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REPORTABLE                                              

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL   APPEAL NO. 1494 OF 2008   

State of Rajasthan & Ors.          .....APPELLANTS

        VERSUS

Hindustan Zinc Ltd. & Anr.           ....RESPONDENTS

WITH

CIVIL   APPEAL NO. 1526 OF 2008   

J U D G M E N T

ANIL R. DAVE, J.

1. Being  aggrieved  by  the  judgment  dated  6th July,  2007  

delivered by the High Court  of Rajasthan in  D.B. Civil  Special  

Appeal  No.43  of  2006,  the  afore-stated  two  appeals  have  been  

filed.  One appeal has been filed by the State of Rajasthan whereas  

the other appeal has been filed by Hindustan Zinc Limited, who  

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had been leased land situated in districts Bhilwara, Rajsamand and  

Udaipur by the State of Rajasthan for extraction of lead and zinc  

therefrom.

2. As both the appeals arise from a common judgment, at the  

request  of  the  learned  counsel,  both  the  appeals  were  heard  

together.  So far as the appeal filed by the State of Rajasthan, viz.  

Civil Appeal No. 1494 of 2008 is concerned, it mainly challenges  

the  impugned  judgment  on  the  ground  that  by  virtue  of  

methodology directed to be employed in the said judgment,  the  

State  would  suffer  substantial  loss  as  the  lessee  company,  viz.  

Hindustan Zinc Limited would be paying much less royalty than  

what it is supposed to pay.

3.  On  the  other  hand,  an  appeal  has  also  been  filed  by  

Hindustan Zinc Limited as it has been aggrieved by the direction  

issued by the High Court, whereby the amount of royalty has been  

directed to be re-calculated.

4. As  Civil  Appeal  No.  1494  of  2008  filed  by  the  State  of  

Rajasthan is the main appeal, we would like to deal with the said  

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appeal at the first instance and, thereafter we would deal with the  

appeal filed by  Hindustan Zinc Limited i.e. Civil Appeal No. 1526  

of 2008.  

Civil Appeal No. 1494 of 2008

5. The  appellant-State  and  the  State  Authorities  have  been  

aggrieved by the impugned order whereby the additional demand  

raised  under  notice  dated  24th December,  2001  and  subsequent  

notices issued by the State for recovery of royalty in respect of the  

lead  and  zinc  extracted  by  the  respondent-company  had  been  

quashed by the learned Single Judge of the Rajasthan High Court  

and the order of the learned Single Judge was confirmed by the  

Division Bench in the appeal filed before it.    After hearing the  

concerned  learned  advocates  appearing  for  the  State  and  the  

respondent-company,  the  learned  Single  Judge had come to  the  

conclusion that the impugned notices, whereby additional amount  

was demanded,  were bad in law and therefore,  the petition was  

allowed and the impugned notices dated 22nd December, 2001, 24th  

December, 2001 and 4th January, 2002 had been quashed.  It may  

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also  be  stated  here  that  the  afore-stated  notices  had  been  

challenged  by  the  respondent-company  initially  before  the  

revisional  authority  under  the  Mineral  Concession  Rules,  1960,  

which had confirmed the validity of the said notices and therefore,  

the order passed by the revisional authority dated 2nd July, 2003,  

whereby the validity of the impugned notices had been upheld, was  

also quashed and set aside.   

6. The facts giving rise to the issue in question, in a nutshell, are  

as under:

7. The respondent-company had been leased land in the areas of  

District  Bhilwara,  Rajsamand  and  Udaipur  for  the  purpose  of  

extracting lead and zinc therefrom under the provisions of Mines  

and Minerals (Development and Regulation) Act, 1957 (hereinafter  

referred  to  as  ‘the  Act’).   Section 9 of  the  Act  is  the  charging  

section, which enables the State to recover royalty in respect of the  

minerals extracted by the holder of a mining lease.  The Mineral  

Concession  Rules,  1960  (hereinafter  referred  to  as  ‘the  Rules’)  

have  been  framed  in  exercise  of  the  powers  conferred  under  

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Section 13 of the Act.  Rules 64A, 64B, 64C & 64D of the Rules  

are relevant Rules, which pertain to calculation of the amount of  

royalty payable by the holder of the lease in respect of the minerals  

extracted from the land leased to the holder of the mining lease.

8. From time to time, the Government had issued Notifications  

determining the rate at which royalty was to be paid by the holder  

of the lease in respect of the minerals  extracted.   In the instant  

case,  we are concerned with two minerals:  lead and zinc.  Two  

Notifications are relevant for the purpose of determining the issue  

involved  in  these  appeals.  Under  Notification  dated  11th April,  

1997, by virtue of item nos. 22 and 41 incorporated in the said  

Notification,  royalty  in  respect  of  the  afore-stated  two minerals  

was to be paid as under:

Item No. 22 4% of London  metal exchange Lead concentrate metal price on ad valorem basis

Chargeable    per     tonne     of  concentrate produced.

Item No. 41 3.5% of London metal exchange Zinc concentrate metal  price on ad valorem  basis

Chargeable  per  tonne  of  concentrate produced.

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9. Thereafter,  by  virtue  of  another  Notification  dated    12th  

September,  2000,  substituting  the  Notification  dated  11th April,  

1997,   royalty  in  respect  of  the  afore-stated  two  minerals  was  

payable as under:

Item No. 25 5% of  London  metal   exchange Lead lead  metal  price  chargeable  on  

the  contained  lead  metal  in  ore  produced.

Item No. 50 6.6% of  London metal exchange Zinc Zinc metal  price  on ad valorem  

basis  chargeable  on  contained  zinc metal in ore produced.

10. By  virtue  of  the  afore-stated  Notification  dated  12th  

September,  2000,  the  manner  in  which  the  royalty  was  to  be  

calculated had been changed.

11.  Formerly  the  royalty  was  to  be  charged  on  the  basis  of  

mineral  concentrate  produced  but  by  virtue  of  the  Notification  

dated 12th September, 2000, royalty is now to be charged on ad  

valorem basis on the contents of metal found in the ore produced.

12. According to the appellant-State, the respondent-lease holder  

was supposed to pay the royalty on the entire mineral  extracted  

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from the earth and accordingly the impugned notices were issued  

to the respondent for recovery of difference of royalty.

13. On the other hand, the case of the respondent-company was  

that the royalty was chargeable only on the contents of lead and  

zinc  metal  in  the  ore  produced  because,  by  virtue  of  the  

Notification issued in 2000, the respondent-company was supposed  

to pay royalty only on the contents of lead or zinc, as the case may  

be, contained in the ore produced.

14. As stated hereinabove,  the demand made by the appellant-

State  under  the  impugned  notices  had  been  upheld  by  the  

revisional authority but the same had been quashed by the High  

Court when the order of the revisional authority was challenged  

before the learned Single Judge of the High Court and the view of  

the  learned  Single  Judge  had  been  upheld  by  virtue  of  the  

impugned order passed by the Division Bench.

15. The  learned  counsel  appearing  for  the  appellant-State  

submitted that the High Court committed an error in interpreting  

provisions of the Rule 64A, 64B and 64C of the Rules read with  

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the Notification dated 12th September, 2000 issued by the Central  

Government.

16. The  sum  and  substance  of  the  submissions  made  by  the  

learned  senior  counsel  appearing  for  the  appellant  was  that  the  

royalty  ought  to  have  been  charged  on  the  basis  of  the  metal  

contained in the ore produced so as to give effect to the provisions  

of Section 9 and the Second Schedule to the Act read with Rules  

64B, 64C and 64D of the Rules.    

17. According  to  the  learned  counsel,  the  contention  of  the  

respondent,  that  unless  the  ores  are  taken  out  of  the  leased  

premises, the royalty would not be leviable, is not correct because  

processing the ore would also amount to consumption of the ores  

and therefore, even if the said ores are not physically taken out of  

the leased area, the royalty will have to be paid on the contents of  

lead and zinc contained in the ore.

18. He further submitted that the methodology approved by the  

High Court would amount to re-writing the provisions with regard  

to computation and calculation of royalty.

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19. He further submitted that the amount of royalty demanded by  

the  appellant-State  from  the  respondent-company  was  just  and  

proper  and  therefore,  the  order  passed  by  the  High  Court  be  

quashed and set aside.  So as to substantiate his submissions, he  

relied  upon  the  judgment  delivered  by  this  Court  in  State  of  

Orissa & Ors. v.  M/s. Steel Authority of India Ltd. [(1998) 6  

SCC 476].

20. On the other hand, the learned senior counsel appearing for  

the respondent-company vehemently supported the reasons given  

by  the  High  Court  whereby  the  High  Court  has  held  that  the  

respondent-company was not liable to pay royalty on the tailings as  

they had not been taken out of the leased area.  Relying upon the  

judgment  delivered  in  National  Mineral  Development  

Corporation  Limited v.  State  of  Madhya  Pradesh  &  Anr.  

[(2004) 6 SCC 281], the High Court had further held that as per the  

provisions of Rule 64C of the Rules,  unless dumped tailings or  

rejects are consumed by the lessee, no royalty can be collected on  

such tailings or rejects.

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21. The  learned  senior  counsel  appearing  for  the  respondent-

company mainly submitted that the negligible contents of lead and  

zinc contained in tailings, which is not taken out of the leased area  

and which is dumped within the leased area, can never be taken  

into account for the purpose of calculating royalty for the reason  

that  according  to  the  Notification  dated  12th September,  2000,  

royalty is to be paid in respect of the metal contained in the ore  

produced and the metal which has been left out by way of tailings  

within the leased area would never be treated as metal in the ore  

produced.  

22.  According  to  him,  the  negligible  metal  contained  in  the  

tailings, slimes or the rejects can never be the subject matter of  

calculation of royalty as that portion of metal was returned to the  

mother earth by dumping the same in the leased area without being  

taken out of the leased area and that can not be included in the  

contents of the metal produced.

23. Upon hearing the learned counsel at length and upon perusal  

of  the  relevant  material  and  the  impugned  judgment  and  the  

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judgments referred to by the learned counsel, we are of the view  

that the conclusion arrived at by the High Court is correct.

24. It is pertinent to note that Section 9 of the Act enables the  

appellant-authority to charge royalty on the minerals extracted by  

the lease holder from the land given on lease for the purpose of  

mining.  The methodology for calculating the amount of royalty is  

determined by the Rules  and by the Notifications issued by the  

Central Government from time to time.

25. It  is  also  pertinent  to  note  that  prior  to  issuance  of  

Notification dated 12th September, 2000, by virtue of Notification  

dated 11th April, 1997, royalty was to be calculated on the basis of  

metal  concentrate  produced  by  the  lease  holder  whereas  in  

pursuance of Notification dated 12th September, 2000, the method  

of calculating the royalty has been substantially  changed and in  

pursuance of the said Notification, royalty is to be calculated on  

the contents of lead and zinc metal in the ore produced.

26. Immediately  after  the  aforestated  Notification  dated  12th  

September,  2000  was  issued  by  the  Central  Government,  

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provisions of Rule 64 of the Rules had also been amended.  By  

virtue of the said amendment, Rule 64B and Rule 64C had been  

inserted  with  effect  from  25th September,  2000,  which  read  as  

follows:

“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 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.

64C. Royalty on tailings or rejects – On removal of  tailings or rejects from the leased area for dumping and not for  sale or consumption, outside leased area such tailings or rejects  shall not be liable for payment of royalty;

Provided that in case so dumped tailings or rejects are  used for sale or consumption on any later date after the date of  such dumping, then, such tailings or rejects shall be liable for  payment of royalty.”

27. In  the  instant  case,  we  are  more  concerned  with  the  

provisions of Rule 64C of the Rules.   Upon perusal  of the said  

Rule, it is very clear that unless the tailings or rejects are used for  

sale or for consumption, such tailings or rejects would not be liable  

for payment of royalty.

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28. Moreover, provisions of Rule 64B of the Rules also make it  

clear  that  in case of  processing of run-of-mine,  royalty  shall  be  

charged only on the processed mineral removed from the leased  

area.

29. The  aforestated  amendment  and  Notification  dated  12th  

September, 2000 clearly denote intention of the Government with  

regard to the calculation of royalty on the contents of metal in the  

ore produced and not on tailings or rejects, which are not taken out  

of the leased area.  The negligible contents of metal which remains  

in the mining area by way of tailings, slimes or rejects, which are  

returned to the mother earth cannot be said to be the part of metal  

content in the ore produced.  

30. This  court  in  the  case  of  National  Mineral  Development  

Corporation Limited (supra) has clearly observed as under:

“Dumped  tailings  or  rejects  may  be  liable  to  payment  of  royalty  if  only  they  are  sold  or  consumed”.

31. From the contents of what has been stated hereinabove by  

this  Court,  it  is  very  clear  that  once  a  portion  of  the  metal  is  

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returned back to the mother earth, it cannot be said to have been  

extracted or cannot be said to have been taken out of the leased  

area and when the metal which has not been taken out from the  

leased area or which is not contained in the ore produced, it cannot  

be made subject to payment of royalty because the lease holder  

never  took  out  that  portion  of  the  metal  from  the  earth  and  

therefore, that cannot be said to be the part of metal contained in  

the ore produced.

32. Though the learned counsel for the State referred to the forms  

in which information with regard to ore received from the mines  

and treated ore was required to be filled up and supplied to the  

concerned  Government  Authorities  by the  holder  of  the  mining  

lease, in our opinion the said information and the averments are not  

much relevant because each and every information required by the  

Government may not be necessary for the purpose of calculating  

royalty.  Possibly the information received from the holders of the  

mining lease would be for some other incidental purpose or for the  

purpose of cross checking the information given by the holder of  

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the mining lease so as to find out whether the details given by the  

lease holder on the  basis of which royalty is calculated is correct.   

33. For the afore-stated reasons, in our opinion, we need not refer  

to the submissions made in relation to the forms referred to in the  

Rules.

34. Upon carefully  going through the  impugned judgment  and  

the judgment delivered by the learned Single Judge of the High  

Court, we find that the courts below did not commit any mistake in  

arriving at the conclusion that the holder of the lease was not liable  

to pay the amount demanded under the impugned notices because,  

by virtue of Notification dated 12th September, 2000 read with the  

relevant Rules, the lease holder is supposed to pay royalty only on  

the  contents  of  metal  in  ore  produced  and  not  on  the  metal  

contained  in  the  tailings,  rejects  or  slimes  which  had  not  been  

taken  out  of  the  leased  area  and  which  had  been  dumped  into  

dumping ground of the leased area.

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35. For the afore-stated reasons, we do not find any substance in  

the appeal and therefore, the appeal is dismissed with no order as  

to costs.

CIVIL   APPEAL NO. 1526 OF 2008   

36. So far as the present appeal is concerned, it has been filed by  

Hindustan Zinc Limited as it has been aggrieved by the directions  

whereby the matter has been ordered to be remitted to the mining  

engineer  for  re-computing the  royalty  payable  on lead and zinc  

contained in the ore produced.

37. The  appellant-company  is  aggrieved  by  the  afore-stated  

direction because it was never prayed by the State that the matter  

be remitted back to the mining engineer for re-computation of the  

royalty.

38. The submission on behalf of the appellant-company was to  

the effect that as the entire concentrate has been taken out of the  

leased area and as the quantity of concentrate of lead and zinc was  

very much known, it was not necessary to give such a direction  

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because  there  is  no  question  with  regard  to  re-computation  of  

royalty on the basis of metal contained in ore produced.

39. We find substance in what has been submitted because the  

metal concentrate which had been taken out from the leased area is  

known to the parties and therefore, it is not necessary to have any  

further  details  regarding  the  ore  produced  by  the  appellant-  

company.

40. We, therefore, quash the afore-stated direction and the appeal  

filed by the appellant-company is allowed to the above effect with  

no order as to costs.

            .........................................J.                                             (R.M. LODHA)

  .........................................J.

                                               (ANIL R. DAVE)

New Delhi March 11, 2013

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