's Dictionary of English Law, 2nd Edn., at p. 555, defined "dead rent" as :

F 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 :

G When a mine, quarry, brick-works, or similar property is leased, the lessor usually reserves not only a fixed yearly rent but also a c:: I 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.

H "Royalty" is defined in Jowitt's Dictionary of English Law, 2nd ed., at / r'

STATE OF H.P. v. GUJARAT AM BUJA CEMENT LTD. [PASAYAT, J.] 723

p. 1595, inter alia, as : A 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. B "Royalty" is defined in Wharton's 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 Black's 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....... F In H. R. S. Murthyv. CollectorofChittoorandAnr., AIR(1965) SC 177, this Court said that "royalty" normally connotes the payment made for the materials or minerals won from the land.

In Halsbury's Laws of England, 4th Edn. in the volume which deals with G "Mines, Minerals and Quarri~f, namely, volume 31, it is stated in paragraph 224 as follows: ·

224. Rents and royalties. An agreement for a lease usually contains stipulations as to the dead rents and other rent and royalties to be H

724 SUPREME COURT REPORTS [2005] SUPP. 1 S.C.R.

A reserved by, and the covenants and provisions to be inserted in, the lease .....

The topics same of dead rent and royalties are dealt with in Halsbury's Laws of England in the same volume under the sub-heading "Consideration", the main heading being "Property demised; Consideration". Paragraph 235 B deals with "dead rent" and paragraph 236 with "royalties". The relevant passages are as follows:

235Copy pinpoint235. Dead rent. It is usual in mining lease to reserve both a fixed annual rent (otherwise known as a "dead rent", "minimum rent" or "certain rent") and royalties varying with the amount of minerals c worked. The object of the fixed rent is to ensure that the lessee will work the mine; but it is sometimes ineffective for that purpose. Another function of the fixed relit is to ensure a definite minimum income to the lessor in respect of the demise.

If a fixed rent is reserved, it is payable until the expiration of the tertn even though the mine is not worked, or is exhausted during the currency of the term, or is not worth working, or is difficult or unprofitable to work owing to faults or accidents, or even if the demised seam proves to be non-existent.

236Copy pinpoint236. 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 ofHalsbury's Laws of England it is stated :

238Copy pinpoint238. Covenant to pay rent and royalties. Nearly every mining lease contains a covenant by the lessee for payment of the specified rent and royalties.

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 H

STATE OF H.P. v. GUJARAT AMBUJACEMENTLTD. [PASAYAT,J.] 725

implied, or in perpetuity, in consideration ofa 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."

The decision of this Court in D.K. Trivedi & Sons and Ors. v. State of Gujarat and Ors., [ 1986] Supp SCC 20 is a complete answer to the plea raised by learned counsel for the appellate-State. It was, inter a/ia, held in that case as follows: (The relevant paras are quoted).

"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 D I 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 income, whether the mine is 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. In fact, clause (ix) of Rule 3 of the Rajasthan Minor Mineral Concession Rules, 1977, defines "dead rent" as meaning "the minimum guaranteed amount of royalty per year payable as per rules or agreement under a mining lease". Stipulations H

726 . SUPREME COURT REPORTS [200S] SUPP. I S.C.R.

A providing for the lessee's liability to pay surface rent, dead rent and royalty to the lessor are the usual covenants to be found in a mining lease.

54. As pointed out earlier, since dead rent is the minimum guaranteed amount of royalty and partakes of the nature of royalty, what, therefore, B applies to royalty must necessarily apply or should be made applicable dead rent also. The proviso to Section 9(3) prohibits the Central Government from enhancing the rate of royalty in respect of any mineral other than a minor mineral more than once during any period of four years. The proviso to Section 9-A(2) also prohibits the Central Government from enhancing the dead rent in respect of any area more c than once during any period of four years. Halsbury's Laws of England, 4th Edn., volume 31, paragraph 236, points out that "usually the royalties are made to merge in the fixed rent by means of a provision that the lessee, without any additional payment, may work, in each period for which a payment of fixed rent is made, so much of the minerals as would, at the royalties reserved, produce a sum equal to the fixed rent". The same purpose is achieved by the proviso to / Section 9-A(l) and in the Mineral Concession Rules, 1960, by the proviso to clause (c) of Rule 27 under which the lessee is liable to pay the dead rent or royalty in respect of each mineral, whichever be higher in amount, but not both. In all State rules which provide for payment of both dead rent and royalty, there is a provision that only dead rent or royalty, whichever is higher in amount, is to be paid, but not both. Rules made under the 1948 Act, as for example, Rule 41 of the Mineral Concession Rules, 1949, and Rule 18 of the Bombay Mineral Extraction Rules, 1955, also. contained a similar provision. F Thus,. the practice followed throughout in exercising the power to make rules regulating the grant of mining leases has been to provide that either dead rent or royalty, whichever is higher in amount, should be paid by the lessee, but not both."

Following paras in Halsbury's Laws of England (Fourth Edition) 2003 G Re-issues need to be noted: Para 32 I: Nature of mining lease. A lease may be granted of land or any part of land, and since minerals are a part of the land it follows that a lease can be granted of the surface of the land and the minerals below, or of the surface alone, or of the minerals alone. It has been H said that a contract for the working and getting of minerals, although

STATE OF H.P. v. GUJARAT AMBUJACEMENTLTD. [PASAYAT,J.) 727

for convenience called a mining lease, is not in reality a lease at all A . in the sense in which one speaks of an agricultural lease, and that such a contract, property considered, is really a sale of a portion of. the land at a price payable by instalments, that is, by way of rent orroyalty, spread over a number of years.

Para 322: Statutory definitions of 'mining lease. ' In the Law of B Property Act, 1925, 'mining lease' means a lease for mining purpose, that is, the searching for, winning, working, getting, making merchantable, carrying away or disposing of mines and minerals, or connected purposes, and includes a grant or licence for mining purposes; and 'lease' includes an underlease or other tenancy. c In the Settled Land Act 1925 and the Landlord and Tenant Act 1927, 'mining lease' means a lease for any mining purpose or connected purposes, and 'mining ·purposes' includes the sinking and searching for, winning, working, getting, making merchantable, smelting or otherwise converting or working for the purposes of any manufacture, / carrying away and disposing of mines and minerals, in or under land, D and the erection of buildings and the execution of engineering and other works suitable for those purposes.

'Mining lease' is also defined for the purposes of the Opencast Coal Act 1958, whilst 'coal-mining lease', 'lease' and 'mine of coal' E were all defined for the purposes of the Coal Act 1938.

Para 323:Rents and royalties. An agreement for a lease usually contains stipulation 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, but the omission to provide for the payment of a dead F rent does not render the agreement so inequitable as to be unenforceable.

Rent and royalties are true rents in the sense that they are incident to the reversion, but periodical payments under a lease of mines for a specific period may amount to personal debts only. G A lessee who goes into possession and works minerals before completion of the lease may be ordered on interim application to pay into Court the amount of royalties due in respect of minerals raised.

Para 324: Usual provisions in leases- The statutory formalities regarding H

728 SUPREME COURT REPORTS [2005] SUPP. I S.C.R.

A the disposition of an interest in land will apply to a contract for a mining lease. In a contract for a lease for' working a mine, time is of the essence of the contract even if not expressly stated to be so. Mining leases usually contain clauses providing for the reference of dispute to arbitration or determination +- by an expert where the value of the minerals gotten is in dispute."

B Relevant clauses in the Lease Deed dated 28.5.19923 also need to be quoted. They read ·as follows: '·

xxx

Part V : RENT AND ROYALTIES RESERVED BY THE LEASE c I. To pay dead rent or lease whichever is higher.

The lessee shall pay, for every year except the first year of the lease, deed rent as specified in clause 2 of this part:

Provided that, where the holder of such mining lease becomes D liable under Section 9 of the Act, to pay royalty for any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area, he shall be liable to pay either such royalty or the deed rent in respect of that area, whichever is higher.

E 2. Rate and mode of payment of dead rent:

Subject to the provisions of clause I of this ·Part, during ·the subsistence of the lease, the lessee shall pay to the State Government annual deed rent for the lands demised and described in Part I of this Schedule at the rate for the time being specified in the Third Schedule F to the Act in such manner as may be specified in this behalf by the State Government.

3. Rate and mode of payment of royalty:

Subject to the provision of clause I of this Part, the lessee shall, G during the substance of this issue, pay to the State Government at such times and in such manner, as the State Government may prescribe in respect of any minerals removed by him from the leased area at the rate for the time being specified in the Second Schedule to the Mines and.Minerals (Regulation and Development) Act, 1957.

STATE OF H.P. v. GUJARAT AMBUJACEMENTLTD. [PASAYAT,J.] 729

4. Payment of surface rent and water rate A The lessee shall pay rent and water rate to the State Government in respect of all parts of the surface of the said lands which shall from time to time, be occupied or used by the lessee unde·r the authority of these pres~nts at the rates as assessed by the Deputy Commissioner per hectare of the area so occupied or used and so in proportion for B any area less than a hectare during the period from the commencement of such occupation or use until the area shall cease to be so occupied or used and shall as far as possible restore the surface lands so used to its original condition. Surface rent and water rate shall be paid as hereinbefore detailed in clause 2: PROVIDED THAT NO such rent/ C water rate shall be payable, in respect of the occupation and use of the area comprised in any roads or ways to which the public have full right of access".

Civil Appeal Nos.3744-46 of 2000

These -appeals are concerned so far as the issue regarding liability to D pay purchase tax on royalty has been dealt with in detail in the connected Civil Appeal Nos. 2641-42 of 2000 (State of Himachal Pradesh and Ors. v. Mis Gujarat Ambuja Cement Ltd and Ors.,) Following the view expressed therein, these appeals deserve dismissal which we direct. E The appeals are dismissed subject to the aforesaid observations with no order as to costs.

v.s.s. Appeal allowed.