JUDGMENT
K.C. Sood, J.
1. The question raised in this petition is whether the respondent No. 1 State of Himachal Pradesh is competent to levy sales tax on the royalty payable by the Petitioner, a lessee, for the extraction of the mineral, i.e., lime stone in this case under the Himachal Pradesh General Sales Tax Act?
2. In order to appreciate the controversy, relevant facts may be noticed:
3. Petitioner Cement Corporation of India is a Company incorporated under the Companies Act and is a registered dealer under the Himachal Pradesh General Sales Tax Act, 1968 as well as Central Sales Tax Act, 1956. The petitioner company manufactures cement and for that purpose, use lime stone as raw material in large quantities. The petitioner took a lease of about 794 Hects. land in village Manal and other adjoining areas under the provisions of Mines and Minerals (Development and Regulation) Act, 1957 read with Mineral Concession Rules, 1960. Under the mining lease, the petitioner is to pay royalty to the respondent-State for the lime stone extracted by the Company. The Mining Officer, respondent No. 4, raised demand for the sales tax on the amount of royalty paid/payable by the petitioner in respect of the lime stone extracted by the Company for the manufacture of cement by his communication dated April 27, 2004 (Annexure P2/A) informing the petitioner that the sales tax on royalty payable on lime stone shall be paid by the Company regularly and if there is any order passed by this Court to the effect that no sales tax is payable on the royalty on lime stone, then the Company should send a copy of the same to his office.
4. The case of the petitioner is that the mining operation in the land to extract the mineral and to appropriate the same is a right to enjoy immovable property under the Transfer of Property Act and, therefore, the State Government has no jurisdiction to levy, charge or collect the sales tax under the Himachal Pradesh General Sales Tax Act.
5. The State Government in its return maintains that the State Government is competent to levy the sales tax under the H.P. General Sales Tax Act, 1968 on the transfer of goods from one person or other for cash or deferred payment, which would be royalty in the present case, even if the transfer is occasioned other than a contract for sale and irrespective of the lease deed. The contention is that the royalty paid by the petitioner to respondent No. 3 is in fact a sale price which attracts the sales tax.
6. Heard M.M. Khanna, learned Senior Counsel for the petitioner and Mr. M.S. Chandel, learned Advocate General.
7. The question raised in this petition is no longer res integra. The Apex Court in State of Orissa and Ors. v. Titaghur Paper Mills Co. Ltd. and Anr. 1985 (Supp.) SCC 280, observed :
102. Royalty is not a term used in legal parlance for the price of goods sold. ‘Royalty’ is defined in Jowitt’s Dictionary of English Law, Fifth Edition, Vol. 2, page 1595 as follows :
Royalty, 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. It is usually a payment of money, but may be a payment in kind, that is, a part of the produce of the exercise of right.
Royalty also means a payment which is made to an author or composer by a publisher in respect of each copy of his work which is sold, or to an inventor in respect of each article sold under the patent.
(Emphasis given)
8. The Apex Court in State of H.P. and Ors. v. Gujarat Ambuja Cement Ltd. and Anr. , held that the mining lease is an interest in immovable property and the royalty paid cannot be subjected to sales tax. The following observations are apposite :
43. 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 Titaghur Paper Mill’s case (supra) the right conferred by the lease deed to extract and remove the minerals is a profit of prendre.
44. 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.
45. 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 payable on a mining lease in addition to a royalty, so called because it is payable although the mine may not be worked.
48. “Royalty” is defined in Jowitt’s Dictionary of English law, 3rd Ed. 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.
49. “Royalty” is defined in Wharton’s Law Lexicon, 14th Edn. at p. 893, as:
Royalty, payment to 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.
xxx xxxx
56. The decision of this Court in D.K. Trivedi & Sons and Ors. v. State of Gujarat and Ors., is a complete answer to the plea raised by learned Counsel, for the appellant-State. It was, inter alia, 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), deed 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 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 quality so extracted. Such payment is called “royalty”. It may, however, be that the mine is not worked property so as not to yield enough return income, or the mine is worked property 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 miner is worked or not, a fixed amount is provided to be paid to him by the lessee. This 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, defined “dead rent” as meaning “the minimum guaranteed amount of royalty per year payable as per rules or agreement under a mining lease”. Stipulations 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, applies to royalty must necessarily apply or should be made applicable to 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 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(1) 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. 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.
9. The royalty paid by the Petitioner company cannot be said to be sale price of the mineral extracted by the Company and therefore in our view Royalty is not subject to sales tax under the provisions of H.P. General Sales Tax Act.
10. In Gujarat Ambuja (supra), the High Court held that royalty paid did not attract levy of purchase tax or sales tax. Dismissing the appeals of the State, the Apex Court held that the High Court was justified in holding that the royalty paid by the respondent Company did not attract the purchase tax and the contention of the State was rejected.
11. To conclude, the action of the respondents in levying the sales tax on the amount of royalty paid by the petitioner Company to the State Government is illegal and without jurisdiction.
12. In result, the writ petition is allowed and the letter of the District Mining Officer addressed to the Deputy General Manager (Marketing) of the Petitioner company for payment of sales tax and royalty on the lime stone extracted (Annexure P2/A) being illegal and without jurisdiction is quashed.
No costs.
