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High Court of Karnataka
R.V.Raveendran, J.
R.Pampapathi - Appellant
Versus
State of Karnataka – Respondent
W.P. 35525 Of 1993
Decided On : Jul 02, 1996
Mining Leases - Forest Development Tax - Mines and Minerals (Regulation and Development) Act, 1956 - [KEYWORD] - [SUBJECT] - [ACT SECTION LIST] - The court considered the statutory and contractual provisions relating to 'mining leases' to find out whether they are transactions under which the State Government disposes by sale or otherwise, for consideration, minerals which are forest produce. The court concluded that the extraction of minerals from the leased area by the lessee, by deploying men and machinery and removal thereof cannot be considered as sale or disposal of such minerals by the State Government. The court also referred to previous decisions to support the conclusion that a mining lease is a lease and does not involve the sale of minerals nor a transaction disposing minerals. Therefore, forest development tax cannot be levied or collected under Section 98-A of the Forest Act in regard to the ore/mineral that is extracted by the petitioners from the leased lands under mining leases granted by the State Government.
Fact of the Case:
The Petitioners obtained mining leases from the State Government for the extraction of Iron/Manganese Ore in forest areas. The jurisdictional Senior Geologists demanded the Petitioners to pay Forest Development Tax under Section 98A of the Karnataka Forest Act, 1963 from 1.4.1992 at the rate of Eight per cent per annum on the royalty amount paid by the Petitioners to the Department of Mines and Geology. The Petitioners contended that such tax is not payable by them and filed petitions for reliefs including a declaration that the forest development tax is not leviable on royalty payable in regard to mining leases to the State government under the provisions of the Central Act.
Finding of the Court:
The court found that forest development tax cannot be levied or collected under Section 98-A of the Forest Act in regard to the ore/mineral that is extracted by the petitioners from the leased lands under mining leases granted by the State Government.
Issues: The issues considered by the court were: (i) Whether the grant of mining leases in the lands belonging to Government under the M.M.R.D. Act would amount to disposal by sale or otherwise of minerals, by the State Government and whether the amount paid as royalty is 'consideration' paid for such disposal by sale or otherwise. (ii) Whether the State has legislative competence to levy forest development tax on the royalty amount paid by the Lessees to the State Government in regard to the mining leases granted under the M.M.R.D. Act. (iii) If the levy is invalid, whether such declaration should be given effect only prospectively.
Ratio Decidendi: The court concluded that the extraction of minerals from the leased area by the lessee cannot be considered as sale or disposal of such minerals by the State Government. The court also referred to previous decisions to support the conclusion that a mining lease is a lease and does not involve the sale of minerals nor a transaction disposing minerals. Therefore, forest development tax cannot be levied or collected under Section 98-A of the Forest Act in regard to the ore/mineral that is extracted by the petitioners from the leased lands under mining leases granted by the State Government.
Final Decision: The court declared that the Forest Development Tax under Section 98-A of Karnataka Forest Act, 1963 is not leviable on royalty payable to the State Government in regard to mining leases under the provisions of the Mines and Minerals (Regulation and Development) Act (Act 67 of 1957). The respondents were restrained from demanding or collecting Forest Development Tax under Section 98-A of the Karnataka Forest Act, 1963, from petitioners, on royalty paid by them in regard to mining leases. The Notices issued by the respective senior Geologists to the petitioners demanding payment of forest development tax were quashed, and wherever the respondents have collected any amount as Forest Development Tax from the petitioners, the same shall be refunded to them.
R.V.Raveendran, J.
1. The Petitioners have obtained mining leases from the State Government in regard to the mines, beds, veins and seams of Iron/Manganese Ore in the lands leased to them, situated in forest areas. The petitioners, as lessees, are liable to pay annual dead rent at the rates specified in the Lease Deeds or Royalty on the ore removed by them from the leased area, as prescribed in the Second Schedule to the Mines and Minerals (Regulation and Development) Act, 1956 (hereinafter referred to as the MMRD Act or the Central Act) whichever is higher in amount, but not both. By notices issued in the years 1992 and 1993, the jurisdictional Senior Geologists of the Mines and Geology Department, have called upon the Petitioners to pay Forest Development Tax under Section 98A of the Karnataka Forest Act, 1963 (hereinafter referred to as the "Forest Act" or 'State Act') from 1.4.1992 at the rate of Eight per cent per annum on the royalty amount paid by the Petitioners to the Department of Mines and Geology.
2. The Petitioners contend that such tax is not payable by them, in regard to the royalty paid on the mineral removed by them from the leased area, in view of the following:
(a) the grant of a mining lease for extraction of mineral from the leased land, subject to payment of royalty on the mineral removed, does not amount to disposal of forest produce by the State Government by sale or otherwise; and payment of royalty is not payment of consideration for disposal by sale or otherwise, but is a tax paid on the mineral won from the land; and therefore Section 98A of the Forest Act is not attracted;
(b) the State Legislature has no legislative competence to levy any forest development tax on royalty payable in respect of a mining lease granted under the MMRD Act as (i) the entire field relating to grant of mining leases and levy and collection of royalty is covered by the MMRD Act; and (ii) levy of any tax on royalty would result in the increase of royalty payable under the MMRD Act and therefore violate Section 9(2) of the MMRD Act.
The petitioners have therefore filed these petitions for the following reliefs; (a) Declaration that the forest development tax is not leviable on royalty payable in regard to mining leases to the State government under the provisions of the Central Act; (b) To restrain the Respondents from demanding or collecting forest development tax on royalty amount under Section 98A of the Forest Act, as the said Section is inapplicable; (c) For quashing the notices issued by the Senior Geologists demanding payment of Forest development tax and for a direction to the Respondents to refund the forest development tax, if any, collected from them. Some of the Petitioners have also sought a declaration that Section 98A of the Karnataka Forest Act, if it purports to levy any forest development tax on royalty payable on minerals, is unconstitutional.
3. The Respondents contend that minerals and products of mines and quarries are forest produce as defined in Section 2(7) of the State Act; and grant of mining leases by State Government to the Petitioners to mine, recover and remove minerals from the leased lands belonging to State Government amounts to disposal by 'sale or otherwise' of the iron/manganese ore belonging to State Government; and royalty paid by the Petitioners to State Government is nothing but consideration for the mineral that is recovered and removed from the leased lands; and even if royalty is tax, it does not cease to be consideration. It is contended that, under the transaction between the State Government and the petitioners, the petitioners mine and remove the ore/minerals and the State does not retain any right in regard to such minerals, and therefore the transaction in so far as minerals so removed, is sale and not a lease. It is contended that grant of a mining lease is a sale of minerals (forest produce) by the State under Rule 85(1)(iii) of Karnataka Forest Rules, 1969; and even
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